Shares in German banking giant Commerzbank are trading 4.5% higher pre-market on Thursday. This comes following a better than expected Q2 earnings report yesterday. Commerzbank reported Q2 earnings per share of $0.18. This was versus expectations of a $0.07 result.
Revenues Down 21%
Despite the earnings beat in Q2, the report was a mixed bag. Overall revenues declined 21% year on year to $259.7 million as a result of a significant increase in loan loss provisions.
Looking ahead, the bank forecasts net losses in 2020 as a result of the 469 million EUR it has ringfenced for bad loans. While some of this is understandably due to the disruption caused by the COVID-19 pandemic, a greater portion is attributed to the insolvency payments of Wirecard. Wirecard was not specifically named in the earnings report but Commerzbank did note that a “single case” was responsible for an additional 175 million EUR in loan loss provisions.
The Wirecard scandal has been a major focus point over recent weeks and has affected many banks. The company entered insolvency in June following the arrest of CEO Markus Braun. The arrest was due to an accounting scam whereby the company declared 1.9 billion EUR on its statements which did not exist.
The report comes at a time of great turmoil for Commerzbank, which is the second-largest regional lender in Germany. This is following the unexpected resignations of Chairman Stefan Schmittman and CEO Martin Zielke in response to pressure from shareholders to reduce costs.
Commerzbank CFO Bettina Orlopp said that the bank would now be awaiting the appointment of a new CEO before undertaking any cost-cutting measures to help battle the revenues loss. However, Orlopp was keen to stress that the bank is forecasting a “U” shaped recovery. Although it depends on the path of the pandemic, they expect “positive numbers” in 2021.
“We also assume clearly that there will be some cases with respect to loan loss provisions coming in for the third and fourth quarters. This is why we booked in already a forward-looking top-level adjustment to account for that.”
Commerzbank Approaching Long Term Trend Line
Shares in Commerzbank are currently testing resistance at the 4.685 level, which is a major long term pivot point. Above here, the next test will be the long term bearish trend line from 2018 highs.
If price is able to make it above there on a closing basis, focus will be on a continued push higher. The next level to watch is 6.019. To the downside, any break below the 4.685 level will put focus on the 3.705 level support next.