World Economy

Commerzbank Profits Fall

Commerzbank Profits Fall
Commerzbank Profits Fall

Germany’s second largest bank Commerzbank warned on Tuesday that its profits in 2016 would be lower than the previous year.

“The interest rate environment and persistent customer caution in view of the geopolitical uncertainties will continue to weigh on income despite growth,” the bank said in its second-quarter report, AFP reported.

Commerzbank has also been forced to set aside more cash to cover non-repayment of loans, with “ongoing difficult shipping markets”—where it has many borrowers—an important factor as global trade slows.

The warning comes a week after preliminary second-quarter results showed that the bank’s profits had slumped by almost a third compared with a year ago.

A reduction in profit forecasts was “no big surprise given the challenging market environment,” analysts at Equinet wrote.

Until now, the firm had set a target of a slight increase in profits over 2015’s €1.05 billion ($1.2 billion)—although it had been sending signals since early May that it might not achieve its ambition.

Commerzbank’s income last year allowed it to pay shareholders their first dividend since the 2008 financial crisis.

Shares in the bank plunged more than 8% in early trading on the Frankfurt stock exchange, before recovering somewhat to post a 7.9% drop by mid-morning.

Investors had already been wary of the stock on Monday after results from European Banking Authority stress tests released Friday evening showed it trailing among 51 of the eurozone’s largest financial institutions.

Commerzbank emerged from the “adverse” 2018 scenario run by the regulator with a core capital ratio of 7.4%—well below the average of 9.4% across the banks tested