Views on BG | September 13, 2001, Thursday // 00:00

Financial Post – Canada

Commerzbank AG said merger talks with Italy`s UniCredito Italiano SpA had ended, in the second time in 14 months it had failed to combine with a rival, and the firm now plans to step up cost-cutting efforts as profits slump. Investors want Germany`s fourth-largest bank to merge because its return on equity, at 4.5%, is among the lowest in Europe. Profits fell 87% in the second quarter and its shares have lagged those of competitors, including Deutsche Bank AG, over the past five years. `Commerzbank is too small and hasn`t been a good investment for years,` said Michael Trauth, who helps manage US$8-billion at Baden Wuerttembergische Kapitalanlagegesellschaft in Stuttgart. The company`s management should be focusing on getting `the house in order,` he said. Commerzbank began talks with UniCredito, Italy`s No. 2 bank, after the German bank`s new chief executive, Klaus-Peter Mueller, said last month he would discuss mergers. The talks collapsed because `it`s not possible to do such a transaction in the current market conditions,` said Peter Pietsch, a Commerzbank spokesman. Milan-based UniCredito, led by chief executive Alessandro Profumo, spent US$1.2-billion last October to buy U.S. money manager Pioneer Group Inc. Its other acquisitions in the year included Bulbank AD, Bulgaria`s biggest bank, for 360 million euros ($515-million) and 51% of Slovakia`s Polnobanka for 30 million euros. Commerzbank has been under pressure from investor group Cobra, which controls 10% of the bank, to find a partner since negotiations with Dresdner Bank AG collapsed in July, 2000. Commerzbank remains open to the idea of a merger, Mr. Pietsch said. Mr. Mueller, who took over as CEO in May, has said he`ll cut costs by 240 million euros this year by freezing hiring, scrapping some information-technology projects and closing 150 branches. `One can assume that further cost-cutting measures will be initiated,` Mr. Pietsch said yesterday, without being more specific. In the second quarter, costs at the Frankfurt-based bank rose 16% to 1.48 billion euros, marking the sixth straight quarter that expenses rose by 15% or more. `It makes sense for Commerzbank to cut fat where there is fat but not muscle,` said Patrick Lemmens, an analyst at ABN Asset Management in Amsterdam. `The German banks aren`t down to muscle yet.` Deutsche Bank AG and HypoVereinsbank AG, Germany`s two biggest banks, also are trying to reduce expenses to revive earnings as revenue from the securities business and retail banking falls along with financial markets. Deutsche Bank has said it plans to eliminate 2,600 jobs through 2003 and Munich-based HVB is working on cutting 5,500 staff. While discussions with UniCredito never got to a `concrete` stage, the banks were aiming at a cross-border combination, Mr. Pietsch said. The Financial Times Deutschland said the talks ended because Commerzbank was asking for too high a price.

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