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ECONOMY

Commerzbank profits halved in 2011

Commerzbank, Germany's second-biggest bank, said on Thursday that the eurozone debt crisis and losses on its investments in Greece slashed profits in half in 2011.

Commerzbank profits halved in 2011
Photo: DPA

The bank also announced new plans to beef up its core capital by more than €1.0 billion ($1.3 billion).

Commerzbank said bottom-line net profit fell by 55.4 percent to €638 million

in 2011 and operating profit fell even more sharply, plunging 63.4

percent to €507 million euros.

The numbers were worse than expected and Commerzbank shares nosedived by nearly 10 percent at the start of trading on the Frankfurt stock exchange, plunging 9.6 percent to a low of €1.87.

“2011 was characterised for Commerzbank by a successful first six months and difficult market conditions in the second half of the year,” said chief executive Martin Blessing.

Nevertheless, the bank insisted it was satisfied that “despite the massive charges resulting from the European sovereign debt crisis, we attained a net profit overall.”

Indeed, in the core banking division, operating profit “more than doubled” to €4.5 billion, thanks to the stable economic situation in its main markets of Germany and Poland.

By contrast, the bank’s asset based finance division booked an operating loss of €3.9 billion after it was forced to write down the value of its holdings of Greek sovereign bonds to 26 percent.

Looking ahead, chief executive Blessing said Commerzbank “is on track and is strategically well positioned. In 2012, we intend to continually improve our operating profitability and further reduce risks.”

The high degree of uncertainty associated with the European sovereign debt crisis “will, however, continue to pose challenges for us,” Blessing warned.

But with Commerzbank’s focus on the core markets Germany and Poland, “we are well prepared to meet these challenges. For this reason, we assume that the core banking division will again post a solid operating profit in 2012,” the chief executive said.

Commerzbank said it was making “very good progress with the implementation of the package of measures presented in January of this year to strengthen its Core Tier 1 ratio.”

Already at the end of last year, Commerzbank had been able to reduce the additional capital requirement determined by the European Banking Authority (EBA) from €5.3 billion to around €1.8 billion.

And on the basis of the measures already taken, Commerzbank said it was confident that it would be able fulfil the EBA requirements by the cut-off date June 30, 2012 “in reliance on its own strengths.”

But as an additional measure to meet those requirements more quickly, Commerzbank said it would raise it capital by 10 percent and boost the important Core Tier I capital by more than €1.0 billion by swapping so-called hybrid capital instruments, subordinated debt securities and other capital instruments into shares.

“With execution of the transaction the already significantly reduced EBA capital requirements of €1.8 billion as of the end of 2011 could be further reduced to less than €0.8 billion,” Commerzbank said.

AFP/jcw

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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.

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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