Commerzbank outsourcing flop is warning for rivals

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The Commerzbank logo is pictured in Frankfurt, Germany, February 12, 2016. REUTERS/Ralph Orlowski

LONDON, July 23 (Reuters Breakingviews) - European banking is littered with subscale markets divisions. Lenders from UBS (UBSG.S) to Deutsche Bank (DBKGn.DE) have thrown in the towel on some trading businesses over the last decade. Yet a U-turn announced late on Thursday by Commerzbank (CBKG.DE), which is ditching a plan to outsource to HSBC (HSBA.L), (0005.HK) the settlement of retail clients’ trades, shows quitting is easier said than done.

The German lender’s chief operating officer, Joerg Hessenmueller, cited “high implementation risks”. That’s banker-speak for “we underestimated how hard this would be”. Commerzbank will take a 200 million euro non-cash write-off, which roughly represents the sum of capitalised expenses spent on the plan. The figure is higher than the 130 million euros of earnings that analysts previously expected for 2021.

The positive spin is that higher retail trading volumes in Germany give Commerzbank a better chance of profitably settling transactions itself. That assumes a pandemic-era boom persists. If it doesn’t, Hessenmueller may find himself back at square one. (By Liam Proud)

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Editing by Swaha Pattanaik and Oliver Taslic

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