Analysts are now expecting net interest income of EUR 6.1 billion in 2024 – 28 percent more than in February 2021.
(Photo: dpa)
Frankfurt Commerzbank has regularly disappointed its shareholders in the past. That is why most financial experts were skeptical when CEO Manfred Knof announced a return on equity (RoTE) of seven percent for 2024 at the beginning of last year.
In a survey in February 2021, analysts assumed on average that Commerzbank would only achieve a return on equity of 5.4 percent in 2024. Thanks to progress in the restructuring of the institute, which is cutting a total of 10,000 full-time positions, a year later it was already 6.2 percent.
In May 2022, expectations then climbed to 6.6 percent, and now to 7.9 percent in July. For the first time since the announcement of its strategy, the analysts believe that Germany’s second-largest private bank will achieve the targets set for 2024. The main reason for this is the turnaround in interest rates, from which the institute should benefit greatly thanks to its large private and corporate customer business.
Analysts are now expecting net interest income of 6.1 billion euros in 2024 – 28 percent more than in February 2021. Overall, they are now calculating with income of almost ten billion euros in two years. This means that Commerzbank would clearly exceed its slightly raised earnings target of EUR 9.1 billion in March.
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The Frankfurt money house had also slightly increased its profit target in the spring. Instead of “around seven percent”, it now expects a return on equity of “more than seven percent” in 2024. At the time, the Hessians cited the development of their subsidiary M-Bank, which is benefiting from the interest rate increases in Poland, as the main reason for the increase.
Unlike the analysts, Commerzbank has not yet included interest rate hikes in the euro zone in its current forecasts. Last week, however, the European Central Bank (ECB) increased the deposit rate – the relevant variable for liquidity that banks park with the ECB – from minus 0.5 percent to zero percent.
“Too good to be true? Maybe”
However, Commerzbank and other financial institutions are only likely to gain significant momentum if the central bank raises the deposit rate into positive territory. Experts expect this to happen at the next ECB meeting in September.
CFO Bettina Orlopp has already made it clear that there is “further upside potential” for Commerzbank in this case. In addition, she explained in mid-July that the Frankfurt-based company expects a profit of more than one billion euros in the current year, despite three-digit million charges at M-Bank.
However, this forecast is subject to the proviso that there is no significant deterioration in economic development, “for example due to further bottlenecks in the gas supply”. For many investors, too, the joy of interest rate increases is currently being overshadowed by concerns about a Russian gas supply freeze to Germany. The Commerzbank share has therefore lost around six percent to EUR 6.26 since the beginning of the year.
“The gas situation will determine whether there will be a slight or severe recession in 2023 – and thus also the profitability of Commerzbank in the second half of 2022 and 2023,” emphasize the analysts at Deutsche Bank. They assume that Commerzbank will remain in the black in 2022 and 2023 and then in 2024 “will make as much profit as it has in the last decade combined”. On average, financial experts trust the institute to achieve a consolidated profit of 2.2 billion euros.
“Too good to be true? Maybe,” write the Deutsche Bank analysts in their latest study. Despite significantly better profit prospects, they have left the price target for the Commerzbank share at eleven euros – and justified this with the great macroeconomic uncertainty.
Commerzbank will present its results for the second quarter on August 3rd. On average, analysts expect a profit of 370 million euros after a loss of 527 million euros in the same period last year.
More: Commerzbank expects charges in the three-digit million range due to new law in Poland