Commerzbank's corporate business continues to shrink

FRANKFURT: A key business at Commerzbank AG that caters to corporate clients shrank for at least the fifth straight quarter as low interest rates and increasing competition squeezed margins.

Revenue in the segment fell 12% from a year earlier, to 966 million euros, as income from lending and commissions declined, Frankfurt-based Commerzbank said.

The retail unit posted revenue of 1.2 billion euros, an increase of 5.9% from a year earlier and the lender reiterated it plans to resume dividend payments for this year.

“The first three months of 2018 were challenging for the corporate clients segment, with persistently low interest rates, stiff price competition on the German market and the regulatory environment impacting on earnings,” the bank said in its interim report.

The unit is a central pillar in the turnaround plan of chief executive officer Martin Zielke, who is focusing on lending to corporate and retail clients while pivoting away from trading.

Zielke has spent millions on acquiring new clients, which is starting to pay off in the retail business while lending to companies remains challenged.

The bank, which caters to many of the mid-sized companies that are the backbone Germany’s economy, said the economic outlook had weakened recently while the risk of a trade war between the US and China increased.

Overall revenue declined 3.7% to 2.3 billion euros, compared with the 2.27 billion-euro estimate of six analysts polled by Bloomberg.

Commerzbank has said 2018 will probably be a third straight year of contraction.

Net income of 250 million euros in the first quarter beat the 178 million-euro analyst estimate, helped by a lower tax burden and risk provisioning.

Commerzbank has slumped about 15% this year as the prospect of another drop in revenue weighs on the stock.

The bank, seen by some investors as a proxy for the booming German economy, was one of the top-performing bank stocks in Europe last year amid speculation that it may be acquired.

Much of the decline in revenue since Zielke announced his plan in 2016 was focused on the corporate clients segment, headed by Michael Reuther.

The business added about 1,000 net new clients during the quarter.

The retail unit added 73,000 customers in Germany in the first quarter, accelerating the pace of client acquisition to the fastest rate since the second quarter of last year.

Zielke plans to add a total of two million new customers by the end of 2020.

Commerzbank reiterated that it expects adjusted revenue in both units to increase this year. — Bloomberg

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