Central banks help Commerzbank to jump in profits
Thriftiness and the high interest rate environment ensure full coffers at Commerzbank in the summer. This makes the number two bank in Germany more confident about the coming years. Investors are not initially electrified by all this. But the bank is putting together an extra package for them.
Commerzbank is setting itself new targets for the coming years following an unexpectedly strong jump in profits. By 2027, net profit is set to increase by more than half compared to this year to 3.4 billion euros, as Commerzbank announced. Boosted by the rapid rise in interest rates, the Frankfurt-based bank earned 684 million euros in the summer quarter - more than three times as much as a year ago and more than analysts had expected. "In addition to the interest rate environment, we are benefiting from a low risk result and continued cost discipline," said CFO Bettina Orlopp.
Income shot up by 46 percent to just under 2.8 billion euros. This was mainly due to an increase in net interest income by a good third to 2.2 billion euros. Commerzbank was initially able to score points on the stock exchange, but then turned negative. "In our opinion, Commerzbank has presented a decent result for the third quarter of 2023," commented Deutsche Bank analysts on the competitor's figures. One trader said that the fall in the share price was due to the new targets. There had been no positive surprises with these.
More for the shareholders
"We have established a new business model and put Commerzbank back on the road to success," said CEO Manfred Knof. "We are building on this with our strategy program until 2027: We will increase our earnings base, further improve the cost/income ratio and increase our return on equity." The return on equity (RoTE) is to increase to more than eleven percent by 2027. The bank intends to boost its earnings by expanding its commission business, among other things. Simple digital processes should ensure that the bank becomes more efficient overall. Net interest income is set to increase moderately. Commerzbank aims to improve its cost/income ratio to around 55% by 2027. In the first nine months of this year, around 60 cents were spent to earn one euro. By comparison, the cost/income ratio at Deutsche Bank is 72 percent and 39 percent at Italian UniCredit.
Shareholders should also benefit from the share price. Commerzbank plans to distribute more than half of its profits for the years 2025 to 2027. For the years 2022 to 2024, it is also planned to pass on a total of three billion euros to shareholders via dividends and share buybacks. Shareholders are already set to receive 50% of the profit as a dividend this year, in addition to a share buyback of 600 million euros. This should also please the federal government, which still holds a good 15 percent of the bank.
Like other banks in Europe, Commerzbank is currently benefiting from the significant rise in interest rates in the eurozone, which is boosting the lending business. The European Central Bank (ECB) has already raised key rates ten times since summer 2022. The Spanish bank Santander increased its profit by 20 percent in the third quarter, while the French bank Credit Agricole reported a 33 percent increase.
Confidence for the year as a whole
The profit boost in the summer quarter also makes Commerzbank optimistic for the year as a whole. It now expects a consolidated profit of around 2.2 billion euros after 1.4 billion euros in 2022. Income is expected to increase from 9.5 billion euros to around 10.6 billion euros. The bank is targeting net interest income of more than 8.1 billion euros. CFO Orlopp had previously described eight billion euros as a good estimate in September. The bank wants to improve its return on equity (RoTE) to around 7.5 percent. In 2022, it was still at 4.9 percent.
In the third quarter, Commerzbank quadrupled its operating profit to 1.1 billion euros. The Polish subsidiary mBank contributed 89 million euros. According to Commerzbank, this more than compensated for a renewed provision of 234 million euros in connection with older Swiss franc loans. mBank has been struggling with the Swiss franc loan issue for years. Thousands of Polish borrowers had taken out mortgages in francs in order to benefit from lower interest rates in Switzerland. However, the franc appreciated against the zloty and the costs for customers increased. Many Poles sued to get out of the expensive loans.
Commerzbank's strong Q3 performance, with a net profit of 684 million euros, exceeding analyst expectations, positions it well amidst other Dax companies. This quarterly figure underscores the bank's resilience, driven by high interest rates and cost discipline.
In its strategy until 2027, Commerzbank, as one of the leading German banks, aims to increase its earnings base, improve its cost/income ratio, and boost its return on equity, aligning with other banks benefiting from the eurozone's rising interest rates.
Source: www.ntv.de
