Commerzbank quarterly profit down, outlook positive

by Ike Obudulu Posted on May 8th, 2019

German lender Commerzbank AG (CRZBY.PK) reported Wednesday lower profit in its first quarter with weak revenues. Underlying revenues in client business increased slightly. Looking ahead for fiscal 2019, the Bank said it will continue its growth strategy and is expecting higher underlying revenues. The shares were gaining around 1 percent in the morning trading in Germany.

The Bank further said it is planning to maintain a pay-out ratio for financial year 2019 same as last year. It also targets a Common Equity Tier 1 ratio of at least 12.75 percent by the end of 2019.

Stephan Engels, Chief Financial Officer of Commerzbank, said, “Business with our clients remains on a positive track. … We are continuing to implement cost reductions despite further increases in compulsory contributions and ongoing strategic investments. Our cost targets remain unchanged.”

For the first quarter, profit attributable to shareholders declined to 120 million euros from last year’s 262 million euros. Earnings per share were 0.10 euro, down from 0.21 euro a year ago.

The weak results reflected a higher tax burden of about 90 million euros, while the tax refunds in the last year had a positive impact. The results were also hurt by weaker performance of the discontinued Equity Markets and Commodities business.

Operating profit was 244 million euros, down from 258 million euros last year. Operating expenses declined to 1.83 billion euros from 1.88 billion euros last year despite higher compulsory contributions.

Group revenues for the quarter declined to 2.16 billion euros from last year’s 2.22 billion euros, due to exceptional items and valuation effects.

Underlying revenues were 2.19 billion euros, down from 2.22 billion euros in the previous year.

In the first quarter, Commerzbank said it grew in terms of both customers and assets and slightly increased its underlying revenues in the customer segments.

Further, the company said the revamp of the Bank’s head office through the programme “Campus 2.0” is progressing as planned and is expected to be completed in July 2019.

In Germany, Commerzbank shares were trading around 7.82 euros, up 0.96 percent.

Sees no immediate alternative deal after Deutsche Bank

Commerzbank on Wednesday played down the prospects of an immediate takeover approach by a foreign bank following failed merger talks with Deutsche Bank.

Commerzbank’s finance chief Stephan Engels, speaking to journalists after a sharp fall in first-quarter profit, said he didn’t hear anyone knocking at the door, as he put it.

Both Italy’s UniCredit and Dutch ING Groep have expressed interest in Commerzbank, which is Germany’s second largest lender and 15 percent owned by the government, sources have said. Unicredit and ING have declined to comment.

A strategy of continuing as a standalone bank remains an alternative, Engels said. “It was before and it is now. I can’t say if it always will be.”

Talks with larger rival Deutsche Bank ended last month after six weeks of negotiations. The banks attributed the failure to the risks of doing a deal, restructuring costs and capital demands.

German government officials, led by Finance Minister Olaf Scholz, had pushed for a tie-up to create a national banking champion and end questions over the future of both banks, which have struggled to recover since the financial crisis.

Chief Executive Martin Zielke told staff during the merger talks with Deutsche that Commerzbank does not have the market share for costly investments, fuelling speculation of an alternative tie-up if talks fell through.

Doing nothing is “not an option”, Zielke has told his staff, 82 percent of whom were against a merger in an internal survey.

Commerzbank is working on a new strategic plan that it will present later this year.

“We are addressing the right issues with our strategy,” Zielke said in a statement on Wednesday. The bank has been focusing on shifting its processes to a digital model.

Engels said business remains on a positive track. “The challenge now is to build on this progress,” he said.

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