Cerberus attacks Commerzbank board – economy

It all started when the American financial investor Cerberus invested in the German banking market three years ago. First, the US investor bought five percent of Commerzbank, then three percent of Deutsche Bank, then also a regional bank and a small bank in southern Germany. In the local financial industry, some brooded: Does Cerberus have secret knowledge? Do the investors with the nickname Höllenhund just recognize opportunities in the seizing German banking market that are hidden from others?

But it is now clear that, at least with the investments at Deutsche Bank and Commerzbank, Cerberus has so far had little luck. The merger of the two banks, which Cerberus advocated, failed to materialize. Little else has changed for the better at both institutes, at least in view of the share prices, which have more than halved since they started – for Cerberus, a book loss of several hundred million euros should be on the balance sheet, roughly estimated.

But now the Americans are losing patience and publicly increasing the pressure – at least on Commerzbank. Perhaps also so as not to be accused of inaction by your own investors. In a five-page letter to the Supervisory Board, which is available to SZ and several other media, Cerberus called for a change of course and expressed his disappointment with the management: “The precarious situation at Commerzbank now requires quick and decisive action.” It was time to bring in new ideas and energy so that the institute could go into a better future. And one is “deeply concerned” that the Management Board and the Supervisory Board refused to face the facts and to recognize the seriousness of the situation. They would have blatantly failed to take appropriate countermeasures for years. Almost every sentence in the letter is a slap in the face.

In a first step, Cerberus requires two seats on the board. This is actually a little more than a shareholder of this size is entitled to. Usually, shareholders only get ten percent of a seat on the Supervisory Board. Cerberus, however, apparently sees no other way out: This will help to address the urgent changes in the strategy. The financial investor assumes that further investors will join his demands.

If the bank rejects the request for the seats on the supervisory board, a shareholder revolt threatens, Cerberus said. It is likely to be the first time that Cerberus has acted as a so-called activist shareholder. Activist shareholders usually use aggressive campaigns, for example to fire managers who are unable to do so. The five-page letter will therefore be on the agenda at the Supervisory Board meeting this Wednesday.

“The bank carefully listens to shareholders’ opinions, including those of a critical nature.”

The bank said it was aware that developments on the stock exchange were unsatisfactory. “The bank’s opinions of shareholders – including those of a critical nature – are being carefully considered and will continue to be used in internal discussions and in the dialogue with their owners,” Commerzbank said.

Not only Cerberus is dissatisfied. The federal government, which has had a 15.6 percent stake in Commerzbank since the financial crisis, has apparently been following the events in Frankfurt with increasing concern for some time. Especially because of the Corona crisis, loan defaults are likely to increase significantly. In the fall of 2019, the federal government commissioned Boston Consulting to review Commerzbank’s strategy – an unusual process. At the same time, Commerzbank had once again prescribed a new strategy, for the fourth time in ten years. To finally be profitable in the long term, CEO Martin Zielke wanted to cut more jobs, sell the subsidiary bank in Poland and integrate the direct bank Comdirect. That was the right way to go, he said at the group’s press conference in mid-February.

While the competition closed branches in rows, Commerzbank held onto the network

However, Zielke may now have to rework some points urgently. The bank has already rejected the sale of the Polish subsidiary. Boston Consulting’s advisors appear to recommend more drastic measures, such as further branch closings, as the Bloomberg news agency wrote in February. Zielke, who has also been president of the banking association for a few weeks, has been following a special path for a long time: while the competition closed in rows, Commerzbank held on to the network and aggressively tried to win new customers.

At Deutsche Bank, however, Cerberus is calmer, at least in public. The Americans had concluded an unusual consulting contract there in the summer of 2018. For example, how the bank should manage its liquidity more efficiently. As Deutsche Bank announced at its recent general meeting when asked about a shareholder, it paid the Cerberus advisory arm a total of around 15 million euros for this. The consulting contract has been terminated since the beginning of the year. The advice was strictly separate from Cerberu’s work as an investor. In addition, the payment had been customary in the market, the bank had announced. Commerzbank had reportedly refused to seek advice from Cerberus.

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