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May 09, 2007

Commerzbank reports successful start to 2007

  • Interim report for March 31:
  • Commerzbank reports successful start to 2007
  • Operating profit at EUR 908 million - Net profit at EUR 609 million
  • Clean operating profit up by 55%
  • Net RoE of 19.6%

Commerzbank has made a good start to 2007. The operating profit adjusted by one-off gains on participations surpassed the corresponding result of the previous year by 55% and therefore is Commerzbank's best ever quarterly result. The clean net profit even rose by 66%. At EUR 908 million, the reported operating profit is marginally lower than the previous year's result which was strongly influenced by the sale of the stake in Korea Exchange Bank.

Based on the net profit of EUR 609 million and earnings per share of EUR 0.93, the net RoE reached an excellent 19.6%. Commerzbank has also made further progress in improving the operating cost/income ratio, which is at 56%. The Board of Managing Directors commented: "These results strengthen our confidence in exceeding our target returns for 2007, although it is clearly premature to make a projection for the entire year based on the first quarter of the year."

At EUR 1.05 billion, net interest income was higher than in the previous quarter and almost as high as in the first quarter of 2006 on a pro-forma basis reflecting the full integration of Eurohypo. This is despite the effects of lower dividend income caused by the disposal of non-strategic equity holdings as well as the absence of interest income following the outsourcing of company pension provisions. Without the impact of the flat yield curve that created difficult conditions for the Public Finance and Treasury segment, net interest income would have been even higher than in the previous year. Loan loss provisions at EUR 160 million are on a pro-rata basis at the upper limit of the LLP-guidance for 2007.

Net commission income saw a double-digit increase to EUR 847 million, due to the buoyant retail securities business and higher revenues earned from both Asset Management and real estate transactions. The results of the Corporates & Markets segment exceeded last year's results, whilst the overall trading result reached EUR 301 million, almost as high as last year's strong figures. Around half of the earnings from the investments and securities portfolio resulted from the sale of stakes in Deutsche Börse, Germanischer Lloyd and the Polish subsidiary Skarbiec Asset Management Holding.

Commerzbank continues to keep costs firmly under control. Despite additional investment growth programmes, pro-forma operating expenses rose only 3% to EUR 1.36 billion.

The core capital ratio improved to 6.9%, thus placing it within the upper portion of its target range of 6.5% to 7%, whilst the consolidated balance sheet total of EUR 609 billion at end of the quarter remained nearly unchanged from the previous quarter.

Performance of operating segments excellent

Commerzbank changed the format of its segment report at the beginning of the year, mainly driven by the sale of its UK subsidiary Jupiter. As a result, cominvest's asset management business was integrated into the Private and Business Customers segment, and the real estate activities of the Commerz Grundbesitz Group are now reported under Commercial Real Estate. Finally, all remaining international asset management activities are now reported under Others and Consolidation.

The extended Private and Business Customers segment succeeded in increasing its operating profit to EUR 145 million, up 23% over the previous year. That segment benefited both from the initial rewards being seen from the growth initiatives launched last October as well as from favourable conditions in financial markets. As a result, the bank has gained more than 150,000 new retail customers within the last twelve months. The bank expects its extensive investments in the branch business and subsidiary comdirect to further improve financial performance from 2008 onwards.

Considerably higher revenues from net interest and commissions in conjunction with lower loan loss provisions led to a further increase in profits from the Mittelstand segment. Operating profit rose sharply by 87% to EUR 266 million. This yielded a strong operating return on equity of 36% at a cost/income ratio of less than 50%.

Corporates & Markets achieved an operating result of EUR 174 million, putting it on a par with the previous year, while boosting its return on equity to 32%. The results were driven by trading profit and net interest income from business with multinational companies.

In the Commercial Real Estate segment, an active realignment towards more commission-based business, such as securitization and syndication has brought an 18% increase in operating profit to a total of EUR 164 million. New business once again reached the record amount of EUR 11 billion generated in the previous quarter.

The Public Finance and Treasury segment continued to experience difficult conditions as a result of the prevailing unfavourable interest rate environment. Despite this, the operating return on equity was a respectable 26%.

Commerzbank confident about future

The Board of Managing Directors believes that the group is well prepared for the future, commenting "Our core business areas are in good shape, we have significantly strengthened our market position in Germany and we certainly see potential for further growth. We expect business to be boosted by Germany's continued strong economic growth as well as the positive sentiment in financial markets."

The complete interim report can be found online here .

Dr. Eric Strutz, CFO of Commerzbank, will host an analyst conference call on the results today at 9 a.m. Corresponding charts can be found here .

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

1st quarter 20071st quarter 2006Change in %
Net interest income1,045831+25.8
Provision for possible loan losses- 160- 159+ 0.6
Net commission income 847734+15.4
Trading profit 301320-5.9
Earnings from the investmentsand securities portfolio 225445-49.4
Other result10- 21.
Operating expenses1,3601,190+14.3
Operating profit908960-5.4
After-tax profit641777-17.5
Consolidated surplus609743-18.0
Profit per share in EUR0.931.13 
Return on equityon the consolidated surplus1)19.6%26.3% 
Cost/income ratio in operating business56.0%51.5% 

1) annualized