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Germany's Commerzbank profits fall as bank works off losses on real estate, shipping loans

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(Globalpost/GlobalPost)

FRANKFURT - Germany's Commerzbank saw its second-quarter profit slide as it continued to take losses on bad real estate and shipping loans — but the company's shares jumped after it said was making progress with its strategy of getting rid of costly non-core assets.

It said Thursday that it made a net profit of 43 million euros ($57 million) during the quarter, down 84 per cent on the 270 million euros it made in the same period a year earlier.

The quarterly profit performance fell short of the consensus of analysts' expectations of 48 million euros as compiled by financial information provider FactSet.

The bank, Germany's No. 2 lender after Deutsche Bank, took losses of 537 million euros for loans that won't be fully repaid in the second quarter, up from 404 million euros in the year-ago quarter. Earnings were also squeezed by extremely low current interest rates. Net interest income fell to 1.63 billion from 1.78 billion a year ago.

The company said the figures included losses on its commercial real estate loan portfolio in Britain and 110 million euros in bad loans to build ships. The bank is exiting its commercial real estate and ship businesses and is winding them down in a non-core asset division. It also cited "single cases" of bad loans from its bank serving small and medium sized businesses in Germany.

Chief financial officer Stephan Engels told analysts in a conference that the bank had "an exposure" to the bankruptcy of the U.S. city of Detroit, which is in court protection from creditors after saying it cannot pay all its debts including the municipal bonds sold to investors.

He declined to put a figure on the bank's potential losses other than to say it had been adequately provisioned and that the final loss figure was a subject of negotiations in the U.S. bankruptcy case.

Overall though, Commerzbank has made progress in reducing its exposure to badly performing assets. In July, for example, it sold 5 billion euro commercial real estate loans in Britain to a consortium comprising U.S. bank Wells Fargo and private equity investor Lone Star Funds.

The company said then that the transaction would result in deductions to earnings of 134 million euros in the second quarter and 45 million in the third. The deal meant Commerzbank no longer has the risk of further losses on the loans.

CFO Engels said on a conference call with analysts that the bank was making "great progress" in winding down its non-core assets, including shipping and real estate, and said they would be reduced to 125 billion euros by year end and below 90 billion by 2016, instead of 93 billion as previously predicted.

The bank's share price jumped 11.1 per cent to 7.36 euros. The shares are still down more than 50 per cent on the year.

Analyst Christian Hamann at Hamburger Sparkasse said that the results including the progress working off non-core assets were "relatively good" given that "expectations were quite low." Still, he cautioned that the share rise was "overdone" given the bank's troubles.

Commerzbank is still working through the difficulties that led to it being bailed out by the German government in 2009. It is 17 per cent owned by the German government, down from 25 per cent after the bank carried out a capital increase in May.

http://www.globalpost.com/dispatch/news/the-canadian-press/130808/germanys-commerzbank-profits-fall-bank-works-losses-real-est