COMMERZBANK AKTIENGESELLSCHAFT

Group Management Report
202
146 Commerzbank Annual Report 2011
Should the debt crisis in Europe deepen, the possibility of contagion on banks in the USA
and emerging nations should be seen as a matter of concern. Against the background of
tighter regulatory requirements, European banks face the challenge of having to reduce their
balance sheet volumes. Given the sector-wide pressure, they will have to offer price concessions
when making sales and raising capital. At the same time, high volumes of bank bonds
fall due by 2013, clashing with the governments’ strong finance requirements.
Over the medium term, banking in Europe will probably be much less profitable than in
the years leading up to 2007 and in the surprisingly strong recovery phase after the subprime
crisis. Major profit drivers of the past, such as high lending growth and falling credit
default rates, are no longer available to continue boosting profits. Given the weakening economic
trends, loan loss provisions will tend to act as a dampener on growth in Corporate
Customer business. In Private Customer business, commission income will remain under
pressure due to the uncertain economic situation and comparatively volatile markets. We see
a rather difficult year ahead for investment banking, given the subdued levels of activity in
many areas, and we therefore expect market adjustments.
Even if a solution to the European sovereign debt crisis is found that satisfies market participants,
two major trends will continue to dominate the banking environment. Firstly, the
banking sector must adjust to the realisation that during the crisis, areas with the lowest risk
weightings caused major problems, and re-think the considerable importance of sovereign
finance business. Secondly, the banking industry must realise that the deleveraging process
required of countries and budgets will be patchy rather than smooth, and this will reduce the
overall trend growth. Given weak economic growth, the phase of extremely low yields on
low-risk investments and low inflation rates will continue.
This will intensify competition even further – for deposits, which are the main way of refinancing
independently of the interbank market, and for the comparatively crisis-proof business
of German SMEs, which more and more foreign banks are starting to pursue again. For
the foreseeable future there will be no change in the basic market structure in Germany,
which is characterised by a large number of cooperative banks and savings banks, and therefore
the competitive situation will not ease.