REG-Commerzbank Aktiengesellschaft Commerzbank with strong first half of the year – net profit increased by almost 50% to €1.1 billion

COMMERZBANK AGAnnouncement

04/08/2023 06:15

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   Commerzbank Aktiengesellschaft (CZB)
   Commerzbank with strong first half of the year – net profit increased by
   almost 50% to €1.1 billion

   04-Aug-2023 / 07:03 CET/CEST
   The issuer is solely responsible for the content of this announcement.

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     • Operating result up by 19% to €888 million in Q2, net profit increased
       by 20% to €565 million
     • Q2 revenues improved by 9% to €2.6 billion with strong contributions
       from customer business and momentum due to higher interest rates –
       burdens in Poland offset
     • Costs reduced by 2% to €1.5 billion (Q2 2022: €1.6 billion) –
       cost-income ratio in the first half of the year at 61% (H1 2022: 64%)
     • Q2 risk result of minus €208 million (Q2 2022: minus €106 million) in
       line with expectations – credit quality remains high
     • CET1 ratio increased to 14.4% – Bank to apply to ECB and German
       Finance Agency for approval of further share buyback
     • Full year outlook for net interest income increased to at least
       €7.8 billion – net profit for 2023 expected well above 2022

   Commerzbank continued its upward trend in the second quarter of 2023.
   Thanks to its ongoing strong customer business and the continued momentum
   from interest rate developments, the Bank further increased its revenues
   and profitability. In the first six months of 2023, Commerzbank already
   earned more than €1.1 billion – an increase of almost 50% year-on-year
   while compensating for new burdens from mBank’s Swiss franc mortgages of
   €347 million in the second quarter. Thanks to its active cost management,
   Commerzbank was able to withstand the high inflationary pressure. The
   cost-income ratio improved to 61% in the first half of the year. The
   quality of the loan book remained high, and the risk result was in line
   with expectations.

   Commerzbank’s ongoing transformation is increasingly paying off. In
   addition to the positive effects from interest rate developments, the Bank
   also noticeably improved its capital deployment in the Corporate Clients
   segment by reducing business with low RWA efficiency. Furthermore, the
   digitalisation of the retail banking business continues to pick up speed.
   Through its digital offering and services, the Bank has significantly
   expanded customer accessibility in recent months and thus further
   strengthened the basis for its new retail business model.

   “The first half of the year was yet another very good one for Commerzbank.
   We are consistently implementing our strategy and have significantly
   increased profits thanks to strong revenues from our customer business,
   despite additional high burdens from Swiss franc mortgages in Poland. We
   are fully on track to achieve our targets for 2023 and 2024,” said
   Commerzbank’s Chairman of the Board of Managing Directors, Manfred Knof.

   Operating performance: Net interest income at record level

   Revenues increased by 8.7% to €2.629 billion in the second quarter (Q2
   2022: €2.420 billion) despite the additional burdens from the Swiss franc
   mortgages at the Polish subsidiary mBank. Thanks to the continued rise in
   Euro interest rates, revenues were once again driven by net interest
   income, which increased by 44.1% to a record level of €2.130 billion (Q2
   2022: €1.478 billion). In contrast, net commission income fell by 6% to
   €841 million (Q2 2022: €894 million) because of a weaker securities
   business driven by the turnaround in interest rates and less revenues of
   Commerz Real.

   Despite inflationary pressures, total costs were reduced by 2.2% to €1.533
   billion (Q2 2022: €1.568 billion), mainly due to a decrease in compulsory
   contributions to €52 million (Q2 2022: €144 million). This reflects among
   other things lower compulsory contributions in Poland. Operating expenses
   increased to €1.481 billion (Q2 2022: €1.423 billion) as a result of
   earlier increases of accruals for variable compensation and general salary
   increases. Overall, the cost-income ratio fell to 58% in the second
   quarter (Q2 2022: 65%). In the first half of 2023, the Bank’s costs
   decreased by 2.8% to €3.257 billion (H1 2022: €3.353 billion), and the
   cost-income ratio amounted to 61% (H1 2022: 64%).

   The risk result of minus €208 million in the second quarter (Q2 2022:
   minus €106 million) was in line with expectations. This includes a one-off
   effect from the adjustment of internal credit risk models. All in all,
   credit quality continued to be high with a non-performing exposure (NPE)
   ratio of only 1.1%; the number of loan defaults remained at a moderate
   level. For possible future defaults, the Bank maintains a top-level
   adjustment (TLA) of €456 million (Q1 2023: €482 million). After the first
   six months of 2023, the Bank’s risk result amounted to minus €276 million
   (H1 2022: minus €570 million).

   Overall, Commerzbank improved its operating result by 19.1% to €888
   million in the second quarter (Q2 2022: €746 million). For the first half
   of the year, the operating result reached €1.764 billion (H1 2022: €1.289
   billion). Net profit after tax and minority interests increased by 20.2%
   to €565 million in the second quarter and by 49.1% to €1.145 billion in
   the first half of the year.

   The Common Equity Tier 1 ratio (CET1 ratio) rose further to 14.4% as of 30
   June 2023 (Q1 2023: 14.2%). This already includes the accrual for the
   planned pay-out ratio of 50% of the 2023 net profit. With 436 basis
   points, the buffer to the regulatory minimum requirement (MDA threshold)
   of around 10.1% remains very comfortable. Supported by the dynamic revenue
   development and the low risk result compared to the previous year, the
   return on tangible equity (RoTE) rose to 8.1% in the first half of the
   year (H1 2022: 5.4%), but is expected to be lower for the year as a whole.

   “Commerzbank’s transformation is increasingly paying off. We are
   benefiting from our enhanced profitability, our strict cost discipline,
   and our conservative risk management, creating the basis for the targeted
   higher pay-out ratio for our shareholders. After the strong first half of
   the year and based on our expectations for the second half, we will apply
   to the ECB and the German Finance Agency for approval of a further share
   buyback as part of the planned 50% pay-out,” said Chief Financial Officer
   Bettina Orlopp.

   Segment development: Increase in deposits in PSBC

   Despite increasing competition for deposits, the Private and
   Small-Business Customers (PSBC) segment in Germany increased deposits to
   €153 billion in the second quarter (Q1 2023: €151 billion). The lending
   volume amounted to €124 billion (Q1 2023: €124 billion). At €95 billion,
   the volume of mortgage loans in Germany remained stable compared to the
   previous quarter, with new business picking up in the second quarter.
   Thanks to the positive stock market performance, the securities volume
   increased to €208 billion (Q1 2023: €202 billion). However, customers
   traded less due to the lower market volatility. In addition, higher
   deposit rates led to a restraint in investment. Together with lower fees
   at Commerz Real the segment’s net commission income decreased to €450
   million (Q2 2022: €495 million).

   Net interest income amounted to €573 million in the second quarter (Q2
   2022: €585 million). The reason for the slight decline is the impact of
   lower prepayments of mortgages, which is largely offset at Group level.
   All in all, the Private and Small-Business Customers segment in Germany
   generated an operating result of €297 million in the second quarter (Q2
   2022: €378 million).

   With its strong customer business, mBank was able to almost offset the new
   burdens from Swiss franc mortgages. Without the effects from the Swiss
   franc mortgages, mBank would have more than doubled its operating profit
   to €335 million in the second quarter (Q2 2022: €143 million). This was
   mainly driven by strong growth in net interest income. Taking into account
   the ruling by the European Court of Justice (ECJ) on a competitor’s
   foreign currency loans, mBank booked an additional provision for legal
   risks totalling €347 million in the second quarter. As a result, mBank’s
   operating result was minus €14 million in the second quarter (Q2 2022:
   €103 million).

   The Corporate Clients segment remained on its successful track, increasing
   revenues by 27.4% to €1.124 billion in the second quarter (Q2 2022: €882
   million). All three client segments – Mittelstand, International
   Corporates, and Institutionals – contributed to this positive development.
   Again, this development was driven by net interest income from deposits.
   Deposit volumes remained stable at €96 billion (Q1 2023: €95 billion),
   with increased interest rates gradually being passed on. Despite muted
   demand due to the economic situation, the segment maintained its lending
   volume at the previous quarter’s level of €86 billion (Q1 2023: €86
   billion). The risk result was minus €169 million (Q2 2022: minus €52
   million). It was influenced by a few larger defaults and a one-off effect
   from the adjustments of internal credit risk models amounting to minus €65
   million. Overall, the operating result of the segment improved by 37.7% to
   €447 million.

   Outlook improved

   Commerzbank continues to expect a net profit for the full year 2023 well
   above the previous year’s result of €1.4 billion and maintains its target
   of a pay-out ratio of 50% of net profit after deduction of AT1 coupon
   payments. As part of this pay-out, the Bank will apply to the European
   Central Bank (ECB) and the German Finance Agency for approval of a further
   share buyback based on the half year result and its expectations for the
   second half. Thanks to higher interest rates and the so far
   lower-than-expected deposit beta, the Bank improved its outlook for net
   interest income to a minimum of €7.8 billion for the full year of 2023
   with some offsetting effects expected in the fair value result.
   Previously, the Bank had forecasted an increase in net interest income to
   around €7 billion with further upside potential. Net commission income,
   however, is now expected to be slightly below the previous year’s level.

   In view of the expected higher variable compensation due to the good
   business development, the Bank adjusted its cost outlook slightly and now
   anticipates total expenses of €6.4 billion for this year. Previously, the
   target was €6.3 billion. The cost-income ratio remains the key performance
   indicator with a target of 60% in 2024. For the risk result, the Bank
   expects less than minus €800 million (previously less than minus €900
   million) with the final amount being subject to TLA usage. For the CET1
   ratio, the Bank is now aiming for at least 14%. The outlook continues to
   be based on the assumption of only a mild recession and also depends on
   the further development of mBank’s Swiss franc mortgages.

   Financial figures at a glance

   in €m                    Q2 2023 Q2 2022  Q2 23 Q1 2023    H1    H1  H1 23
                                               vs.          2023  2022    vs.
                                             Q2 22                      H1 22
                                              in %                       in %
   Net interest income        2,130   1,478  +44.1   1,947 4,076 2,879  +41.6
   Net commission income        841     894   -6.0     915 1,756 1,864   -5.8
   Net fair value^1             -17      69            -72   -90   422       
   Other income                -324     -22           -122  -446    47       
   Total revenues             2,629   2,420   +8.7   2,668 5,297 5,213   +1.6
   Revenues excl.             2,621   2,309  +13.5   2,655 5,276 5,046   +4.6
   exceptional items
   Risk result                 -208    -106  -95.5     -68  -276  -570  +51.6
   Operating expenses         1,481   1,423   +4.1   1,464 2,945 2,861   +2.9
   Compulsory contributions      52     144  -64.0     260   312   491  -36.5
   Operating profit or loss     888     746  +19.1     875 1,764 1,289  +36.8
   Restructuring costs            4      25  -85.6       4     8    39  -80.5
   Pre-tax profit or loss       885     721  +22.6     871 1,756 1,250  +40.5
   Taxes                        338     226  +49.5     279   617   425  +45.2
   Minorities                   -19      25             12    -6    57       
   Consolidated profit or       565     470  +20.2     580 1,145   768  +49.1
   loss^2
   Cost/income ratio in        56.3    58.8           54.9  55.6  54.9       
   operating business excl.
   compulsory contributions
   (%)
   Cost/income ratio in        58.3    64.8           64.4  61.5  64.3       
   operating business incl.
   compulsory contributions
   (%)
   Operating RoTE (%)          11.8    10.3           11.8  11.8   8.9       
   Net RoTE (%)                 7.9     6.7            8.3   8.1   5.4       
   Net RoE (%)                  7.6     6.5            8.0   7.8   5.2       
   CET1 ratio (%)^3            14.4    13.7           14.2  14.4  13.7       
   Leverage ratio               4.9     4.6            4.8   4.9   4.6       
   Total assets (€bn)           502     529            497   502   529       

   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.

   Press contact
   Erik Nebel  +49 69 136-44986
   Kathrin Jones   +49 69 136-27870
   Svea Junge  +49 69 136-28050

   Contact for investors
   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 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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   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: MSCU
   TIDM:          CZB
   LEI Code:      851WYGNLUQLFZBSYGB56
   Sequence No.:  262308
   EQS News ID:   1695925


    
   End of Announcement EQS News Service

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