Banks facing huge challenges, says Commerzbank boss

Frankfurt is home to some of Europe’s biggest banks, many of which are facing tough choices amid an economic slowdown. (AP)
Updated 28 September 2019

Banks facing huge challenges, says Commerzbank boss

  • German lender to cut thousands of staff and close a fifth of branches

FRANKFURT: The challenges facing banks are “enormous,” Commerzbank Chief Executive Martin Zielke said on Friday, after the German lender said that it no longer expected a rise in underlying revenues this year.

The warning, announced late on Thursday, came as the bank’s supervisory board approved plans announced last week to cut thousands of staff and close a fifth of branches following a failed merger with bigger rival Deutsche Bank.

Commerzbank, part owned by the German government after a bailout, has been struggling for years with a legacy of bad debts, high costs and fines, and tough trading conditions have hampered its recovery efforts.

“Negative interest rates, increasing regulation, a weaker economy and tough competition ... The challenges facing banks are enormous,” Zielke said.

Outgoing finance chief Stephan Engels added the latest loosening of policy by the European Central Bank “will not make our lives easier,” and that a program designed to cushion the blow for banks would not fully compensate.

The bank said on Thursday that board member Bettina Orlopp would succeed Engels as chief financial officer, while Sabine Schmittroth would become board member for human resources.

“Over the course of 2019, the market environment has continued to deteriorate further. This has been particularly evident in the corporate clients business,” it said, explaining the downgrade in its revenue expectations.

The supervisory board also approved plans to sell a stake in the bank’s Polish subsidiary mBank and absorb its Comdirect online brokerage unit.

HIGHLIGHTS

● No longer expects revenue rise.

● Legacy of bad debts.

● Bank announces new CFO.

The lender flagged the strategic overhaul last week.

The measures were approved by the board during a two-day meeting. Among the plans, the bank will cut 4,300 jobs in some places but add 2,000 jobs in “strategic areas,” so the group headcount will fall in total by about 2,300 full-time positions, equivalent to about 5.7 percent of its workforce.

The mBank sale will further reduce staff levels. Headcount will fall to 29,300, a spokesman said. The company now employs about 40,700 people.

Commerzbank said the strategy would involve investment of (€1.6 billion) $1.8 billion, with €750 million going into new technology and the rest earmarked for restructuring.

The restructuring plan is negative for the German lender’s credit rating, ratings agency Moody’s has said.


US job growth slows sharply in July

Updated 07 August 2020

US job growth slows sharply in July

  • Nonfarm payrolls increased by 1.763 million jobs last month after a record 4.791 million in June
  • The US economy suffered its biggest blow since the Great Depression in the second quarter

WASHINGTON: US employment growth slowed considerably in July amid a resurgence in new COVID-19 infections, offering the clearest evidence yet that the economy’s recovery from the recession caused by the pandemic was faltering.
Nonfarm payrolls increased by 1.763 million jobs last month after a record 4.791 million in June, the Labor Department said on Friday. Economists polled by Reuters had forecast 1.6 million jobs were added in July.
The unemployment rate fell to 10.2 percent from 11.1 percent in June, but it has been biased downward by people misclassifying themselves as being “employed but absent from work.” At least 31.3 million people were receiving unemployment checks in mid-July.
“The steam has gone out of the engine and the economy is beginning to slow,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “The loss of momentum will continue and my concern is that the combination of the virus resurgence and lack of action by Congress could really push employment into negative territory.”
The labor market step-back is more bad news for President Donald Trump, who is lagging in opinion polls behind former Vice President Joe Biden, the presumptive Democratic Party nominee for the Nov. 3 election.
It also piles up pressure on the White House and Congress to speed up negotiations on a second aid package, which have been dragging over differences on major issues including the size of a government benefit for tens of millions of unemployed workers.
A $600 weekly unemployment benefit supplement expired last Friday, while thousands of businesses have burned through loans offered by the government to help with wages.
The economy, which entered into recession in February, suffered its biggest blow since the Great Depression in the second quarter, with gross domestic product dropping at its steepest pace in at least 73 years.
Infections of the respiratory illness soared across the country last month, forcing authorities in some of the worst affected areas in the West and South to either shut down businesses again or pause reopenings, sending workers back home. Demand for goods and services has suffered.
The slowdown in hiring challenges the US stock market’s expectation of a V-shaped recovery. The S&P 500 index is up nearly 50 percent from its March trough. As COVID-19 cases spiral, and Republicans and Democrats bicker over another stimulus package, economists see a W-shaped recovery.
Economists estimate the Paycheck Protection Program that gave businesses loans that can be partially forgiven if used for employee pay saved around 1.3 million jobs at its peak. The extra $600 weekly unemployment checks made up 20 percent of personal income and helped to boost consumer spending in May and June.