Worst Commerzbank Revenue Since '14 Shows Zielke's Challenge

(Bloomberg) -- Commerzbank AG reported its weakest quarterly revenue since 2014 as it struggled to make money from new clients under a plan by Chief Executive Officer Martin Zielke to focus on the retail and corporate business.

Revenue at Germany's second-largest listed bank fell 7.7 percent to 2.07 billion euros ($2.45 billion), Commerzbank said Wednesday in a statement from Frankfurt, the lowest since the fourth quarter of 2014. Analysts had expected 2.14 billion euros, according to the average of eight estimates compiled by Bloomberg. Revenue declined even as the bank added more than half a million new retail and small business clients since announcing its new strategy in late September.

“We are ahead of target for client growth, partly because we have invested,” Zielke said in the statement. “However, it will take a while for this client growth to be reflected in revenue growth.”

Commerzbank is among the best performing European bank stocks this year as investors wager Zielke's turnaround plan could get an additional boost once interest rates start to rise. Stephen Feinberg's Cerberus Capital last month disclosed owning a 5 percent stake in the lender, making it the second-biggest shareholder after the German government, which bailed out Commerzbank in 2009. Zielke is cutting about 9,600 jobs by 2020 and reducing trading to free up cash for investment in other areas.

Cutting Jobs

The bank confirmed those cuts will be less costly than initially planned, with 807 million euros of restructuring charges booked in the second quarter that should cover all related expenses. Commerzbank initially expected costs of as much as 1.1 billion euros tied to the job cuts. The second-quarter charge resulted in a net loss of 637 million euros. Analysts had expected a loss of 547 million euros.

Commerzbank fell as much as 3.9 percent, the most since May 18, and traded 1.9 percent lower at 9:09 a.m. in Frankfurt trading. Before today, the stock rallied about 55 percent this year, making the stock the best performer in the Bloomberg Europe 500 Banks and Financial Services Index.

The lender added 385,000 retail clients in the first half of this year, and 522,000 since October, the month after Zielke announced his new strategy. Commerzbank is offering new clients in its home market a 150 euro cash reward as it seeks to add 2 million customers by the end of 2020. Despite the increase in client numbers, revenue in the segment fell to 1.11 billion euros, the lowest in Commerzbank's published records going back to the start of 2015.

‘Client Acquisition'

“A big part of Commerzbank's profit miss seems to stem for investment in client acquisition, digitalization and compliance, but that's not a bad thing,” said Daniel Regli, an analyst with MainFirst who has an outperform rating on the stock. “It was to be expected that client acquisition wouldn't immediately translate into higher top line. That's going to take until at least the end of the year.”

Revenue in Commerzbank's second core division, its corporate clients segment, also dropped, falling below 1 billion euros for the first time in at least ten quarters. The lender cited weak markets, muted client activity and low interest rates as reasons for the decline. The only unit within the segment to record growth was Equity Market & Commodities, which Commerzbank is currently preparing to segregate with a goal of selling or floating the unit.

The bank reiterated it expects a “slightly positive” profit for the full year. It also said that it anticipates a positive revaluation effect of about 390 million euros in the second half of the year.

To contact the reporter on this story: Steven Arons in Frankfurt at sarons@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel, Andrew Blackman