The board member responsible for corporate clients at Commerzbank, Michael Kotzbauer, talks to Andrew MacDowall about how the tough retrenchment process has left the German lender in a stronger position to weather further storms.
In February 2023, Commerzbank rejoined Germany’s benchmark DAX index, after being removed in 2018. The bank’s historic departure from the DAX — losing it its official status as a blue-chip company — was driven in part by doubts over its capacity to restructure. Nearly five years later, Commerzbank is seeing the results of a tough restructuring programme, including 10,000 job cuts and the closure of more than half its German branches.
“We were very happy and very honoured to re-enter the DAX,” says Michael Kotzbauer, board member responsible for corporate clients at Commerzbank. “It’s confirmation we are on the right track. It confirms this bank is back.”
In February 2021, Commerzbank announced its ‘Strategy 2024’, which includes reducing costs by €1.4bn — around 20% — by 2024, in what Mr Kotzbauer refers to as “harsh restructuring” with “tough and painful” job losses. The bank struggled with low profitability for years in the wake of a 2008 bailout that left the German government as its largest shareholder, with a stake of just over 15%. A proposed merger with Deutsche Bank, another troubled big German lender, did not materialise.
Yet in 2022, the bank tripled its net profit to just over €1.4bn, the highest level in 10 years and well over its €1bn target. Its common equity Tier 1 capital ratio rose to 14.1%, and it reported a loan loss provision of €482m set aside for secondary impacts of the war in Ukraine, such as higher inflation and supply chain disruptions.
“When you look at the bank’s resilience and the power it has to support its clients, it’s a totally different picture than it used to be,” says Mr Kotzbauer. “This is exactly why we are confident, and why our clients are confident and trust this bank.”
Career history: Michael Kotzbauer
2021 Member of the board of managing directors and main responsible for the business segment corporate clients, Commerzbank
2020 Divisional board member, Mittelstandsbank central/east, Commerzbank
2016 Divisional board member, corporate banking, head of the competence centre commercial real estate finance, Commerzbank
2015 Divisional board member, Mittelstandsbank south, head of the competence centre real estate corporate clients, Commerzbank
2013 Regional board member Asia, Shanghai/China, Commerzbank
Shareholders should also be content, with Commerzbank announcing its intention to distribute 30% of its net profit after additional Tier 1 coupon payments in the form of a €0.20 per share dividend and €122m share buyback programme.
Leaner and stronger
Mr Kotzbauer says that the bank’s tough retrenchment process has been mirrored by many of its clients over the past few tumultuous years, leaving both bank and businesses in a stronger position to weather further storms.
“What you see in our loan book for 2022 is that — Russia aside — it was very stable,” he says. “Our clients did a lot of homework over the past three years during the [Covid-19] pandemic. No one saw it coming, and suddenly revenues and turnover just vanished. All our corporates started to intensely work on their cost base, just as we did.
“So, when we approached 2022 with something very surprising and negative kicking in with the Ukraine war, what we saw with our clients was the fruit of the homework they did after the pandemic — an all-time-low cost base, high liquidity and a good capital position. They were not shielded, but on a very safe basis to handle it.”
Long history
Mr Kotzbauer has been with Commerzbank for 33 years, initially in relationship management roles. He had a spell as a regional board member for Asia, based in Shanghai between 2010 and 2013, before serving as a divisional board member and took on his current role in January 2021.
“In those three decades, much has changed in banking, but there are a few things that haven’t changed,” he says. “In corporate banking, it’s still a people business and it’s about partnerships. Those partnerships are built on trust, understanding and fair treatment. It’s like in real life — it takes years to build a trusting partnership that lasts when you are in volatile, difficult territory, which is where we are right now. With my work in the past three decades, I exactly represent this pattern.”
He emphasises a consistent thread in Commerzbank’s history since its foundation by Hamburg merchants in 1870 as a bank for businesses and trade. The bank retains its traditional strengths in financing the German Mittelstand businesses — broadly, small and medium-sized enterprises (SMEs) — and supporting German companies across the world, as well as supporting international businesses in the German market.
30% of Germany’s foreign trade is channelled through Commerzbank’s books
“We are the bank for Germany, wherever we are in the world,” says Mr Kotzbauer. “We’re the experts in accompanying our clients wherever they go. We are the clear number one for corporate and SME banking in Germany, and 30% of Germany’s foreign trade is channelled through Commerzbank’s books.
“If you’re in the UK, the US — wherever you are — if you want to go to Germany, approach Commerzbank. The bridge between Germany and the rest of the world — that’s us.”
The bank has around 11 million German customers in its private and small business segment, in addition to its corporate clients (defined as having €50m or more in turnover). Its loan volume of around €70bn in Germany makes it one of the largest financiers of German corporations. The bank has branches, representative offices and financial institution desks in nearly 40 countries, including in London, where it has relationships with clients dating back many decades.
Mittelstand power
Mr Kotzbauer is keen to emphasise Commerzbank’s clear focus: “We know exactly why we’re here and what we’re here for”. Not least its position as the bank of the Mittelstand — the backbone of the German economy, and a locus for innovation on a global level. He says that these are SMEs by any definition, but with important distinctions.
“The difference is the high, high impact and high share of SMEs in the German economy,” he says. “Look at the digital and energy transformation — new technology, hydrogen and carbon storage; a lot of it is coming from the German Mittelstand, which has exactly these strengths. These are highly resilient companies, very experienced in international markets. They are driving growth momentum and driving change.”
Mr Kotzbauer adds that German Mittelstand companies were early movers in internationalisation, with Commerzbank supporting their overseas operations from its first years.
I hear a lot about the end of globalisation. We really don’t see it. What we see changing is regionalisation
“Wherever you are, you find this very, very strong German corporate community,” he says. “One of the secrets of German SMEs is they started to internationalise very early and went into markets that were challenging at the time. This is exactly where Commerzbank went with its branches and representative offices.”
While many banks profess to being enthusiastic about the potential for SME lending, actually delivering is often more difficult, with higher risks than lending to large corporates. But Commerzbank benefits from Germany’s deep-rooted Mittelstand and its own long experience of working with it around the world.
“We’ve been there for more than a century,” says Mr Kotzbauer. “We don’t have to demonstrate that we understand the SME business, we don’t have to demonstrate that we’re really interested in it and we don’t have to demonstrate that we’re experts in trade. Because this is what we’ve been doing all along. This is clearly our DNA.”
Growth agenda
Like large banks the world over, Commerzbank is digitalising — it is investing €1.7bn in IT as part of Strategy 2024, having started a programme of investment in data and analytics five years ago. It has 6000 customers for its Mittelstandsbank Direkt platform, a direct banking service for SMEs which do not require in-person relationship managers, and this year is expanding the offering to clients who do not already bank with Commerzbank.
Geographically, the bank recently announced plans to open representative offices in Morocco and Jordan in the second half of the year, with an eye on the Middle East and north Africa region’s potential as a green energy and hydrogen supplier to Europe. It has also been “strengthening” its Singapore branch, Mr Kotzbauer says, to support the Asia-Pacific region’s role in the energy transition.
Formerly Shanghai-based, he is clear that China will remain an important market despite current pressures, and is sceptical of the concept of deglobalisation.
“I hear a lot about the end of globalisation,” he says. “We really don’t see it. What we see changing is regionalisation. Our clients’ concept now is regional — source in the markets where you sell. There is volatility all over the place. Resilience is the name of the game nowadays. What we have to do now is enhance resilience through diversification — that’s the top issue.”
Resilience and focus are words that Mr Kotzbauer mentions frequently, and are qualities he argues Commerzbank has demonstrated over the past few difficult years. The bank forecasts even stronger results in 2023 than in 2022. Whether this comes to pass will hinge in no small part on global events, but he is confident that the lender is well-placed to weather adversity and capitalise on opportunities.
“This is my lifelong project,” he says. “This bank is really close to my heart and so is the corporate world — this is what drives me. We live in volatile but very interesting times; we’re shaping the future. There are so many opportunities that we as a bank want to steer and support.”
