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November 08, 2012

Commerzbank: Net operating profit of EUR 216 m in the third quarter of 2012

  • Net interest income stable at EUR 1.38 bn compared to the previous quarter, net commission income increased to EUR 840 m
  • Operating profit of Core Bank in third quarter of 2012 improved clearly to EUR 692 m
  • Commerzbank well prepared for Basel 3 with Core Tier 1 ratio of 12.2%
  • Blessing: "Despite the overall difficult market conditions we have achieved a solid result in the Core Bank"

The Commerzbank Group generated an operating profit of EUR 216 million in the third quarter of 2012 (Q2 2012: EUR 451 million). Keeping in mind that the third quarter of 2011 was significantly impacted by impairments on Greek Sovereign Bonds, operating profit considerably improved year-on-year (Q3 2011: EUR minus 855 million). Against the background of the ongoing difficult market environment and compared to the previous quarter, the revenues before loan loss provisions decreased to EUR 2.4 billion, however (Q2 2012: EUR 2.6 billion). In particular the trading result in the segment Non-Core Assets (NCA) declined in this period as a consequence of negative valuation effects on hedging positions. As expected, the loan loss provisions slightly increased in the third quarter of 2012 to EUR 430 million compared to the previous quarter (Q2 2012: EUR 404 million). The operating expenses remained unchanged at EUR 1.7 billion, reflecting measurements to increase efficiency. In total, Commerzbank posted a net profit of EUR 78 million in the third quarter of 2012 (Q2 2012: EUR 275 million). In the first nine months of 2012, the net profit significantly improved to EUR 722 million in spite of high tax charges in the current year (first nine months 2011: EUR 322 million).

In the Core Bank with the operating segments Private Customers, Mittelstandsbank, Corporates & Markets and Central & Eastern Europe, the operating profit in the third quarter increased by almost 20% to EUR 692 million compared to the previous quarter.

"Despite the overall difficult market conditions, we have achieved a solid result in the Core Bank in the third quarter of 2012. The market environment will remain volatile in the coming months, however. We are, therefore, continuing with our strict cost management, consistently reducing non-strategic portfolios further and strengthening our profitability," said Martin Blessing, Chairman of the Board of Managing Directors of Commerzbank.

Capital base at a constant level, Commerzbank well-prepared for Basel 3

Due to the sustainable capital management of the Group, the risk-weighted assets were reduced further by EUR 4 billion compared the previous quarter, to EUR 206 billion as of the end of September 2012. The Core Tier 1 ratio remained constant over the second quarter at 12.2% as of the end of September 2012. In view of the regulatory capital requirements of Basel 3, as of January 1, 2013 Commerzbank expects a Core Tier 1 ratio of comfortably above 9% taking into account the requirements applicable as of this date. In the coming years, and taking into consideration the phase-in of Basel 3, Commerzbank will remain above this level. Total assets as of the end of September 2012 were EUR 676 billion (end of June 2012: EUR 673 billion).

Revenues before loan loss provisions remain under pressure, yet commission income increased

In the Group, the revenues before loan loss provisions were also affected by the ongoing difficult market environment in the third quarter of 2012. Thus the interest income in the third quarter of 2012 was at EUR 1.38 billion, only slightly higher than in the previous quarter (Q2 2012: EUR 1.33 billion). Yet, the commission income in this period increased by 11% to EUR 840 million (Q2 2012: EUR 757 million). The trading result of EUR 146 million in the third quarter was, however, considerably lower than in the previous quarter (Q2 2012: EUR 555 million). The reasons for this are a weaker Treasury result and negative valuation effects on hedging positions in the Non-Core Assets segment. The operating expenses remained unchanged compared to the previous quarter despite effects in the opposite direction, for example the collectively agreed wage increase. In the Group, the loan loss provisions increased as expected. The higher loan loss provisions in the Group division Commercial Real Estate could not be compensated by net reversals in the Mittelstandsbank and Corporates & Markets segments.

Core Bank segments with solid result, Non-Core Assets with negative impact

The Private Customers segment increased the operating profit by 24% to a stable level of EUR 41 million in the third quarter of 2012 (Q2 2012: EUR 33 million). Revenues before loan loss provisions were again slightly raised for the first time. In particular with the net commission income, the segment profited from a slight recovery in securities business with conservative investment products and an upward move in new business. However, the revenues in the Private Customers segment continue to be affected by an overall difficult market and interest rate environment. The operating profit in the Mittelstandsbank was EUR 395 million (Q2 2012: EUR 390 million). In comparison to the previous quarter, the revenues before loan loss provisions decreased as a consequence of the ongoing low market interest rates, while the loan loss provisions profited from the net reversals due to the robust state of the German economy. The Central & Eastern Europe segment posted an operating profit of EUR 52 million in the third quarter of 2012 (Q2 2012: EUR 59 million). BRE Bank further increased its deposit volumes with almost stable interest rate margins, and thus once again made a good contribution to profits. Corporates & Markets improved its operating profit significantly compared to the previous quarter, posting EUR 191 million in the third quarter of 2012 (Q2 2012: EUR 45 million). Fixed Income & Currencies benefitted from increasing customer activity whilst Corporate Finance and Equity Markets & Commodities posted stable revenues despite the typically weaker summer months. Overall, the operating profit of the segment was also influenced by one-off effects, however.

As a consequence of the continuation of the portfolio reduction, the Non-Core Assets segment posted a considerably weaker operating result of EUR minus 476 million in the third quarter of 2012 than in the previous quarter (Q2 2012: minus EUR 149 million). Fundamental reasons for the downturn in the result are the valuation of positions for the hedging of default risks, which had a negative impact on the trading result, and the higher loan loss provisions. The portfolios in the Group divisions Public Finance and Commercial Real Estate were consistently reduced further. In Public Finance, the Exposure at Default was reduced by 4% to EUR 80 billion as of the end of September 2012 (end of June 2012: EUR 83 billion), in Commercial Real Estate by 6% to EUR 49 billion (end of June 2012: EUR 52 billion).

Outlook 2012

"The situation in the euro zone has significantly stabilised in the third quarter. At present, it cannot be foreseen, however, whether the slight recovery of the markets will continue. With a view to the rising requirements for the capitalisation of banks, the ongoing low interest rate levels, and the loss of trust on the part of customers we expect to see further charges on revenues," said Chief Financial Officer Stephan Engels. "However, the costs lately have developed better than originally expected due to further efficiency gains. For 2012 as a whole, therefore, we assume that operating expenses will only amount to a maximum of EUR 7.2 billion. The loan loss provisions will increase also in the fourth quarter of 2012. The Non-Core Assets segment continues to be the main driver of the loan loss provisions, yet we expect an increase in the Core Bank as well. For the Group, loan loss provisions of EUR 1.7 billion are still achievable for the year as a whole. For the fourth quarter we expect an operating profit lower than that seen in the third quarter."

"In the course of our prudent management, we strengthened our already strong liquidity reserve further over the last months. We also sustainably improved our funding structure. Due to the stabilising measures of the European Central Bank and the planned portfolio reduction in NCA, we envisage paying back the liquid assets from LTRO I in the first quarter of 2013, hence two years prior to the maturity date," said Engels.

Excerpt from the consolidated profit and loss statement

in EUR m Q3
2012
Q3
2011
9M
2012
9M
2011
Q2
2012
Net interest income 1,379 1,589 4,141 5,106 1,333
Provisions for loan losses -430 -413 -1,046 -1,009 -404
Net commission income 840 844 2,44 2,792 757
Net trading income 146 353 1,158 1,448 555
Net investment income 30 -1,267 -169 -2,209 -23
Current income on companies accounted for at equity 16 16 34 29 7
Other income -33 59 -55 407 -43
Operating expenses 1,732 2,036 5,252 6,22 1,731
Operating profit 216 -855 1,251 344 451
Net measurement gain/loss on the prospective selling price of disposal groups 3 - -83 - -86
Restructuring expenses - - 43 - 9
Taxes 115 -191 324 -54 56
Consolidated profit 104 -664 801 398 300
Consolidated profit attributable to Commerzbank shareholders 78 -687 722 322 275
Cost/income ratio in operating business (%) 72.8 127.7 69.6 82.1 66.9

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About Commerzbank

Commerzbank is a leading bank for private and corporate customers in Germany. With the segments Private Customers, Mittelstandsbank, Corporates & Markets as well as Central & Eastern Europe the Bank offers its customers an attractive product portfolio, and is a strong partner for the export-oriented SME sector in Germany and worldwide. With a future total of some 1,200 branches, Commerzbank has one of the densest networks of branches among German private banks. It has around 60 sites in 52 countries and serves almost 15 million private clients as well as 1 million business and corporate clients worldwide. In 2011, it posted gross revenues of almost EUR 10 billion with 58,160 employees.

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Disclaimer

This release contains statements concerning the expected future business of Commerzbank, efficiency gains and expected synergies, expected growth prospects and other opportunities for an increase in value of the company as well as expected future net income per share, restructuring costs and other financial developments and information. These forward-looking statements are based on the management's current expectations, estimates and projections. They are subject to a number of assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results and developments to differ materially from any future results and developments expressed or implied by such forward-looking statements. Commerzbank has no obligation to periodically update or release any revisions to the forward-looking statements contained in this release to reflect events or circumstances after the date of this release.

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