Germany's Commerzbank today said that its net profit fell sharply in the second quarter as the bank wrote down €760m in bonds issued by financially troubled Greece.
The bank otherwise showed improved results from trading securities and from its business financing medium-sized companies in a growing German economy. Net profit fell to €53m from €361m in the same quarter a year ago.
The bank took the large writedown on Greek bonds effective June 30, the last day of the quarter. The Greek government has asked bondholders to take new bonds with longer maturity and lower interest as part of its effort to solve its debt crisis. That exchange is expected to reduce bond value by 21%.
Financial institutions agreed to the exchange plan as creditors' contribution to a second, €109 billion bail-out of Greece by euro zone governments aimed at solving the country's financial problems and preventing them from spreading to other countries. An earlier €110 billion package of bail-out loans last year failed to put the country back on its feet.
Frankfurt-headquartered Commerzbank had the biggest holdings of Greek debt among German commercial banks with €3 billion as of the end of last year. German competitor Deutsche Bank also wrote down Greek bonds during the second quarter by €155m.
Commerzbank showed improvement in other areas thanks to Germany's growing economy. It was able to reduce set-asides for bad loans to €278m from €639m a year ago, and the bank's business focusing on small and medium-sized German companies increased its operating earnings 29% to €501m. Income from trading securities rose 82% to €576m.
'The core bank segments performed gratifyingly,' the bank's chief executive Martin Blessing said. 'This demonstrates that the efforts we have made over the past two years have resulted in an efficient business model.'
The bank raised €11 billion in new capital during the quarter and used other available capital to repay €14.3 billion in government aid it received during the financial crisis. The German government's rescue fund retains a 25% stake.
