Commerzbank has entered into an agreement with Société Générale on the sale of the Equity Markets & Commodities (EMC). The transaction is still subject to consultation with the relevant tax authorities, the agreement of other competent authorities and employee representatives bodies and the conclusion of legal documentation. It is another mile-stone in the implementation of the “Commerzbank 4.0” with which reduces the complexity of banking and capital to be released for the core business areas of Commerzbank.
Under the transaction, trading books, banking, employees and parts of the IT infrastructure to be transferred. EMC front office staff and some staff from downstream units should – subject to the approval of employee representatives bodies – go to Societe Generale.
The transfer of the trading books and the corresponding impact on the balance sheet and income are done gradually and is expected to begin in late 2018th Therefore likely to EMC revenue in the profit and loss account of Commerzbank will run off during the year of 2019. The reduction of expenses related to EMC, is to relieve the cost base of Commerzbank by the end of 2020 by at least 200 million euros, thus contributing formulated to achieve the 2016 as part of the “Commerzbank 4.0” strategy cost target.
Since announcement of the strategy, more than 3 billion euros in risk-weighted assets (RWA) were released by the tightening of Fixed Income, Currencies & Commodities (FICC). Through the sale of the EMC division, Commerzbank would benefit from an additional RWA reduction. In addition, the sale would help to avoid future charges due to the introduction of new regulatory rules on capital requirements for market risks (Fundamental Review of the Trading Book, FRTB).
The EMC business of Commerzbank include the issuance and market making of structured trade and investment products, the established brand for exchange-traded funds (ETFs) Comstage and the associated leading platform for the ETF market making. Not part of the transaction equity market operation the accompaniment of companies in the issuance of equity or equity-based financial instruments ( “ECM – Equity Capital Markets”) are and equity trading ( “Equity Trading”) and the share distribution ( “Equity Sales / Brokerage”) covers. This also applies to the business of hedging products for commodity risk. These activities will remain as part of the strategic banking at Commerzbank.
“With this agreement we reach another milestone in the implementation of the strategy ‘Commerzbank 4.0’ ‘Commerzbank CEO Martin Zielke said. “We are simplifying our business, pay a cost to our objectives and set capital for our core business with retail and corporate clients freely,” said Zielke on.
“As the market leader in the German corporate banking, we are our customers, of course, continue to the full spectrum of capital market products to offer. This includes hedging products for commodity risk and equity trading,” said Michael Reuther, responsible board member for corporate banking.
EMC generated in 2017 gross revenues of 381 million euros. EMC is a significant market maker for ETFs in Europe, is one of the major market makers for retail investors products and the leading trade addresses for medium-term notes.
“Over the past 29 years, the Equity Markets & Commodities, Commerzbank has developed into a leading provider and market maker for the financial products in Europe. I am convinced that we have the right with the leading derivatives and ETF addresses Société Générale and Lyxor have found new owners with which this business continue to grow, play to its innovative strength and in the future can be even more successful, “said Roberto Vila, Executive Vice President equity Markets & Commodities. Vila added: “For investors who are in possession of our products, we will ensure a smooth and transparent transition.”