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November 03, 2006

Interim report as of September 30, 2006

  • Commerzbank makes good business progress in Q3 as well
  • Management board expect record result in 2006

The Commerzbank Group made good progress in its operating business in the third quarter as well. Both net interest income and net commission income could be raised substantially. At 337m euros, the operating profit from July to September was almost 20% lower than a year earlier. However, without the one-off allocation of 293m euros to loan-loss provisions in retail business, which is reflected in these figures, the operating profit was about 50% more than in the previous year and barely lower than in the second quarter. After nine months, the operating profit reached practically 2bn euros and was thus much higher than in the full year 2005.

For the third quarter, the bank has posted a consolidated surplus of 217m euros. After nine months, it stood at altogether 1.24bn euros, or already half as much again as in same period of 2005. Up to September, earnings per share reached 1.89 euros and the after-tax return on equity 14.5%.

The bank's management board were accordingly satisfied. For 2006 as a whole, they expect "one of the best results in our history." In the interim report, they identify the main factors underpinning the bank's success: "In all core segments, we have adopted measures to boost efficiency; we have systematically reduced market and credit risk; and we continue to pursue an effective cost management. Performance continues to be driven by the Mittelstand and Corporates & Markets segments. The integration of Eurohypo AG is now largely complete and has been very successful. Currently, we are working on the final component, the joint retail-credit platform which will be launched next year."

Strong operating figures

All core business lines contributed to the good net interest income of 2.94bn euros after nine months, which was a quarter higher than a year previously.

Up to September, provision for possible loan losses amounted to altogether 794m euros. This includes a one-off charge of 293m euros related to the harmonization of provisioning standards between Commerzbank and Eurohypo in retail business. Without this effect, provisioning in current business reveals an encouraging trend and is now at a very low level.

Net commission income reached 2.08bn euros by September, representing a large increase of 18% year-on-year. Commerzbank's trading profit expanded even more strongly, by almost 90% to 874m euros. After nine months, total revenue (before provisioning) amounted to 6.6bn euros, 30% higher than in the previous year.

At the same time, operating expenses rose by over 15% to 3.81bn euros. This increase is primarily due to the inclusion of just under 2,400 Eurohypo staff in the consolidated figures as well as to higher provisions for performance-based bonus payments to employees. Just how well the bank has its current costs under control is shown by the slight decline in overall operating expenses in the third quarter. The staff employed in Germany increased by 400 since end-June.

By end-September, the consolidated balance-sheet total had been reduced again slightly to 610bn euros. At the same time, risk-weighted assets were also scaled back. As a result, the core capital ratio (including market-risk positions) improved to 6.7%.

Corporates & Markets and Mittelstand continue to drive performance - Retail Banking hit by special effects

The Private and Business Customers segment already had to shoulder a large share of the restructuring expenses in the second quarter and now had to bear the additional burden of the one-off provisioning charge. Despite an encouraging trend in current business, this led to a negative result overall for the first nine months. The bank is confident that sustained profitable growth can soon be achieved again through a market offensive launched at the start of October and innovative products, together with further growth programmes. The segment's target is an operating return on equity of more than 18% by 2010.

In Asset Management, the Commerzbank Group was managing 108bn euros for private and institutional customers per end-September. The nine-month operating profit of 101m euros was roughly on a par with the previous year - with a good return on equity of around 24%.

Commerzbank's Mittelstand segment continues to steer a successful course - thanks not only to stronger cross-selling activities and a fresh decline in provisioning, but also to the Polish subsidiary, BRE Bank, which is heading towards a record result. The operating return on equity improved further to a very good 23%, which was well above target.

Corporates & Markets also registered excellent performance. Apart from net reversals of loan-loss provisions, it was above all the consistently successful equity derivatives business, the fixed-income area and foreign-exchange dealing which ensured an outstanding result in the third quarter as well. In the first nine months, the segment's operating profit almost tripled to 504m euros, translating into a high return on equity of 27%.

The two segments Commercial Real Estate and Public Finance and Treasury are strongly influenced by Eurohypo, which has been fully consolidated only since April 2006. Their operating return on equity for the January to September period was 14% and 28%, respectively.

In his outlook, Klaus-Peter Müller promises that the bank will continue to work hard to secure and build upon its market position. He writes: "We intend to achieve this not merely through further strict cost management and increases in efficiency, but also through organic and selective external growth." In practically all core business lines, therefore, the bank has established growth programmes, above all in retail business. In order to increase its presence further in Eastern Europe, Commerzbank has purchased a 15.3% interest in Russia's twelfth-largest bank, Promsvyazbank, and intends gradually to acquire a majority stake.

The bank's target remains a sustained after-tax return on equity of 15% as from 2010. "As things stand today, we will come much closer to this goal even in the current year. We are confident that we will be able to have our shareholders participate in the good business result for 2006 by making a higher dividend payment" is the statement with which the interim report ends.

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