Newspaper article International New York Times

Potential Fine for German Bank Takes Toll on Shares ; Commerzbank May Pay $500 Million for Violating United States Sanctions

Newspaper article International New York Times

Potential Fine for German Bank Takes Toll on Shares ; Commerzbank May Pay $500 Million for Violating United States Sanctions

Article excerpt

The market reactied sharply even though the bank had already disclosed it was being investigated for its dealings with countries blacklisted by the United States.

Investors reacted with dismay Tuesday to news that Commerzbank, Germany's second-largest lender, could be the latest European financial institution to settle with the American authorities over suspicions that it violated sanctions on trade with Iran and other countries.

Commerzbank shares fell 5.6 percent on Tuesday, a surprisingly sharp reaction considering that the company had disclosed four years ago that it was among lenders being investigated for its dealings with Iran and other countries blacklisted by the United States. Commerzbank had already set aside more than enough to cover the likely fine of at least $500 million.

But news of the potential financial hit comes at an inopportune time for Commerzbank and European banks in general. Many are still struggling to recover from the financial crisis that began in 2008 while facing increasing pressure from regulators and new risks emanating from Eastern Europe and Ukraine.

The fine against Commerzbank would be a fraction of the $8.9 billion penalty agreed to last week by BNP Paribas, France's biggest bank. And unlike BNP, Commerzbank would probably not have to admit criminal wrongdoing.

"It's quite good news for banks in Europe," Jon Peace, a banking analyst at Nomura in London, said on Tuesday.

But shareholders focused more on the risks, and bank shares fell across Europe on Tuesday. Shares of Deutsche Bank, Germany's largest bank, which is also under investigation, slid 1.9 percent.

A settlement with Commerzbank would pave the way for a deal between Deutsche Bank and prosecutors in the United States, according to people briefed on the matter, who requested anonymity because they were not authorized to speak publicly.

Commerzbank's list of legal problems is far shorter than Deutsche Bank's. Commerzbank has a much smaller presence on Wall Street and outside Germany in general than its larger rival, which also faces investigations into suspicions that it was involved in the manipulation of benchmark interest rates and foreign currency trading.

But Commerzbank's resources are more limited. It is the 39th- largest bank in the world measured by assets, according to SNL Financial, while Deutsche Bank is the 11th-largest.

Commerzbank returned to a profit of 200 million euros, or $272 million, in the first quarter of 2014 after a loss of EUR 98 million a year earlier. But its return on equity, a common measure of bank profitability, was just 3.1 percent, low by industry standards.

And the bank is still trying to get rid of more than EUR 100 billion in so-called non-core assets, including troubled loans for commercial real estate and the depressed shipping industry. …

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