Frankfurt: Cost cuts and fewer bad loans helped Germany's Commerzbank AG improve fourth-quarter profit to 316 million euros (Dh1.54 billion) at the end of a year that saw its finances battered by the Eurozone debt crisis and heavy losses on Greek bonds.

The net result announced on Thursday improves on profit of 257 million euros in the same quarter a year ago.

And it's far better than the 687 million euros loss recorded in the third quarter, when the company had large writeoffs for Greek government bonds.

Fourth quarter earnings included a further writedown of roughly 700 million euros in Greek bonds, a loss that was offset by a gain from repurchasing some of the bank's own debt securities.

Shares in Commerzbank dropped 5 per cent in morning trading in Germany.

The Frankfurt-based bank improved earnings from its basic businesses through a reduction in operating costs of about 18 per cent, to ¤1.77 billion from 2.16 billion euros a year earlier, crediting the integration of its acquisition Dresdner Bank for creating savings through shared costs.

Economy shrinks

Bad loans fell to 381 million euros from 595 million euros thanks to the relatively robust economy in Germany, where the bank's mainstay business is lending to small and medium-sized industrial companies.

Germany saw its economy shrink 0.2 per cent in the fourth quarter but growth for the year was a strong three per cent, exports remain strong and unemployment is low.

For all of 2011, Commerzbank's net profit fell to 638 million euros  from 1.43 billion euros in 2010 as the bank took losses on the Eurozone debt crisis. All told it wrote down its large portfolio of Greek government bonds by 73.6 per cent.

It said that it had now adequately accounted for losses that would come from an expected debt swap that will reduce the financially prostrate Greek governments debt burden.

The swap is aimed at helping get the country back on its feet and off bailout support by other Eurozone countries and the International Monetary Fund by 2015.

The deal will cut the face value of bondholders' investments by 53.5 per cent. Total losses from the swap including interest have been estimated by international finance officials at around 70 per cent.

Commerzbank said that since the value of the new bonds could not yet be finally determined, it would use standard market discount rates that are used to value comparable bonds.

The resulting calculation leaves its holdings at 26.4 per cent of their value, or a 73.6 per cent loss.

Commerzbank said it had "made adequate provision for current discernible default risks associated with the European debt crisis" but added that continuing uncertainty makes further losses possible.