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Dhe stock markets are sometimes merciless. On Friday after the market closed, it was announced that the chief executives of the Management Board and the Supervisory Board, Martin Zielke and Stefan Schmittmann, are giving up their positions. On Monday morning, this gave the share a rare price jump. By early afternoon, it was temporarily up 8 percent. At the 4.44 euros thus achieved, the share price had briefly quoted at the beginning of June, before that not since the beginning of the Corona crisis, which caused the share prices of almost all German companies to collapse.

Shareholders who have had a stake in the bank for a long time can only get a tired smile out of Monday’s jump. When Zielke took office in May 2016, the share had been worth twice as much. And this value was preceded by a share cut in spring 2013, in which ten shares were merged into one. From the stock price of just over one euro at that time, these price cosmetics quickly turned into a little more than ten euros. Anyone who was previously one of the shareholders of what was then the second-largest German bank at the time, has since been a penny stick for the share.

The outgoing chairman of the supervisory board, Schmittmann, himself stated on Friday when he announced his resignation that the latest strategy had “apparently not been sufficiently accepted in the capital market”, the share price shows. In fact, the top management from Zielke and Schmittmann was unable to breathe new life into the course that had been falling for years. On the contrary: from the beginning of Zielke’s office until his resignation announcement on Friday, the course has dropped by a good 50 percent. Since Schmittmann took office in May 2018, the price drop has been even more severe due to an interim upswing of more than 60 percent. The new strategy that Zielke presented in September 2019 did not stop the decline. Price drop since then: 23 percent.

Against this backdrop, Monday’s price increase is particularly noteworthy. Apparently, investors are now expecting the announced “far-reaching” changes to at least benefit Commerzbank from their perspective – be it through a tightened savings program or through a merger of the bank with another institution.

Last week, the European Central Bank’s (ECB) supervisors published a paper on dealing with bank mergers (F.A.Z. of July 2). Regulators have long been calling for consolidation so that banks become more profitable and more cost-effective. In its draft guideline, the ECB describes how it intends to support banking mergers as a regulator. In the case of mergers, for example, it does not want to require higher capital requirements.

With regard to Commerzbank, the explanations on what is known as badwill are important. This negative company value, which results from the difference between the book value of the equity and a lower purchase price, had played a major role in the failed merger talks between Deutsche Bank and Commerzbank more than a year ago. At that time there was talk of up to 16 billion euros badwill, which represents a profit effect for the acquiring institute. Commerzbank’s balance sheet equity is just under 30 billion euros and its market value is less than six billion euros. There are also value adjustments on securities such as Italian government bonds.

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To detailed view

In addition, the supervisors should only accept this badwill with very conservative standards. Even so, a takeover of Commerzbank via Badwill seems to have a double-digit billion dollar effect on earnings. ECB supervisors have no qualms about using this badwill to make the institution more resilient. They would not tolerate an immediate distribution to the shareholders. The analysts of the rating agency Standard & Poor’s consider accelerating consolidation trends in the European banking sector after the ECB supervisors have made it clear that they do not want to put mergers in the way of mergers.

It is questionable whether another German-German solution will be tackled with Deutsche Bank. Their price jumped on Monday in a generally positive stock market by more than 4 percent. When the two institutes sounded out a merger in the spring of last year, this had given the Commerzbank rate a 15 percent boost within a week. The reaction of Deutsche Bank’s share price was much more subdued.

Analysts are cautious about the double resignation. Citi’s Nicholas Herman, in a first comment, warned that the lack of leadership at the start of a recession in Europe further darkened the bank’s prospects. He does not yet see a long line of internal candidates who could be considered for a successor. Regarding the two favorite Roland Boekhout and Bettina Orlopp, he noted that they had not been in their respective posts for long. The new boss must definitely tackle the costs harder – but a large new conversion plan should initially lead to even lower results.


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