DEBT EXPOSURE:COMMERZBANK'S SECOND-QUARTER earnings were all but wiped out by a €760 million writedown on Greek bonds as Germany's second-largest bank by assets counted the cost of its large exposure to peripheral euro zone debt.

The bank announced just €55 million of operating profit in the three months to the end of June, compared with €771 million in the second quarter a year ago and €1.1 billion in the first three months of this year, while insisting its underlying businesses were making steady progress after the integration of Dresdner Bank. Quarterly net income fell 93 per cent year-on-year to €24 million.

Commerzbank followed a number of banks in acknowledging a Greek impairment after a euro zone summit last month when leading bondholders agreed to support a voluntary bond swap as part of a second Greek bailout package.

The €760 million is one of the largest amounts written down since the summit by a European bank. It amounts to a 21 per cent reduction in Commerzbank’s holdings, equivalent to the writedown agreed via the bond swap, although almost all of the bank’s holdings are due to mature after the 2020 date agreed for the debt reduction via the swap.

Commerzbank’s Eurohypo subsidiary – still scheduled to be sold off – was one of the most aggressive European banks in building up a large portfolio of sovereign debt from southern European countries. Martin Blessing, chief executive, said the bank had carried on reducing its peripheral holdings.

“We believe that we have . . . made adequate provision for current discernible default risks associated with the European debt crisis [but] there is a possibility of further impacts on the Commerzbank group in future,” Commerzbank said in its interim report. – (Copyright The Financial Times Limited 2011)