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May 04, 2006

Interim report as of March 31, 2006:

  • Commerzbank achieves record result
  • Eurohypo integration to yield higher synergies
  • 632bn euros consolidated balance sheet

At 959m euros, Commerzbank achieved by far its strongest ever first-quarter operating profit in the first three months of this year, topping the already good year-ago figure by 77.3%. Even without the extraordinary income of 407m euros from the disposal of an 8.1% stake in Korea Exchange Bank, the result is exceptionally strong and underlines the consistently good progress made by Commerzbank.

The group's net profit even expanded by 87.3% to 740m euros, already equal to almost two-thirds of that for the full year 2005. The earnings per share of 1.13 euros translates into a high after-tax return on equity of 25.9%. At the same time, the cost/income ratio improved considerably to 51.7%. As the management board writes in the latest interim report, these figures should not be projected onto the full year. "In view of the good first quarter, the pick-up in economic activity and the positive mood on stock markets, we are confident though that we can achieve or even beat our RoE targets for 2006."

All revenue components contributed to the excellent result for the quarter. At 825m euros, for example, net interest income was a good 14% higher year-on-year, some of this gain being attributable to the increase of the bank's stake in Eurohypo to 49% in December. In order to provide for possible loan losses, 154m euros was set aside in the first quarter. Net commission income (+24.2%) and the trading profit (+26.0%) both benefited from brisk securities business, each reaching new record highs. The net result on the investments and securities portfolio reflects the partial sale of the bank's stake in KEB.

All told, operating income was 30% stronger year-on-year in the first three months. The 7.5% rise in operating expenses was due to larger provisions for performance-related bonuses and for long-term performance plans. By contrast, fixed personnel costs remained constant - a sign that Commerzbank continues to attach great priority to cost discipline.

Commerzbank now second-largest German bank

The acquisition of Eurohypo completed on March 31 caused the group balance sheet to surge to 632bn euros. Without Eurohypo, Commerzbank's balance-sheet total at end-2005 was 445bn euros. The core capital ratio at end-March was 6.5% and thus despite the acquisition of Eurohypo within the target range of 6.5% to 7%. Eurohypo will be fully consolidated in the income statement as from the second quarter, when the restructuring costs relating to the acquisition will probably also be shown.

Segments with strong growth

Not only the bank as a whole but also its individual operating segments were able to improve their results - in some cases significantly - in the first quarter. Thanks to brisk securities business, this holds especially true for the private and business customers segment, which lifted its operating result by 55% to 107m euros year-on-year.

The Mittelstand segment also benefited from higher revenues in interest-bearing and fee-earning business, more than doubling its operating profit to 149m euros. The Corporates & Markets segment was aided not only by favourable market conditions but also its clear strategic focus on customer-based business. Its operating profit rose by 35% to 134m euros, representing a return on equity of just over 30%. International Corporate Banking also made progress, with all its revenue items expanding. The development was especially positive in the USA and Western Europe.

"Joining forces" project fully on schedule

The conceptional integration of Eurohypo into the Commerzbank Group continues to run entirely according to plan and will be largely completed by end-May. This will be immediately followed by implementation in the various units and departments. All the measures will probably have been realized by the end of this year. The sole exception is retail credit business, which due to its scope, its complexity and the intended degree of integration has been made into a separate project. The first results in this connection are likely to be available in June. The joint credit-processing platform will begin, step by step, to operate in 2007.

As things stand today, the full synergies generated by integration will amount to about 142m euros by 2008 and are thus larger than the original range of 100m to 130m euros. They consist of 76m of cost and 66m euros of revenue synergies, including 15m euros of refinancing advantages. A quite conscious decision was made not to realize even higher cost synergies in order not to jeopardize the joint business potential and consequently the scale of the revenue synergies. The declared goal of integration remains to preserve Eurohypo's successful business model. It is also encouraging that the 118m-euro restructuring costs of integration will impose less of a charge on Commerzbank's income statement than the originally assumed amount of 150m euros would have done.

Commerzbank Group: income statement (in million euros)

Q1 2006Q1 2005change
in %
Net interest income825721+14.4
Provision for possible loan losses-154-198-22.2
Net commission income718578+24.2
Trading profit330262+26.0
Hedge accounting6-12.
Net result on investments/securities portfolio445294+51.4
Operating expenses1,1901,107+7.5
Other result-213.
Operating profit959541+77.3
After-tax profit774425+82.1
Consolidated surplus740395+87.3
Earnings per share in euros1.130.66 
Return on equity of consolidated surplus1)25.9%17.1% 
Operating cost/income ratio51.7%60.0%