Commerzbank to Cut 10,000 Jobs Amid Thin Profit Margins

Germany's Commerzbank is to slash over a fifth of its workforce and suspend its dividend as it becomes the latest bank to face the challenges of low interest rates, weak profits and the move to online banking, according to a Reuters report today.

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Overhaul

The bank is planning to cut 9,600 of its 45,000 full-time positions in a move more drastic than the 10 percent staff reduction at Deutsche Bank which continues to be under pressure for deeper cost cuts as profit margins remain thin in Europe's competitive banking markets.

The overhaul includes merging its four main business segments into two and moving 80 percent of its processes online in an attempt to make its earnings less volatile.

Chief Executive Martin Zielke commented: "We simply don't earn enough money to lead the bank sustainably and successfully into the future. And this situation will get worse if we don't do something about it," as reported by Reuters.

The changes are expected to prompt a writedown of around €700 million ($784 million) in the third quarter, leading to a quarterly net loss although the bank expects to turn a small net profit in full-year 2016.

Commerzbank's shares have decreased by almost 40 percent since the beginning of the year, compared with a 24 percent drop in the banking index.

Job Creation

Commerzbank has said it is looking to add 2,300 positions in areas where business was growing, easing the net reduction to 7,300.

While the staff cuts are large, Commerzbank's target of reducing its annual cost base to €6.5 billion ($7.3 billion) by 2020, from €7.2 billion ($8.1 billion) last year, fell short of expectations.

Efficiency

Commerzbank said it would cease dividend Payments Payments One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl Read this Term for the time being to cover restructuring costs estimated at €1.1 billion ($1.2 billion). One of the bank's top 10 shareholders reportedly commented that "the drastic cost-cutting would be hard for employees but was unavoidable to make the bank more efficient".

The bank plans to merge its business dealing with medium-sized German companies with its corporate and markets segment. It also plans to cut back trading activities in investment banking to help reduce earnings Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term and free up capital for use elsewhere.

The restructuring is expected to lift net return on tangible equity to at least 6 percent by the end of 2020 from 4.2 percent last year.