February 23, 2012 / 7:01 AM / 8 years ago

RPT-UPDATE 2-Commerzbank sees euro zone debt pressure continuing

(Adds missing word hit in first paragraph)

* Commerzbank Q4 Greece hit of 942 mln eur incl hedging

* Q4 includes 735 mln eur gain from debt repurchase

* Q4 exposure to PIIGS remains 12.3 bln eur

* Bank has no need for capital market funding in 2012

* Shares fall 3.9 percent

FRANKFURT, Feb 23 (Reuters) - Commerzbank said euro zone market jitters continue to threaten earnings after its fourth-quarter results were spoiled by an almost 1 billion euros ($1.3 billion) hit related to Greek sovereign debt.

Chief Executive Martin Blessing On Thursday also announced a 1 billion euro capital increase for the partly state-owned lender, which needs to plug a 5.3 billion euro capital hole as required by Europe’s banking regulator EBA.

“The high degree of uncertainty associated with the European sovereign debt crisis will ... continue to pose challenges for us,” Blessing said as Commerzbank posted lower-than-expected fourth quarter earnings.

A writedown on Greek sovereign debt to approximately 26 percent and a writedown on interest rate derivatives used for hedging sovereign debt resulted in a combined 942 million euros hit in the fourth quarter.

The bank, which received an 18 billion euros bailout in the wake of Lehman Brothers’ collapse, will seek to strengthen its balance sheet by hiking capital by 10 percent by converting debt instruments into equity, Commerzbank said on Thursday, disappointing shareholders.

Commerzbank shares fell 8 percent in early trading after the results, and they were trading down 3.9 percent at 1.98 euros at 0900 GMT.

After months of restructuring and shedding risky assets the lender said it reduced its EBA capital shortfall to 1.8 billion by the year-end 2011, a move welcomed by analysts.

“That’s a positive surprise”, said WestLB analyst Neil Smith.

To meet EBA capital requirements Commerzbank does not have to generate a lot of net income in the first six months of 2012 as most gains will come from reducing risky assets (RWA), DZ Bank analyst Christoph Bast said.

“Taking into account 1.8 billion euro in RWA management and 400 million bonus compensation in shares Commerzbank needs only 100 million net income in the first half of 2012 to fulfil EBA capital requirements”, he said.

The debt crisis and volatile financial markets have taken a big bite out of European banks’ profits. Deutsche Bank and Credit Suisse ended 2011 with quarterly losses, while Britain’s Barclays posted its worst quarter for three years.

France’s BNP and Societe Generale, Belgium’s KBC or Italy’s Mediobanca also saw profits slump due to Greek write-downs.

Commerzbank said it intends to post a “solid operating profit” in 2012 at its core bank which comprises of corporate lending, private customer, investment banking and Eastern European units.

But it does not include the asset-based-finance unit, which lost 4 billion euros in 2011.


In the fourth quarter, Commerzbank posted an operating profit of only 163 million euros, well below the 297 million forecast by analysts.

Earnings were flattered by a one-off 735 million euros gain from repurchasing hybrid debt.

Provisions for bad loans were 36 percent lower at 381 million euros, mainly due restructuring of loans.

Commerzbank’s exposure to Portugal, Italy, Ireland, Greece and Spain remained 12.3 billion euros at the end of 2012.

Full-year net earnings stood at 316 million euros, up from 257 a year earlier.

The bank will again pay no dividend as it posted a full-year loss under German accounting standards, mainly due to a writedown on its mortgage unit Eurohypo.

For 2012 the bank said it has no need for refinancing on the capital markets. ($1 = 0.7552 euros) (Reporting By Arno Schuetze and Edward Taylor; Additional reporting by Andreas Kroener; Editing by Hans-Juergen Peters)

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