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FINANCE

Commerzbank returns state guarantees

Commerzbank, Germany's second biggest bank, is returning billions of euros in state guarantees and redrafting its models for staff pay, chief executive Martin Blessing said on Wednesday.

Published: 9 September 2009 16:43 CEST
Commerzbank returns state guarantees
Photo: DPA

Of a total €15 billion ($21.7 billion) in available government guarantees, Commerzbank returned €5 billion in August and will return another €5 billion, Blessing said.

“From now on, we won’t issue further state-guaranteed bonds,” he said during a banking conference in Frankfurt.

Commerzbank is also establishing a new pay scheme for staff based on longer-term profitability, Blessing said, with more executive compensation being paid in the form of shares that would have to be held for longer periods.

The state currently owns 25 percent of Commerzbank owing to financial aid provided to help the bank survive the global financial crisis and acquire the troubled Dresdner Bank.

As a result of the state aid, the salaries of bank executives have been capped at €500,000 per year and its management is tuned into changes Berlin would like to see implemented in the banking sector.

In addition to the loan guarantees, Berlin loaned Commerzbank €18.2 billion in cash. It does not exercise voting rights commensurate with its stake.

Massive bank bonuses and salaries, widely blamed for the culture of irresponsible risk at the heart of the global financial crisis, have shocked Germans who vote in a general election on September 27.

Blessing said Commerzbank bonuses will be placed in separate accounts and paid out several years later than at present, but stressed that staff had never benefited from “excessive” pay packages.

On Tuesday, staff at the former investment bank Dresdner Kleinwort launched a lawsuit in London to recover unpaid bonuses.

Commerzbank bought loss-making Dresdner Bank, the investment bank’s parent company, this year and cut drastically the amount of money to be paid out.

Banking pay reform has been added to the agenda of a Group of 20 summit on September 24-25 in the US city of Pittsburgh but Blessing said it would be hard to come up with a general set of rules on the subject.

“I do think that banks have learned some lessons (from the financial crisis) and changed systems but I don’t think that’s sufficient yet,” he added in remarks to reporters on the conference’s sidelines.

In the Netherlands, Dutch banks imposed limits on their own bonuses and salaries on Wednesday in what the finance minister there said could be a model for other countries facing public anger over pay ahead of the G20 summit.

Commerzbank shares jumped 13.44 percent to €8.61 in afternoon Frankfurt trading while the DAX index of German blue-chips was 0.99 percent higher overall.

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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