Commerzbank reports first ever full-year loss

German Economy: Banks post record losses as unemployment climbs to four-and-a-half year high

Commerzbank, Germany's third-biggest listed bank, yesterday underlined concerns about the weakness of the country's financial sector, reporting a record loss of €372m (£270m) for 2002.

The dire result came as figures showed German unemployment climbed to a four-and-a-half year high in January, increasing the risk that Europe's largest economy will slide into its second recession in two years as consumers curb spending.

Recording its first ever full-year loss, Commerzbank suffered from a fall-off in both its corporate lending and retail banking divisions.

The bank lends to 40 per cent of Germany's small and medium-sized firms, which have suffered from the stagnation of the economy in their country.

Commerzbank avoided reporting an even worse result by booking proceeds of €386m from the sale of a stake in Credit Lyonnais, the French bank, which has yet to be completed.

Economists have estimated that a record 42,000 German businesses are expected to fail in 2003, up from 37,700 last year.

This will compound the trend of rising unemployment. Germany's Federal Labour Office said the unemployment rate rose to 10.3 per cent in January from 10.1 per cent a month earlier.

Many of Germany's major companies have laid off thousands of staff in an attempt to cope with the prolonged economic downturn.

Commerzbank said last year that it would shed 4,300 jobs, or 11 per cent of the workforce.

There was speculation that thousands more jobs could go after Commerzbank's chief executive, Klaus-Peter Mueller, said he wanted to curb more costs in an attempt to push the bank back into profit this year.

Commerzbank wants to reduce operating expenses by at least 3 per cent and accelerate the disposal of non-strategic stakes it holds in a number of companies in Germany and elsewhere.

Mr Mueller said: "It is no exaggeration to call 2003 one of the most important years in the history of our bank, which stretches back more than 130 years."

Commerzbank was among a number of German banks to embark on a radical programme of cost cutting and disposals last year.

Unlike Britain's banks, which are some of the most profitable in the world, Germany's financial sector has weak earnings growth due to the high number of lenders in the market and the predominance of state-owned banks in the commercial lending sector. Lack of revenue growth has made it difficult for the German banks to cope with rising bad debts and the downturn in the economy.

Two more of Germany's big commercial banks – HVB Group and Dresdner Bank – are expected to record full-year losses after soaring loan losses and tumbling markets wiped out revenues.

Deutsche Bank, which reports on Friday, is expected to show a profit after a raft of asset sales.

Analysts said they doubted Commerzbank would return to profit next year.

One said: "I can't make the numbers add up. They think they will get growth from restructuring their retail, investment banking and asset management divisions but the real problem is revenue. It is hard to see how that will increase without an upturn in the German economy."