Commerzbank, Germanys second-largest bank, somehow managed to provide positive earnings despite a larger than expected write-down related to subprime debt. The bank was aided by a one time tax write-off, without which it would not have been in the black for the quarter:
The Frankfurt-based bank said the rise in net quarterly profit to 817 million euros (1.3 billion dollars) was helped along by a tax gain.
Commerzbank second-quarter write-downs totalled 420 million euros ($647.51 M), including 170 million euros ($262.09 M)as a result of the US subprime mortgage market crisis.
The bank went on to warn that market conditions remain difficult and expressed insecurity about higher earnings in the future:
‘Due to the continuing market volatility, we reiterate that - without accounting for the tax gain - it could be very difficult to reach the good result of the previous year in 2008,’ Commerzbank Chief Financial Officer Eric Strutz said releasing the results.
The statement was underscored by Commerzbank’s increase in loan loss provisions.
Commerzbank wrote down the value of real-estate finance assets by €369 million to reflect persistent housing market turbulence, in the United States in particular. In addition, “loan loss provisions for the first half of 2008 amounted to €589 million ($908.1 M) compared with €311 million ($479.5 M) for the same period in the previous year,” the statement said.
Although the bank guided a flat €350M ($539.52 M) level of loan loss reserves for the third quarter, the strengthening grip of the global credit crunch makes us skeptical.
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