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November 15, 2000

Commerzbank interim report:
Pre-tax profit rises 139%
Important strategic decisions

In view of the healthy figures for the first nine months, Commerzbank expects an excellent result for the year as a whole, despite the persistently lacklustre performance of the stock market, said its chairman, Martin Kohlhaussen. The result will far exceed the bank's budgeted figures.

After nine months, the Commerzbank Group's income statement showed a strong rise in both operating income and operating expenses. Net interest income has improved steadily so far this year and at 2.25bn euros was 13% higher than a year previously, partly due to a reduced need for provisioning. Net commission income produced outstanding results, expanding 37% to 2.1bn euros. Above all, earnings increased sharply in asset management and securities transactions on behalf of customers. The trading profit was 22% ahead of its year-ago level; however, its growth rate has slackened over the past few months on account of the weakness of the stock market.

The 21% rise in operating expenses primarily reflects the ongoing expansion of the bank's workforce. Due among other things to the first-time inclusion of its Adig fund management subsidiary, the Commerzbank Group's staff totalled 36,382 by end-September, just over 1,800 more than a year previously. The change in other expenses (+15%) revealed the first positive effects of the cost-cutting measures that have been introduced.

The other operating result includes non-recurring income of 1,036m euros from the capital increase and IPO of the subsidiary comdirect bank AG.

As the balance of all income and expense items, a pre-tax profit of 2.42bn euros remains for the first nine months, 139% more than a year earlier. After the deduction of both taxes paid, which almost tripled mainly through the proceeds from the comdirect IPO, and the profit attributable to minority interests, a net profit of 1.44bn euros is left (+129%). This is already more than half as high again as the net profit for 1999 as a whole.

In the first three quarters, Commerzbank's earnings per share were 2.80 euros, as against 1.27 euros a year previously. The after-tax return on equity improved to 17.9%, or 10.6% without the proceeds from comdirect's IPO.

Stronger customer-group orientation

In his strategic remarks, Mr. Kohlhaussen announced that Commerzbank is to create an even more customer-oriented organization structure and to focus the activities of the group more sharply. The aim, he said, was to "further the group's development as an independent company and to raise its value substantially". Among other things, the bank's operative activities are being bundled for this purpose into two, rather than the previous three, divisions: one for retail customers and asset management, underlining the shift in emphasis in business involving retail customers to the management and development of assets; and a second division in the form of a fully integrated corporate client and investment bank.

Focusing on core competencies

As a second step, all the group's activities are being examined to see whether they count as core competencies and should therefore be expanded. Wherever the critical mass is missing, activities will be strengthened, if necessary, through acquisitions or cooperation.

In this connection, Mr. Kohlhaussen announced that branches which did not seem likely to become stable units in the long term, with a sufficiently large customer base and producing adequate profit contributions, will either be merged with others or closed down. However, the bank intends to keep as many branches as possible by improving the quality of advice that is offered. All in all, Mr. Kohlhaussen believes that Commerzbank's domestic branch network will be trimmed by up to 200 offices, mainly in conurbations. Throughout the rest of the country, a broadly-based presence will be maintained. Mr. Kohlhaussen went on to say, "We will try to retain all our staff as far as possible, though not necessarily in their existing positions and locations. Comparisons with other banks reveal that in many areas we work efficiently and productively, making large reductions in our workforce unnecessary."