What did the head of state talk about with his family this summer? Commerzbank, Manfred Knof, as he said, to make him decide upon his return to Germany to put two crucial signatures for the bank and for himself: the sale to Unicredit e his resignation after just one term. The impression is that there were enough elements to make both turn the page after more than 10 years of work.
Read Commerzbank, the bank next door
Unicredit yesterday announced the purchase of 9% of the capital of the second largest German bank for a total value of around 1,5 billion: 4,49% was acquired as part of an accelerated book building offer conducted on behalf of the Federal Republic, while the rest was purchased through market operations. Only a few days ago the German government had announced that the time had come to sell the share that was still in its hands, equal to 16,5%. And Unicredit has spoken of the possibility of further expanding its presence in Commerzbank. In addition to Unicredit and the German state, the capital of the Teutonic bank also includes Central bank of Norway with 3% and the French of Amundi with a small share of 0,6%.
The bank next door for German SMEs
Commerzbank is one of the best-known banks in Germany, considered the bank next door, the one that has always been close to the small and medium-sized businesses German as well as being a significant partner for around 25.500 corporate customer groups and nearly 11 million private customers and small businesses in Germany. From its headquarters in Frankfurt am Main and with over 40.000 employees, Commerzbank also acts as a conduit for around a third of the foreign trade from Germany: it is present in more than 40 countries and in particular supports customers who have business relationships with Germany, Austria or Switzerland.
Knof's presence at the bank since 2021, coming from rival Deutsche Bank, is intertwined with the shock treatment injected by German federal state to save it from the global financial crisis of 2009. In that same year, the German government entered the capital of Commerzbank, through the rescue fund SoFFin (Sonderfonds Finanzmarktstabilisierung): assessing the systemic risk, it injected 18,2 billion euros obtaining a participation of approximately 25%.
Knof has been credited with overseeing a successful turnaround of the bank, which has long struggled with inflated costs, tepid growth and meager returns on capital. Commerzbank, under Knof, has cut one in three jobs in Germany and halved its branch network from a thousand in its heyday, while also riding a wave of digitalization sweeping the industry.
Knof also gave the bank the strength to make the first buybacks in the bank's 154-year history and also started the distribution of dividends in 2022 after a four-year break; until last year paying the highest dividend since 2018. Since the beginning of his mandate, the price of Commerzbank shares has almost tripled. Yesterday Commerzbank title on the Frankfurt Stock Exchange rose by more than 18% to 14,90 euros, with a capitalization of 17,6 billion. Over the past year, the stock has seen an increase of more than 41%.
At the top, headwinds arrive for Commerzbank
However, the impression is that more could not have been done: the strong economic slowdown in Germany, the rate cut, strong source of income, in sight, the last budget data must have given me pause for thought. “I took advantage of the summer break with my family to think carefully about this step,” Knof said. After all, the talk of selling Commerz was nothing new: apart from some interest from ING, the other real contender besides Unicredit has always been Deutsche Bank. Even Orcel’s predecessor, Jean Pierre Mustier, had worked on the acquisition of Commerzbank, but there was strong political opposition at the time. Orcel, who took over as CEO of the Italian bank in 2021, worked out a deal and contacted Knof as early as early 2022, before the conflict in Ukraine.
But at the beginning of August, before Knof's vacation, Commerzbank's data showed light and shadow. It is true that the German bank closed the first semester with a net profit of 1,3 billion euros, up 12%, marking the best half-year in the last 15 years, still benefiting from high rates. But provisions for loan losses also increased more than expected in the second quarter: 199 million euros, above the 161 million euros expected.
Furthermore, among the negative factors, Commerzbank highlighted the difficulties related to its exposure to Russia. The bank is facing lawsuits in the country that could negatively impact its operations. Commerzbank set aside €95 million in the quarter to cover potential losses from these lawsuits, bringing total provisions to €395 million. In Poland, Commerzbank also faced significant challenges due to legal disputes over foreign currency mortgages through its subsidiary “mBank”. Adverse rulings on Swiss franc-denominated mortgages and regulatory difficulties led to increased costs and reserves, negatively impacting the bank’s financial results.
The search for a successor to Knof will begin “immediately,” the manager said. Commerzbank's chief financial officer, Bettina Orlopp, is considered a potential internal candidate, according to people familiar with the matter.
