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Commerzbank takes €200m hit from botched IT project

Commerzbank is taking a hit of more than €200m from a botched IT outsourcing project in the latest blow to the ambitious cost-cutting plans of chief executive Manfred Knof. 

The Frankfurt-based lender on Thursday announced that it had pulled the plug on the planned outsourcing of its securities settlement business to HSBC — a move that was announced in December 2017. Back then, Commerzbank said the deal would generate “clear cost benefits” but did not disclose any financial details. 

Knof, a former Allianz and Deutsche Bank executive who joined the struggling lender this year, is axing one in three jobs in Germany in a last-ditch attempt to turn round the fortunes of the bank, which is suffering from bloated costs and lacklustre revenue.

Knof was parachuted in after his predecessor Martin Zielke and chair Stefan Schmittmann left the lender last year in an acrimonious boardroom battle. Back then private equity group Cerberus, which is one of the biggest shareholders, warned that “swift and decisive action now” was required to stop a “downward spiral” caused by bloated costs, low profits and managerial inaction.

Commerzbank said that the decision to abandon the outsourcing project would trigger a €200m write-off and an additional impairment charge “in the double-digit millions”. The lender said that the additional headwinds meant that this year’s cost target of €6.5bn would be missed but stressed that the €200m write-off would not affect its liquidity levels or capital ratios.

Shares in Commerzbank lost 1 per cent in afternoon trading and are down 20 per cent since early June. 

The costly U-turn is the second blow to Knof’s turnround plans in as many months. In June, the lender disclosed that a decision by Germany’s highest court over fees for current accounts would dent revenue this year.

The court ruled that banks needed to receive active consent from retail clients before they raised account fees. Commerzbank said last month that it was provisioning a mid-double digit euro sum to cover the cost of reversing previous charges.

The outsourcing project was stopped because of “high implementation risks”, chief operating officer Jörg Hessenmüller said in a statement. A person familiar with the matter said that Commerzbank had been required to invest a significant amount of additional money into the project to rescue it. “We did not want to throw good money after bad,” the person said. 

HSBC declined to comment.

Hessenmüller had come under fire inside the bank for his communication of the problems. Handelsblatt earlier reported about the internal criticism of Hessenmüller.

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