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November 08, 2010

Commerzbank: Net profit as of September 30, 2010 at EUR 1.2 bn

● Operating profit as of September 30: EUR 1.1 bn, Q3: EUR 116 m

● Gross revenues as of September 30: EUR 9.7 bn, Q3: EUR 2.9 bn

● Mittelstandsbank with best quarter to date, Corporates & Markets again positive

● Tier 1 ratio 11.2%, Core Tier 1 ratio at 9.9% considerably higher than target range (7% to 8%)

● Blessing: "We are returning to profitability one year earlier than expected"


Due to its consistent customer-focused orientation, Commerzbank has continued its successful development even in the typically weaker third quarter of 2010. At EUR 116 million, the operating profit was again positive (Q2 2010: EUR 243 million). Gross revenues were EUR 2.9 billion, after EUR 3.1 billion in the second quarter. Net profit attributable to Commerzbank shareholders amounted to EUR 113 million (Q2 2010: EUR 352 million). In the first nine months of the current financial year, the bank posted a total operating profit of EUR 1.1 billion and a net profit of EUR 1.2 billion. In particular, the operating segments of the core bank (Private Customers, Mittelstandsbank, Central & Eastern Europe, Corporates & Markets) have together displayed a sustainably positive trend. They attained an operating profit of EUR 552 million (Q2 2010: EUR 525 million) in the third quarter. Against the background of the excellent economic development it was also possible to considerably lower loan loss provisions in the core bank to EUR 126 million (minus 78%) in a year-on-year comparison. In the Group loan loss provisions were reduced by more than one third in the third quarter of 2010 over the same period of the previous year, to EUR 621 million.

"The pleasing course of the business year is testimony to the successes in the implementation of the 'Roadmap 2012'. We have further reduced risks and assets, and have made visible progress along the path towards sustainable profitability. Mittelstandsbank has seen its best quarterly result to date, and the Corporates & Markets segment also continues to develop positively. The Private Customers segment is still heavily burdened by the integration, but this will increasingly change with the conclusion of the data migration in the second quarter 2011," said Martin Blessing, Chairman of the Board of Managing Directors of Commerzbank. "On the whole, we intend to conclude 2010 with a net profit according to IFRS of at least EUR 1 billion. Thus we are returning to profitability one year earlier than expected. We have not yet reached our targets and will continue to lower risks and reduce total assets as planned in 2011. At the same time we want to achieve selective growth in the core bank."

Total assets considerably reduced, risk-weighted assets at EUR 280 bn

Total assets have been reduced considerably as of September 30, 2010. At EUR 848 billion, they were almost EUR 50 billion below the level as of June 30 (EUR 898 billion). Risk-weighted assets (RWA) amounted to EUR 280 billion as of the end of September. "For 2014, we are targeting around EUR 300 billion in RWAs. We will compensate for the impact of the planned regulatory changes associated with Basel III through a reduction of the assets in non-core bank areas," said Eric Strutz, Chief Financial Officer of Commerzbank. The Tier 1 ratio was a comfortable 11.2%, and thus above the figure as of June 30 (10.8 %). With respect to Basel III, Commerzbank will in future also report the so-called core Tier 1 ratio; as of the end of September it was 9.9 % and thus well above the target range of 7% to 8%.

Interest and commission income down, trading profit up quarter-on-quarter

The background to the lower gross revenues (EUR 2.9 billion, after EUR 3.1 billion in Q2 2010) is the sale of subsidiaries, as well as the ongoing difficult interest rate environment. Thus, net interest income declined noticeably over the second quarter of 2010 (EUR 1.9 billion) to EUR 1.6 billion. Net commission income (EUR 870 million) was around 4% lower than in the previous quarter, something which is typical for the quarter. At EUR 422 million trading profit rose over the second quarter of 2010 (EUR 316 million) by one third, contrary to the industry trend. Net investment income, which, at minus EUR 24 million, was much lower than in the previous quarter (EUR 60 million), reflects the further risk reduction in Public Finance. Also due to expenses for the integration of Dresdner Bank (EUR 147 million), operating expenses were virtually unchanged quarter-on-quarter at EUR 2.2 billion.

Core bank again with a positive operating profit in the third quarter of 2010

Although the operating profit of the Private Customers segment in the third quarter was, at EUR 27 million, slightly higher than in the second quarter (EUR 18 million), it was clearly lower than that of the previous year (Q3 2009: EUR 45 million). As a consequence of the sale of subsidiaries, an ongoing low level of securities activities on the part of customers, and the charges from the implementation of the Dresdner Bank integration, net commission income declined to EUR 459 million (Q2 2010: EUR 499 million). This was only partly compensated for by the rise in net interest income (EUR 506 million, after EUR 491 million in Q2 2010) and successes in the realisation of cost synergies (operating expenses down 4% compared to Q2 2010). The number of customers in the segment is 11 million. Slight growth has been recorded here lately.

Mittelstandsbank was once again able to clearly increase its operating profit in the third quarter (EUR 456 million, after EUR 386 million in the previous quarter). This resulted in particular from the economic recovery and write-backs in loan loss provisions (plus EUR 78 million). Net commission income also rose especially thanks to an increase in export activities on the part of the bank's corporate customers. Net interest income declined over the second quarter of 2010 to EUR 496 million (minus 10%). Operating expenses increased slightly to EUR 365 million compared to the previous quarter (EUR 347 million).

After a positive operating profit of EUR 8 million in the second quarter of 2010, the Central & Eastern Europe (CEE) segment posted a minus of EUR 31 million in the third quarter. Loan loss provisions increased from EUR 92 million to EUR 127 million. The ongoing difficult market environment in the Ukraine caused considerable charges here. BRE Bank continued to develop positively. In the first three quarters of the 2010 financial year the operating profit in the CEE segment was minus EUR 18 million (previous year: minus EUR 191 million). As of the end of September CEE had more than 4 million customers.

The operating profit of the Corporates & Markets segment in the traditionally weaker third quarter, which at EUR 100 million was only slightly lower than that of the second quarter (EUR 113 million), reflects the ongoing successes of the customer-oriented business model. The trading profit was clearly positive at EUR 313 million - after EUR 187 million in the second quarter - in particular thanks to the pleasing development in Fixed Income and Currencies business for customers. Corporate Finance also continued to generate stable revenues. Operating expenses increased by EUR 43 million to EUR 439 million.

ABF burdened by difficult environment, PRU assets reduced by 45 % since foundation

In the Asset Based Finance (ABF) segment loan loss provisions increased from EUR 354 million in the second quarter of 2010 to EUR 493 million in the third quarter - in particular due to charges in the area of commercial real-estate financing. In the months July to September the operating profit decreased clearly compared to the second quarter of 2010 (minus EUR 249 million) to minus EUR 404 million. At the same time assets in Public Finance were reduced by EUR 7 billion to EUR 111 billion. In the medium term an improved market situation is expected for the ABF segment.

With an operating profit of EUR 315 million (Q2 2010: EUR 94 million) the Portfolio Restructuring Unit (PRU) also concluded the third quarter of 2010 positively. Since the foundation of the PRU, assets have been reduced by some 45% to EUR 14.2 billion as of the end of September 2010. As of June 30, 2010 the assets were at EUR 16.5 billion. As already announced, an operating profit is expected in the PRU for the year as a whole.

ABF volume reduction accelerated

In line with EU requirements, Commerzbank has to dispose of Eurohypo by year-end 2014. Against this background the volume reduction in the Asset Based Finance segment will be accelerated in the course of the following years. In Public Finance, Commerzbank will not acquire any new business anymore and reduce the existing volume over time. In Commercial Real Estate, the activities will also be considerably reduced in the subsequent years with very selective new business in the core markets. As the future revenues of Eurohypo will be lower, the book value of Eurohypo to be stated in the balance sheet of Commerzbank AG (individual financial statement according to German GAAP) as of the end of 2010 is expected to be significantly below the figure stated at the end of 2009. This leads to a corresponding impairment in the individual financial statement according to German GAAP, which will be prepared in March 2011. The exact amount of the impairment will be determined then. There are no corresponding impairments in net profit according to IFRS.

Outlook: Operating profit in 2011 likely to be higher than in 2010

"Our revenues have increased and costs are under control. Also due to our successes in reducing assets, loan loss provisions have decreased. We expect that they will remain below EUR 2.7 billion for 2010 as a whole," said Eric Strutz, Chief Financial Officer of Commerzbank. "In the coming year, loan loss provisions and costs should decline further. Following the data migration in the second quarter of 2011, we will increasingly profit from the Dresdner Bank integration also in the Private Customers segment," said Strutz. "We are sailing into the next year with a tailwind and assume that the operating profit for 2011 will be higher than that seen in 2010."

The charges from the integration will, as expected, total EUR 2.5 billion. The cost synergies to the amount of EUR 2.4 billion per year will be realised as planned. "As of the end of September 2010 we have already attained some EUR 1.1 billion, and thus more than 45% of our synergy target. In the coming year, we want to realise a further EUR 300 million in synergies," said Strutz. "We are also continuing to implement the 'Roadmap 2012' step by step."



Excerpt from the consolidated profit and loss statement

in EUR m 9M 2010 9M 2009 Q3 2010 Q2 2010 Q3 2009
Net interest income 5,375 5,299 1,628 1,859 1,769
Provision for loan losses -1,904 -2,890 -621 -639 -1,053
Net commission income 2,772 2,788 870 905 965
Net trading income 1,574 165 422 316 647
Net investment income -83 504 -24 60 -54
Other income 18 46 26 -30 112
Operating expenses 6,622 6,608 2,185 2,228 2,264
Operating profit 1,130 -696 116 243 122
Impairments of goodwill - 716 - - 646
Restructuring expenses 33 1,409 - 33 904
Taxes -115 -99 -19 -151 -375
Consolidated profit/loss (attributable to Commerzbank shareholders) 1,173 -2,680 113 352 -1,055
Cost/income ratio in operating business (%) 68.6 75.1 74.8 71.6 65.8

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