Frankfurt Commerzbank more than doubled its profit in the first quarter, but also set aside significantly more money for impending loan defaults. Germany’s second-largest private bank announced on Tuesday evening that the institute had made a general risk provision “of around half a billion euros in connection with the war in Ukraine”.
Overall, loan loss provisions rose to EUR 464 million from January to the end of March after EUR 149 million in the same quarter of the previous year. In 2020, Commerzbank had already made a flat-rate risk provision, a so-called top-level adjustment, because of the corona crisis. In total, the additional provisions for the consequences of Corona and the Ukraine war now amount to 713 million euros.
According to CEO Manfred Knof, the bank was able to more than compensate for the financial burdens resulting from the Ukraine war through strong earnings growth. “We got off to a good start in the new financial year,” explained Knof. “Thanks to a strong customer business, we increased our operating profit, although the economic fallout from the Russian war of aggression in Ukraine weighed on our risk result.”
According to preliminary figures, consolidated earnings after taxes rose to EUR 284 million in the first quarter after EUR 133 million a year earlier. The operating result climbed slightly to 544 million euros, but according to Commerzbank it is well above the average analysts’ expectations of 282 million euros. This was the reason why the institute presented its figures on Tuesday evening and not on May 12 as originally planned.
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“We are sticking to our goals for the year as a whole,” emphasized Knof. The bank therefore continues to expect a profit of more than one billion euros and risk provisions of less than 700 million euros in 2022. The top-level adjustment as a large buffer is taken into account.
However, the bank’s outlook is based on the assumption that there will be no substantial increase in provisions for a Swiss franc loan portfolio of the Polish subsidiary mBank and that “the economic impact of the Russia-Ukraine war will remain limited”.
Interest rate turnaround in Poland helps subsidiary mBank
Commerzbank wants to cut a total of 10,000 jobs and close 340 branches by 2024 – and is making good progress. The institute is also growing in its operational business.
In the first quarter, revenues increased by twelve percent to 2.8 billion euros. Net interest income also grew by 12 percent to EUR 1.4 billion. This is mainly due to higher revenues at mBank, which is benefiting from interest rate hikes in Poland. Commission income increased by two percent to EUR 972 million.
Commerzbank significantly reduced its direct involvement in Russia after the country’s attack on Ukraine. According to CFO Bettina Orlopp, the “maximum exposure” was still 1.3 billion euros in mid-March.
In addition to the direct commitment, Commerzbank must also take into account the indirect consequences of war in its risk provisioning – for example the risk of a slowdown in economic growth or even a recession in Europe.
For Commerzbank, the impending burdens come at an inopportune time, after all, the financial house only returned to the black last year after losing billions in 2020. For the current year, the institute wants to pay its battered shareholders a dividend for the first time since 2018.
At the beginning of March, Commerzbank raised its medium-term targets slightly despite the war in Ukraine. In 2024, the institute now expects income of 9.1 billion euros instead of the previous 8.7 billion euros. The operating result should increase to three billion euros in two years, the return on equity to more than seven percent.
When Knof announced the goal of a return on equity of seven percent in early 2021, many experts thought that was utopian. In the meantime, however, the mood has turned. Thanks to progress in corporate restructuring and rising market interest rates, the CEO could at least come close to his goal from the analysts’ point of view. On average, they currently predict a return of 6.5 percent for 2024.
Deutsche Bank figures will follow on Wednesday
With its profit increase at the start of the year, Commerzbank is in line with the trend. The major Swiss bank UBS and Spain’s Santander had already announced higher surpluses on Tuesday morning. At UBS, profits climbed 17 percent to $2.1 billion in the first quarter, and at Santander they even climbed 58 percent to €2.5 billion.
Things went worse for the British HSBC. At the London-based bank, which earns its money primarily in Asia, pre-tax profit fell by 27 percent to $4.2 billion due to provisions for loan defaults. Deutsche Bank and Credit Suisse want to present their figures for the first quarter on Wednesday.
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