Commerzbank profit collapses due to charges in Poland

Frankfurt The long-term crisis at the Polish subsidiary M-Bank ruined Commerzbank’s results in the third quarter. Profits fell by more than half to 195 million euros, as Germany’s second largest private bank announced on Wednesday.

At Commerzbank itself, however, the operative business ran smoothly – especially in the corporate customer segment. In addition, the institute is benefiting particularly strongly from the interest rate turnaround by the European Central Bank due to its large deposit and lending business. Both earnings and earnings came in ahead of analysts’ expectations.

“In the third quarter we again demonstrated our earning power and, despite the high one-off charges in Poland, achieved a three-digit million profit,” said CFO Bettina Orlopp. For the year as a whole, the bank is still aiming for a profit of more than one billion euros.

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In addition, the institute intends to pay out a dividend for the first time since 2018. The institute confirmed that 30 percent of the group result after deduction of interest payments for so-called AT-1 bonds should be distributed.

Investors are pleased about this and hope that better times are now dawning for Commerzbank after years of sluggishness. “The 2020s will probably be a significantly better decade for the bank and its shareholders than the 2010s,” wrote the analysts at Deutsche Bank in a recent study.

The Commerzbank share has gained more than 20 percent since the beginning of the year and has thus fared significantly better than other bank stocks. For example, Deutsche Bank’s shares have lost around ten percent since the beginning of January.

Management expects higher revenues and costs in 2024

In addition to the turnaround in interest rates, investors are also confident about the progress made in the restructuring of Commerzbank. At the beginning of last year, CEO Manfred Knof announced that a total of 10,000 jobs would be cut by the end of 2024 – and he is making good progress.

By the end of September, the institute had already separated from 8,350 employees or signed contracts for their departure – especially in Germany. The bank announced that a further 1,100 full-time positions are to be cut in the coming quarters as part of the downsizing of the international network.

>> Read here: Commerzbank is cutting significantly more branches than previously planned – dispute over subsidiaries.

In addition, Commerzbank has adjusted its medium-term targets due to the turnaround in interest rates and high inflation. The institute now expects a return on equity (RoTE) of more than 7.3 percent in 2024 instead of the seven percent originally targeted.

The institute is now assuming income of ten billion euros instead of the previous 9.1 billion. However, the institute now expects higher costs. According to current calculations, they will amount to six billion euros in 2024, which is 600 million euros above the previous target.

Corporate customer division achieves best result for a long time

In Germany, all banks are preparing for increasing loan defaults due to the energy crisis and the slowdown in the economy. So far, however, the burdens at most institutions have been limited.

Loan loss provisions at Commerzbank amounted to EUR 84 million in the third quarter. The institute also benefited from the release of reserves created as a precaution to wind down its business in Russia. So far, this has been less expensive than initially thought.

Things also went well in other respects in the corporate customer segment. Thanks to a stable lending business and increasing deposits, the division more than doubled its operating result to 536 million euros – and thus brought in the best quarterly result in seven years.

Commerzbank, on the other hand, continues to worry about its Polish subsidiary M-Bank. Due to low interest rates in Switzerland, many Poles took out loans in Swiss francs to finance their homes. Then the national currency, the zloty, lost a lot of value against the Swiss franc, increasing the burden on home builders.

Many borrowers then took action against Polish financial institutions because of possibly unlawful clauses – and were recently more and more right in court. M-Bank has therefore had to increase its risk provisioning for the Swiss franc loan portfolio several times.

Commerzbank holds 69.3 percent of M-Bank. Knof’s predecessor Martin Zielke announced a sale of the stake in 2019, but then called off the sale in May 2020. The M-Bank share price had fallen so much at the time due to the dispute over Swiss franc loans and the outbreak of Corona that Commerzbank was unable to achieve an attractive price.

In addition, according to financial circles, the last remaining interested party, the second largest Polish bank Pekao, did not want to take on the risks associated with the Swiss franc loans as part of a transaction.

More: Commerzbank boss Manfred Knof: “US investors take a critical view of Germany and Europe”

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