REG-Commerzbank Aktiengesellschaft Commerzbank increases net profit for 2023 to €2.2 billion – Strategy is delivering

COMMERZBANK AGAnnouncement

15/02/2024 06:15

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   Commerzbank Aktiengesellschaft (CZB)
   Commerzbank increases net profit for 2023 to €2.2 billion – Strategy is
   delivering

   15-Feb-2024 / 07:04 CET/CEST
   The issuer is solely responsible for the content of this announcement.

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     • Operating result increased by more than 60% to €3.4 billion in 2023
       (2022: €2.1 billion) – net profit increased by 55% to €2.2 billion
     • Strong customer business and interest rate development lead to very
       strong net interest income and revenues increased to €10.5 billion
       (2022: €9.5 billion)
     • Costs reduced to €6.4 billion (2022: €6.5 billion) – cost-income ratio
       significantly improved to 61% (2022: 69%)
     • Decreased risk result of minus €618 million despite economic slowdown
       (2022: minus €876 million) – low non-performing loan ratio of 0.8%
     • Capital distribution of €1 billion for 2023 financial year planned –
       targeted dividend of around 35 cents per share complements ongoing
       share buy-back programme
     • Outlook 2024: net profit above 2023 levels and pay-out ratio of at
       least 70% targeted, but not more than net profit

   Commerzbank increased its net profit by more than 50% to €2.2 billion in
   the 2023 financial year. As a result, the Bank not only achieved a net
   profit well above that of the previous year but also generated its best
   result in 15 years. Despite high special burdens in Poland of around €1.1
   billion, the operating result rose by more than 60% to €3.4 billion. The
   Bank benefited from strong customer business and persistently high
   interest rates. Net interest income climbed to €8.4 billion. Net
   commission income contributed around €3.4 billion to the Bank’s revenues.
   The loan portfolio proved to be very robust, despite the continuing
   difficult economic environment. The risk result fell by around 30%, and
   the non-performing loan ratio was only 0.8%. The CET 1 ratio improved over
   the course of the year to 14.7%, which puts the Bank comfortably above of
   the regulatory minimum requirement.

   The excellent overall annual result enables the Bank to return capital to
   its shareholders. Overall, the Bank is planning a pay-out ratio of 50% of
   net profit after deduction of AT1 coupon payments. Currently, a share
   buy-back programme with a volume of up to €600 million is under way. In
   addition, the Bank intends to distribute a dividend of around 35 cents per
   share, subject to the approval of the Annual General Meeting.

   “Commerzbank had an excellent financial year 2023. We delivered on the key
   objectives of our ‘Strategy 2024’ ahead of schedule and in some areas we
   even exceeded them. On this basis, we will achieve a further increase in
   net profit for the current year”, said CEO Manfred Knof. “The goals we
   have set ourselves with our strategy 2027 are ambitious, but achievable.
   That’s why we’re now moving full steam ahead with the implementation. We
   want to broaden our revenue base and thus become less dependent on net
   interest income. In sales, we have made a very strong start to the new
   year in both customer segments. This confirms our strategy and gives us
   additional tailwind.”

   The implementation of Commerzbank’s strategic plan until 2027 is already
   showing initial signs of success. In line with the strategic pillars of
   growth, excellence, and responsibility, the Bank has set itself the goal
   of providing each customer with a tailor-made offering that meets their
   individual needs. This includes further developing its payment transaction
   solutions and launching a joint venture, Commerz Globalpay GmbH, to offer
   digital payment products to business customers in Germany. The product
   offering will include, for example, a smartphone-based payment application
   that enables retailers to accept mobile payments without a separate card
   reader.

   The Bank is also stepping up its growth in the field of sustainability.
   With the agreed majority stake in Aquila Capital Investmentgesellschaft
   based in Hamburg, Commerzbank is significantly expanding its sustainable
   asset management offerings. The investment company specialises in real
   asset-based investments, such as renewable energy and sustainable
   infrastructure projects. This investment opens up growth opportunities for
   the Bank and will have a positive impact on its commission income. The
   transaction is subject to the approval of the regulatory authorities.

   In the Corporate Clients segment, Commerzbank has expanded its successful
   collaboration with ODDO BHF as an exclusive partnership in the field of
   Equity Capital Markets (ECM) for the Swiss market. In Switzerland – a key
   part of our DACH home market – Commerzbank will now be able to offer
   equity research for around 50 listed companies and provide its customers
   with the full ECM product range.

   Strong customer business delivers record result in 2023 financial year

   Commerzbank increased its revenues in the 2023 financial year by around
   11% to €10.461 billion (2022: €9.461 billion), supported by strong
   customer business and a sustained tailwind from higher interest rates.
   Once again, this includes high special burdens due to provisions for legal
   risks from Swiss franc loans at the subsidiary mBank in Poland. In 2023,
   these totalled €1.094 billion (2022: €650 million). Net interest income
   rose by a third to €8.368 billion (2022: €6.459 billion), while net
   commission income was slightly down at €3.386 billion (2022: €3.519
   billion).

   Commerzbank continued its strict cost discipline in 2023 and reduced its
   total costs to €6.422 billion (2022: €6.486 billion). High inflationary
   pressure as well as expenses for inflation compensation payments and
   higher provisions for variable compensation due to the good result were
   partially offset by the Bank through active cost management. As a result,
   operating expenses increased to €6.006 billion (2022: €5.844 billion). In
   turn, compulsory contributions fell to €415 million (2022: €642 million)
   due to a lower European bank levy compared to the previous year and lower
   contributions to the deposit guarantee scheme in Poland. The cost-income
   ratio continued to improve significantly over the full year to 61% (2022:
   69%).

   Despite the ongoing effects of the war in Ukraine and the weak economy
   with rising insolvencies, the risk result in 2023 was significantly lower
   than in the previous year, at minus €618 million due to releases (2022:
   minus €876 million). The Bank also continues to maintain an additional
   general risk provision (Top-Level Adjustment, TLA) of €453 million, which
   is available for expected secondary effects, such as supply chain
   disruptions and uncertainties due to inflation, and the effects of the
   current restrictive monetary policy. The quality of the loan book
   continues to be very high with a non-performing loan ratio (NPE ratio) of
   just 0.8% at the end of the year.

   Overall, Commerzbank increased its operating result by more than 60% to
   €3.421 billion in the past financial year (2022: €2.099 billion). Net
   profit also rose accordingly: compared to the previous year, net profit
   after taxes and minority interests increased by 55% to €2.224 billion
   (2022: €1.435 billion).

   The Common Equity Tier 1 ratio (CET 1 ratio) once again increased to a
   very comfortable 14.7% as of 31 December 2023 (December 2022: 14.1%). The
   accrual for the planned capital return is already reflected in this. The
   buffer to the regulatory minimum requirement, based on SREP requirements
   effective from 1 January 2024, of around 10.3% was 435 basis points.
   Return on equity (RoTE) improved significantly to 7.7% (2022: 4.9%) at the
   end of the financial year, with the Bank already exceeding the previous
   target of 7.3% set for 2024.

   Due to the strong business result, Commerzbank plans to return a total of
   around €1 billion of capital to its shareholders. This corresponds to the
   target set out in the capital return policy of returning 50% of its net
   profit for 2023 after deduction of the AT1 coupon payments. Part of the
   capital return is the current share buy-back programme with a volume of up
   to €600 million. In addition, the Board of Managing Directors is planning
   a dividend payment of around 35 cents per share, which is subject to
   approval by the Annual General Meeting at the end of April.

   “We continued to significantly increase the Bank’s profitability last
   year. Now, we need to consolidate the trust we have earned on the capital
   market”, said Chief Financial Officer Bettina Orlopp. “We want to be an
   attractive investment. Therefore, we are planning to return around
   €1 billion to our shareholders for the 2023 financial year. For 2024, we
   are aiming for a pay-out ratio of at least 70%, but not more than the net
   result after deduction of AT1 coupon payments. This is an integral part of
   our strategic plan until 2027, and we will continue to focus on a
   combination of dividend payments and share buy-backs – the latter subject
   to the approval of the European Central Bank and the German Finance
   Agency.”

   Development of segments: continued deposit growth

   The Private and Small-Business Customer (PSBC) segment in Germany
   generated revenues of €4.139 billion in the financial year 2023 (2022:
   €4.318 billion) and an operating result of €878 million (2022: €1.091
   billion). The segment’s customer business performed well in the fourth
   quarter. The lower revenues of €896 million (Q3 2023: €1.046 billion) and
   the operating result of minus €10 million (Q3 2023: €299 million) largely
   reflect an on Group level neutral adjustment in the replication portfolio
   as well as the revaluation of a participation. Excluding these effects,
   customer revenues in the final quarter remained stable.

   The securities volume rose to €215 billion at the end of the year (Q4
   2022: €189 billion). The lending volume remained stable at €124 billion
   (Q4 2022: €124 billion), as did the mortgage volume at €94 billion (Q4
   2022: €94 billion). Despite intense competition, customer deposits
   increased to €166 billion at the end of the year (Q4 2022: €155 billion).
   Growth in the final quarter totalled €9 billion (Q3 2023: €157 billion).

   In Poland, mBank generated revenues of €1.235 billion in the full year
   2023 (2022: €948 billion) thanks to strong customer business and high
   interest rates. This enabled it to compensate for the once again high
   special burdens of €1.094 billion (2022: €650 million) due to provisions
   for legal risks in connection with Swiss franc loans. In 2023, mBank
   contributed €146 million to the Group’s operating result (2022: minus €90
   million). Without the special burdens due to the additional provisioning
   for legal risk of Swiss franc mortgages and the so-called credit holidays,
   mBank would have increased its operating result to €1.228 billion in 2023
   (2022: €839 million).

   The Corporate Clients segment doubled its operating result to €2.142
   billion in 2023 (2022: €1.065 billion). This was due to the favourable
   interest rate environment, a very low risk result, and reduced costs. In
   the fourth quarter, customer business remained stable across all customer
   groups, while valuation effects at the end of the year had a slightly
   dampening effect on the result. Revenues amounted to €1.106 billion (Q3
   2023: €1.171 billion); the operating result totalled €508 million (Q3
   2023: €644 million). For the financial year 2023, revenues in the
   Corporate Clients business increased by 18% to €4.481 billion (2022:
   €3.792 billion).

   Outlook 2024: Important milestones on the way to 2027 targets

   The continuing economic slowdown will remain a challenge in the current
   financial year. Commerzbank is confident that it will make further
   progress in implementing its strategic plan until 2027. The Bank targets
   net interest income at around €7.9 billion due to a higher deposit beta
   and the anticipated interest rate reductions. Commerzbank aims to increase
   net commission income by 4 %. The Bank is targeting a cost-income ratio of
   60%. From today’s perspective, Commerzbank aims for a risk result below
   minus €800 million for the full year assuming usage of TLA. The CET 1
   ratio is expected to be higher than 14% due to planned capital return and
   RWA growth. The Bank aims for a net profit higher than in 2023.

   Based on its capital return policy Commerzbank targets a pay-out ratio of
   70 + X% for the financial year 2024, but not more than the net result
   after deduction of AT1 coupon payments. The capital will be distributed
   via dividend payments and share buy-backs. All share buy-backs must be
   authorised by the European Central Bank and the German Finance Agency. The
   outlook is based on the assumption of a mild recession in Germany and is
   subject to the future development of Swiss franc loan burdens at mBank.

    

   Financial figures at a glance

   in €m                  2023  2022    2023 Q4 2023 Q4 2022  Q4 2023 Q3 2023
                                     vs 2022                    vs Q4
                                        in %                     2022
                                                                 in %
   Net interest income   8,368 6,459  + 29.6   2,126   1,958    + 8.5   2,166
   Net commission        3,386 3,519   – 3.8     798     806    – 0.9     831
   income
   Net fair value^1      – 359   451           – 202   – 143   – 41.5    – 67
   Other income          – 933 – 967   + 3.5   – 313   – 258   – 21.3   – 175
   Total revenues       10,461 9,461  + 10.6   2,409   2,363    + 2.0   2,755
   Revenues excl.       10,438 9,513   + 9.7   2,434   2,401    + 1.4   2,727
   exceptional items
   Risk result           – 618 – 876  + 29.4  –  252  –  222   – 13.3    – 91
   Operating expenses    6,006 5,844   + 2.8   1,557   1,553    + 0.2   1,504
   Compulsory              415   642  – 35.3      59      59    – 1.0      45
   contributions
   Operating profit or   3,421 2,099  + 63.0     542     528    + 2.6   1,116
   loss
   Restructuring costs      18    94  – 80.4       4      40   – 89.1       6
   Pre-tax profit or     3,403 2,005  + 69.7     537     488   + 10.2   1,109
   loss
   Taxes                 1,188   612  + 94.2     166    – 41              405
   Minorities             – 10  – 42  + 76.5   –  24      57               20
   Consolidated profit   2,224 1,435  + 55.0     395     472   – 16.4     684
   or loss^2
   Cost-income ratio in   57.4  61.8            64.6    65.7             54.6
   operating business
   excl. compulsory
   contributions (%)
   Cost-income ratio in   61.4  68.6            67.1    68.2             56.2
   operating business
   incl. compulsory
   contributions (%)
   Operating RoTE (%)     11.3   7.2             7.0     7.2             14.6
   Net RoTE (%)^3          7.7   4.9             5.2     6.7              9.6
   Net RoE (%)             7.4   4.7             5.0     6.5              9.2
   CET 1 ratio (%)^3      14.7  14.1            14.7    14.1             14.6
   Leverage ratio          4.9   4.9             4.9     4.9              4.9
   Total assets (€bn)      517   477             517     477              510

   ^1 Net income from financial assets and liabilities measured at fair value
   through profit and loss.
   ^2 Net profit attributable to Commerzbank shareholders and investors in
   additional equity components.
   ^3 Reduced by pay-out accrual and potential (fully discretionary) AT1
   coupons.

    

   The figures for the year 2023 presented in this press release are
   preliminary and unaudited.

   Today’s annual press conference will be broadcast live on the
    1 Commerzbank website from 10.30 a.m. (CET) onwards.

    

   Press contact
   Kathrin Jones  +49 69 9353-45687
   Svea Junge  +49 69 9353-45691

   Investors’ contact
   Jutta Madjlessi  +49 69 9353-47707
   Michael Klein  +49 69 9353-47703

    

   About Commerzbank
   Commerzbank is the leading bank for the German Mittelstand and a strong
   partner for around 25,500 corporate client groups and almost 11 million
   private and small-business customers in Germany. The Bank’s two Business
   Segments – Private and Small-Business Customers and Corporate Clients –
   offer a comprehensive portfolio of financial services. Commerzbank
   transacts approximately 30 per cent of Germany’s foreign trade and is
   present internationally in more than 40 countries in the corporate
   clients’ business. The Bank focusses on the German Mittelstand, large
   corporates, and institutional clients. As part of its international
   business, Commerzbank supports clients with a business relationship to
   Germany, Austria, or Switzerland and companies operating in selected
   future-oriented industries. In the Private and Small-Business Customers
   segment, the Bank is at the side of its customers with its brands
   Commerzbank and comdirect: online and mobile, in the advisory centre, and
   personally in its branches. Its Polish subsidiary mBank S.A. is an
   innovative digital bank that serves approximately 5.8 million private and
   corporate customers, predominantly in Poland, as well as in the Czech
   Republic and Slovakia.

   Disclaimer
   This release contains forward-looking statements. Forward-looking
   statements are statements that are not historical facts. In this release,
   these statements concern inter alia the expected future business of
   Commerzbank, efficiency gains and expected synergies, expected growth
   prospects and other opportunities for an increase in value of Commerzbank
   as well as expected future financial results, restructuring costs and
   other financial developments and information. These forward-looking
   statements are based on the management’s current plans, expectations,
   estimates and projections. They are subject to a number of assumptions and
   involve known and unknown risks, uncertainties and other factors that may
   cause actual results and developments to differ materially from any future
   results and developments expressed or implied by such forward-looking
   statements. Such factors include the conditions in the financial markets
   in Germany, in Europe, in the USA and other regions from which Commerzbank
   derives a substantial portion of its revenues and in which Commerzbank
   holds a substantial portion of its assets, the development of asset prices
   and market volatility, especially due to the ongoing European debt crisis,
   potential defaults of borrowers or trading counterparties, the
   implementation of its strategic initiatives to improve its business model,
   the reliability of its risk management policies, procedures and methods,
   risks arising as a result of regulatory change and other risks.
   Forward-looking statements therefore speak only as of the date they are
   made. Commerzbank has no obligation to update or release any revisions to
   the forward-looking statements contained in this release to reflect events
   or circumstances after the date of this release.

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   Dissemination of a Regulatory Announcement, transmitted by EQS Group.
   The issuer is solely responsible for the content of this announcement.

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   ISIN:          DE000CBK1001
   Category Code: ACS
   TIDM:          CZB
   LEI Code:      851WYGNLUQLFZBSYGB56
   Sequence No.:  303816
   EQS News ID:   1837627


    
   End of Announcement EQS News Service

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