Commerzbank subprime bill approaches $1.2 billion

By John O'Donnell

FRANKFURT (Reuters) - Commerzbank <CBKG.DE> saw its bill from the subprime crisis creep up towards 800 million euros ($1.2 billion) in 2007 but still managed a record net profit for the year as bad debt provisions fell.

Germany's second-biggest listed bank said it made a net profit of 1.9 billion euros last year, broadly in line with what analysts had expected.

"We kept our word and met or exceeded our targets, despite the enormous challenges," chief executive Klaus-Peter Mueller said, adding that the bank planned to up its dividend by a third to 1 euro per share.

But the Frankfurt-based lender's problems with its 1.2 billion euro portfolio of subprime-linked investments cast a shadow over the results and Mueller's last year with the bank before he moves into the role of non-executive chairman in May.

Earlier this year, Martin Blessing, who takes over from Mueller, said management at Commerzbank had blundered by failing to take decisive action and ditch their investments in subprime mortgages when the market first wobbled.

"We have made mistakes and must learn our lessons," the 44-year-old manager had said in a recent interview with Reuters.

Commerzbank's share price has slumped by about 40 percent over the past six months, as fears about the cost of its subprime bill grew.

But investors were encouraged by the record result on Thursday. The bank's stock was indicated up around 3 percent.

The credit crisis, which started when U.S. home owners were squeezed by falling property prices and rising interest rates, has rocked the market for securitized debt and is threatening to drag down the global economy.

Any slip in growth would have a negative impact on Commerzbank. Its name means bank for trade and its business is mainly with small and medium-sized companies.

Germany has built its economy on the back of exports and its home-grown companies are especially vulnerable to global economic swings.

Mueller said he was confident for 2008 but sounded a note of caution. "If we are spared significant negative surprises, we will again be able to reach our good 2007 results," he said.

(Editing by Louise Ireland)