Commerzbank’s CEO and chairman pushed out by second-largest shareholder

Wednesday 8th July 2020

Amid growing pressure from Cerberus Capital Management, both the CEO and Chairman at Commerzbank, Martin Zielke and Stefan Schmittmann respectively, have resigned from their positions.

Earlier this year, private equity firm Cerberus had expressed discontent at the leadership of Germany’s second-largest bank, which had set a target of only 4% equity growth by 2023 due to low profits caused by bloated costs arising from managerial inaction.

Cerberus is the bank’s second-largest shareholder after the German government, who have also expressed frustration leading them to replace both their representatives on the bank’s advisory board; even the European Central Bank (ECB) urged Commerzbank to hasten its restructuring efforts.

This change to prominent members of the board follows failed merger talks last year with its rival Deutsche Bank, which fell through after an inability to meet capital requirements, among other things.

Commerzbank also posted a net loss in the first quarter of 2020 and announced 2,300 job losses with the closure of one in five of its branches, however, it is currently due to negotiate terms with worker representatives.

After the departure announcement, shares in Commerzbank rose – which may seem counter-intuitive to some.

However, this story is a demonstration of shareholder activism, where shareholders use their influence to improve a business’ performance, resulting in a rising share price, subsequently encouraging new investment, leading to further price rises.

Another recent example of shareholder activism is insurance company Aviva heavily criticising HSBC and Standard Chartered for their support of the Chinese government’s security rules in Hong Kong. Aviva owns a combined worth of £800m in shares in the banks.

This leaves the question of what Commerzbank plans to achieve with new board members.

Morgan Stanley has signalled its willingness to bolster its investment management business with acquisitions, increasingly easier with today’s low interest rates – which have hurt its traditional loan business.

Whether Commerzbank will follow this strategy is yet to be seen, but its continent-wide criticism has signalled the need for drastic change.