Subprime won't cut lender's dividend

The shrinking value of subprime mortgage investments will eat further into Commerzbank's 2007 profits but the German bank still plans to raise its dividend, its designated chief executive said.

Martin Blessing said management at Commerzbank, Germany's second-biggest listed bank, had made mistakes by failing to take decisive action and ditch their investments in subprime mortgages when the market first wobbled.

Now it faces a mounting bill with further writedowns in the final three months of last year, said Blessing, who takes over as CEO in May.

Commerzbank took a 291 million euros charge against writedowns on 1.2 billion euros of subprime investments in the third quarter. Blessing said he did not expect the writedown to be as bad in the fourth quarter.

Commerzbank made a net profit of about 1.6 billion euros in 2006.

"We had further writedowns in the fourth quarter because the markets deteriorated," said Blessing. "Nobody can say if that is it. Further writedowns cannot be ruled out."

"We have made mistakes and must learn our lessons," said the 44-year-old manager. "Nobody forced us to invest in subprime."

"The decision at the end of 2006 not to buy any more (subprime) was right. But in hindsight, we should have got out of the investments immediately. We weren't radical enough."

"In the end, the hope that things would improve won out but we should have known better," said the former McKinsey partner, who earned 2.7 million euros in 2006. Blessing's remarks sent Commerzbank's stock, which had already been trading down, tumbling further. It was trading down 6 percent at 19.78 euros at 1035 GMT, broadly in line with other German financial stocks.

He reiterated a promise to pay shareholders a bigger dividend for 2007 but at the same time warned that management would keep a tighter grip on costs.

Agencies

(China Daily 01/22/2008 page17)