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August 09, 2006

Interim report as of June 30, 2006

  • Commerzbank achieves good operating profit: revenue boosted by consolidation of Eurohypo and changed business model for Corporates & Markets
  • Consolidated surplus rises to 1,025m euros at halfway stage - after-tax return on equity of 17.9%

The Commerzbank Group - including Eurohypo fully consolidated for the first time - generated an operating profit of 700m euros in the second quarter of 2006. After restructuring charges of 214m euros, the consolidated surplus was 285m euros.

For the first half of the year as a whole, the bank posts an encouraging operating profit of 1,659m euros and a consolidated surplus of 1,025m euros. Based on the higher number of shares issued, this translates into earnings per share of 1.56 euros. The return on equity on the consolidated surplus was 17.9% in the first half of the year.

The Board of Managing Directors indicate in their latest interim report that they are quite satisfied with the progress of the Commerzbank Group: "We have achieved a good operating result, to which all business lines have contributed. The main drivers were the consolidation of Eurohypo and the changes to Corporates & Markets' business model. The decision to reposition our investment banking was the right one. The focus on customer-based business and the termination of dedicated proprietary trading are paying off. Despite the good progress made, the cost base and consequently the cost/income ratios are still too high in some business lines for us to be permanently competitive and ready to face future challenges. For this reason, various programmes to boost efficiency are running at present - above all in retail business, IT and transaction banking."

Good trading profit

A notable feature in the second quarter was above all the trading profit, which increased again quarter-on-quarter to 355m euros. Equity derivatives business was again particularly successful. The trading profit of 691m euros in the first six months was Commerzbank's best half-year result to date.

Eurohypo in particular was an important factor behind the second quarter's sharp increase in net interest income. Net interest income also benefited from improved results in domestic treasury activities. At the same time, interest income was adversely affected by regular amortization in connection with the acquisition of Eurohypo, greater funding costs for this participation and expenses for the hybrid capital raised by the bank for the first time in March.

Risk provisioning in the first six months is shown virtually unchanged on the previous year at 379m euros, which is within the budgeted framework. Net interest income after provisioning reached 1,506m euros in the January-June period, a good 26% more than a year earlier.

Net commission income for the first six months was 1,377m euros, an increase of 17.6%. While revenue from securities business on behalf of customers was slightly lower in the second quarter due to the difficult market environment, it reached a healthy level. In a year-on-year comparison, income from asset management registered an especially strong rise, but payments and foreign commercial business also made solid contributions.

Overall revenue of 4.18bn euros in the first half of 2006 was 38% higher than a year earlier. At the same time, operating expenses went up by almost 15% to 2.52bn euros, due to the consolidation of Eurohypo and the bank's good business performance, leading to higher result-based payments to its staff. In addition, its workforce in Germany expanded by roughly 400 in the second quarter of the year. As the board write in their interim report, strict cost discipline remains a top priority.

The consolidated balance sheet total shrank further, according to plan, to 616bn euros in the second quarter. The core capital ratio (including the market-risk position) was 6.5% at mid-year, which is within this year's target range.

New segment structure: Corporates & Markets and Mittelstand outstanding

The integration of Eurohypo has also substantially altered the bank's organizational structure and consequently the presentation of its segments as well. The existing operating divisions Retail Banking and Asset Management, on the one hand, and Corporate and Investment Banking, on the other, have been joined by a further division, Commercial Real Estate, Public Finance and Treasury. A further change affects Corporate and Investment Banking, which instead of three now consists of two segments, as International Corporate Banking has been assigned to the two segments Mittelstand and Corporates & Markets.

A further change is the inclusion of Eurohypo's home loan business in the Private and Business Customers segment. In this new set-up, it achieved an operating profit of 163m euros in the first half of the year under changed conditions in the capital markets. It should be noted that this business line has to shoulder the lion's share of the result-based increase in personnel costs. Its operating return on equity was 14.8%. In addition, it has to bear a 96m euro restructuring charge for setting up a retail credit platform.

In Asset Management, revenue in the first half of the year expanded by almost 30%. At mid-year, assets of 104bn euros were being managed for private and institutional customers. Its operating return on equity improved to 23.8%.

Commerzbank's Mittelstand segment made further progress in the first half of this year. Here, the Polish subsidiary BRE Bank made a contribution, generating its best result in the past six years. The operating return on equity rose to 18.9%.

There was a strong surge in the result produced by the bank's Corporates & Markets unit. With volatile markets and an historically low risk level, it raised its operating profit sharply in the first six months to 346m euros, translating into a return on equity of 27%.

In the two new segments Commercial Real Estate and Public Finance and Treasury, comparison with the previous year is barely possible as the full consolidation of Eurohypo was not felt until the second quarter. In the first half of the year, the operating return on equity was 13.7% and 33.1%, respectively.

Note: The complete interim report is available on the internet here.