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November 06, 2007

Commerzbank interim report September 2007: Commerzbank reports further growth

  • Profit target for 2007 already attained
  • Operating profit in third quarter up 7% on last year at EUR 361 million - consolidated surplus up 56% at EUR 339 million
  • Impairment of EUR 291 million on US subprime commitment

Commerzbank performed well in the seasonally weaker third quarter of the year. Due to excellent results in its two core business areas, Private and Business Customers and Mittelstand, operating profit reached EUR 361 million, 7% higher than in the same quarter last year. A positive tax effect meant that the consolidated surplus was almost as high, at EUR 339 million, up 56% on last year.

These figures include a one-off impairment of EUR 291 million on the bank's US subprime commitment, amounting to a total of EUR 1.2 billion. This sum is the result of an intensive credit analysis and a conservative re-evaluation of the US securities portfolio. In this way the bank takes due account of the market development till the end of September.

In the first nine months of the current financial year, Germany's second largest bank achieved an operating profit of EUR 2.34 billion, an increase of approximately 17% on the previous year. After nine months, the consolidated surplus of EUR 1.72 billion exceeded already that of the previous full year and outperformed the overall target for 2007 of EUR 1.5 billion. The Board of Managing Directors now expects a net RoE of more than 15% (clean more than 12%) for the current year. "These figures prove that Commerzbank keeps its promises," Chairman of the Board Klaus-Peter Müller says.

Net interest and commission income at high level

The most important sources of return, net interest and commission income, also showed a positive trend in the third quarter. Net interest income remained at the level of the previous quarter at EUR 999 million. Adjusting for the disappointing interest income of Public Finance and Treasury, this actually constituted an increase of 6% on last year. At the same time, loan loss provisions were lowered further to EUR 107 million. For the whole year, the bank now anticipates valuation allowances of just EUR 525 million.

Net commission income in the third quarter was also encouraging at EUR 810 million. The sustained good performance of the securities business with retail customers helped it to rise 13% above last year's already good figure. By contrast, the turmoil in the international financial markets left its mark on trading profit which, at EUR 124 million, was considerably lower than in previous quarters. Trading in loan products was particularly severely affected, while the equity derivatives business continued to perform at the same buoyant level. The result from the investments and securities portfolio was affected by the one-off impairment mentioned above. Since there was little additional income, the result for the quarter was a loss of EUR 238 million. Over the first nine months as a whole, the bank did however generate a positive figure of EUR 249 million.

Commerzbank continues to keep costs firmly under control, being lower in the third quarter than in the previous quarter, at EUR 1.28 billion. The Board of Managing Directors will continue to attach special importance to cost discipline.

Mittelstand and Private and Business Customers remain key profit drivers

Notwithstanding the costs resulting from valuation adjustments to the US securities portfolio, the overall trend in the major divisions remained positive in the third quarter. Only the result in Public Finance and Treasury was disappointing, demonstrating only a small increase after nine months. The bank is therefore focusing heavily on a new business model for this segment.

The Private and Business Customers division significantly exceeded expectations, and growth investments in branches and comdirect bank are already bearing fruit. During the current year Commerzbank acquired a net total of over 230,000 private and business customers. Operating profit has already almost reached the target for the year of EUR 350 million. Operating return on equity reached an encouraging 18%.

The Mittelstand segment has already significantly exceeded its target with an operating profit of EUR 993 million. Operating RoE rose far above average to 43%.

By contrast, Corporates & Markets suffered from the effects of the turmoil in the international financial markets. At EUR 163 million this segment was forced to absorb more than half of the one-off impairments, resulting in a third quarter loss. The Board expects once again to see an operating RoE of over 20% as soon as the markets begin to normalize, which the bank believes is likely no later than spring 2008.
The remainder of the above impairments, at EUR 128 million, were borne by Commercial Real Estate. Nevertheless, business in this segment continued to be buoyant, and, after nine months, operating profit is higher than that recorded in the first nine months of the previous year, despite the impairment charge.

Outlook

Next year, building on what are so far positive results, the Board intends to forge ahead with the current focus on its customer-centric businesses and controlled growth. "If the markets do not continue to deteriorate, we are confident that we can further increase return on equity next year," Klaus-Peter Müller says.



Commerzbank Group: Consolidated income statement (in EUR million):

  Jan-Sept 2007 Jan-Sept 2006 Q3 2007 Q3 2006
Net interest income 3047 2941 999 1050
Provision for possible loan losses - 418 - 799 - 107 - 415
Net commission income 2415 2129 810 718
Trading profit 806 825 124 168
Earnings from the investments
and securities portfolio
249 720 - 238 91
Other result 212 - 10 56 17
Operating expenses 3967 3809 1283 1292
Operating profit 2344 1997 361 337
Taxes 560 413 10 84
After-tax profit 1784 1370 351 253
Consolidated surplus 1716 1245 339 217
         
Earnings per share in EUR 2.61 1.90    
Return on equity on the consolidated surplus 1) 18.4% 14.7%    
Cost/income ratio in operating business 59.0% 57.7%    

1) extrapolated for the whole year

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