REG-Commerzbank Aktiengesellschaft Commerzbank with strong start to the year – net profit almost doubled

COMMERZBANK AGAnnouncement

17/05/2023 06:15

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   Commerzbank Aktiengesellschaft (CZB)
   Commerzbank with strong start to the year – net profit almost doubled

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

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     • Operating result increased by around 60% to €875 million in Q1, net
       profit improved to €580 million (Q1 2022: €298 million)
     • Revenues of almost €2.7 billion (Q1 2022: €2.8 billion) reflect high
       net interest income and strong fee business, further burdens in Poland
     • Costs of €1.7 billion (Q1 2022: €1.8 billion) on track – cost-income
       ratio of 65%
     • Low risk result of minus €68 million with unchanged TLA proves high
       quality of loan book
     • CET 1 ratio increased to 14.2%, first share buy-back programme
       approved
     • Further progress with transformation of the Bank
     • Outlook for 2023 confirmed – pay-out ratio of 50% targeted

    Commerzbank had a very good start to the 2023 financial year. Despite the
   market turmoil and additional burdens from the Swiss franc mortgages of
   mBank, Commerzbank increased its operating result by more than 60% in the
   first quarter. Net profit almost doubled. The Bank continued to benefit
   from higher interest rates and a good fee business. As a result, the
   underlying net interest income reached a record high, even though the
   momentum slowed slightly compared to the previous quarter due to higher
   interest rates on deposits. In terms of costs, Commerzbank remained on
   target despite high inflationary pressure. The risk result was low,
   despite the tense macroeconomic situation. Whilst maintaining a
   comfortable capital ratio, the Bank accrued for the targeted pay-out ratio
   of 50% in the first quarter.

   Meanwhile, the European Central Bank (ECB) and the Finance Agency have
   approved Commerzbank’s first share buyback programme of €122 million. It
   complements the 20 cents per share to be proposed as a dividend at the
   Annual General Meeting on 31 May 2023. In line with its capital return
   policy, Commerzbank will distribute 30% of last year’s net profit after
   deduction of
   AT 1 coupon payments.

   “Commerzbank is in good shape. Our transformation is making good progress
   and is increasingly paying off. We had a very good start to 2023,
   continuing the strong performance of the previous year,” said Chairman of
   the Board of Managing Directors Manfred Knof. “The interest rate
   development continues to give us a tailwind, and the fee business has
   delivered a good result. We are fully on track to meet our targets for
   2023 including a pay-out ratio of 50%.”

   The Bank continued to move ahead with the implementation of its “Strategy
   2024”. As an example, the sector-specific service for large companies was
   expanded. In addition to around 90 German corporations that are already
   being served within the sector approach, this service has now been
   expanded to include around 300 German and international large corporates.
   The digital offerings have also been expanded. The new advisory centre,
   which creates the link between the branches and online and mobile banking
   in the Private and Small-Business Customer business, has further improved
   its processes and is being well received by customers.

   A strategic focus continues to be the alignment of the Bank’s business
   with sustainability criteria. Commerzbank has made significant progress on
   this topic since the beginning of the year. In March of the current year,
   it was the first German bank to receive the approval from the Science
   Based Targets initiative (SBTi) for its CO2 reduction targets by 2030. In
   addition, the Bank launched the Impact Solutions Platform, a digital
   marketplace for small-business customers and corporate clients. Here,
   customers can connect with providers from the green tech sector and find
   innovative solutions for their sustainable transformation. In April,
   Commerzbank became a member of the biodiversity initiative Taskforce on
   Nature-related Financial Disclosures (TNFD). Their recommendations are the
   basis for consistent and comparable reporting practices regarding
   nature-related risks and opportunities.

   Entering the second half of “Strategy 2024”, the Bank also launched its
   new brand campaign “No time to hesitate. It’s time for action.” Following
   the successful turnaround and its return to the leading German stock index
   Dax, Commerzbank is further increasing its visibility in the market. In
   the campaign, Commerzbank positions itself as a bank for ambitious
   customers who are encouraged to look ahead optimistically and tackle
   challenges despite multiple crises.

   Strong operating performance: Significant increase in net interest income,
   good net commission income

   In the first three months of the current year, the Bank benefited from
   rising interest rates and the recovery on the stock markets. Overall,
   revenues amounted to €2.668 billion (Q1 2022: €2.793 billion). This
   reflects additional provisions for legal risks related to Swiss franc
   mortgages and the discontinuation of special conditions from the ECB's
   Targeted Longer-Term Refinancing Operations (TLTRO) programme. Adjusted
   for exceptional items and the charges from Poland, revenues increased
   slightly.

   Net interest income rose by almost 39% year-on-year to €1.947 billion. Net
   commission income noticeably exceeded the previous quarters. At €915
   million, it still remained below the exceptionally strong figure of the
   previous year’s quarter (Q1 2022: €970 million).

   Thanks to active management and lower compulsory contributions, costs were
   on track and slightly below the previous year despite high inflationary
   pressures. Overall, total expenses decreased by 3.4% to €1.724 billion in
   the first quarter (Q1 2022: €1.785 billion). Compulsory contributions fell
   by around a quarter to €260 million due to a decline in the European bank
   levy. In contrast, operating costs rose by 1.8% to €1.464 billion (Q1
   2022: €1.438 billion) which are based on higher accruals for variable
   compensation due to the strong first quarter. The ongoing job reductions
   and a decline in administrative expenses had a positive effect on the cost
   base. The cost-income ratio was 64.6%.

   The risk result was low at minus €68 million in the first quarter. At the
   same time, the Top-Level Adjustment (TLA) was almost unchanged at €483
   million (Q4 2022: €482 million). The non-performing exposure ratio (NPE
   ratio) remained strong at 1.1%. In the first quarter of 2022, the risk
   result, marked by a significant TLA increase following the start of the
   war in Ukraine, had been minus €464 million.

   In total, the Bank increased its operating result by 61% to €875 million
   in the first three months of 2023 (Q1 2022: €544 million). All in all, the
   net profit after tax and minority interests amounted to €580 million (Q1
   2022: €298 million).

   The Common Equity Tier 1 ratio (CET 1 ratio) increased slightly to 14.2%
   as of 31 March 2023 (31 December 2022: 14.1%, 31 March 2022: 13.5%). The
   gap to the regulatory minimum requirement (MDA threshold), which was
   raised to 10.01% in the first quarter due to activated countercyclical and
   sector-specific capital buffers, remains very comfortable at 420 basis
   points. The return on tangible equity (RoTE) improved to 8.3% (Q1 2022:
   4.0 %), buoyed by the low risk result.

   “We are steering the Bank through a very dynamic environment with clear
   priorities. In this respect, the high quality of our loan book and our
   conservative risk management are paying off. We are benefiting from the
   fact that we have – thanks to our considerable transformation progress –
   significantly improved profitability and substantially increased our
   resilience,” Chief Financial Officer Bettina Orlopp explained. “We were
   able to further increase our ability to pay out capital to our
   shareholders.”

   Segment development: Revenue growth continued in the operating business

   In a challenging competitive environment, the business volume of the
   Private and Small-Business Customers segment in Germany remained largely
   stable. At €124 billion, the lending volume at the end of the quarter was
   almost unchanged, compared to the first quarter 2022 it was €1.8 billion
   higher. The mortgage volume was stable overall compared to the fourth
   quarter at around €95 billion. New mortgage business picked up over the
   course of the first quarter and exceeded the volume of the fourth quarter
   of 2022. Deposits amounted to €151 billion at the end of March and were
   higher year-on-year. Compared to the fourth quarter of 2022, the volume
   declined by about €3.5 billion due to cyclical and seasonal effects. The
   securities portfolio recovered significantly to €202 billion compared to
   the previous quarter thanks to higher stock market prices, but remained
   below the volume of the first quarter 2022. As of 31 March 2023, churn
   continued to be significantly below expectations with a net loss of 31,000
   customers in the first quarter.

   Overall, the segment increased its revenues in Germany by more than 8% to
   €1.147 billion (Q1 2022: €1.060 billion). This reflects a year-on-year
   improvement of 23% in net interest income. However, net interest income
   fell slightly compared to the fourth quarter mainly due to less benefits
   from prepayment of mortgages. The operating result increased by 7.4% to
   €290 million (Q1 2022: €270 million). This includes a higher risk result
   following the booking of additional TLA against the background of changed
   assumptions due to uncertainties from crises and the economy as well as
   the inflation and interest rate development.

   mBank continued its strong operating performance in the first quarter,
   generating an operating result of €100 million (Q1 2022: €134 million)
   despite the new additional provisions for legal risks on Swiss franc
   mortgages of €173 million (Q1 2022: €41 million). Without these burdens
   and further negative effects of the “credit holidays” introduced by the
   Polish government, the operating result would have increased to €262
   million (Q1 2022: €175 million).

   The Corporate Clients segment continued its growth course driven by the
   positive development of net interest income from deposits. Net interest
   income of the segment was 36% higher than in the first quarter of 2022.
   Overall, revenues increased by approximately 16% to €1.078 billion (Q1
   2022: €926 million) – the highest level since 2016. The strong operating
   result of €539 million (Q1 2022: minus €7 million) was also driven by a
   positive risk result of €54 million (Q1 2022: minus 286 million), which
   reflected the release of risk provisions following received repayments on
   adjusted claims. The cost-income ratio improved further in the first
   quarter to 55% (Q1 2022: 69.9%).

   Outlook: Annual targets for 2023 confirmed

   Commerzbank remains confident that it will continue its positive
   development in 2023 in a challenging environment. The Bank now expects net
   interest income to increase to around €7 billion and sees an additional
   upside potential depending on the actual development of the deposit beta.
   Net commission income is expected to be similar to the previous year’s
   level. The Bank continues to aim for a reduction of total costs to €6.3
   billion – despite the high inflationary pressure. The decisive steering
   parameter remains the cost-income ratio with the medium-term target of
   60%. In addition, the Bank confirms the outlook for the risk result of
   less than minus €900 million on the assumption of using the TLA. The CET 1
   ratio is expected to remain unchanged at around 14%. All in all,
   Commerzbank is aiming for a net profit well above that of 2022. The
   outlook depends on the development of mBank’s Swiss franc mortgages and
   continues to be based on the assumption of a mild recession. In addition,
   the Board of Managing Directors is sticking to its target of a pay-out
   ratio of 50% of the Bank’s net profit after deduction of AT 1 coupon
   payments.

   Key financial figures at a glance

   In €m                  Q1 2023 Q1 2022 Q1 23 vs. Q4 2022 Q1 23 vs. FY 2022
                                              Q1 22            Q4 22 
                                               in %              in %
   Net interest income      1,947   1,401     +38.9   1,958      –0.6   6,459
   Net commission income      915     970      –5.6     806     +13.6   3,519
   Net fair value             –72     353              –143     +49.4     451
   result^1
   Other income              –122      69              –258     +52.5    –967
   Total revenues           2,668   2,793      –4.5   2,363     +12.9   9,461
   Revenues excl.           2,655   2,737      –3.0   2,401     +10.6   9,513
   exceptional items
   Risk result                –68    –464     +85.3    –222     +69.3    –876
   Operating expenses       1,464   1,438      +1.8   1,553      –5.7   5,844
   Compulsory                 260     347     –25.1      59               642
   contributions
   Operating profit or        875     544     +61.0     528     +65.7   2,099
   loss
   Restructuring costs          4      15     –72.1      40     –89.7      94
   Pre-tax profit or loss     871     529     +64.8     488     +78.5   2,005
   Taxes                      279     199     +40.3     –41               612
   Minorities                  12      32     –61.6      57     –78.2     –42
   Consolidated profit or     580     298     +94.8     472     +22.7   1,435
   loss^2
   Cost-income ratio in      54.9    51.5              65.7              61.8
   operating business
   excl. compulsory
   contributions (%)
   Cost-income ratio in      64.6    63.9              68.2              68.6
   operating business
   incl. compulsory
   contributions (%)
   Operating RoTE (%)        11.8     7.6               7.2               7.2
   Net RoTE (%)^3             8.3     4.0               6.7               4.9
   Net RoE (%)                8.0     3.9               6.5               4.7
   CET 1 ratio (%)^3         14.2    13.5              14.1              14.1
   Leverage Ratio (%)         4.8     4.7               4.9               4.9
   Total assets (€bn)         497     519               477               477

   ^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 potential pay-out accrual and potential (fully
   discretionary) AT 1 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 69 136-28696
   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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   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: QRF
   TIDM:          CZB
   LEI Code:      851WYGNLUQLFZBSYGB56
   Sequence No.:  244168
   EQS News ID:   1634785


    
   End of Announcement EQS News Service

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