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Commerzbank board takes pay cut after €6.6 billion in losses

Germany's second biggest bank, Commerzbank, posted a 2008 net loss of €6.6 billion ($9 billion) on Friday and said its board would take a 65 percent pay cut.

Published: 27 March 2009 13:54 CET
Commerzbank board takes pay cut after €6.6 billion in losses
Photo: DPA

Commerzbank had reported a 2008 net profit of €3 million in February but that figure did not include results from Dresdner Bank, bought from the insurance group Allianz for €4.7 billion.

Commerzbank waited until publishing its annual report to present pro forma results that included Dresdner, which has suffered steep losses owing to the international financial crisis.

“The overriding theme of 2009 will be the integration of Dresdner Bank,” Commerzbank said, without providing a detailed earnings forecast.

Commerzbank shares soared 11.06 percent to €4.52 in midday trades on Friday, the biggest gainer by far, while the DAX index of leading German stocks was 1.27 percent lower overall.

Since Friday, stock in the bank has gained more than 50 percent.

Chairman Martin Blessing had said in February that the bank did not expect to see a profit this year but that it should do so in 2010.

“If the effects of the global interest rate cuts leads to a recovery from 2010 onwards, Germany is expected to grow faster than the rest of the eurozone,” a statement said. “This will benefit the new Commerzbank.”

Investors welcomed the guidance and news the bank had covered much of its 2009 refinancing needs, pushing the shares sharply higher in midday trade on the Frankfurt stock exchange.

Because Commerzbank has received support from the German banking sector stabilisation fund SoFFin, the salaries of senior executives will be capped and the bank will not pay a dividend this year or next, the statement said.

Blessing will be paid €500,000 and the entire board of directors will receive a total of €4.3 million, down 65 percent from the 2007 figure of €12.4 million, a statement said.

The government now owns a stake of 25 percent plus one share in Commerzbank following a second capital injection of €10 billion that brought the total to €18.2 billion.

Commerzbank has also received loan guarantees worth €15 billion.

On Friday, the bank said that “2008 was dominated by the effects of the financial market crisis. Nevertheless, we took important steps to further strengthen Commerzbank’s position.”

The bank forecast higher operating expenses and around €2 billion in restructuring charges this year but added that it also expected to earn higher net interest income.

The statement said Commerzbank had already secured more than half of the year’s total refinancing requirements and expected to raise a total of around €20 billion in the capital markets in 2009.

It forecast growth in the bank’s private and corporate clients segment this year as well.

Even without the state aid and a break in the price it paid for Dresdner, Commerzbank “demonstrates reassuring financial stability, it has no problem with refinancing,” Baader Bank trader Robert Halver told AFP.

The new Commerzbank holds accumulated toxic assets with a market value of more than €55 billion, the annual report said.

But they have been isolated since January in an internal division following a restructuring of the bank, because “they are complex financial products that must be managed separately,” a bank spokesman told AFP.

BANKING

Card over cash? Why Germany is seeing a new payment preference

Cash has long been king in Germany, with many smaller retailers refusing to join the rest of the world in adopting contactless payment systems. But card-based payments are on the rise, as recent stats about Girocard use reveal.

Published: 13 February 2024 12:31 CET
Card over cash? Why Germany is seeing a new payment preference

Germany has long been a very cash-based country, occasionally to the dismay of frustrated tourists at the Döner shop.

A few German phrases express the people’s love of physical money. There’s ‘only cash is true’ – Nur Bares ist Wahres. Or Bargeld lacht, literally meaning cash laughs, but used to imply that cash is what’s wanted, similar to ‘cash is king’ in English.

But the classic German preference for cash appears to be evolving, as the use of girocards is growing, even for small transactions.

How are girocards being used?

Girocard, an ATM and debit card service offered by German Banks, was designed to allow customers to use virtually all German ATMs and, increasingly, to make purchases at businesses.

READ ALSO: Ask an expert – Why is cash still so popular in Germany, and is it changing?

Last year, consumers in Germany used their Girocard more often than ever before for cashless payments. A total of €7.48 billion payment transactions with the plastic card were counted – 11.5 percent more than in the previous record year 2022, according to figures published by the Frankfurt-based institution Euro Card Systems.

Whether at the bakery, petrol station or supermarket, customers are increasingly pulling out their cards at the checkout, even for smaller amounts. As a result, the average amount paid with the Girocard fell from €42.34 to €40.69 within a year. 

The rise of card payments in Germany

Contactless payment, which is possible with girocards and credit cards that have an NFC chip, got a boost during the Covid pandemic, as retailers promoted it for hygiene reasons. 

But the use of card payments has continued to grow in Germany since then, boosted partly by the increasing use of girocards.

Promoting the use of girocards, some German banks have expanded their cards’ functions: Sparkassen, Volksbanken, or Raiffeisenbanken offer girocards for the digital wallet, for example.

Banks want to continue upgrading the payment card with further applications. For example, a project is being tested which would add an age verification function to girocards that would be useful when a customer is buying cigarettes.

On the retail side, it’s clear why the Girocard is preferred to other debit options.

“We see that debit cards from international providers cost up to four times more,” Ulrich Binnebößel, Head of the Payment Systems & Logistics Department at the German Retail Association (HDE) told DPA.

What’s the difference between the Girocard and other debit?

The Girocard is a strictly German phenomenon. It can be seen as the latest iteration of the EC card, which was created to consolidate payment systems following the unification of former East and West Germany.

In 1991 different debit card systems, including Eurocheque guarantee cards from former West Germany and Geldkarte ATMs from former East Germany, were unified into Eurocheque cards.

Then in 2001, the Eurocheque system was disbanded, but German banks continued to use the EC logo for “electronic cash’” cards, or EC cards. In 2007, the German Banking Industry Committee introduced Girocard as a common name for electronic cash and the German ATM network.

Girocards are only issued and accepted in Germany, so if you want to get one of your own, you’ll have to join a German bank, and shell out those notorious German banking fees.

READ ALSO: Why it’s almost impossible to find a free bank account in Germany

Alternatively, you can get by with internationally accepted debit cards provided by a bank in your home country, or otherwise by joining an app-based European banking service like N26. 

But be warned, without the Girocard in hand, at some smaller retailers you may be told, “Leider nur Bargeld oder EC-Karte.”

With reporting by DPA

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