Business 1 March 2021, 4:20pm

Commerzbank to exit Hungary

Portfolio

As part of an international restructuring, Commerzbank will be withdrawing from various markets, including Hungary, the German financial institution told Portfolio on Monday. It is also leaving Luxembourg and Hong Kong. Commerzbank is known as a corporate bank in Hungary and has a share of around 1% on the local banking market. Although they are looking for a new owner, the sales process is still in its initial phase.

Commerzbank to change owners

Commerzbank Zrt., known as a corporate lender, set up shop as a representation office in Hungary in 1991, after the change of regime and started offering financial services as a 100% subsidiary of Germany's Commerzbank AG as of 1993.

It has its headquarters in Budapest and is present in three other cities, in Győr, Kecskemét, and Miskolc, offering each and every service of the corporate business: corporate financing, structured financing, the full gamut of cash management, structured export and trade financing, exchange rate, interest rate and commodity risk coverage, deposit transactions, and FX and money market trading.

Commerzbank is known in Hungary mainly as a bank for small and medium-sized enterprises, with lots of customers that either have German owners or business relations with Germany (export-import activities). Its market share among banks operating as joint stock companies was 1% at the end of 2019, according to central bank (MNB) data. Its share in respect of its loan portfolio was 1.3%.

COMMERZBANK'S EFFICIENCY AND RETURN INDICES WERE UNDER THE AVERAGE OF THE LOCAL BANKING SECTOR. ITS HUF 1.2 BILLION PROFIT TRANSLATED INTO A 3.94% RETURN ON EQUITY WITH A HIGH COST/DEPOSIT RATIO OF 82%.

ÉRDÉSÜNKRE ELMONDTÁK: A NEMZETKÖZI JELENLÉT ÁRAMVONALASÍTÁSÁVAL ÖSSZHANGBAN A BANK

The bank told Portfolio that in parallel with the streamlining of the bank's global presence

the sales process of the Hungarian subsidiary, Commerzbank Zrt. is in its initial stage.

Commerzbank is working closely with its Hungarian subsidiary, and has already informed its staff, as well as the local regulator, the National Bank of Hungary, about the withdrawal plans.

Handelsblatt was the first in germany to report on sunday about commerzbank's withdrawal from hungary, luxembourg and hong kong.

The paper also said Commerzbank was to close branches in cities including Barcelona, Bratislava and Brussels. Representative offices in Azerbaijan, Georgia, Indonesia, Iraq, Kazakhstan, Lebanon, Malaysia, Serbia and Venezuela will also be shut by 2024.

There's no information about the buyer at this point, but due to the low efficiency of Commerzbank in Hungary it could be worth considering as an acquisition target mainly for larger players that are already on the market, have a corporate portfolio and therefore able to exploit synergies. Nearly each of the large banks operating in Hungary could be a potential buyer.

According to an internal memo seen by Bloomberg, Asia sales activities will be bundled in Singapore and the Dubai branch will continue to operate as a representative office, it said. In South America, the German lender plans to sell its subsidiary in Brazil and open a representative office.

The news agency said the number of correspondent banks will be reduced to about 1,300 from about 1,600 globally.

“We have analysed exactly what the key trade corridors for the German economy are,” Nikolaus Giesbert, divisional board member for Institutionals, said according to the memo.

“We will continue to have a strong presence there -- in other words, primarily in Europe, Asia and the U.S. We will also maintain our presence in important regions such as Africa.”

What is going on at the parent bank?

Commerzbank was bailed out during the previous financial crisis and the German state continues to be holding a minority interest in the bank. This is not its first attempt at tidying up its finances, but of all previous endeavours this appears to be the most serious one.

It has finalised its 'Strategy 2024' in early February.

The bank is targeting

an operating profit of around EUR 2.7 billion;
a return on tangible equity (RoTE) of around 7% for 2024;
a reduction in costs by €1.4 billion or around 20% in 2024 by comparison with 2020;
revenues are expected to remain largely stable.

Commerzbank anticipates restructuring expenses totalling €1.8 billion, which will be fully financed with existing funds. The restructuring expenses will be fully booked in the current financial year. A provision of €0.8 billion was already set aside in the financial year 2020 to cover a substantial proportion of the restructuring expenses that will be incurred. In addition, there are further €0.1 billion in provisions from 2019. By 2024, Commerzbank will reduce approximately 10,000 full-time equivalents in gross terms.

Despite the significant restructuring, the Bank targets a common equity tier 1 ratio (CET 1) which is at least 200 to 250 basis points above the minimum regulatory requirements (MDA). This will enable Commerzbank to remain robust and resilient while efficiently managing its capital.

Commerzbank will significantly transform its business with private and small-business customers. The objective is to create an attractive combination of a scalable online bank and a premium advisory offering.

The bank will reduce the number of branches from the current level of 790 to 450 locations across Germany. At 220 of these locations, wealth management and small-business customers with a greater need for advisory services will receive comprehensive, personal advisory support, and individual solutions on all issues relating to wealth management and finance.

Commerzbank wants to remain a "strong and reliable finance partner for the German economy, as well as a "strong partner" for its clients in international markets. Its local presence however will be structured more efficiently. This includes the bundling of back-office functions in regional hubs and the optimisation of the correspondent-bank portfolio.

As a consequence, the Bank intends to exit 15 international locations and to convert 2 branches into representative offices. Accordingly, the Bank will be present in almost 40 countries going forward.

Commerzbank incurred a loss of EUR 2.9 bn in 2020. The fourth quarter was the hardest, with EUR 814 million restructuring costs, EUR 1,578 mn impairment of goodwill and other intangible assets, and EUR 1,748 mn risk provisions related mainly to the economic impacts of the coronavirus pandemic. Commerzbank incurred a net loss of EUR 2.7 bn in Q4 and EUR 2.87 bn in 2020.