Frankfurt Thanks to the turnaround in interest rates and the flourishing lending business, Commerzbank made its highest profit since 2007 last year. The consolidated result climbed to 1.4 billion euros after 430 million euros in the previous year, as Germany’s second largest private bank announced on Thursday.
Despite the difficult economic environment and high burdens at the Polish subsidiary M-Bank, Commerzbank has more than tripled its earnings, said CEO Manfred Knof. “This shows that our strategy is working and that we have managed to turn the tide. Commerzbank is back.”
Thanks to its large private and corporate customer business, the institute is benefiting particularly strongly from the interest rate turnaround. In order to combat high inflation, the ECB has raised the deposit rate several times since the summer of 2022, most recently to 2.5 percent.
At Commerzbank, net interest income increased by a third to EUR 6.46 billion. In the current year, the institute expects a further increase to “significantly more than 6.5 billion euros with clear additional upward potential”.
Thanks to the turnaround in interest rates and progress in the restructuring of the group, the bank was able to cope with charges of around one billion euros from its Polish subsidiary M-Bank last year. The main reasons for this were the increase in risk provisions for controversial Swiss franc loans and a new law suspending installment payments for real estate loans in the local currency zloty.
In the current year, Commerzbank expects a consolidated result significantly above that of 2022. This outlook is based on the assumption that there will be a mild recession and that there will be no further substantial special charges at M-Bank.
Analysts see the share buyback as a milestone
The bank had already announced on Wednesday that it would be paying out part of its profits to its shareholders for the first time in four years. In addition to a dividend of 20 cents per share, the institute wants to buy back its own paper for 122 million euros. A total of 30 percent of the group result after deduction of interest payments for so-called AT-1 bonds are to be distributed.
The ECB and the Federal Finance Agency still have to approve the share buyback program. If there is a green light, this would be a milestone from the point of view of analysts. The financial supervisory authority would thus signal that it supports Commerzbank’s course, the experts at Deutsche Bank recently explained in a study. It would also raise hopes that the bank would buy back more shares over the course of 2023 as the macroeconomic situation stabilizes.
The CEO of Commerzbank is pleased with the outstanding figures of his institute.
(Photo: imago images/sepp spiegl)
The institute confirmed that it intends to distribute 50 percent of its profits for the current financial year. Overall, the bank has given investors the prospect of paying out between three and five billion euros up to and including the 2024 financial year.
The Commerzbank share has increased by more than half since July 2022 thanks to the distributions and the improved earnings prospects. This is another reason why the chances are good that the bank will return to the leading index Dax after four and a half years. Deutsche Börse will announce a decision on Friday evening.
Commerzbank announced at the beginning of 2021 that it would cut a total of 10,000 jobs by the end of 2024 – and is making good progress. By the end of the year, the institute had already laid off around 9,000 employees or signed contracts for their departure – primarily in Germany.
Corporate customer business stands out positively
Loan loss provisions for loans at risk of default rose by more than half to EUR 876 million last year. The reasons for this were the increased economic uncertainties and the economic effects of the Russian war of aggression against Ukraine.
For secondary effects such as supply chain disruptions and rising energy prices, the bank has made a general risk provision of EUR 482 million. The institute can use this buffer in 2023 – and therefore expects largely stable risk provisions of less than 900 million euros in the current year.
Commerzbank was able to make significant gains, especially in the corporate customer segment.
(Photo: imago images/Ralph Peters)
Things went particularly well in 2022 in the corporate customer division, which was still considered a problem a few years ago. Now it expanded its operating profit by 63 percent to 1.1 billion euros and thus achieved the best result in seven years. The supervisory board has just extended the contract of corporate customer board member Michael Kotzbauer until 2028.
In the private customer division, operating profit rose by 43 percent to 1.1 billion euros. The rising net interest income more than made up for the fall in net commission income due to the declining volume of securities.
The credit volume increased by three billion to 124 billion euros. 95 billion euros of this is accounted for by construction financing. Here, the credit volume increased slightly over the year, mainly thanks to a strong first quarter. However, new business cooled off significantly towards the end of the year.
The volume of deposits rose last year by a good seven billion to 155 billion euros. CFO Bettina Orlopp has announced that the bank still does not want to pay positive interest on sight deposits in private customer business.
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However, she assumes that when interest rates rise, private customers will increasingly shift money to call money accounts and savings products, which will earn interest. Across all customer groups, Orlopp assumes that the bank will pass on around a third of the positive central bank interest rates to customers in 2023, and then 35 percent in 2024.
Polish subsidiary continues to be in the red
Commerzbank continues to worry about its subsidiary M-Bank. Due to high special charges, it posted an operating loss of 90 million euros last year.
Because of 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 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. Even in the current environment, insiders consider it impossible to sell the stake in M-Bank at a price that is acceptable to Commerzbank.
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