Commerzbank A.G. Business Information, Profile, and History

Company Perspectives:

Commerzbank's six basic strategic goals: to consolidate the Bank's position as a European integrated financial institution; to achieve a stronger position in selected investment-banking products; to realize broader and more intensive cooperation with Generali; to become market leader in e-commerce banking; to develop the Bank's international business beyond Europe's borders; to allocate equity capital to reflect the growth potential of business areas.

History of Commerzbank A.G.

Commerzbank A.G. has long been one of Germany's leading commercial banks, one of the small number of large and powerful institutions that has dominated Germany's highly stratified banking industry. Although its size and strength nearly led to its demise after World War II, those qualities also allowed Commerzbank to bounce back quickly and take part in West Germany's astounding economic recovery. Since German reunification and the emergence of the European Union, Commerzbank has struggled to maintain its independence in an era of consolidation in the European banking industry.

Banking in the Era of German Unification: 1870-1914

Commerzbank began in 1870 in the port city of Hamburg under the name Commerz- und Discontobank. Founded by a group of bankers and Hanseatic merchants, its primary purpose was to finance foreign trade. The years 1870-72 were boom years for German banking; during this time many commercial banks were founded to take advantage of the business opportunities afforded by the recent unification of Germany and the prosperity that followed its victory in the Franco-Prussian War. Many of these banks were short-lived, springing into existence to profit from the speculative frenzy of the moment, but Commerzbank, along with Deutsche Bank and Dresdner Bank, survived to become one of the three largest banks in West Germany today.

During its early years, however, Commerzbank remained relatively small. Although it became a major shareholder in the London and Hanseatic Bank when that bank was founded in 1872, in order to obtain representation in the world's financial capital, Commerzbank did not participate much in the rapid expansion of German overseas banking during the 1880s and 1890s. Its larger Berlin-based rivals took the lead in German ventures into South American and foreign European markets. Despite its specialization in foreign trade, Commerzbank's name also is notably absent from the list of major participants in the Deutsche-Asiatische Bank, which was founded in Shanghai in 1889 and firmly established German financial presence in the Far East.

Commerzbank took a step up in 1892, when it opened a branch office in Berlin. Following the political centralization inherent in the establishment of the Second Reich, many German banks had gravitated to Berlin, making it the nation's financial capital. All of Germany's major banks were based there, and Commerzbank completed its bid to join their ranks in 1904 when it acquired Berliner Bank. Its Berlin operations quickly came to supercede those in Hamburg in importance. At that time, German banking was dominated by nine Berlin-based institutions that became known as the Berliner Grossbanken.

Bank Mergers Between the Wars: 1918-45

The influence of the Grossbanken grew substantially during World War I and again in the years immediately following the armistice, though for vastly different reasons. From 1914 to 1918, public borrowing to finance the war effort supplanted private-sector loans as the banks' main source of business, and the government naturally chose firms with large capitalization to supply the sums of money that it required. This forced the banks to consolidate; large institutions absorbed smaller ones and smaller banks reached "community of interest" agreements with each other.

The inflation crises of the early 1920s, on the other hand, so threatened the German banking industry that the badly weakened banks were forced to merge with each other merely to survive. In 1920, Commerz- und Discontobank merged with Mittledeutsche Privatbank of Magdeburg, which was then one of Germany's most important regional banks and had long been active in building up a branch network. This new institution changed its name to Commerz- und Privatbank and, later that year, acquired Vereinsbank Wismar. In 1924, Commerzbank had 246 branch offices, compared with only eight in 1913, a staggering rate of growth that well outpaced the other Grossbanken during this time.

Commerzbank enjoyed a period of relative prosperity in the latter half of the decade, increasing its capital from 42 million Reichsmarks in 1924 to 60 million in 1928, and its reserves from 21 million Reichsmarks to 35.6 million. In 1929 it acquired another Berlin bank, Mittledeutsche Creditbank. It also helped facilitate American investment in Germany during this time. In 1927 it negotiated a loan of $20 million from Chase National Bank and re-lent the money to German firms. Such moves were regarded with some suspicion, as they blurred the traditional line between banks and investment companies. Commerzbank helped solve this public relations problem in 1928 by joining with Chase National to form General Mortgage and Credit Corporation for the sole purpose of increasing foreign investment in Germany.

Commerzbank changed its name to its current form, Commerzbank Aktiengesellschaft, in 1940. During the years of Nationalist Socialist rule, the Grossbanken, now numbering six, continued to dominate German banking. In 1944, their assets totaled more than 28 billion marks, more than all of Germany's other banks combined. Not only did they play a substantial role in financing the Nazi war effort, but thanks to Germany's universal banking system they were able to hold major interests in and place their executives on the boards of directors of the industrial concerns, like Krupp, Siemens, and IG Farben, that supplied hardware to the German military.

Reorganization and Global Expansion: 1945-80

After World War II ended in Europe in April 1945, Allied occupation authorities began investigating the German banking industry as part of their effort to punish war criminals. They found that not only had the Grossbanken provided financial support to the ruling Nazis, but that they had helped plunder the assets of financial institutions in occupied countries and that companies under their control had employed slave labor. Although Commerzbank's sins were not the most grievous to be discovered, the occupation authorities decreed that all of the Grossbanken would be broken up into a total of 30 smaller institutions. The Allied authorities also hoped that decentralizing the German banking industry would limit its ability to finance future military buildups and that it would encourage U.S.-style competition. As a U.S. diplomat told the Wall Street Journal in 1955, "It wasn't merely vengeance we sought. We hoped that by modeling the German banking system after ours, where banks are usually confined to a single state, we'd be able to do a service to the competitive system."

The new West German government resisted this decree, but eventually gave in under severe political pressure. In 1952, the surviving Grossbanken--Commerzbank, Deutsche Bank, and Dresdner Bank--were each dissolved into three smaller banks. Commerzbank was broken up into Commerzbank Bankverein, Commerz- und Credit-Bank, and Commerz- und Disconto-Bank. In addition, Chancellor Konrad Adenauer promised that the banks would not be re-amalgamated for at least three years.

In 1955, Chancellor Adenauer's promise expired and plans were laid for the reconstitution of what would become known as West Germany's Big Three. On July 1, 1958, Commerzbank resumed business, now headquartered in Düsseldorf (during the 1970s, it would gradually shift its operations to Frankfurt). Thanks to the size and strength of its constituent banks, Commerzbank was quickly able to regain the position of eminence that it had held 15 years earlier. The survival of Germany's universal banking system also helped; as one German bank official told Time in 1962, an American equivalent of a Big Three bank would be like "a combination of Chase Manhattan, First Boston and Merrill Lynch."

In the late 1960s, Commerzbank joined the worldwide trend among financial institutions toward internationalizing its business. In 1967 it joined with Irving Trust Company, First National Bank of Chicago, Westminster Bank, and Hongkong & Shanghai Banking Corporation to form the International Commercial Bank in London. In 1970, it entered into a semi-merger with Credit Lyonnais, France's second largest bank, and Italy's Banco di Roma in order to both counter increased competition from large U.S. banks and meet the needs of European companies that had expanded their business overseas. The resulting institution had $18 billion in deposits and 3,000 branches, making it the largest banking organization in Europe and the fourth largest in the world. Differences in national banking laws and traditions prevented the three banks from effecting a full-fledged merger, but they did agree to coordinate management practices and integrate all competing operations outside their home countries. Commerzbank also formed an investment advising company in Tokyo in 1973 and the Financial Corporation of Indonesia in 1974.

At home, the Big Three continued to wield considerable influence in German business through shareholding and corporate directorships, just as they had before the end of World War II. Commerzbank owned substantial interests in breweries, department store chains, and construction companies. In the 1970s, however, the Social Democratic Party's rise to power and widespread anxiety over the scope of the Big Three's influence convinced the banks to divest themselves of their holdings to prevent possible nationalization.

But the public and politicians did a quick about-face in the mid-1970s, when the oil boom generated fears that Middle Eastern interests would use their petro-dollars to muscle into strategic German industries. In January 1975, Commerzbank purchased a sizable stake in GHH, a machinery concern, to help ward off a possible Arab takeover, by acquiring a 25 percent interest in Regina Verwaltungsgesellschaft, a holding company owning 25 percent of GHH. The move also helped Commerzbank move into the insurance business through Regina's links with Allianz Insurance Gruppe. In addition, in December of that year, it joined Dresdner Bank, Bayerische Landesbank, and five other partners to buy a 25 percent stake in Daimler-Benz from Deutsche Bank, which had purchased the shares at the urging of Chancellor Helmut Schmidt to keep them out of the hands of an Iranian concern. Once the panic had passed, Commerzbank resumed its policy of selling off its business holdings. In 1980, it sold a 32 percent stake in Kaufhof, Germany's second largest retailer, to the Union Bank of Switzerland and Metro-Verwegensverwaltung, a German-owned Swiss supermarket concern.

Recovery and Prosperity: The 1980s

But the Kaufhof sale was also a way of raising cash at a time when Commerzbank was struggling badly. German banks in general fared poorly at the beginning of the new decade compared with their British, U.S., and Japanese counterparts, but Commerzbank suffered in particular from overexpansion in the late 1970s and heavy investments in fixed-interest securities, which turned sour when interest rates did not decline as predicted. The bank's profits shrank to virtually nothing, and in 1980 it failed to pay a dividend for the first time in its history. Chairman Robert Dohm resigned late that year after suffering a heart attack.

Paul Lichtenberg, Dohm's predecessor, became interim chairman and immediately began searching for a permanent replacement. He was able to woo Walter Seipp, vice-chairman of Westdeutsche Landesbank, who assumed the chairmanship in 1981. A lawyer by trade, Seipp had worked for Deutsche Bank from 1951 to 1974 before joining Westdeutsche Landesbank and had built a strong reputation for himself in both international and domestic banking circles. Under his direction, Commerzbank increased its loan loss provisions in 1982 when faced with the possible default of $250 million worth of loans to Poland. The bank did not pay out another dividend until 1983, but by 1984 it had returned to financial health.

From there, Commerzbank resumed its ambitious ways. In 1984, it continued to divest its nonbank holdings by selling its stake in the Kempinski luxury hotel group to Saudi Arabian interests. But it also joined Westdeutsche Landesbank, Bayerische Landesbank, and its Big Three rivals to form Deutsche Wagnisfinanzierung, a venture capital company. In 1986, responding to a new trend among West German companies toward raising money through the securities markets rather than by borrowing from banks, it raised $200 million in fresh capital through a floating-rate note issue. Commerzbank chose a propitious moment to float the new offering, doing so at a time when the market for floating-rate bonds denominated in European currencies was strong.

In 1988, Commerzbank sold its stake in Deutsche Wagnisfinanzierung to Deutsche Bank. That same year it also purchased a 40 percent stake in Leonberger Bausparkasse, West Germany's fourth largest savings and loan, from the Stuttgart insurer Allgemeine Rentenstalt Lebens- und Rentenversicherung. Commerzbank put the crowning touches on its international investment banking network by opening offices in Tokyo in 1987 and New York in 1988. By 1988, its commercial banking network had branches in Brussels, Antwerp, Paris, Madrid, Barcelona, London, Hong Kong, Tokyo, Osaka, New York, Chicago, Atlanta, and Los Angeles.

Commerzbank had always been the smallest of the Big Three banks, but the very fact that it was one of those select three counted for a great deal in the West German banking industry, where the drop from the first tier to the second was steep. Historically, Commerzbank was a latecomer, joining the major league of German banking long after its rivals had done so. When the European economy became fully integrated at the end of 1992, it presented West German financial institutions with a whole new set of challenges. Commerzbank had to be quick to adapt to change this time.

International Banking and the Reunified Germany: The 1990s

Commerzbank entered the 1990s intent on gaining ground on its two main rivals, Deutsche Bank and Dresdner Bank. The reunification of Germany in 1989, in reestablishing a single German currency and opening up a substantial unexploited market in the east, provided Commerzbank with the opportunity to expand its domestic banking network significantly. In October 1990 the bank earmarked DM 500 million for the creation of 120 new branches in the former East Germany over a three-year period, with the aim of seizing a share of the new market larger than that of its competitors. The bank had already welcomed a flood of new customers, and capital, since the implementation of the monetary union plan the previous July, enjoying an influx of more than DM 2 billion in new deposits from approximately 80,000 new clients. In addition, the bank was positioning itself to become a major partner with the up-and-coming businesses in the east, lending nearly DM 1 billion to East German companies in the first year of reunification.

A bigger challenge for the bank came in 1993, when the Single European Market officially went into effect. Arriving on the heels of a widespread recession, European unification brought the promise of new opportunities for sustained growth, through the opening of international borders and a general relaxation of government regulatory policies. To take advantage of this new economic environment, however, as well as to counter the threats that came with increased competition, Commerzbank needed to alter its business model. In the early 1990s, the bank's new strategy focused mainly on the strengthening of its international scope. To this end, in 1995 Commerzbank acquired a 75 percent stake in Jupiter Tyndall, a British fund management firm. The move was part of a larger trend toward diversification among the major German banking houses; both Dresdner Bank and Deutsche Bank had already made forays into the U.K. investment banking world, and Commerzbank was eager to follow suit. The Jupiter venture was immediately followed by a bid for leading English brokerage firm Smith New Court. Unfortunately, Commerzbank was ultimately edged out by a competing bid by U.S. securities giant Merrill Lynch, and its dreams of outpacing its rivals in England were thwarted.

Undeterred in the pursuit of its goal of establishing a global presence, Commerzbank turned its attention to acquisitions further afield, with a view to increasing its holdings in the United States and Asia. It was particularly interested in gaining a foothold in Japan, where it hoped to take advantage of the deregulation of the Japanese finance industry in the late 1990s. While Commerzbank was busy scanning the overseas landscape for new opportunities, however, it also faced a significant threat from home. By the end of the decade a group of prominent Commerzbank shareholders, led by Klaus Peter Schneidewind and Clemens Vedder and organized under a holding company called Cobra, had become dissatisfied with the course the bank was taking. In 2000 they began pushing for Commerzbank to enter into merger talks with another European Bank, preferably one outside of Germany. Commerzbank was not eager to become absorbed into a foreign banking house, and went so far as to discuss a merger with Dresdner Bank, in the face of Cobra's fierce opposition. Although the Dresdner deal eventually fell through, the pressure to find a powerful partner remained intense. At the beginning of the new century, the bank found itself struggling to maintain its independence in the face of mounting pressures to consolidate, while searching for a means of achieving effective growth in the highly competitive banking environment of the European Union.

Principal Subsidiaries: ADIG Allgemeine Deutsche Investment-Gesellschaft mbH; ADIG-Investment Luxemburg S.A.; Banque Marocaine du Commerce Exterieur, S.A. (Morocco); BRE Bank SA (Poland); Caisse Centrale de Reescompte, S.A. (France); CBG Commerz Beteiligungsgesellschaft Holding mbH; CFM Commerz Finanz Management GmbH; comdirect bank AG; Commerz Asset Managers GmbH; Comerz Futures, LLC (U.S.A.); Commerz Grundbesitz-Investmentgesellschaft GmbH; Commerz International Capital Management GmbH; Commerz NetBusiness AG; Commerz Securities (Japan) Co. Ltd. (Hong Kong/Tokyo); Commerzbank Asset Management Italia S.p.A.; Commerzbank (Budapest) Rt. (Hungary); Commerzbank Capital Markets Corporation (U.S.A.); Commerzbank Capital Markets (Eastern Europe) a.s. (Czech Republic); Commerzbank (Eurasia) SAO (Russia); Commerzbank Europe (Ireland); Commerzbank International S.A. (Luxembourg); Commerzbank (Nederland) N.V. (The Netherlands); Commerzbank (South East Asia) Ltd. (Singapore); Commerzbank (Switzerland) Ltd.; Commerzbank Investment Management GmbH; CommerzLeasing und Immobilien AG; Deutsche Schiffsbank AG; Erste Europaische Pfandbrief- und Kommunalkreditbank AG (Luxembourg); Hypothekenbank in Essen AG; Jupiter International Group PLC (U.K.); Korea Exchange Bank (South Korea); Montgomery Asset Management, LLC (U.S.); P.T. Bank Finconesia (Indonesia); RHEINHYP Rheinische Hypothekenbank AG; Unibanco - Uniao de Bancos Brasileiros S.A.

Principal Competitors: Bayerische Hypo- und Vereinsbank

Aktiengesellschaft (HVB Group); Deutsche Bank AG; Dresdner Bank AG.

Chronology

• Key Dates:
• 1870: Commerz- und Discontobank is founded in Hamburg.
• 1892: Commerzbank opens a branch in Berlin.
• 1904: Commerzbank acquires Berliner Bank.
• 1920: Commerz- und Discontobank merges with Mittledeutsche Privatbank.
• 1928: Commerzbank joins with Chase National Bank to form General Mortgage and Credit Corporation.
• 1967: Commerzbank joins with Irving Trust Company, First National Bank of Chicago, Westminster Bank, and Hongkong & Shanghai Banking Corporation to form the International Commercial Bank in London.
• 1981: Walter Seipp becomes chairman of Commerzbank.
• 1995: Commerzbank acquires a 75 percent stake in Jupiter Tyndall.