UPDATE 3-Commerzbank lifts targets as turnaround gains pace

Thu Feb 13, 2014 7:03am EST

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By Arno Schuetze and Thomas Atkins

FRANKFURT, Feb 13 (Reuters) - Commerzbank said its turnaround plan was running ahead of schedule, allowing it set more ambitious targets for improving its capital position and shedding weaker assets, and easing investor fears it might need to raise more cash.

Shares in Germany's second-biggest lender, which also posted a small profit for the fourth quarter of 2013, rose more than 3 percent to a 22-month high on Thursday.

Nonetheless, Chief Executive Martin Blessing still waived his bonus, saying 2013 earnings were not convincing enough.

Commerzbank was one of the highest-profile casualties of the global financial crisis after an expansion drive backfired, with the German government spending around 18 billion euros ($24.5 billion) on a bailout of the bank.

It has since been cutting costs and selling assets in a bid to return to health and Blessing said that restructuring was gaining traction, with the bank turning a corner in 2013.

"2014 is year one - after the year of transition," he said.

The bank said its core tier 1 capital ratio - a key measure of financial strength used by regulators - improved to 9.0 percent at the end of 2013 and it set new a target to reach more than 10 percent by 2016.

While less than the 10.3 percent of rivals BNP Paribas and Lloyds at the end of 2013, it is well above the 7.6 percent that Commerzbank posted in 2012.

The German bank also said efforts to wind down its non-core asset (NCA) portfolio, a "bad bank" split off as part of its restructuring, were proceeding more quickly than expected.

It now aims to reduce the unit to 75 billion euros by 2016 from an earlier target of 90 billion, benefiting from a recovery in asset prices.

"My concern was that there could be another cap hike. This concern was wiped away with the numbers on the non-core asset reduction," said Christian Hamann, analyst at Haspa.

At 1130 GMT, Commerzbank shares were up 2.8 percent at 13.76 euros, making them the top gainers among European rivals and bringing to almost 70 percent the amount Commerzbank stock has risen in the past six months.

BAD TO GOOD

Since mid-2013, Commerzbank has struck several deals to reduce its exposure to assets such as commercial real estate and shipping.

"The wind-down unit slowly is getting into a dimension where it is not as frightening anymore as two years ago," Metzler analyst Guido Hoymann said.

Commerzbank's non-core assets stood at 116 billion euros at the end of 2013, comparing with 289 billion in 2008.

Last week it announced the sale of $1 billion in bad Spanish property loans in a bid to clean up its balance sheet and free up capital ahead of European banking health checks.

Profit improved at the bank, mainly due to higher investment banking and retail income as well as lower loan-loss provisions in its non-core asset portfolio.

Blessing said that although Commerzbank swung to a modest 78 million euro net profit for 2013 after a 47 million euro loss last year, he felt he was not entitled to a bonus.

"If there is no profit then I don't think it's right, independent of whether the goals were reached, for the CEO to receive variable compensation," said Blessing, who last received a bonus for 2007.

He added he would have considered accepting the payment if group net profit had been over 100 million euros for the year.

Commerzbank's 64 million euros net profit in the fourth quarter beat analysts' average forecast for 25 million euros. The lender lost 726 million in the year earlier period.

However, operating profit in its cash-cow business - the Mittelstandsbank which caters to Germany's raft of medium-sized companies - fell as the bank needed to set aside more cash to cover potential bad loans.

Levels of provisions overall are normalising after the Germany's economic success in 2012 allowed the bank to reclaim bad-loan reserves it had set aside during the financial crisis.

($1 = 0.7359 euros) (additional reporting by Jonathan Gould and Andreas Doernfelder; Editing by Mark Potter)

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