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January 19, 2012

Commerzbank can fulfil capital requirements of the European Banking Authority (EBA) relying on its own strength

  • Commerzbank approves set of measures to substantially strengthen Core Tier 1 ratio
  • Core Tier 1 capital requirement of approximately EUR 5.3 bn determined in accordance with EBA method can be surpassed with set of measures
  • Core Tier 1 capital requirement as of December 31, 2011 on the basis of preliminary figures already reduced by approximately EUR 3.0 bn to EUR 2.3 bn
  • Blessing: "Through the initiated measures, we have already fulfilled almost 60 % of the EBA capital requirement as of year-end 2011"


The Board of Managing Directors of Commerzbank approved a set of measures to strengthen the Core Tier 1 ratio and has accordingly informed the Supervisory Board of Commerzbank. Through these measures and on the basis of the current planning Commerzbank intends to fulfil the requirements of the European Banking Authority (EBA) amounting to some EUR 5.3 billion by the record date June 30, 2012 relying on its own strength.

Overall, the set of measures has a potential of approximately EUR 6.3 billion. The measures will not be at the expense of the customer-centric national and international business related to Germany and Poland. Commerzbank will also continue to guarantee the supply of credit, in particular for Germany's Mittelstand (SME business), as well as for its large corporate customers and institutional clients. As required by the European Council, 71 internationally operating European banks are required to comply with a Core Tier 1 ratio of 9% by June 30, 2012, after accounting for the effects of a simulated partial default on European sovereign bonds; this substantially exceeds the current regulatory requirements. In accordance with this stress scenario conducted in line with the methodology of the EBA, on the basis of the figures as of September 30, 2011, Commerzbank has an additional Core Tier 1 capital requirement of approximately EUR 5.3 billion. The Core Tier 1 ratio of Commerzbank as of September 30, 2011 was a comfortable 9.4 %. As of December 31, 2011 the bank assumes a Core Tier 1 ratio of approximately 10 % on the basis of preliminary figures.

In order to fulfil the Core Tier 1 ratio set by the EBA, Commerzbank initiated extensive measures as early as November 2011. As of December 31, 2011 the bank had, on the basis of preliminary figures, reduced its Core Tier 1 capital requirement by approximately EUR 3.0 billion. This sum results from the retention of earnings for the fourth quarter of 2011 in the amount of approximately EUR 1.2 billion, which includes the IFRS one-off income from the repurchase of hybrid equity instruments to the amount of EUR 735 million. The expected IFRS profit after taxes for the fourth quarter does not include additional potential valuation adjustments on the portfolio of Greek sovereign bonds which had already been adjusted in value to 48 % of the nominal value in previous quarters.

Furthermore, in comparison with the RWA figure determined by the EBA as of September 30, 2011, on the basis of preliminary figures, the risk-weighted assets could be reduced by more than EUR 17 billion by the end of 2011. Thanks to this RWA management the need for Core Tier 1 capital was reduced by approximately a further EUR 1.6 billion. Moreover, in the fourth quarter of 2011 regulatory capital deductions were clearly lowered through efficient management of the capital structure, whereby the Core Tier 1 capital could be increased by around a further EUR 200 million.

"Within just a few weeks, through to the initiated measures we have already reduced our Core Tier 1 capital requirement by around EUR 3.0 billion by year-end 2011, and thus already fulfilled almost 60 % of the EBA capital requirement. In the coming five and a half months we intend to decrease the need for Core Tier 1 capital by up to a further EUR 3.3 billion by means of the implementation of a number of measures. As announced, we can thus fulfil the requirements of the EBA relying on our own strength and also have the potential to further strengthen our Core Tier 1 capital ratio," said Martin Blessing, Chairman of the Board of Managing Directors of Commerzbank.

Among other things, in line with the current planning the bank intends to considerably reduce the risk-weighted assets by approximately a further EUR 17 billion by June 30, 2012. This is to take place, for example, through the accelerated reduction in fringe activities and continued consistent RWA management. This means that the Core Tier 1 capital requirement can be lowered by around a further EUR 1.5 billion. Moreover, in line with the current planning, in the first six months of 2012 regulatory capital deductions for securitisation positions are to be substantially lowered through efficient capital management, whereby the Core Tier 1 capital is to be increased by approximately a further EUR 350 million. To this end, corresponding positions in the Portfolio Restructuring Unit (PRU) are to be sold above all.

In addition, the bank plans to satisfy the individual variable compensation entitlements for 2011 of most of its non-pay-scale employees in Commerzbank AG shares. Depending upon the participation of the employees, this can lead to an increase in the Core Tier 1 capital of approximately EUR 250 million.

In addition, the profits from the first and second quarter of 2012 are to be used to strengthen the Core Tier 1 Capital. On the basis of the current planning, the bank assumes there will be retained earnings of approximately EUR 1.2 billion, which are to be achieved through the proven customer-centric business model and additional cost reductions of some EUR 150 million. Negative income effects from the initiated measures for RWA management have already been taken into consideration. Further capital increases and the conversion of existing capital instruments into Core Tier 1 capital are currently not part of the stated measures.

In line with the current planning, the measures already implemented and those planned through to mid-2012 are to have a positive effect of approximately EUR 6.3 billion on the Core Tier 1 capital requirement. Thus the bank can fulfil the capital requirements of the EBA relying on its own strength and is able to create further potential to strengthen the Core Tier 1 capital ratio.

"Commerzbank currently has a comfortable capitalisation, fulfils all current regulatory standards of the German Banking Act (Kreditwesengesetz) and the Basel Committee and has a solid refinancing basis. With the approved set of measures the bank is showing that it is able to meet the capital requirements of the EBA relying on its own strength even in a difficult environment. We stand by our word: We do not intend to make use of additional public funds," said Eric Strutz, CFO of Commerzbank.

Markus Beumer, the board member at Commerzbank responsible for Mittelstand business, emphasized: "The reduction in the non-strategic risk-weighted assets will not be at the expense of Germany's Mittelstand. We are fully aware of our responsibility for supplying the German economy with loans, and will continue to stand by our customers, and in particular SMEs. Despite the implementation of the measures to strengthen our capital base, in 2011 we actually increased the total credit volume extended to SMEs in Germany for example."

Following the conclusion of all the measures, on the basis of the current business planning Commerzbank intends to achieve a Core Tier 1 ratio of more than 11.0 % as of June 30, 2012. The planned measures are based on the current business planning and are subject to no further deterioration in the macroeconomic environment, and in particular no further escalation of the sovereign debt crisis. After the deduction of the capital buffer for the partial default of European sovereign bonds of around EUR 4.9 billion as simulated by the EBA and other capital deductions resulting from the launch of Basel 2.5 amounting to some EUR 0.4 billion, the Core Tier 1 ratio would then be substantially higher than the ratio of 9 % required by the EBA. Thus, not only would all the existing regulatory minimum capital requirements be fulfilled, but also those due to come into effect on January 1, 2013, under Basel 3.

In addition to the measures already implemented and those planned through to June 2012, Commerzbank still has other options to further strengthen its Core Tier 1 capital if necessary. In accordance with the requirements of the EBA, options could be a further optimisation of the capital structure and the issue of equity capital instruments.


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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, Central & Eastern Europe as well as Asset Based Finance, 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 more than 50 countries and serves more than 14 million private clients as well as 1 million business and corporate clients worldwide. In 2010, it posted gross revenues of EUR 12.7 billion with some 59,000 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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