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May 07, 2013

Commerzbank: Operating profit of EUR 469 m in the first quarter of 2013 – pre-tax profit includes all restructuring charges

THIS IR RELEASE AND THE INFORMATION CONTAINED HEREIN ARE NOT BEING ISSUED AND MAY NOT BE DISTRIBUTED IN THE UNITED STATES OF AMERICA, CANADA, JAPAN OR AUSTRALIA.

  • Pre-tax profit of minus EUR 24 m in the first quarter of 2013 due to announced restructuring expenses of EUR 493 m; net profit of minus EUR 94 m
  • Revenues increase by 4.7% compared to fourth quarter of 2012, operating expenses 2.9% lower than in the previous quarter
  • Core Bank has increased operating profit by 36% over the previous quarter to EUR 556 m
  • NCA portfolio reduced by a further EUR 7.3 bn in the first quarter of 2013
  • Blessing: “We were able to increase our operating profit in the first quarter and have made considerable progress in the consistent reduction of our non-strategic activities”

In the first quarter of 2013 Commerzbank attained an operating profit of EUR 469 million (Q4 2012: minus EUR 40 million). The reasons for the increase over the previous quarter were higher revenues, lower loan loss provisions, as well as lower costs. In a year-on-year comparison, however, the operating profit decreased mainly due to the deterioration in the interest rate environment (Q1 2012: EUR 576 million). In the Core Bank, which encompasses the strategically significant customer-centric business of Commerzbank, the operating profit improved over the previous quarter to EUR 556 million (Q4 2012: EUR 408 million; Q1 2012: EUR 866 million). 

“We were able to increase our operating profit in the first quarter despite a very challenging environment with extremely low interest rates, and have made further considerable progress in the consistent reduction of our non-strategic activities. Furthermore, we have begun to implement the planned investments in the future of the Bank. The clear focus this year lies on the implementation of the strategic agenda. The positive effects from this should increasingly become visible from the coming year onwards. Initial initiatives are already bearing fruit – in particular in the Private Customers business,” said Martin Blessing, Chairman of the Board of Managing Directors of Commerzbank.

Revenues increased with a simultaneous reduction in costs and lower loan loss provisions 

The Group’s revenues before loan loss provisions in the first quarter of 2013 were EUR 2,460 million (Q4 2012: EUR 2,349 million). This increase results from improved commission income and a rise in the trading result as a consequence of greater client activity. On the other hand the ongoing weak interest rate environment was one of the factors leading to lower interest income. The loan loss provisions in the Group declined by 56.5% to EUR 267 million in the first quarter of 2013 (Q4 2012: EUR 614 million). Thanks to recently initiated efficiency measures it was possible to reduce the operating expenses over the previous quarter by EUR 51 million to EUR 1,724 million (Q4 2012: EUR 1,775 million). 

The pre-tax profit include the announced restructuring expenses of EUR 493 million and in the first quarter of 2013 amounted to minus EUR 24 million (Q4 2012: minus EUR 225 million). In total Commerzbank posted a net profit of minus EUR 94 million (Q4 2012: minus EUR 726 million). 

Risk-weighted assets virtually unchanged, Core Tier 1 ratio at 11.5%

The risk-weighted assets (RWA) increased over the previous quarter by nearly 1% to EUR 210 billion (Q4 2012: EUR 208 billion). In a year-on-year comparison, in contrast, the RWA declined by 5.9%. The total assets in the Group increased versus the fourth quarter of 2012 to EUR 647 billion (Q4 2012: EUR 636 billion). Compared to the same period of the previous year this represents a decrease of 6.3%, however. The Core Tier 1 ratio declined since end of December 2012 by 0.5 percentage points to 11.5% yet remains at a comfortable level. The main reason for this was the first-time application of new accounting regulations for pension commitments. Under full application of Basel 3 the Common Equity Tier 1 ratio as of the end of March would be 7.5%. 

“The Common Equity Tier 1 ratio under full application of Basel 3 should be increased significantly by around 1 percentage point as a result of the planned capital increase. Thus we will attain our target of 9% for this Common Equity Tier 1 ratio probably as early as the end of 2014,” said Stephan Engels, Chief Financial Officer of Commerzbank. 

Funding position remains comfortable 

Commerzbank remains in a comfortable funding situation. In the first quarter of 2013 – in addition to the new “Small and Mid-sized Enterprises (SME) Structured Covered Bond” with a volume of EUR 500 million, senior unsecured bonds with a volume of EUR 700 million were successfully placed on the market. Within the context of meeting the requirements of Commerzbank’s branch network and for the further diversification of the funding base, the Bank has the flexibility to procure funding from the capital markets as opportunities arise. The funds from the three-year tenders of the European Central Bank (LTRO I and II) were already repaid in full by Commerzbank in the first quarter. 

Profitability increases in the Core Bank, all operational Core Bank segments positive 

The operating profit of the Core Bank increased in the first quarter of 2013 versus the previous quarter by 36.3% to EUR 556 million (Q4 2012: EUR 408 million), with improvements in the results of the Private Customers segment and in Corporates & Markets making major contributions to this increase. Moreover, the reduction of the default portfolio saw further progress in the first quarter; the solid portfolio quality of the Core Bank has thus seen a further improvement. The ratio of non-performing loans (NPL ratio) decreased to 1.9%, following on from 2.1% in the previous quarter and 2.8% in the same quarter of the previous year. 

The Private Customers segment was able to more than double its operating profit in the first quarter of 2013 over the previous quarter, to EUR 70 million (Q4 2012: EUR 25 million). The key factors for this were higher revenues, and in particular in the securities business, thanks to greater client activity in the currently positive capital market environment. The loan loss provisions rose as expected. The operating expenses were maintained at a stable level over the fourth quarter of 2012 thanks to active cost management. The impact of the ongoing reorientation of the Private Customers business also became tangible in the first quarter of 2013: Thus the new business in construction financing was increased to more than EUR 1.8 billion, the volume in asset management rose by 10%. 

Mittelstandsbank attained an operating profit of EUR 325 million (Q4 2012: EUR 374 million). The revenues before loan loss provisions declined especially due to positive valuation effects from restructured loans in the fourth quarter of 2012 which did not reoccur in the first quarter of 2013, the weak interest-rate environment, and a moderate demand for loans. As expected the loan loss provisions increased in the first quarter of 2013 to EUR 78 million. The operating expenses decreased over the fourth quarter of 2012 by 6.6%, to EUR 325 million. The operational return on equity at Mittelstandsbank in the first quarter was more than 22%, the cost-income ratio in the operational business was less than 45%. 

The Central & Eastern Europe segment increased its operating profit over the fourth quarter of 2012 to EUR 75 million (Q4 2012: EUR 42 million). The decisive factors here were lower loan loss provisions of EUR 6 million due to successful restructuring and lower operating expenses of EUR 104 million. The lower interest income as a result of the interest rate cuts by the Polish Central Bank was compensated for by an increase in the trading result. 

Corporates & Markets was able to significantly increase its operating profit to EUR 271 million (Q4 2012: minus EUR 69 million). Seasonal effects and the increase in client activity, and in particular in trading in interest-rate derivatives and equity derivatives, led to higher revenues in the first quarter of 2013. The operating profit also includes a small positive effect from the market valuation of Commerzbank’s own liabilities (“Own Credit Spread” – OCS) in the amount of EUR 25 million, after a negative OCS effect of minus EUR 118 million in the fourth quarter of 2012. In the first quarter of 2013 the loan loss provisions also saw net reversals of EUR 26 million. The operating expenses declined over the previous quarter by 6.9% to EUR 338 million.

Further progress with portfolio reduction in the Non-Core Assets segment

The Non-Core Assets (NCA) segment was able to clearly reduce its loss over the previous quarter to minus EUR 87 million (Q4 2012: minus EUR 448 million). The main reason for this was a decrease in the loan loss provisions by 65.8% to EUR 175 million. Despite the ongoing portfolio reduction it was possible to keep the revenues stable. In line with the portfolio reduction the operating expenses were lowered by 19.4% to EUR 83 million. With regard to the portfolio reduction it was possible to achieve excellent progress for the second quarter in a row: Especially the Commercial Real Estate and Public Finance portfolios were reduced further in the first quarter of 2013. In total the NCA portfolio has been lowered by EUR 7.3 billion since the end of 2012 to approximately EUR 143 billion, after approximately EUR 9 billion had already been reduced in the fourth quarter of 2012. Since the first quarter of 2012 it has been possible to reduce the portfolio in the field of Ship Finance by 10%, in the field of Commercial Real Estate by 20%, and in Public Finance by 10%. At the same time the portfolio quality was maintained.

 

Outlook 

“Against the background of an economic and capital market environment that remains challenging we continue to assume that the operating profit in 2013 as a whole will be shaped by ongoing pressure on revenues, slightly increasing loan loss provisions and an investment-related increase in costs. We will continue the value-preserving reduction in the NCA segment provided the market environment remains positive. We continue to aspire to maintain a Common Equity Tier 1 ratio – taking into account the transitional regulations of Basel 3 – of significantly more than 9% throughout the whole of 2013,” said Stephan Engels.

 

Excerpt from the consolidated profit and loss statement*

In EUR m Q1 2013 Q1 2012 Q4 2012 2012
Net interest income 1,356 1,694 1,728 6,487
Provisions for loan losses -267 -212 -614 -1,660
Net commission income 847 864 764 3,249
Net trading income 317 164 -383 89
Net investment income -6 -176 250 81
Current income on companies accounted for at equity 8 11 12 46
Other income -62 21 -22 -77
Income before loan loss provisions 2,460 2,578 2,349 9,875
Operating expenses 1,724 1,790 1,775 7,029
Operating profit or loss 469 576 -40 1,186
Impairments of Goodwill - - - -
Restructuring expenses 493 34 - 43
Net gain or loss from sale of disposal groups - - -185 -268
Pre-tax profit or loss -24 542 -225 875
Taxes 45 159 477 806
Consolidated profit or loss attributable to Commerzbank shareholders -94 355 -726 -34
Cost/income ratio in operating
business (%)
70.1 69.4 75.6 71.2

 

* Note:
As of January 1, 2013 Commerzbank is applying the new accounting regulations from the International Accounting Standards (IAS). Consequently, among other things all interest income from trading is posted as part of the net interest income. To date this income has been posted as part of the trading result. In the course of the new definition the Bank has also decided to reclassify income components of the debt capital markets business with commission characteristics. In the future these will no longer be stated in the trading result but in the net commission income. As of January 1, 2013 the new accounting regulations of IAS 19 were applied for the first time to the valuation of pension commitments. To ensure comparability with the previous year the figures for 2012 have been adjusted. The figures originally reported for the 2012 business year remain unchanged.

 

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About Commerzbank

Commerzbank is a leading bank in Germany and Poland. It is also present worldwide in all markets for its customers as a partner to the business world. With the business areas Private Customers, Mittelstandsbank, Corporates & Markets and Central & Eastern Europe, it offers its private and corporate clients as well as institutional investors the banking and capital market services they need. With some 1,200 branches Commerzbank has one of the densest branch networks among German private banks. In total, Commerzbank boasts nearly 15 million private customers, as well as 1 million business and corporate clients. In 2012, it generated revenues of just under EUR 10 billion with approximately 56,000 employees on average.

 

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Disclaimer

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This release contains forward-looking statements. Forward-looking statements are statements that are not historical facts. In this release, these statements concern the expected future business of Commerzbank, efficiency gains and expected synergies, expected growth prospects and other opportunities for an increase in value of Commerzbank as well as expected future financial results, 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. Such factors include the conditions in the financial markets in Germany, in Poland, elsewhere in Europe and other regions from which Commerzbank derives a substantial portion of its revenues and in which Commerzbank holds a substantial portion of its assets, the development of asset prices and market volatility, potential defaults of borrowers or trading counterparties, the implementation of Commerzbank’s strategic initiatives, the reliability of Commerzbank’s risk management policies, procedures and methods, and other risks. Forward-looking statements therefore speak only as of the date they are made. 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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