June 10, 2020 / 9:20 AM / a month ago

Cerberus demands changes at 'disastrous' Commerzbank

FRANKFURT (Reuters) - U.S. activist investor Cerberus is calling on Commerzbank (CBKG.DE) to appoint two of its nominees to the supervisory board, cut costs and adopt a new strategy, as it battles to make a success of a big bet on German banks.

FILE PHOTO: A company logo is pictured at the headquarters of Germany's Commerzbank AG during the annual results news conference in Frankfurt, Germany, February 13, 2020. REUTERS/Ralph Orlowski

In a letter to Commerzbank’s chairman on Tuesday, Cerberus complained the bank had failed to heed its advice after more than 70 meetings. Shares in Germany’s second-biggest bank have fallen about 60% since Cerberus bought a 5% stake in 2017.

The investor, describing Commerzbank’s performance as “disastrous”, demanded it appoint two “highly qualified individuals to be identified by us” to its supervisory board.

Cerberus said shareholders would be highly supportive of “significant change” to the supervisory board, management board and strategy, but did not give details on what the new strategy should be.

“The window of opportunity to address the challenges faced by Commerzbank is rapidly closing,” Cerberus wrote in the five-page letter, seen by Reuters.

Commerzbank said in a statement it was focused on costs and efficiency. “The bank takes careful note of shareholders’ opinions - including critical ones,” it said.

The bank’s shares, which have hit record lows this year, were last up 1% after shedding some earlier gains.

Such public shareholder campaigns are rare in Europe, and in Germany activist investors are often viewed warily - as shareholders focused on short-term profits rather than what is best for companies in the long term. The German government is the largest shareholder in Commerzbank with a 15% stake.

“In my view, state ownership does not make it any easier for Cerberus to achieve its strategic goals,” said Klaus Nieding of shareholder lobby group DSW.

COST CUTS

The 150-year-old Commerzbank has had a rough few months as it swung to a loss, halted its 2019 dividend plans, backtracked on the sale of its Polish lender mBank (MBK.WA), faced credit rating downgrades, and lost a long-standing sponsorship deal with a local soccer team to rival Deutsche Bank.

Commerzbank, bailed out by the state during the last financial crisis, has also warned its target for turning a profit in 2020 now seems “very ambitious” amid the coronavirus outbreak.

The bank is currently looking for further cost cuts and in talks about staff reductions.

Commerzbank’s proponents argue the bank has integrated its Comdirect online brokerage, a pillar of a strategy revamp announced last year.

Two top investors said in interviews that Commerzbank should cut costs by reducing its extensive branch network and focus more on digitalization.

“Perhaps Cerberus’ move will even help management to push through more cost-cutting measures with the unions,” one of the investors said. Both spoke on condition of anonymity.

Just months after buying into Commerzbank, Cerberus also took a 3% stake in Deutsche Bank (DBKGn.DE).

The investor was behind a push to merge the two banks last year, people told Reuters at the time, though the effort failed and both banks embarked on separate restructuring measures.

“The precarious situation of Commerzbank requires swift and decisive action now,” Cerberus wrote, demanding a reply by June 12.

Reporting by Tom Sims and Patricia Uhlig; Editing by Edmund Blair and Mark Potter

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