Commerzbank returns to profitability

In the second quarter, Commerzbank had posted a loss of 527 million euros – among other things because of a failed IT project and high restructuring costs. The institute wants to cut 10,000 jobs worldwide by 2024 and close almost half of its branches.

After the implementation of a volunteer program, more than half of the downsizing had already been regulated in a socially acceptable manner, the bank said. It posted restructuring charges of 76 million euros in the third quarter, after 201 million euros in the same quarter of the previous year. The institute has now digested the majority of the total costs for the renovation, which totaled a good two billion euros. “The implementation of our strategy is proceeding according to plan and the operational business is also developing well,” said Knof.

Loan defaults as a result of the corona crisis have so far had less of an impact on Commerzbank than feared. In the third quarter, loan loss provisions fell by more than 90 percent to 22 million euros. Deutsche Bank reported on a similar development last week.

Commerzbank now expects loan loss provisions of less than 700 million euros in 2021, after 1.7 billion euros last year. The institute is thus more optimistic than in September, when CEO Knof had forecast risk provisions of a maximum of 800 million euros for the year as a whole.

Knof wants to restructure Commerzbank with a hard hand and thus achieve a return on equity of seven percent by 2024. Analysts, however, have doubts as to whether he will achieve this goal. So far, they only trusted the institute with an average return of 5.1 percent in three years.

The uncertainty factors included, among other things, the threat of loan defaults after the state corona aid expires in 2022 and the development of earnings, the analysts at the major Swiss bank UBS recently explained in a study. They do not believe that Commerzbank, with its shrunken branch network at home and abroad, will generate revenues of 8.7 billion euros in 2024 as targeted.

What does the federal government do with its state share?

The UBS analysts do not expect a takeover of Commerzbank in the near future. However, the subject could move if one day the German state parted with its 15.6 percent stake in the Frankfurt money house.

This has become more likely due to the foreseeable participation of the FDP in the next federal government – after all, the Liberals have repeatedly spoken out in favor of the state’s withdrawal. The federal government has been involved in Commerzbank since the institute was rescued from the 2008/2009 financial crisis.

According to Handelsblatt information, the US financial investor Cerberus, who already holds five percent of the institute, could well imagine taking over the state stake. However, many at Commerzbank would not be happy about this. “In view of the restructuring of Commerzbank, I would find it irresponsible if the federal government stole away now,” said Verdi union secretary Stefan Wittmann, who is an employee representative on the bank’s supervisory board, in mid-September.

In the third quarter, Commerzbank’s earnings fell by one percent to two billion euros, but developed somewhat better than analysts expected on average. This also applies to the core capital ratio, which was constant at 13.5 percent. For the year as a whole, the bank is now assuming a capital ratio of around 13.5 percent instead of around 13 percent as before.

The private customer segment more than tripled the operating result in the third quarter to 299 million euros, because the institute was able to dissolve risk provisioning in the sector. However, the number of customers fell by 115,000 due to planned branch closings and the introduction of higher account fees.

The number of customer departures has so far been significantly lower than assumed when the renovation plans were presented at the beginning of the year, said CEO Knof. However, Commerzbank does not want to adjust its calculations yet because the majority of the branch closings are still imminent. The institute plans to close a total of 340 branches by 2024 – 240 of them this year.

In the corporate customer business, Commerzbank is mainly scaling back its business abroad and is also closing numerous branches there. In the third quarter, earnings therefore fell by four percent. However, thanks to significantly lower risk provisioning and lower costs, operating profit more than tripled to 221 million euros.

Polish subsidiary increases risk provision

There is still great uncertainty at the Polish subsidiary mBank. Commerzbank’s forecasts are based on the fact that there will be “no substantial changes” with mBank’s EUR 2.4 billion loan portfolio in Swiss francs. In the third quarter, mBank increased its risk provisioning for the loan portfolio by a further 95 million euros.

Due to low interest rates in Switzerland, many Poles had once taken out franc loans to finance their homes. Then, however, the national currency, the zloty, fell sharply in value against the Swiss franc, which increased the burden on homeowners.

Many borrowers then took action against Polish financial institutions because of potentially illegal clauses. There are now more than 10,000 lawsuits against mBank alone. After a decision by the Polish Supreme Court on the matter was postponed several times, the Polish financial supervisory authority KNF recently advised the financial institutions to seek out-of-court settlements with their customers.

The mBank is open to all solutions, said Commerzbank Deputy Head Bettina Orlopp. “We want to end this saga, but it has to be a sensible ending.” Binding settlements would have to be found that all customers could accept and with which the legal proceedings would end.

mBank boss Cezary Stypulkowski announced on Tuesday that the institute would soon offer comparisons to the first customers. He also said he did not expect Commerzbank to sell its 69.3 percent majority stake in mBank in the near future.

The Frankfurt company announced a sale of its mBank stake in 2019, but then called off the sale in May 2020. The reason was that the mBank share price had fallen so sharply because of the dispute over Swiss franc loans and the outbreak of Corona that Commerzbank could not have achieved an attractive price.

However, since May 2020 the mBank’s rate has risen by around 80 percent – among other things because of increased key interest rates. Overall, mBank is now valued at just under five billion euros. The parent company Commerzbank is not far away with currently around eight billion euros.

More: Cerberus is considering buying state stake in Commerzbank – share rises sharply