Thursday, September 29, 2016

Commerzbank -- cuts dividends and 20% headcount reduction

Well its official

Monday speaking to some friends at Commerzbank it was clear that something was in the air!  No one knew what but senior staff was busy and unavailable for the past few weeks.  Now we know, dividends are out of the door this year (very very serious) and 20% of the staff will be let go -- blaming automation, but in reality what we are seeing is a cut back to the profitable business only. The bank did the same thing in the early '00; They looked at shutting down business and cut a lot of  "fat". Of course, the problem is that today's star can become tomorrow's dog, but that is of no concern to management.  Stop the bleeding is the first order of business!  In reality is that from the mount of the gods (e.g. the CEO's office) came down an edict: "Cut 20% of the workforce".

The impact is always the same:  going down the various levels the bosses decide what team to keep and what team to let go; its easier to get rid of entire teams -- its better for the overall moral, than cutting 20% of each team -- which creates paranoia (justified by the way).

The second round (because that's never enough to meet the 20% target) is get rid of people that have a "bad performance" followed by those who don't get a long, and then cut more because you have to cut numbers by 20%.  I've seen situations where a country team was let go and where the boss remained...

Independently of how painful the firing process is, the real issue here is the decision to cut the dividend -- bank stocks are considered blue chip income stocks, with a lot of pensioners counting on their dividends as income, it shows how serious the situation is as the bank now takes an aggressive stance on fixing its balance sheet.

Yesterday's words from Credit Swiss' CEO sound as powerful indication of things to come

No position on CS or Commerzbank


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