No Oktoberfest For These Banks

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What's going on?

Deutsche Bank isnt the only German bank thats struggling Germanys second biggest bank, Commerzbank, announced plans on Thursday to cut about 15% of its workforce and stop paying a dividend to investors.

What does this mean?

This is a big restructuring for Commerzbank. Its going to de-emphasize its already limited market-based activities (e.g. trading stocks and bonds) and focus on just two divisions: one serving big corporate clients and another serving individuals and small businesses. The idea, very simply, is to cut costs. Like Deutsche Bank, Commerzbank is struggling with the low interest rate environment, which means that it cant charge much for the loans it makes. The fact that Commerzbank has made a number of loans that are unlikely to get paid back in full is another cost that the bank must absorb.

Why should I care?

The bigger picture: Theres talk that the big German banks should join forces.
Germanys banking sector remains far more fragmented than most developed countries. In other words, each German bank has a much smaller market share than banks in comparable countries. One idea is for Commerzbank and Deutsche Bank to merge so they can cut their overlapping costs, take a bigger share of the market and, consequently, generate higher profits. So far, the prospect of a potential deal is being downplayed, but it wouldnt be surprising to see that attitude change.


For you personally: Investors dont like it when a dividend disappears.
There are many investment funds that solely invest in stocks which pay dividends (i.e. make cash payments to their shareholders). So when a company cancels its dividend, as Commerzbank is doing, it causes those investors to sell the stock thus pushing downward pressure on its price. Thats probably one reason that Commerzbanks stock finished 2% lower on Thursday, despite the plan for lower costs being generally attractive to investors.

Originally posted as part of the Finimize daily email.

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