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Commerzbank Weighs Deeper Cuts as Economy, Rates Hit Stock

Steven Arons and Nicholas Comfort
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Commerzbank Weighs Deeper Cuts as Economy, Rates Hit Stock

(Bloomberg) -- Commerzbank AG’s strategy update this fall is likely to focus on deeper job cuts and branch closings as the troubled German lender contends with fears of a recession and a slump in the shares.

Chief Executive Officer Martin Zielke, whose three-year-old strategy was based on the prospect of a growing economy and rising interest rates, is examining various cost cutting scenarios, some of which include closing hundreds of branches, according to people familiar with the matter. The weaker economy and prospect of even lower rates -- which erode income from lending -- have pushed Zielke to consider options more severe than anticipated, said the people, asking not to be identified in discussing internal planning.

A spokesman for Commerzbank declined to comment.

Germany’s economic contraction and global trade tensions have thrown a wrench in Zielke’s plan to pivot Commerzbank away from investment banking and toward consumer and corporate lending in its home market. Government-brokered talks about a takeover by Deutsche Bank AG collapsed in April. Commerzbank shares have erased all gains since Zielke first announced his strategy in 2016 and are trading near a record low.

Planning for the strategy update, which will set new targets beyond 2020, hasn’t been finalized and the supervisory board won’t discuss the plan until late September, the people said. But Zielke will probably have to give up his commitment to the bank’s vast branch network in Germany, they said. Handelsblatt earlier reported on the discussion to close branches.

The bank has about 1,000 branches in Germany. Headcount has fallen from about 43,300 at the end of 2015 to 40,700 in June this year. Commerzbank earlier this year scrapped a previous target to lower that number to 36,000 by 2020, saying it will stay above 38,000.

Additional reductions would probably only happen over time because of the strong position of labor unions in Germany, where they have a say in how companies are run. Many of the cuts the bank has already agreed with unions will only take effect this year and next, Commerzbank has said.

The plan to cut branches is a departure from previous and oft-repeated pledges by retail head Michael Mandel not to let the number drop below 1,000. He committed to maintaining the branch network as the centerpiece of a marketing campaign that lampooned other lenders -- including Deutsche Bank -- for shrinking their number of outlets.

To boost revenue, the bank is considering charging clients new or higher fees for banking services, said the people familiar with the matter. There’s also the option of passing on the European Central Bank’s negative rates to retail clients, but that’s something the German lender has said it doesn’t currently plan to do. Commerzbank says it made up for the impact of negative rates by lending more in the first half of this year, but revenue still fell.

Zielke’s team is also considering working with other lenders on digital banking products, one person said. While it’s not yet clear how revenue and costs would be shared, one such potential partner is ING Groep NV, the person said. Speculation of closer ties between the two banks was fueled after Commerzbank named ING executive Roland Boekhout as head of corporate clients, starting next year.

The Dutch bank earlier this year had been seen as a potential acquirer of Commerzbank following the breakdown of the talks with Deutsche Bank, but interest appears to have waned now that the economic outlook clouded over. No suitors are currently “knocking” on the German bank’s doors, finance chief Stephan Engels said this month.

(Updates with details on previous branch strategy in eighth paragraph.)

To contact the reporters on this story: Steven Arons in Frankfurt at sarons@bloomberg.net;Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

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

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