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March 28, 2001

Commerzbank presents its 2000 results

CB 21 project as fitness programme
Satisfying start to 2001

"The figures for last year as a whole show that, given its present constitution, Commerzbank is strong enough to play a respectable role in Europe's financial concert. In order to ensure that things stay like that, we have prescribed for ourselves a fresh fitness programme", said Martin Kohlhaussen, chairman of the bank's board of managing directors, outlining the bank's future direction. At the press conference for presenting the 2000 results on March 28, he said that through the project "CB 21 - Commerzbank in the 21st century", the bank intends to improve its pre-tax profit by about one billion euros within the next three years by means of a clear target-group orientation, a focus on core competencies and cost synergies. This will enable it to achieve a sustained after-tax return on equity of 15%.

Mr. Kohlhaussen described the year 2000 as an extraordinary year. On the positive side, the bank's profit was almost 50% higher than the record result of the previous year, enabling it to pay a special EUR0.20 bonus to shareholders in addition to the dividend of EUR0.80. On the other hand, the unpredictability of the financial markets meant that not everything went as the bank had imagined it would.

Strong growth momentum

Last year, Commerzbank's strong growth continued. The Group's balance sheet expanded by 24%, or EUR88bn, to EUR460bn. A large part of which was due to interbank transactions, but lending was also substantially higher. Claims on customers increased by EUR21bn, mainly in the short and medium-term brackets, with small to medium-sized enterprises well-represented.

Commissions and trading profit up considerably

Fuelled by brisk securities transactions in the first half of the year, the strong rises in net commission income (+24%) and the trading profit (+60%) featured prominently in the income statement. At EUR2.72bn, net commission income was almost as high as net interest income after provisioning of EUR2.83bn (+12%), underlining the outstanding role now played by commission-bearing business. Commerzbank made provision of altogether EUR685m for possible loan losses - practically as much as in the previous year.

The 22% rise in operating expenses primarily reflects further expansion in investment banking and information technology. At the same time, the bank's workforce continued to grow: at end-2000, the Commerzbank Group had more than 39,000 employees worldwide. However, a good 2,500 of last year's increase of 4,174 are attributable to the first-time consolidation of the Polish BRE Bank, in which Commerzbank holds an interest of 50%.

One striking feature of the income statement is the collective item Other operating result, amounting to EUR1.13bn and mainly representing the non-recurring income from last June's IPO of comdirect bank, Commerzbank's direct bank subsidiary.

All told, Commerzbank achieved a pre-tax profit of EUR2.23bn, 63% more than in 1999. Due to the bank's high earnings in Germany last year, its taxes on income more than doubled to EUR823m. The remaining net profit for the year results in an after-tax return on equity of 12.4%; its cost/income ratio improved from 68.5% in 1999 to 65.2%.

Segment reporting made more transparent

Reflecting its new organization with only two operative divisions - Retail Banking and Asset Management, on the one hand, and Corporate and Investment Banking, on the other - Commerzbank has considerably extended its segment reporting in terms of scope and transparency.

This shows (pages 92-96 of the annual report) that, with the greater part of the proceeds from the comdirect IPO included, Retail Banking achieved a return on equity (ROE) of 48.2% last year, easily the best of all the banking departments. Even without this special effect, its ROE is still just over 16%. With the help of selective structural improvements as part of the CB 21 project, it is to be raised even further in the years ahead. Major factors in this respect will be the reduction of the domestic branch network, streamlining of the product range and above all close strategic bancassurance cooperation with the Italian insurance company Generali. The bank expects these measures to yield extra earnings of EUR470m in retail-banking business by 2005.

Despite having to shoulder special one-off expense items, Asset Management also produced an above-average return on equity of 34.9%. It will be raised further by bundling portfolio management and research and by developing a pan-European distribution structure. The profit contribution from this and other structural improvements should amount to more than EUR300m over the next five years.

In the Corporate Customers and Institutions segment, Commerzbank posted its best operative result, namely EUR519m, last year. However, as a large amount of equity is tied up here, its return of 8.6% does not yet meet the bank's expectations. In itself, the intended close meshing of traditional branch business with investment banking should give the bank's pre-tax profit a further boost of just over EUR300m by 2005.

This year, the focus in the Securities department is on strengthening bond and M&A activities. Its result based on internal accounting, including the profit contributions from business passed on, was EUR96m. "In view of the market downturn in the second half of the year and the high personnel and other costs - not least for the latest IT structures - that are typical of an expansion phase, we must be content with this outcome," Mr. Kohlhaussen explained, adding that "It is also clear, however, that the after-tax return on equity of 7.1% has to be improved substantially over the next few years."

Once all these individual measures have been implemented, which also involves the streamlining of non-European activities, Commerzbank will have substantially increased its earnings power. It is planning a pre-tax profit that is more than EUR500m higher even for 2002 and envisages extra income of practically EUR1.6bn for 2005.

Cautious forecasts, but basically positive

Commerzbank's banking departments got off to a lively start in the current year. The Group's total assets expanded by a further 5% to EUR483bn.

"The results for January and February indicate that cautious forecasts are called for, but the prevailing mood is basically positive," said Mr. Kohlhaussen, showing satisfaction above all with the rise of 17% in net interest income before provisioning and 19% after provisioning. Even the decline of less than 10% in net commission income is acceptable in view of market conditions, he said. The trading profit was only marginally down on its year-ago level.

Mr. Kohlhaussen remains cautiously optimistic for the future: "Given the unsatisfactory development of the final quarter of 2000, the good operative start to the current year makes us confident that we can achieve our budgeted earnings targets."