September 20, 2007
Klaus-Peter Müller: “We are on track and stand
by our RoE targets”
Clean net return on equity will be above 12% despite crisis on financial markets
Unaffected by the subprime crisis on the US mortgage market, Klaus-Peter Müller, Commerzbank’s Chairman of the Board, confirms at the Bank’s Investors’ Day in Frankfurt today that the clean net RoE will remain above 12% by year end. Over the medium term perspective he still aims to bring the Bank’s return up to an international standard. “Costs are under control and we are enjoying dynamic growth. Charges which may be necessary due to the subprime crisis will from today’s point of view not have any material impact on this”, he tells some 100 bank analysts and institutional investors. “Our revenues are on the up and are going to stay that way.” With returns at a high level and a comfortable equity base Müller could see the Bank’s options not only increasing dividends but also buying back shares. An optimistic view of the future is justified by the sustainable quality of the Group’s result and the positive development of the core segments. Moreover the expected EUR 550 million in provisioning in credit business is less than predicted before.
Mittelstandsbank – a guarantee of success
Banking services for small and medium-sized enterprises are an important pillar of Commerzbank’s offering and have produced an operating profit of EUR 535 million in the first half of the year. “By the end of the year, the Mittelstandsbank will have achieved an operating RoE of over 30%”, announces Martin Blessing, the board member responsible for this business unit. Other factors in Commerzbank’s ongoing success are expected to be the acquisition of Bank Forum in Ukraine, the extension of the Polish mBank’s successful online business model to the Czech Republic and Slovakia, and the expansion of the global network of branches and representative offices. Following the opening of a branch in Dubai in 2007, a new branch for 2008 is planned in the northern Chinese city of Tientsin.
Focus on growth in Private and Business Customers
Achim Kassow, the director in charge of Private and Business Customers forecasts: “By 2010 we will have doubled our operating return on equity up to more than 23% compared to 2006.” The growth programmes in branch business and comdirect work: Till now Commerzbank has 250,000 new clients (net). So, the aim for 2009 to have 800,000 additional clients is within good reach. At cominvest the assets under management rose by almost 13% to EUR 62 billion year-on-year. Another important component of success is the continuity in cost management. Modernisation of branches and a new platform in credit processing contribute to higher efficiency as do standardization and simplification of the technical infrastructure.
Corporates & Markets – holding its own in a turbulent market
According to Nicholas Teller, member of the board for Corporates & Markets, the strategic priorities for this unit are to reinforce and maintain market leadership in equity derivatives, to continue with the integration of investment banking and the corporate business, to further develop institutional business and to continue to manage capital effectively. Only a comparatively small portfolio is impacted by the subprime crisis, and EUR 46 million in potential charges have already been booked in the second quarter. “Our segment is well equipped to also perform during the rest of the year,” concluded Teller. “We still expect an operating RoE in excess of 20%, assuming a return to normal markets.”
Commercial Real Estate will profit from higher margins
The Commercial Real Estate business unit, which already plays a leading role in the European market, now plans to build on its expansion in other regions as well. This year offices in Dubai, Hong Kong and Mexico have been opened. New ones are scheduled for Brazil and Singapore in 2008. “Commerzbank’s strategy in Commercial Real Estate is focused on quality and draws on specific product know-how throughout a building’s whole life-cycle, sometimes combined with solutions from private equity and asset management”, explains member of the board responsible for CRE, Bernd Knobloch. Summing up the current situation he continues: “Some investors were only looking at prices and quality was sometimes neglected. This is becoming less marked as the subprime crisis draws on. Now quality is again becoming more significant.” From that, he is convinced, Commerzbank will benefit in the long term.
Better positioning in Public Finance and Treasury is ongoing
The bundling of liquidity management at the Commerzbank Group’s centre has substantially reduced the Bank’s need for refinancing. “Already today, Commerzbank is profiting from the integrated funding-concept and is acting from a position of strength in these complex times and provides liquidity into the market”, explains Michael Reuther, the director for Public Finance & Treasury. Despite the challenging environment he aims to make Commerzbank one of Europe’s top three sources of public sector finance. A combination of international presence, product know-how and proactive portfolio management should achieve this. He is convinced that this approach will work. In his own words: “With sophisticated products that appeal to customers in a variety of sectors, we will be able to achieve a significant increase in net interest and commission income as well as in trading profit.”
Increasing requirements for risk management
Wolfgang Hartmann, Commerzbank’s Chief Risk Officer, points out in his presentation that loan loss provisions in relation to the credit volume are only 11 basis points in the current year, marking the lowest rate up to now. This figure demonstrates Commerzbank’s effective and prudent risk policy in the past years. As a result of the current volatile market environment, Hartmann expects a rise in provisions of up to EUR 700 million in 2008.
In accordance with the implementation of Basle II in the next year, he expects a significant relief in risk weighted assets. This will affect the Private and Business Customers segment, Commercial Real Estate as well as Corporates & Markets.
Note:
All presentations will be accessible on the Internet under www.ir.commerzbank.com as soon as they begin. The timetable for the day will also be available at the same location.
