Commerzbank AG (OTC:)’s CFO, Bettina Orlopp, voiced criticism of a proposal to increase the European Central Bank (ECB) minimum reserve requirement from 1% to as high as 10% at the S&P Global Ratings conference in Frankfurt on Thursday. The proposal is backed by Austrian Central Bank Governor Robert Holzmann and some members of the ECB Governing Council who believe it would strengthen monetary policy by reducing banking system liquidity.
Orlopp, alongside other banking figures including French central bank head Francois Villeroy de Galhau, argued that the proposed hike could potentially harm banks’ profits and lending ability. S&P Global Ratings analyst Nicolas Charnay estimates that a mere 1% increase in the reserve requirement could slice off 4% from affected banks’ pretax profit.
The ongoing debate over the reserve requirement follows the ECB’s recent decision to stop interest payments on reserves, which currently total €165 billion ($175 billion). This move is expected to cost Commerzbank (ETR:) €100 million annually, as disclosed during an investor call in August. Previously, the ECB paid a rate on reserves that increased with its deposit facility rate, reaching 4% in September.
According to InvestingPro data, Commerzbank AG, also known as CBKG, has a market cap of 13506.05M USD and an impressive P/E ratio of 7.94, indicating a potentially undervalued stock. This aligns with one of the InvestingPro Tips that the company is trading at a low P/E ratio relative to near-term earnings growth. The company has also shown a promising revenue growth of 6.04% in the last twelve months up to Q2 2023. Despite this, analysts from InvestingPro have pointed out that the company is quickly burning through cash and suffers from weak gross profit margins.
InvestingPro’s data further reveals that the company has a return on assets of 0.33% and a dividend yield of 1.92%. The company’s stock has shown a positive trend with a 1-year price total return of 46.58%, and it is trading at 86.59% of its 52-week high. The next earnings date for the company is slated for November 8, 2023.
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