Commerzbank Tops List Of Over-Ambitious Financial Institutions

Last Updated Sep 3, 2009 11:56 AM EDT


While it's great to have big plans for the future, in the case of some bank CEOs you can't help but feel they are sometimes swimming a little out of their depth. Ken Lewis, Bank of America's chief executive and former chairman is a prime example.

When Lewis confessed to being pushed into doing a deal by Fed Chairman Ben Bernanke which went against the interests of his shareholders, he ought to have abandoned hope of holding on to both top jobs. But instead he fought back (admittedly his career did emerge from the boardroom relatively in tact, and there are supporters on his side).

Despite averting a bankruptcy filing in August, CIT Group's chief executive Jeffrey Peek may turn out to have been a trifle ambitious recently after striking just a $3 billion rescue financing deal with the firm's bondholders. The firm subsequently had to rearrange a tender offer twice to secure the money, and then announced at the beginning of this month that it won't meet a debt repayment due on Septermber 15.

Nothing comes close to comparing to the delusions of grandeur Commerzbank's investment banking chief Michael Reuther seems to be undergoing, however. After changing the 223-year old name on its Dresdner Kleinwort unit's doors today, Commerzbank has the most ultra-ambitious plans on the street:

Commerzbank aims to overtake Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley to become the biggest investment bank in Germany, Reuther said in an interview with Handelsblatt today.

The lender wants investment banking to contribute 20 percent to 25 percent of pretax profit over the long-term, the newspaper said. That would translate to 850 million euros to 900 million euros in 2012, when the lender targets more than 4 billion euros in pretax profit, Handelsblatt said.

Now consider the following: chief executive Martin Blessing had to go cap in hand recently to the German government for a $25 billion loan the firm still hasn't paid back, while it is sitting on a 2008 loss of $9 billion, and Blessing is promising to slash his workforce in half. On the other hand, Morgan Stanley and Goldman Sachs are government-debt-free and profitable.

This is a textbook example of what is wrong with the way banks are being run right now. By shooting for such lofty aims, firms are in effect forced to use government aid as operating leverage. It's true that gearing up the balance sheet to enter risky businesses can create enormous profit opportunities. But as we have only recently learned, when things go the other way, that can pull the whole company under -- all for the sake of overreaching instead of just trying to become profitable again.

  • Daniel Harrison

    Daniel M. Harrison is a business journalist who has written for publications such as The Wall Street Journal, Dow Jones Newswires, and Forbes.com.

    In 2007, Harrison initiated Asian market coverage for TheStreet.com, reporting from New York and Hong Kong. He also served for a while as Opening Bell Editor at the financial blog Dealbreaker.com. Harrison is the publisher, editor and writer of The Global Perspective, and you can follow him on Twitter at Twitter.com/bizjourno.