Commerzbank AG (CRZBY)

[Enterprising Investor]

Is Commerzbank Ax Enough? (6/19/13)

By Ulrike Dauer
After five months of negotiations, Commerzbank AG and labor representatives appear to have reached a milestone agreement on job cuts, considered crucial in helping Germany’s second biggest bank by market value return to sustained profitability over the next three years.

More than 5,000 full-time jobs will likely be axed groupwide according to an in-principle agreement reached between the bank and workers representatives, a person familiar with the matter said Tuesday.

Commerzbank had budgeted €500 million ($665 million) as restructuring costs for 2013 in order to reach financial targets by 2016. Costs were booked with first-quarter earnings.

It is positive that an agreement has been reached, though the number of job cuts is in line with the bank’s own guidance that between 4,000 and 6,000 jobs will be shed, said a bank analyst who declined to be named.

“It is not a sign of strength that the bank has to cut jobs again immediately after completing the integration of Dresdner Bank,” said analyst Dirk Becker, of brokerage Kepler Cheuvreux, who has a reduce rating on the share.

The bank has been under pressure to pick itself up since it took billions of euros from the German government in early 2009 to stay afloat.

Commerzbank has done a lot since then, such as setting up an internal bad bank for winding down risky assets. It also finally managed to wean itself off of German government aid last month with a capital increase that made Germany a “normal” 17%-shareholder.

Still, it has yet to prove those doubting it can rise from the ashes wrong.

Standard & Poors, which downgraded the bank a notch to “A-”/A-2' from ‘A/A-1' with a negative outlook, said restructuring will take longer than analysts previously thought Deutsche Bank sa DBK.XE -1.21%id in a note last week that “meaningful organic growth will at some point be needed to take returns to the cost of equity, and we have no visibility of this yet”.

Shareholders in April gruntingly approved the bank’s fifth capital increase in four years, and Commerzbank Chief Executive Martin Blessing has said 2013 will be a year of transition.

Investors are waiting for convincing signs that the transition is for the better, not the worse.

Commerzbank declined to comment.

http://blogs.wsj.com/moneybeat/2013/06/19/is-commerzbank-axe-enough/