Handelsblatt Exclusive Commerzbank Scales Back International Ties

Commerzbank plans to drastically reduce its ties with international banks, Handelsblatt has learned, answering the demands of U.S. authorities after a major fine imposed for violating U.S. sanctions last year.
Commerzbank is heading for a shake-up.

Commerzbank's questionable dealings with Iran and Sudan, countries under U.S. sanctions, are having repercussions well beyond the fines imposed by U.S. authorities.

Now, it seems the earnings of Germany's second-largest bank will suffer too. Commerzbank plans a broad restructuring of its financial institutions division, drastically cutting back on the number of banks it does business with abroad, according to Handelsblatt's sources.

The financial institutions division conducts business with central banks and some 5,000 correspondent banks worldwide. In the first nine months of 2015, the division brought in €350 million ($381 million), a sixth of the revenue generated by the corporate banking division. Correspondent banks are effectively partner banks that allow Commerzbank to sell its products in other countries.

The restructuring could cut Commerzbank's international financial network down to about 3,500 correspondent banks, according to one insider. For an institution that once had the world's largest correspondent banking network, with about 7,000 as late as 2012, it marks a major restructuring.

The cutbacks are a direct result of a €1.2-billion fine that was levied against Commerzbank by U.S. authorities last March.

The cutbacks are a direct result of a €1.2-billion fine that was levied against Commerzbank by U.S. authorities last March. Since then, the bank has had to accept more direct supervision of its practices by U.S. authorities. It is also in the process of reviewing its business in a whole range of countries that could be problematic from a U.S. perspective.

"The business is being clearly catered to U.S. compliance rules," said one financial source, who declined to be named. "Nobody wants to write the ticket that lands the bank with its next fine," said another bank insider.

But German exporters are looking at the cut-backs with concern. Commerzbank has long been a key provider of business loans to medium-sized companies operating abroad.

The new restructuring could make doing business, especially in riskier countries, more expensive, according to the treasurer of one company. In such countries, being able to trust the German bank to clear transactions for you – rather than relying on a domestic alternative – is an important safeguard for companies.

Just how much of an impact the cutbacks will have on Commerzbank's foreign operations remains unclear. One insider noted that the institution often has more than one correspondent bank operating in most countries. Cutting the network therefore doesn't necessarily mean the bank will pull out of specific countries.

The restructuring has brought about a sudden change in staffing as well. Originally tapped to head up the corporate banking division, Sascha Klaus will now lead the restructuring of the financial institutions division.

Mr. Klaus is already tasked with winding down Hypothekenbank Frankfurt, previously known as Eurohypo, Commerzbank's commercial real estate financing division. He will continue in that role until the bank turns in its license this spring.

According to Handelsblatt's sources, Mr. Klaus won't accept his new assignment at the financial institutions division without a fight.

"He's already responsible for winding down Eurohypo and didn't want to deal with a comprehensive restructuring again," an insider told Handelsblatt.

Commerzbank originally picked Martin Kotzbauer to lead the financial institutions division. The senior leadership, however, had second thoughts due to his dual German-U.S. citizenship.

Mr. Kotzbauer will now manage the corporate banking division, the post originally intended for Mr. Klaus.

 

Yasmin Osman is a financial editor with Handelsblatt's banking team in Frankfurt. To contact the author: [email protected]