Commerzbank’s Greek Exposure Wipes Out Third Quarter Profit

The massive debt crisis in Greece has created yet another victim among European financial institutions.

Commerzbank – which is 25-percent-owned by the German government -- posted a 687-million euro ($949-million) loss in the third quarter, including a write-down of 798 million euros ($1.1 billion) related to its Greek assets.

Under terms of the recent rescue package agreed to by Eurozone leaders in Brussels, holders of Greek debt would be compelled to take a 50 percent write-down.

In the year-ago quarter, the bank posted profit of 113-million euros.

"With a view to the ongoing uncertainty regarding Greece's financial solvency and with regard to the EU summit on October 26 [in Brussels], the positions held by the bank were depreciated by 52% of their nominal value," Commerzbank said in a statement.

As a consequence, Commerzbank, which is Germany’s second largest bank, scrapped its profit targets for next year.

"We continue to be committed to our original operating profit target of 4.0 billion euros ($5.5 billion) for the group, but on account of the market environment we will be unable to reach this target next year," said chief executive Martin Blessing in a statement.

Blessing added: "In the non-core areas the result for 2012 will be dependent to a great degree on how the European sovereign debt crisis continues to develop.”

Meanwhile, Commerzbank also said that it will scale back in its lending in the Eurozone as it seeks to meet new capital requirements mandated by the European Banking Authority (EBA) in order to protect them from future defaults.

The Greek financial plague also led to a 72 percent plunge in profits for France's biggest bank BNP Paribas – which said it posted net income of 541 million euros in the third quarter.

These developments follow the recent collapses of UK broker=dealer MF Global and the French-Belgian bank Dexia due primarily to their Greek exposure.