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Commerzbank takes $1.1 billion Greek writedown

Commerzbank takes $1.1 billion Greek writedown

August 10th, 2011 by DAVID McHUGH, AP Business Writer in News

FRANKFURT, Germany (AP) - Germany's Commerzbank AG reported Wednesday that net profit fell sharply in the second quarter as the bank wrote down (euro) 760 million ((euro) 1.09 billion) in bonds issued by financially troubled Greece.

The bank otherwise showed improved results from trading securities and its business financing medium-sized companies in a growing German economy.

Net profit fell to (euro) 53 million from (euro) 361 million in the same quarter a year ago.

The bank took the large writedown on Greek bonds effective June 30, the last day of the quarter. The Greek government has additionally asked bondholders to take new bonds with longer maturity and lower interest as part of its effort to solve its debt crisis. That exchange is expected to reduce bond value by 21 percent.

Financial institutions agreed to the exchange plan as creditors' contribution to a second, (euro) 109 billion bailout of Greece by eurozone governments aimed at solving the country's financial problems and preventing them from spreading to other countries. An earlier (euro) 110 billion package of bailout loans last year failed to put the country back on its feet.

The Frankfurt-headquartered bank showed improvement in other areas thanks to Germany's growing economy. It was able to reduce set-asides for bad loans to (euro) 278 million from (euro) 639 million a year ago, and the bank's business dealings with small and medium-sized German companies increased its operating earnings 29 percent to (euro) 501 million.

Income from trading securities rose 82 percent to (euro) 576 million.

"The core bank segments performed gratifyingly," CEO Martin Blessing said in a statement. "This demonstrates that the efforts we have made over the past two years have resulted in an efficient business model."

The bank raised (euro) 11 billion in new capital during the quarter and used other available capital to repay (euro) 14.3 billion in government aid it received during the financial crisis. The government's rescue fund retains a 25 percent stake.