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(Bloomberg) -- Commerzbank AG vowed to increase profitability, including by cutting thousands of jobs in Germany, as Chief Executive Officer Bettina Orlopp seeks to avoid a takeover by rival UniCredit SpA.
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The German lender will eliminate about 3,900 roles over the coming years, mostly across support functions in Frankfurt, though headcount will remain stable as it will also hire staff, for example at its Polish subsidiary mBank.
That should help lift net income to €4.2 billion ($4.4 billion) and boost the return on tangible equity, a measure of profitability, to 15% by 2028, it said in a release on Thursday. Profit this year is expected to drop on restructuring expenses.
The strategy revamp is Orlopp’s biggest effort yet to persuade investors to support Commerzbank’s independence after UniCredit bought a big stake and said it’s considering an acquisition. Orlopp, who took office in October shortly after the Italian rival first disclosed its holding, vowed to pay out all profits in the years through 2028 through buybacks and steadily rising dividends.
“We came a long way” over the past years, Orlopp said in an interview on Bloomberg TV. The plan unveiled now is “achievable, but also ambitious.”
Shares of Commerzbank swung between gains of as much as 2.6% and losses of 1.8%, as investors weighed details of the new plan. The stock was up 0.8% at 11:27 a.m. in Frankfurt.
“We see some niggles which dampen our initial enthusiasm,” analysts Thomas Hallett and Andrew Stimpson at KBW wrote in a note, citing a guidance for net interest income this year that’s “on the softer side.”
For the current year, Commerzbank predicts profit to decline to €2.4 billion as it will spend about €700 million to carry out cost cuts.
The new profitability goal compares with a return on tangible equity of 9.2% last year and 7.7% in the prior year.
Orlopp said the targets outlined assume that interest rates will stay low and Germany’s economy will only grow around 1% over the coming years, she said. The focus will be on growth in fee income, while Commerzbank also expects a “moderate” increase in costs and net interest income, the lender said.
What Bloomberg Intelligence Says:
Commerzbank’s raised target for a 15% return on tangible equity in 2028 — far outstripping consensus for 11.1% in 2027 — is reliant on sustained fee-income growth of more than 7% and punchy cost cuts to set a staunch defense against UniCredit’s takeover bid. Investors may be skeptical about its ability to deliver, with the 50% cost-income target reliant on 3,900 planned job cuts, which will face strong opposition, while Germany’s tough economic backdrop will hinder revenue ambitions.