By DAVID McHUGH, Associated Press
FRANKFURT, Germany (AP) — Commerzbank, Germany's second-largest lender, saw profits held back in the third quarter as interest income declined and costs rose from businesses the bank is leaving in order to strengthen its finances.
The bank said Thursday it made €78 million ($99.4 million) in net profit, compared to a loss of €687 million in the same quarter a year ago, when the bank suffered writedowns on Greek government bonds. Heavily indebted Greece made its creditors take heavy losses in a negotiated debt reduction.
The bank has been on a long road to recovery since it was bailed out in 2009 by the German government, which still owns 25 percent.
Thursday's earnings indicated it still had a way to go. The bank said it foresaw a lower operating profit in the fourth quarter, and CEO Martin Blessing said that "the market environment will remain volatile in the coming months."
He said the bank had "achieved a solid result" in its core banking business. A major pillar of its business, lending to German mid-size companies, turned in operating profit of €395 million.
Declining interest income also weighed on profits. Commerzbank also took €476 million in losses at its non-core assets division, which is winding down its businesses in commercial real estate and shipping finance. The losses came from loans that are not being paid back and from revaluations of hedges against losses, the bank said.
The bank is leaving those businesses to strengthen its finances by reducing risky investments. Government regulators are pushing banks to shrink their businesses, make fewer risky loans and investments and hold back larger capital reserves in an attempt to avoid a repeat of the financial crisis that followed the bankruptcy of U.S investment bank Lehman Brothers in 2008. That event caused cascading losses throughout the global financial system.
Banks in Europe are also facing a slack economy in the 17 countries that use the euro as governments cut spending to reduce debt and deficits. Five countries — Italy, Spain, Greece, Portugal and Cyprus — are in recessions.
Commerzbank shares declined 1.6 percent to €1.48 in morning trading in Europe.
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