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Tuesday, 17 October 2017

Blessing's timing looks spot on

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  • keith mullin

Kudos to Commerzbank for showing us just how succession planning should be conducted. After what we’re told was an intensive selection process, Martin Zielke was named yesterday as the new chairman of the board of managing directors (aka CEO) to replace Martin Blessing.

There didn’t appear to have been an awful lot of gossip or tittle-tattle about who else was in the frame and the narrative is that Zielke was rewarded for turning around the fortunes of the bank’s private customer segment, whose 2015 operating profit rose 65% to €751m year-on-year and was the star performer.

Blessing had told the board back in November that he wouldn’t be seeking to extend his contract beyond the end of October 2016, by which time he will have completed 15 years on the board including eight as CEO during an often traumatic period. What’s so impressive is that the process seems to have been conducted with such little angst, anxiety, back-stabbing or bad-mouthing. Other banks should take note.

That same degree of efficiency had accompanied the appointment of Marcus Chromik as chief risk officer in November after Stefan Schmittmann had similarly pre-announced his departure in September (although he remains a member of the bank’s central advisory board).

At the time he announced his decision, Blessing pointed to the bank’s robust business model and its success in overcoming the challenges of the financial crisis. “We are also clearly on track to reclaiming our position as a sustainably successful bank,” he said.

Notwithstanding that overcoming the challenges of the financial crisis came via a state bailout that still leaves the government with a 15% stake and that last April’s €1.377bn capital-raise was the fifth in four years, it’s true that the business fortunes look to have stabilised in key areas and optimism appears to be on the rise.

On the numbers, full-year 2015 results showed an operating profit of €1.91bn (vs €689m in 2014) and a net profit of over €1.06bn (€266m) – the first time profits have hit that level of magnitude in five years – helped by a reduction in loan loss provisions (€696m vs €1.14bn) and amid higher credit volumes in the private customers (+8%) and Mittelstandsbank (+4%) segments.

For the core bank, net RoE was 8.1% and operating RoTE was 12.3%, both significantly improved. As a result the bank resumed its dividend (20 cents a share) for the first time in years. A reduction in RWAs over the year (€197bn from €213bn) thanks to ongoing non-core run-off and the capital increase pushed the Basel 3 ratio to 12% compared with 9.3% as of the end of December 2014.

Michael Reuther, board member with responsibility for the investment bank (Corporates and Markets) now talks of expanding the bank’s corporate finance business outside Germany into the UK, Switzerland and other European countries to take advantage of banks that are withdrawing from those markets.

To help achieve that, Commerzbank’s loan and bond origination and advisory bankers are much more closely aligned beneath industry verticals and Reuther is keen to test the construct with European multinationals and grow the wallet with such clients, having been encouraged by its roll-out with Mittelstand customers. In January Roland Boehm, incidentally, former global head of loans, switched to become divisional board member of Mittelstandsbank International; Reinhard Haas took over his loans slot in Corporates and Markets.

On the expansion front, Commerzbank recently opened a securities rep office in Beijing and got a licence last year to open a subsidiary in Brazil, which will target both SMEs and large companies and capital markets issuers (not exactly the best time but still …)

The heavy lifting is by no means at an end. The bank still needs to roll off non-core assets, work on its cost base (a still toppy 78.1% in Q4) and increase revenues in a difficult market. But having got this far, Blessing’s sense that it was the right time to hand over the reins and have Zielke build out the next phase was probably spot on. 

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