August 05, 2010
Commerzbank posts a net profit of EUR 1.1 bn in the first half of 2010
- Operating profit of EUR 243 m in Q2, EUR 1.0 bn in the first half of 2010
- Gross revenues in Q2 stable at EUR 3.1 bn, loan loss provisions of EUR 639 m
- Core capital ratio (Tier 1) as at June 30, 2010 with 10.8% still at a high level
- In a stable environment Commerzbank expects to generate a profit in 2010
- Blessing: "Stability is more important to us than maximizing short-term earnings"
Commerzbank achieved an operating profit of EUR 243 million in the second quarter of 2010 (Q2 2009: minus EUR 223 million). The bank's operating profit totalled EUR 1.0 billion in the first half of 2010. Net profit (attributable to Commerzbank shareholders) came in at EUR 1.1 billion. Compared to the first six months of 2009, this corresponds to an improvement of around EUR 2.7 billion. The decrease in loan loss provisions due to the improved economic environment was particularly noticeable in the second quarter (EUR 639 million after EUR 993 million in Q2 2009). However, the volatile capital markets impacted the trading result. Gross revenues (EUR 3.1 billion) were stable year-on-year (EUR 3.0 billion), but fell by 14% compared to Q1 2010. In the second quarter 2010, net profit (attributable to Commerzbank shareholders) was EUR 352 million due to the positive tax result.
"Germany is Europe's economic engine - a fact which is also being noticed by our clients. Overall, we performed well in the first two quarters of the year; however, a steep road still lies ahead and we are still a fair way from normalcy. In accordance with the 'Roadmap 2012', we are therefore still systematically reducing risks. This is taking its toll on profits, but stability is more important to us than maximizing short-term earnings," said Martin Blessing, Chairman of the Board of Managing Directors of Commerzbank. "We have always said that we will be profitable by 2011 at the latest. On the basis of the pleasing development in results in the first six months, we now assume that in a stable market environment we will conclude 2010 as a whole with a profit."
Net interest income stable, trading profit down
Net interest income of EUR 1.9 billion in the second quarter was stable year-on-year (EUR 1.8 billion), although Group companies have been sold and higher credit margins did not fully compensate for significantly lower deposit margins. Net commission income (EUR 884 million) fell by 7% year-on-year and by 10% compared to Q1 2010. Trading profit (EUR 337 million) was impacted by the uncertainties concerning the developments in individual European countries. Although it rose by EUR 266 million year-on-year, it fell by more than half compared to Q1 2010. Net investment income amounted to EUR 60 million, compared with EUR 172 million in the second quarter of 2009. Here, gains from equity disposals were partially neutralised by charges stemming from targeted risk reductions in the Public Finance portfolio.
Loan loss provisions fell significantly from EUR 993 million (Q2 2009) to EUR 639 million (minus 36%) and remained stable compared to Q1 2010. The reason for this is the ongoing success in the restructuring of loans and the improved economy. Around half of the still high provisioning is attributable to commercial real estate financing in the Asset Based Finance segment. Operating expenses, which fell slightly year-on-year (minus 2% to EUR 2.2 billion), include EUR 148 million integration costs. Personnel expenses fell by 13% compared to the previous year. Adjusted for integration expenses and the disposal of subsidiaries, operating expenses fell by 5% year-on-year.
Total assets up due to market conditions
Despite the downsizing of the portfolio, Commerzbank's total assets increased to EUR 898 billion as at the end of June 2010 (March 31, 2010: EUR 846 billion). The reasons for this include exchange rate movements and persistent volatility on the markets, which led to significantly higher valuations, in particular for derivatives. Due to currency effects, risk-weighted assets (RWA) also rose by 4% to EUR 290 billion compared to the end of Q1 2010. At 10.8%, the core capital ratio (Tier 1) remained at a high level as at June 30 and is still considerably above the target range (7% to 9%).
Core bank posts operating profit
The Private Customers segment achieved an operating profit of EUR 20 million in the second quarter. This fell short of both last year's and last quarter's figures (Q2 2009: EUR 61 million; Q1 2010: EUR 29 million) due to declining deposit margins, dwindling securities activity among customers, the sale of subsidiaries and an increased administrative load on branch teams as part of the brand migration. Net interest and commission income each declined to EUR 492 million. Further progress was made on the cost front, with operating expenses down 4% year-on-year to EUR 913 million. The customer base in the Private Customers segment is stable at 11 million.
Mittelstandsbank achieved an operating profit of EUR 383 million. This was more than three times its operating profit in the same period last year and a considerable 27% increase over Q1 2010. Apart from lower loan loss provisions (EUR 94 million after EUR 236 million in Q2 2009) improved margins contributed to this result. Trading profit increased from EUR 6 million in Q1 to EUR 62 million in the second quarter of 2010 due to higher valuations in the credit derivative business.
The Central & Eastern Europe segment benefitted from the region's economic recovery and recorded an operating profit of EUR 8 million (Q2 2009: minus EUR 87 million). Loan loss provisions fell by a considerable EUR 110 million to EUR 92 million year-on-year. As a result of stable deposits and a robust market performance in Poland, Russia and the Czech Republic, gross revenues were at EUR 247 million thus up by 9% relative to the first quarter (EUR 226 million). In the Central and Eastern European region Commerzbank presently has approximately 4 million customers.
Corporates & Markets significantly boosted its operating profit to EUR 114 million compared to Q2 2009 (minus EUR 2 million), but saw a decline compared to the traditionally strong first quarter (EUR 340 million). In particular, the trading result of EUR 188 million fell a long way short of Q1 2010 (EUR 449 million) owing to the difficult situation on the markets. Based on the pleasing performance of Corporate Finance, net commission income in Q2 2010 was almost stable at EUR 63 million. The net investment result rose to EUR 43 million, while operating expenses fell considerably to EUR 395 million (minus 24% compared to Q2 2009).
ABF impacted by risk reduction, PRU expects to be profitable for the full year
Operating income in the Asset Based Finance (ABF) segment fell to minus EUR 250 million in Q2, a considerable decrease both year-on-year (minus EUR 198 million) and compared to Q1 2010 (minus EUR 86 million). In particular, further charges resulting from the portfolio reduction in Public Finance led to a significantly lower net investment income (minus EUR 158 million compared to EUR 3 million in Q2 2009). Commercial real estate financing was subject to further provisioning. Overall, loan loss provisions remained stable year-on-year at EUR 354 million.
The Portfolio Restructuring Unit (PRU) closed the second quarter with a positive operating profit of EUR 94 million (after EUR 162 million in Q1 2010). The divestment of holdings has recently slowed down due to low market liquidity, but is still being pursued on a systematic basis. As at the end of June 2010, the PRU managed portfolios with a net asset value of EUR 16.5 billion. The segment is currently also expected to achieve a positive result for 2010 as a whole.
Outlook: "As it stands today, we will close 2010 with a profit"
"While the Mittelstandsbank had one of its best quarters ever, low interest rates and the conversion of the branches to the new brand impacted the Private Customers segment. Our operating expenses are in line with the plan"; said Eric Strutz, Chief Financial Officer of Commerzbank. As announced, the costs of the Dresdner Bank integration will total EUR 2.5 billion, while cost synergies will amount to EUR 2.4 billion per year. As at the end of June 2010, more than 40% of the synergies have already been realized and by the end of the year they will amount to over EUR 1.1 billion.
Strutz: "In the second half of the year we will continue to reduce risks and portfolios. In particular, against the background of the economic development in the year as a whole, our risk provisioning will decrease considerably compared to what we could have expected at the beginning of the year. We currently assume that the risk provisioning for 2010 will be a figure of up to EUR 3.0 billion. As of today we will conclude 2010 with a profit, and thus sail into 2011 with a tail wind." The forecast presupposes that there is no dramatic shift on the financial markets or on the economic front in the second half of the year. In 2009, loan loss provisions had a negative impact of EUR 4.2 billion; the estimate for 2010 had so far been around EUR 3.8 billion.
As of today, Commerzbank has fully covered its funding needs for the current year. Market windows for issuance will be used in the second half of the year, in order to initiate the funding for 2011.
Excerpt from the consolidated profit and loss statement
|in EUR m||H1 2010||H1 2009||Q2 2010||Q1 2010||Q2 2009|
|Net interest income||3,747||3,530||1,859||1,888||1,838|
|Provisions for loan losses||- 1,283||- 1,837||- 639||- 644||- 993|
|Net commission income||1,867||1,797||884||983||947|
|Trading profit||1,187||- 456||337||850||71|
|Net investment income||- 59||558||60||- 119||172|
|Other income||- 8||- 66||- 30||22||5|
|Operating profit||1,014||- 818||243||771||- 223|
|Impairments of goodwill||-||70||-||-||70|
|Taxes||- 96||276||- 151||55||269|
|Consolidated profit / loss
(attributable to Commerzbank shareholders)
|1,060||- 1,625||352||708||- 761|
|Cost / income ratio in operating business (%)||65.9||81.0||71.6||61.0||74.6|