The Wall Street Journal-20080215-Credit Crunch- Commerzbank Rues -Mistakes- In Subprime

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Credit Crunch: Commerzbank Rues 'Mistakes' In Subprime

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A WSJ News Roundup

FRANKFURT -- Commerzbank AG posted a 44% drop in fourth-quarter net profit, hit by further write-downs related to subprime-linked investments.

Germany's second-largest listed bank by market value after Deutsche Bank AG saw its bill from the subprime crisis creep up toward 800 million euros ($1.2 billion) in 2007, and warned that it could get worse.

In the final three months of the year, Frankfurt-based Commerzbank made further write-downs of 248 million euros on its 1.2 billion euro portfolio of subprime-linked investments, taking the full bill for 2007 to 774 million euros, although the hit in the fourth quarter was lower than the 291 million euros it booked in the third quarter.

With markets rocky, Chief Executive Klaus-Peter Mueller -- who becomes nonexecutive chairman in May -- warned subprime-related costs could rise further. His pledge to raise the dividend by a third to 1 euro a share failed to deflect disappointment at how much the credit crunch was costing the bank. Commerzbank's shares fell 6.6% to end at 19.84 euros in Frankfurt.

Earlier this year, Martin Blessing, who takes over from Mr. Mueller, said he had sought to prepare the market for the worst, warning that there was further subprime fallout to come. He said management had blundered by failing to take decisive action and ditch investments in subprime mortgages when the market first wobbled.

"We have made mistakes and must learn our lessons," Mr. Blessing had said.

Net profit fell to 201 million euros from 359 million euros a year earlier.

Commerzbank's results include "light and shadow," said Merck Finck analyst Konrad Becker. While fourth-quarter net profit was in line with market expectations, operating profit was substantially below forecasts because of lower-than-expected trading profit and higher- than-forecast operating costs, he said.

The fourth-quarter results were also hit by the weak performance of the bank's public-finance subsidiary Essen Hyp.

The credit crisis has rocked the market for securitized debt and is threatening to drag down the global economy. Any slip in economic growth would have a negative impact on Commerzbank.

Mr. Mueller said he was confident for 2008 but sounded a note of caution.

"If we are spared significant negative surprises, we will again be able to reach our good 2007 results." He reiterated his interest in buying Germany's biggest retail bank Deutsche Postbank AG.