Commerzbank outsourcing flop warns rivals

LONDON, July 23 (Reuters Breakingviews) – Europe’s banking sector is littered with small-scale market divisions. Lenders from UBS (UBSG.S) to Deutsche Bank (DBKGn.DE) have thrown in the towel on some business ventures over the past decade. However, a turnaround announced Thursday evening by Commerzbank (CBKG.DE), which is ditching a plan to outsource to HSBC (HSBA.L), (0005.HK) the settlement of retail customer transactions, shows that it is easier to quit than to do.

The chief operating officer of the German lender, Joerg Hessenmueller, cited “high implementation risks”. This is banking parlance for “we underestimated how difficult that would be.” Commerzbank will write down € 200 million non-cash, which is approximately the sum of the capitalized expenses for the plan. A figure higher than the 130 million euros in profits that analysts previously expected for 2021.

The upside is that higher retail volumes in Germany give Commerzbank a better chance to settle transactions profitably on its own. This assumes that a boom in the pandemic era persists. If not, Hessenmueller could end up back to square one. (By proud Liam)

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Editing by Swaha Pattanaik and Oliver Taslic