German bank adds to gloom with 44% profits fall

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The Independent Online

Germany's commerzbank yesterday added to the gloom in the depressed investment banking sector after it announced a hiring freeze and a sharp fall in second-quarter earnings following the continuing slump in the equity markets.

The bank, Germany's third largest by market capitalisation, expects to save 240m euros (£160m) a year by cutting recruitment, information technology spending and closing about 150 bank branches.

Net profits tumbled 44 per cent between the end of the first and second quarters to 94m euros, a year-on-year fall of some 87 per cent. The effects of sluggish equity markets were compounded by weakness in retail banking, Commerzbank said. The fund management unit, which includes Jupiter Asset Management, lost 58m euros in the first half.

Even stripping out last year's gains from the sale of a stake in Comdirect, the online share dealing platform, second quarter profits were down 61 per cent. Provisions against bad debts were up 53 per cent at 177m euros as the economic slowdown increased the likelihood of default among corporate borrowers.

However, the bank's administration costs were 16 per cent higher in the second quarter than they were in the same period the previous year. It was the sixth consecutive quarter that the bank's costs have risen by 15 per cent or more.

The poor performance further increases the likelihood of a fresh round of job cuts in investment banking this year. Dresdner Kleinwort Wasserstein, which recently announced 1,500 job cuts, confirmed yesterday that it is closing its equities operation in Asia altogether. John Mack, the new head of Credit Suisse First Boston, has invited staff to agree to pay cuts and is thought to be considering making sizeable lay-offs.

Commerzbank's woes have made it the subject of fevered takeover speculation, with domestic rival Deutsche Bank and Italy's Unicredito tipped as likely buyers. It has already indicated it is seeking partners in asset management. However, Deutsche Bank and another German peer, HypoVereinsbank, have posted similar falls in profits.