REG-Commerzbank Aktiengesellschaft Commerzbank reports highest net profit in more than ten years thanks to strong revenue performance – positive outlook for 2023

COMMERZBANK AGAnnouncement

16/02/2023 06:15

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   Commerzbank Aktiengesellschaft (CZB)
   Commerzbank reports highest net profit in more than ten years thanks to
   strong revenue performance – positive outlook for 2023

   16-Feb-2023 / 07:04 CET/CEST
   Dissemination of a Regulatory Announcement, transmitted by EQS Group.
   The issuer is solely responsible for the content of this announcement.

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     • Operating result in 2022 increased significantly to €2.1 billion
       (2021: €1.2 billion) despite one-off burdens in Poland – net profit
       more than tripled to €1.4 billion
     • Revenues increased by 12% to €9.5 billion thanks to dynamic
       development in customer business and interest rate turnaround
     • Costs reduced by 3.2% to €6.49 billion despite strong inflationary
       pressure and significant increase in compulsory contributions –
       cost-income ratio improved to 68.6% (2021: 79.3%)
     • High credit quality maintained – risk result at minus €876 million
       (2021: minus €570 million) due to economic downturn and Russia – ~
       €500 million TLA still available
     • 30 % pay-out ratio planned: dividend proposal of 20 cents per share
       and €122 million share buyback subject to ECB approval intended
     • Outlook 2023: Net result well above 2022 expected and a pay-out ratio
       of 50% targeted

   Commerzbank more than tripled its net profit in the 2022 financial year to
   more than €1.4 billion despite the difficult economic environment and high
   one-off burdens in Poland, thereby clearly exceeding the announced target
   of over €1 billion. This is the highest profit in more than ten years. The
   Common Equity Tier 1 ratio improved further to a very comfortable 14.1%.
   The Bank has therefore the capacity to resume returning capital to its
   shareholders. In accordance with its capital return policy, the Bank
   intends to distribute 30% of its net profit after deduction of AT1 coupon
   payments by planning a dividend of 20 cents per share and by applying for
   a share buyback programme of €122 million.

   Thanks to a strong customer business and with the tailwind of higher
   interest rates, revenue momentum accelerated over the course of the year.
   In addition, the Bank was able to reduce costs despite increasing
   inflationary pressures. The loan book also proved to be resilient in the
   face of economic uncertainties and the consequences of the Russian war of
   aggression against Ukraine. With the still available Top-Level Adjustment
   (TLA) of almost €500 million, the Bank is well prepared for the continuing
   economic challenges.

   “Commerzbank has delivered as promised: We achieved our strategic and
   financial goals in the 2022 financial year. Despite the difficult economic
   environment and the high one-off burdens in Poland, we more than tripled
   our net profit and thus increased it even more than expected. That proves
   our strategy is working. Our turnaround is a success. Commerzbank is
   back,” said the Chairman of the Board of Managing Directors Manfred Knof.
   “At the halfway point of our transformation programme, we are on track to
   becoming the digital advisory bank for Germany. We will continue to keep
   up the pace in the second half of the implementation of our ‘Strategy
   2024’ and achieve our return targets. Without slackening on cost
   discipline, we are now focusing on the customer business and revenue.
   Especially in light of the current profound social and economic changes,
   our strengths in the advisory business are paying off.”

   The transformation of the Bank is well on track and the new business model
   in Germany and abroad is in place. The planned gross reduction of around
   10,000 full-time equivalents with almost 9,000 departures contracted
   mainly in Germany has been finalised for the most part. In adjusting its
   branch network, Commerzbank has reached its target of 450 locations in
   Germany envisaged in the “Strategy 2024” already by mid-2022. This year it
   will be heading to the new target size of around 400 branches.

   The branch network is now complemented by the new advisory centre. As an
   additional sales channel, it bridges the gap between the branches, online
   banking, and mobile banking. Here, qualified advisors are available to
   customers via telephone, email, or video, including in the evenings and at
   weekends – covering all financial topics such as accounts, cards,
   securities investments, and real estate financing. At the same time,
   comdirect will continue to expand its digital offerings as a bank for
   digitally savvy customers. Furthermore, Commerzbank intends to exploit
   revenue potential in asset management. In this context, business with
   affluent customers is to be expanded through targeted investments,
   especially to make Commerzbank even more attractive for new customer
   groups.

   The Corporate Clients segment will build on its strengths as the leading
   bank for the Mittelstand and number one in foreign trade and leverage its
   advisory expertise to support its customers in the ongoing transformation
   of the economy. To this end, the Bank is responding to the current
   profound global shifts in world trade by adapting its foreign network as
   already communicated and will open new representative offices in Morocco
   and Jordan. With “Mittelstandsbank Direkt”, Commerzbank has also
   established the first comprehensive direct banking offering for small and
   medium-sized enterprises (SMEs) on the German market. Having migrated the
   first 6,000 customers to the new digital support model, the Bank will now
   further expand its offering, which will also be open to new customers.

   The Bank will continue to drive the sustainable conversion of the economy
   and put an increased focus on environmental, social, and governance (ESG)
   issues. Already in 2022, the sustainable business volume increased to €246
   billion (2021: €194 billion), for example through new ESG loans, green
   bonds, and sustainable investments. In addition, the Bank established a
   new ESG framework last year, which outlines the criteria for sustainable
   lending and explains reduction targets for CO2-intensive sectors. For more
   than half of its lending volume to private and corporate customers or 85%
   of the financed emissions, Commerzbank has meanwhile set concrete CO2
   reduction targets resting on the scientifically based guidelines of the
   Science-Based Target Initiative (SBTi). In the current year, the Bank
   intends to further expand its ESG product range in the areas of financing,
   investments, derivatives, and research and thus build a sustainable
   ecosystem for Commerzbank customers. A focus in 2023 will be on the topics
   of biodiversity and social sustainability. This year, the sustainable
   business volume is to increase to €257 billion.

   Strong revenues in customer business compensate for burdens in Poland

   Buoyed by strong customer business, especially in the Corporate Clients
   segment, and thanks to the positive effects of the interest rate
   turnaround, Commerzbank increased its revenue by approximately 12% to
   €9.461 billion in 2022 (2021: €8.450 billion). This includes material
   one-off charges at the Polish subsidiary mBank. For the introduced
   so-called “credit holiday” scheme in Poland alone, negative revenue of
   €278 million plus a further €650 million in additional provisions for
   legal risks related to Swiss franc loans were incurred.

   In the operating business, revenue momentum picked up strongly over the
   course of the year. As such, in the fourth quarter, underlying earnings in
   the Group saw an improvement of almost 30% year-on-year to reach €2.401
   billion and by 18% for the entire year, amounting to €9.513 billion.
   Thanks to the tailwind from rising interest rates, net interest income for
   the full year 2022 increased by 33% to €6.459 billion (2021: €4.849
   billion). In contrast, net commission income declined by 2.4% to €3.519
   billion (2021: €3.607 billion) due to a market-related downturn in the
   securities business.

   Despite growing inflationary pressures, Commerzbank has reduced its
   operating expenses by 6.2% to €5.844 billion in 2022 (2021: €6.230
   billion). This reflects the savings from branch closures and job cuts. It
   was partly offset by higher provisions for the variable remuneration of
   employees. Compulsory contributions increased by 37.4% to €642 million
   (2021: €467 million). Of this, €326 million were incurred at mBank alone,
   where the additional contribution of €91 million to the Institutional
   Protection Scheme and the increase of the Borrowers’ Support Fund with a
   further €36 million had negative impacts. In addition, there was a further
   increase in the European bank levy. The Group’s total expenses fell by
   3.2% to €6.486 billion in 2022 (2021: €6.697 billion). The cost-income
   ratio improved significantly to 68.6% (2021: 79.3%) and thus has come a
   big step closer to the medium-term target of 60%.

   The risk result in 2022 amounted to minus €876 million and was affected by
   the increased economic uncertainties in the course of the year and the
   economic impact of the Russian war of aggression against Ukraine. In this
   context, the Bank continues to have an additional general loan loss
   provision (Top-Level Adjustment, TLA) of €482 million, which will be
   available for expected secondary effects like supply chain disruptions or
   higher energy prices. The quality of the Bank’s loan book remains very
   high with a non-performing loan ratio (NPE ratio) of only 1.1%.

   In total, the operating result in 2022 increased by more than three
   quarters to reach €2.099 billion (2021: €1.183 billion). In the fourth
   quarter alone, the Bank significantly increased its operating result to
   €528 million (Q4 2021: €141 million). All in all, the net profit after tax
   and minority interests more than tripled to €1.435 billion (2021: €430
   million).

   The Common Equity Tier 1 ratio (CET 1 ratio) rose to a very comfortable
   14.1% as of 31 December 2022 (December 2021: 13.6%, September 2022:
   13.8%). This already takes into account the accrual for the planned
   pay-out of 30% of the net profit. As of end of December, the gap to the
   regulatory minimum requirement (MDA threshold) of around 9.5% was thus
   almost 470 basis points. The gap to the new MDA threshold, which is raised
   to around 10.1% in the first quarter of 2023 due to activated
   countercyclical and sector-specific capital buffers, is also very
   comfortable. The net return on tangible equity (RoTE) improved to 4.9% and
   thus made a leap forward towards the medium-term target of more than 7.3%
   in 2024.

   Thanks to the good financial result of 2022, the Bank plans to distribute
   30% of its 2022 net profit after deduction of AT1 coupon payments to its
   shareholders in line with its capital return policy. Thereof, €250 million
   will be paid through a 20 cents per share dividend if the planned proposal
   is approved by the Annual General Meeting at the end of May. In addition,
   with the approval of the Supervisory Board, the Board of Managing
   Directors has submitted an application for the approval of a share buyback
   programme with a volume of €122 million to the European Central Bank (ECB)
   and the Finance Agency.

   “Our strong net profit proves that we have increased the Bank’s
   competitiveness and resilience. Commerzbank is now able to buffer crises
   and high extraordinary burdens without affecting its capital base. This
   gives us the strength to resume capital distribution to our shareholders,”
   said Chief Financial Officer Bettina Orlopp. “It is important to us that
   our shareholders benefit from our financial success. We deliberately chose
   a combination of the planned dividend payment and the applied for share
   buyback programme. As the Board of Managing Directors, we are convinced
   that our strategy will continue to create much value in the coming years
   and that we will be able to distribute further capital to our shareholders
   in accordance with our capital return policy.”

   Segment development: Strong revenue momentum in both segments

   The Corporate Clients segment increased its operating result by a good 60%
   to €1.066 billion (2021: €656 million) and thereby achieved the best
   result since 2016. There were increases across all product and customer
   groups. Net interest income increased by 23% and net commission income by
   almost 6%. Overall, revenues climbed by almost 20% to €3.792 billion
   (2021: €3.169 billion). The segment was thus also able to more than offset
   the higher charges from the risk result. The cost-income ratio amounted to
   60.1% (2021: 74.6%).

   Backed by the interest rate turnaround, the Private and Small-Business
   Customers (PSBC) segment improved its operating result in Germany by 43%
   to €1.090 billion (2021: €760 million). Revenues increased by 8% to €4.321
   billion (2021: 3.997 billion). This is based on an increase in net
   interest income of 22% to €2.246 billion (2021: €1.837 billion), while net
   commission income was down by almost 9% to €1.904 billion (2021: €2.089
   billion). This reflects a €30 billion drop in securities volume to €189
   billion as a result of weaker stock markets. In contrast, the segment’s
   lending volume continued to rise by around €3 billion to €124 billion in
   2022. The mortgage volume increased to €95 billion, but new business
   cooled over the course of the year. The deposit volume increased by more
   than €7 billion to €155 billion in 2022, the increase in the fourth
   quarter amounted to €2 billion.

   mBank benefited from the surge in interest rates in Poland and nearly
   doubled its underlying revenues to €1.227 billion (2021: €687 million).
   However, this was more than offset by the burdens from the possibility of
   interest and redemption deferrals for private real estate financing
   (“credit holidays”) introduced by the Polish government as well as the
   additional provisioning for legal risk of Swiss franc mortgages and the
   increase in compulsory contributions. Overall, mBank reported an operating
   result of minus €90 million (2021: minus €186 million).

   Outlook 2023: Positive development expected to continue

   Commerzbank expects another demanding year in view of the challenging
   environment. It remains however optimistic that it will continue its
   strong business performance and thus make further progress towards its
   medium-term goals. The Bank anticipates a further increase in net interest
   income to well above €6.5 billion with clear additional upside potential.
   Net commission income is expected to remain stable. The Bank is aiming for
   a further reduction in total costs to €6.3 billion, even though the
   cost-income ratio is the key steering metric. On the assumption of using
   TLA, the Bank expects a risk result of less than minus €900 million. It
   predicts the CET1 ratio to be around 14%. All in all, the Banks aims for a
   net result well above that of 2022. In addition, the Bank intends to
   increase the pay-out ratio to 50% of the consolidated profit after
   deduction of AT1 coupon payments. The outlook is based on the assumptions
   that there will be a mild recession and that there will be no further
   substantial exceptional charges at mBank.

    

   Financial figures at a glance

   in €m                  2022  2021   22 vs Q4 2022 Q4 2021    Q4 22 Q3 2022
                                     21 in %                 vs Q4 21
                                                                 in %
   Net interest income   6,459 4,849   +33.2   1,958   1,300    +50.7   1,621
   Net commission income 3,519 3,607    -2.4     806     921    -12.6     849
   Net fair value*         451   980   -54.0    -143     334              172
   Other income           -967  -985    +1.9    -258    -459    +43.8    -757
   Total revenues        9,461 8,450   +12.0   2,363   2,097    +12.7   1,886
   Revenues excl.        9,513 8,062   +18.0   2,401   1,862    +28.9   2,066
   exceptional items
   Risk result            -876  -570   -53.7    -222    -313    +29.0     -84
   Operating expenses    5,844 6,230    -6.2   1,553   1,578     -1.6   1,429
   Compulsory              642   467   +37.4      59      65     -8.7      91
   contributions
   Operating profit or   2,099 1,183   +77.5     528     141              282
   loss
   Restructuring costs      94 1,078   -91.3      40      26    +56.1      14
   Pre-tax profit or     2,005   105             488     115              267
   loss
   Taxes                   612  -248             -41    -199    +79.4     228
   Minorities              -42   -77   +45.7      57    -107             -155
   Consolidated profit   1,435   430             472     421    +12.1     195
   or loss**
   Cost-income ratio in
   operating business     61.8  73.7            65.7    75.3             75.8
   excl. compulsory
   contributions (%)
   Cost-income ratio in
   operating business     68.6  79.3            68.2    78.4             80.6
   incl. compulsory
   contributions (%)
   Operating RoTE (%)      7.2   4.2             7.2     2.0              3.8
   Net RoTE (%)***         4.9   1.0             6.7     6.0              2.2
   Net RoE (%)             4.7   1.0             6.5     5.8              2.2
   CET 1 ratio (%)***     14.1  13.6            14.1    13.6             13.8
   Leverage Ratio (%)      4.9   5.2             4.9     5.2              4.5
   Total assets (€bn)      477   467             477     467              536

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

   The figures for the year 2022 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

   Erik Nebel  +49 69 136-44986

   Kathrin Jones   +49 69 136-27870

   Sina Weiß  +49 69 136-27977

    

   Contact for investors

   Jutta Madjlessi  +49 69 136-28696

   Michael Klein  +49 69 136-24522

   About Commerzbank

   Commerzbank is the leading bank for the German Mittelstand and a strong
   partner for around 26,000 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 almost 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 German connectivity 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 5.7
   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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   ISIN:          DE000CBK1001
   Category Code: MSCU
   TIDM:          CZB
   LEI Code:      851WYGNLUQLFZBSYGB56
   Sequence No.:  223504
   EQS News ID:   1561121


    
   End of Announcement EQS News Service

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