FRANKFURT (Reuters) - Commerzbank AG (CBKG.DE) saw its bill from the subprime crisis creep up towards 800 million euros ($1.2 billion) in 2007 and warned that it could get worse, taking the shine off a record profit.
Falling provisions for bad debts helped Germany’s second-biggest listed bank raise net profit 19 percent to 1.9 billion euros last year, broadly in line with what the market expected.
The lender’s problems with its 1.2 billion euro portfolio of subprime-linked investments cast a shadow over the results and chief Klaus-Peter Mueller’s last year with the bank before he moves into the role of non-executive chairman in May.
The Frankfurt-based bank made further writedowns on its subprime-linked investments of 248 million euros in the final three months of the year, taking the full bill to 774 million euros. But with markets still rocky, Mueller warned that the cost could rise even further.
Mueller’s pledge to up the dividend by a third to one euro per share failed to deflect disappointment at how much the credit crunch was costing the bank. Commerzbank’s stock tumbled and was trading down almost 3.3 percent to 20.52 euros at 6:24 a.m. EST.
Earlier this year, Martin Blessing, who takes over from Mueller, said he had sought to prepare the market for the worse, warning that there were further subprime ructions to come.
In an interview with Reuters, he said management had blundered by failing to take decisive action and ditch their investments in subprime mortgages when the market first wobbled.
“We have made mistakes and must learn our lessons,” the 44-year-old manager had said.
Commerzbank’s share price has slumped by about 40 percent over the past six months, as fears about the cost of its subprime bill grew.
The credit crisis, which started when U.S. home owners were squeezed by falling property prices and rising interest rates, has rocked the market for securitized debt and is threatening to drag down the global economy.
Any slip in growth would have a negative impact on Commerzbank. Its name means bank for trade and its business is mainly with small and medium-sized companies.
Germany has built its economy on the back of exports and its home-grown companies are especially vulnerable to global economic swings.
Mueller said he was confident for 2008 but sounded a note of caution. “If we are spared significant negative surprises, we will again be able to reach our good 2007 results,” he said.
He also repeated his interest in buying Germany’s biggest retail bank Postbank DPBGn.DE, which is being sold.
Editing by Richard Hubbard/Elaine Hardcastle