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August 06, 2009

Commerzbank: Q2 closes with an operating result of minus EUR 201m

  • Gross revenues increase by 31% to EUR 3.1bn, after EUR 2.3bn in Q1
  • Balance sheet total reduced by 13% from end of 2008, risk-weighted assets fell 12%
  • Loans to German companies at a record level
  • Tax expenses charge of EUR 276m in the second quarter
  • Core capital ratio (Tier 1) of 11.3%, compared to 10.2% (pro forma) as at end of March
  • SoFFin guarantees of EUR 5bn to be returned ahead of time
  • Blessing: "2009 will remain a challenging year but we are heading in the right direction"


Commerzbank posted an operating result of minus EUR 201 million for the second quarter of 2009 (Q1 2009: minus EUR 591 million). The significant improvement of EUR 390 million can particularly be attributed to lower charges on structured credit products, the so-called ABS portfolio. At the same time, the core segments of Private Customers and Mittelstandsbank again achieved an operating profit (totalling EUR 206 million) in spite of the ongoing difficult market conditions. Corporates & Markets improved its mandate flow in the area of corporate finance, thanks to the integration of the investment banking unit of Dresdner Bank. The segment's operating profit improved quarter-on-quarter by EUR 913 million to stand at minus EUR 231 million.

"2009 will remain a challenging year, but we are heading in the right direction. We are continuing to implement the 'Roadmap 2012' consistently and we are also running perfectly to schedule with the integration of Dresdner Bank", said Martin Blessing, Chairman of the Board of Managing Directors of Commerzbank. "Over the last few months, we have managed to considerably reduce risks and balance sheet size. Nevertheless, we are ready to meet the German Mittelstand's demand for loans. Our total lending to Germany-based companies stands at a record level of EUR 134 billion. Due to the general economic environment we expect the demand for loans to decline in the second half of the year."

Q2 saw charges of EUR 216 million due to the integration of Dresdner Bank. Impairments on goodwill came at EUR 70 million. Including tax expenditures totalling EUR 276 million, net profit came in at minus EUR 763 million (Q1: minus EUR 888 million). Due to the Dresdner Bank acquisition, the figures for 2009 cannot be compared directly with those for 2008. Last year's figures therefore relate to pro-forma numbers of the new Commerzbank. To allow a comparison quarter-on-quarter, the segment figures for Q1 2009 also include the first days of January, during which Dresdner Bank did not yet belong to Commerzbank. Group figures relate to the time after the acquisition of Dresdner Bank.


Loan loss provisions for 2009 expected at previous year's level

Loan loss provisions in the credit business stood at EUR 993 million in Q2, after EUR 844 million for the period from January to March 2009. For the year as a whole, Commerzbank continues to forecast loan loss provisions at the previous year's level. When compared with year end 2008 and as a result of the measures put in place in the context of 'Roadmap 2012', total assets dropped back considerably by 13% to EUR 912 billion. Successful risk reduction is also evident in the decline in risk-weighted assets (RWA) by EUR 41 billion to EUR 297 billion.

As at the end of June, customer deposits stood at EUR 202 billion. Already in the first half of 2009, Commerzbank fully covered its funding plan for 2009 amounting to EUR 20 billion. Against this background, guarantees provided by the Special Fund Financial Market Stabilization (SoFFin) totalling EUR 5 billion will be returned ahead of time. The core capital ratio (Tier 1) stood at 11.3% after the first half of 2009, following 10.2% (pro forma) as of March 31, 2009. The revaluation reserve fell to minus EUR 2.5 billion as of June 30. Positive hidden reserves (fair value adjustments) from receivables and liabilities totalled EUR 6.9 billion before tax.


Gross revenues 31% higher than in Q1

Net interest income between April and June 2009 rose 9% above the previous quarter's figure to over EUR 1.8 billion. Against a backdrop of weaker customer activity due to the difficult market conditions, net commission income was lower than in the same quarter last year. But at EUR 947 million, it was 11% higher than in the first quarter of 2009 (EUR 850 million). Due to external effects, including increased charges of the deposit insurance scheme (Einlagensicherungsfonds) and one-off charges to the mutual pension assurance association (Pensionssicherungsverein), operating expenses increased by 9% to just under EUR 2.3 billion. Adjusted for Dresdner's cost base during the first days in January and integration cost, the cost base fell by almost 6%.

In terms of trading profit, positive developments in the fixed income business were countered by a dip in earnings from customer business in the area of equity derivatives. The bank achieved a positive trading result of EUR 93 million in the second quarter, up from minus EUR 523 milion in Q1. Net investment income, which declined by around EUR 214 million from the previous quarter to EUR 172 million, was affected by income arising from the sale of industrial holdings (Linde, Lufthansa, ThyssenKrupp) on the one hand, and further write-downs on structured credit products (ABS/RMBS) on the other.


Sustained customer growth in the core segments

Despite the adverse economic conditions, customer growth in the core segments of Private Customers, Mittelstandsbank and Central and Eastern Europe (CEE) continued in the second quarter of 2009. The number of private customers in Germany rose by 73,000. As planned, Mittelstandsbank was able to secure additional customer relationships in the segment of companies with an annual turnover of up to EUR 7.5 million. In Central and Eastern Europe, BRE Bank gained approximately 93,000 additional private customers and Bank Forum some 29,000. This means that Commerzbank now serves some 15 million private customers. The Private Customer and Mittelstandsbank segments ended the quarter with positive operating results of EUR 50 million and EUR 156 million respectively. Crucial factors that influenced these figures were continuing strict cost controls and the net interest income, which came to EUR 605 million in the Private Customers business (EUR 595 million in Q1) and EUR 542 million in the Mittelstandsbank segment (EUR 547 million in Q1).

Net commission income grew by EUR 30 million in the Private Customer segment to EUR 534 million. As a consequence of the decline in the number of customer transactions, Mittelstandsbank saw this measure decrease by EUR 27 million to 210 million in Q2. Loan loss provisions in the Private Customer segment rose to EUR 96 million from EUR 65 million in Q1 of 2009. Due to market conditions this increase was greater for Mittelstandsbank, with the figure up from EUR 90 million in Q1 to EUR 219 million in Q2. The CEE segment faced the effects of the unfavourable situation in the Central and Eastern European markets between April and June 2009. Altogether, the second quarter showed operating revenues amounting to EUR 235 million as opposed to EUR 230 million in Q1. Increased loan loss provisions (EUR 202 million after EUR 173 million in Q1) led to an operating result of minus EUR 83 million.


Successes from Dresdner Bank takeover, CRE restructuring under way

A clear turnaround was achieved in Q2 in the Corporates & Markets (including Public Finance). The takeover of Dresdner Bank has further improved Commerzbank's position in several areas including Corporate Finance. Market share was well up both here and in bonds and foreign exchange business. Compared with Q1 2009, the operating result rose accordingly by EUR 913 million to minus EUR 231 million. Write-downs on the ABS portfolio fell significantly quarter-on-quarter by EUR 952 million to 173 EUR million. Loan loss provisions also fell, by EUR 176 million to EUR 151 million. This is a first indication of the success of bundling non-strategic holdings in the Portfolio Restructuring Unit (PRU). Effective Q3, the PRU will no longer be reported as part of Corporates & Markets. Public Finance and CRE will then be combined in Asset Based Finance.

Net interest income in Commercial Real Estate (CRE) icreased to EUR 265 million, as compared with EUR 222 million last quarter. As a result of the active reduction in new business, net commission income fell by 21% to EUR 78 million as compared with Q2 2008. CRE experienced further value adjustments, particularly in the USA and Spain. In response to the continuing difficult trading environment, loan loss provisions rose from EUR 189 million in Q1 to EUR 318 million in Q2. Operating profit was minus EUR 171 million after minus EUR 53 million in the previous quarter.


Strutz: "We are progressing on target and are working through 'Roadmap 2012' step by step"

"We are progressing on target. We are concentrating on our sustainably profitable core business areas and are working through 'Roadmap 2012' step by step. This means: the balance sheet total is being reduced; non core activities will be disposed of; risks are being decreased", said Eric Strutz, Chief Financial Officer of Commerzbank. "In the second half of the year the average rating of borrowers will be downgraded due to the economic downturn. As a result, risk-weighted assets may increase. However, we will reap benefits in the medium term as the economic recovery that is expected will help to realise write-up potential."

Costs associated with the integration of Dresdner Bank are expected to amount to around EUR 2 billion in 2009, of which EUR 1.7 billion is restructuring expenses and EUR 300 million in operating expenses. Due to the ongoing diffiult markets a forecast for all of 2009 is still not possible. If normal market conditions prevail, repayment of SoFFin silent participations could begin in 2012; if market trends are more positive it may even start in 2011. Commerzbank continues to expect to achieve its medium-term goal of a 12% post-tax return on equity in 2012.

"We have already successfully implemented the first measures defined in 'Roadmap 2012'. This also includes the sale of subsidiaries that took place in July. The number of full-time equivalents in the Commerzbank Group has already been reduced by more than 1,800 as part of the integration process. We have achieved this more quickly than we had initially planned", said Strutz. The aim is to reduce a total of 9,000 full-time equivalents, 6,500 of them in Germany. The bank has ruled out any operational redundancies (betriebsbedingte Beendigungskündigungen) in Germany until at least the end of 2011, and in case of the attainment of the declared goals until 2013.



Excerpt from the consolidated profit and loss statement

in EUR m Q2 2009 Q1 2009 Change Q2 2008 1)
Net interest income 1,838 1,692 9% 1,762
Loan loss provisions - 993 - 844 18% - 488
Net commission income 947 850 11% 1,205
Trading profit 93 - 523 - - 246
Net investment income 172 386 55% 1
Other result 5 - 71 - 52
Operating expenses 2,263 2,081 9% 2,417
Operating profit - 201 - 591 66% - 131
Impairments of goodwill 70 - - -
Restructuring expenses 216 289 25% -
Taxes 276 8 - - 388
Consolidated profit attributable
to Commerzbank shareholders
- 746 - 861 13% 200
Profit per share in EUR - 0.76 - 1.02 25% 0.31
Operating expense ratio in % 74.1 89.2 - 87.1

1) on a pro-forma basis

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