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Commerzbank ditches targets on Greek losses

Germany's second-biggest bank Commerzbank abandoned on Friday its profit target for next year after writedowns on its Greek bond holdings pushed it deeply into the red in the third quarter.

Commerzbank ditches targets on Greek losses
Photo:DPA

“We continue to be committed to our original operating profit target of €4.0 billion ($5.5 billion) for the group, but on account of the market environment we will be unable to reach this target next year,” said chief executive Martin Blessing in a statement.

Commerzbank had already warned back in August that its 2012 profit targets were “conditional upon stable markets,” Blessing noted, saying the group was now simply projecting a “good operating result” for its core banking activities next year.

“In the non-core areas the result for 2012 will be dependent to a great degree on how the European sovereign debt crisis continues to develop,” he added.

Turning to its third-quarter results, Commerzbank said additional writedowns on its holdings of Greek sovereign bonds had pushed it to a net loss of €687 million in the period from July to September.

That was much deeper than expected: analysts polled by Dow Jones Newswires had been pencilling in a net loss of €585 million. Commerzbank booked bottom-line profit of €24 million in the preceding quarter and net profit of €113 million in the third quarter of 2010.

The group attributed the bigger-than-expected loss in the third quarter of the current year to an additional writedown of €798 million on its Greek bond holdings.

Commerzbank is one of the German banks most heavily exposed to Greek debt.

“With a view to the ongoing uncertainty regarding Greece’s financial solvency and with regard to the EU summit on October 26, the positions held by the bank were depreciated by 52 percent of their nominal value,” a spokesman from the bank explained.

At a crunch summit last month, EU leaders agreed that banks and private investors take a 50 percent loss or “haircut”, slicing €100 billion off the €350 billion debt mountain around Greece’s neck.

Commerzbank also said it was examining all options so as to meet the additional capital requirements of the European Banking Authority (EBA).

In an immediate move to accelerate the reduction of risk-weighted assets, the group would temporarily suspend all new business at its troubled mortgage lender, Eurohypo; temporarily suspend all new loan business outside its core regions of Germany and Poland; speed up the sale of non-strategic assets; and examine the possibility of selling financial investments.

But those would not include its online unit, Comdirect, or its Polish subsidiary BRE Bank, “which are part of the core business,” Commerzbank insisted.

Commerzbank was biggest loser on the Frankfurt stock exchange on Friday, with its shares shedding 4.6 percent to €1.67.

AFP/jcw

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COVID-19

Court turns down AfD-led challenge to Germany’s spending in pandemic

The German Constitutional Court rejected challenges Tuesday to Berlin's participation in the European Union's coronavirus recovery fund, but expressed some reservations about the massive package.

Court turns down AfD-led challenge to Germany's spending in pandemic

Germany last year ratified the €750-billion ($790-billion) fund, which offers loans and grants to EU countries hit hardest by the pandemic.

The court in Karlsruhe ruled on two challenges, one submitted by a former founder of the far-right AfD party, and the other by a businessman.

They argued the fund could ultimately lead to Germany, Europe’s biggest economy, having to take on the debts of other EU member states on a permanent basis.

But the Constitutional Court judges ruled the EU measure does not violate Germany’s Basic Law, which forbids the government from sharing other countries’ debts.

READ ALSO: Germany plans return to debt-limit rules in 2023

The judgement noted the government had stressed that the plan was “intended to be a one-time instrument in reaction to an unprecedented crisis”.

It also noted that the German parliament retains “sufficient influence in the decision-making process as to how the funds provided will be used”.

The judges, who ruled six to one against the challenges, did however express some reservations.

They questioned whether paying out such a large amount over the planned period – until 2026 – could really be considered “an exceptional measure” to fight the pandemic.

At least 37 percent of the funds are aimed at achieving climate targets, the judges said, noting it was hard to see a link between combating global warming and the pandemic.

READ ALSO: Germany to fast-track disputed €200 billion energy fund

They also warned against any permanent mechanism that could lead to EU members taking on joint liability over the long term.

Berenberg Bank economist Holger Schmieding said the ruling had “raised serious doubts whether the joint issuance to finance the fund is in line with” EU treaties.

“The German court — once again — emphasised German limits for EU fiscal integration,” he said.

The court had already thrown out a legal challenge, in April 2021, that had initially stopped Berlin from ratifying the financial package.

Along with French President Emmanuel Macron, then chancellor Angela Merkel sketched out the fund in 2020, which eventually was agreed by the EU’s 27 members in December.

The first funds were disbursed in summer 2021, with the most given to Italy and Spain, both hit hard by the pandemic.

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