August 09, 2012
Commerzbank: Operating profit of EUR 1.0 bn in the first six months of 2012
● EBA capital target overachieved by EUR 2.8 bn as of the end of June 2012
● Core Tier 1 ratio increased to 12.2 %, Commerzbank well prepared for Basel 3
● Operating profit of EUR 451 m in Q2, Group net profit of EUR 275 m
● Blessing: "In the first six months of 2012 we have again significantly strengthened Commerzbank's capital base and consistently reduced risks. The Bank is therefore well prepared for the currently challenging market conditions."
Commerzbank has clearly overachieved the capital target of EUR 5.3 billion of the European Banking Authority (EBA) as of June 30, 2012 by EUR 2.8 billion. In the first six months of 2012, Commerzbank generated an operating profit of EUR 1.0 billion (H1 2011: EUR 1.2 billion); in the second quarter of 2012 the operating profit was EUR 451 million (Q1 2012: EUR 584 million). This was due in particular to the further decreased market interest rate level and the declining customer activity. While the Mittelstandsbank and Central & Eastern Europe segments attained a solid result, the Private Customers and Corporates & Markets segments suffered under the challenging market environment. In total, the Core Bank posted an operating profit of EUR 1.4 billion in the first six months of 2012 (H1 2011: EUR 2.1 billion). Thereof, EUR 560 million was accounted for by the second quarter of 2012. Group net profit in the second quarter of 2012 was EUR 275 million (Q1 2012: EUR 369 million).
"In the past six months we have successfully focussed on further strengthening the Bank's capital base and reducing risks. We have succeeded in doing this. We have therefore clearly overachieved the EBA capital target despite the ongoing challenging market environment. As a result, the Bank is well prepared for the difficult market conditions. Sustainable capital management and the further reduction of risks will clearly continue to be a priority in the future," said Martin Blessing, Chairman of the Board of Managing Directors of Commerzbank.
EBA capital target overachieved by EUR 2.8 bn, Commerzbank well prepared for Basel 3
Commerzbank has significantly overachieved its own planning in the fulfilment of the EBA capital target. Instead of the originally planned buffer of at least EUR 1 billion, the Bank has attained an equity capital excess of EUR 2.8 billion as of the end of June 2012. The major measures behind this achievement were the risk-weighted assets reduction, retained earnings, and measures to improve the capital structure. Not least, in the second quarter of 2012 the capital base was also strengthened by the payment in shares of variable remuneration for the fiscal year 2011 for non-pay-scale employees.
The Bank has also made good progress in the reduction of risks. As of the end of June 2012, risk-weighted assets were further reduced by EUR 13 billion to EUR 210 billion quarter-on-quarter. The Core Tier 1 ratio was significantly increased in the second quarter, from 11.3 % as of the end of March 2012 to 12.2 % as of the end of June 2012. Commerzbank continues to be well positioned for regulatory capital requirements according to Basel 3. As of January 1, 2013 and taking into account all the requirements to be met by this deadline, the Bank continues to expect a Core Tier 1 ratio of at least 10 %. The balance sheet total amounted to EUR 673 billion as of the end of June 2012 (end of March 2012: EUR 691 billion).
Lower revenues partially compensated by cost reductions
The main reason for a decline in revenues versus the first six months of 2011 was significantly weaker earnings as a consequence of the difficult market environment. Revenues before loan loss provisions in the Group declined by 14 % to EUR 5.2 billion in the first six months of 2012 year-on-year (H1 2011: EUR 6 billion), while the operating expenses were reduced by 16 % to EUR 3.5 billion (H1 2011: EUR 4.2 billion). However, in comparison to the first quarter of 2012 both ratios remained stable in the second quarter of 2012. The revenues before loan loss provisions in the second quarter 2012 were at EUR 2.6 billion, operating expenses were approximately at EUR 1.7 billion. The downturn in revenues is primarily due to the challenging market conditions, the lower customer activity, and a further decreased market interest rate level. Interest income declined in the first six months of 2012 to EUR 2.8 billion (H1 2011: EUR 3.5 billion). Commission income was, at EUR 1.6 billion, also at a lower level than in the same period of the previous year (H1 2011: EUR 1.9 billion).
Loan loss provisions normalise at a low level
The loan loss provisions in the second quarter of 2012 amounted to EUR 404 million and thus, as expected, remained at a low level, yet normalised in comparison with the first quarter of 2012. In the first six months of 2012 they were at EUR 616 million and approximately at the level of the previous year (H1 2011: EUR 596 million). The resilience of the German economy contributed to the loan loss provisions in the Core Bank remaining stable in the first six months of 2012 at a very low level of EUR 134 million compared to the same period of the previous year (H1 2011: EUR 126 million).
Core Bank segments impacted by the further deteriorated market environment
In the second quarter of 2012, the Core Bank segments were also impacted by deteriorating market conditions. In the Private Customers segment the operating profit in the first six months of 2012 was EUR 126 million and fell considerably short versus the same period of the previous year (H1 2011: EUR 195 million). The decline in profits is due in particular to the lower interest and commission income in the wake of the lowered deposit margins and ongoing low customer activity in the securities business. Lower revenues could not be compensated by cost management. In the first six months of 2012, Commerzbank successfully increased deposits by approximately EUR 8 billion. In this period, the new business in mortgage financing rose by 27 % to EUR 3 billion compared to the corresponding period in the previous year. Compared to the first six months of 2012, operating expenses were significantly reduced at EUR 1.4 billion (H1 2012: EUR 1.7 billion). "All in all the operating profit in the Private Customers segment is not satisfying," said Chief Financial Officer Stephan Engels. "Due to synergies realised from the take-over of Dresdner Bank and active cost management, costs have been developing as planned. But given that revenues remained below expectations due to the market environment, we will advance the strategic development of the segment."
The Mittelstandsbank continues to profit from its strong market position and the robust state of the German economy. In the first six months of 2012 the segment posted a good operating profit of EUR 878 million (H1 2011: EUR 948 million). It again made the largest contribution to the Group's operating profit. However, the interest and commission income in the Mittelstandsbank followed the general trend. Despite the further decreased market interest rate level, the revenues before loan loss provisions were nonetheless at a solid level.
The operating profit in Central & Eastern Europe in the first six months of 2012 was at EUR 146 million (H1 2011: EUR 143 million). BRE Bank again made a strong contribution, which would have been larger excluding foreign currency effects. In the second quarter of 2012 it was able to expand its business further on a stable cost base. In the other regions of Eastern Europe, Commerzbank has refocused its business in the first six months of 2012. Since the first quarter of 2012, the corporate customer business in Russia, the Czech Republic, Slovakia, and Hungary has been served by the Mittelstandsbank. The Bank's activities in Russia were also further aligned with the corporate customer-related core business with the conclusion of the sale of the minority stake in Promsvyazbank. As announced at the end of July 2012, Commerzbank is selling its majority stake in Ukrainian Bank Forum. In the second quarter of 2012, the signing of the sale and purchase agreement leads to an extraordinary charge in Commerzbank's profit and loss statement amounting to approximately EUR 86 million.
Despite difficult market conditions, the operating profit in Corporates & Markets slightly increased in the second quarter of 2012 compared to the first quarter of 2012. However, the segment reported a distinctly lower operating profit of EUR 75 million in the first six months of 2012 (H1 2011: EUR 521 million) compared to the preceding year. This was due to the lower customer activity affecting the whole industry following the uncertain market environment as well as to significantly reduced risk-weighted assets. Without the effects from the valuation of the own credit spreads, the segment generated an operating profit of EUR 217 million in the first six months of 2012 (H1 2011: EUR 492 million).
Operating profit improved at ABF and PRU, organisational changes came into effect
The operating profit in the Asset Based Finance (ABF) segment in the first six months of 2012 was at EUR minus 553 million (H1 2011: EUR minus 1.1 billion). Lower losses in the sovereign bond portfolio helped the result from financial investments. In addition, in the first six months of 2012 the loan loss provisions remained stable at EUR 479 million year-on-year (H1 2011: EUR 474 million). But in the second quarter of 2012 loan loss provisions increased versus the previous quarter particularly in Ship Finance. Above all due to the discontinuation of new business at Eurohypo as decided in November 2011, commission income declined in the first six months of 2012, however.
In the second quarter of 2012 the exposure at default (EaD) in Public Finance was reduced to EUR 80 billion (End of March 2012: EUR 82 billion). The EaD to the GIIPS countries was reduced by 8 % to EUR 11.2 billion as of the end of the second quarter of 2012 (Q1 2012: EUR 12.1 billion). The sovereign exposure to Italy was lowered by EUR 0.6 billion to EUR 7.8 billion (minus 7 %), and the corresponding Spanish exposure by EUR 0.3 billion to EUR 2.6 billion (minus 10 %).
As already announced at the end of June 2012, the new segment Non Core Assets (NCA) is replacing the ABF segment as of July 1, 2012. All public finance, commercial real estate finance and ship finance portfolios will be consolidated in the NCA segment and wound down. As already announced, the Commerz Real business area and the retail portfolio of Eurohypo will be integrated into the Private Customers segment.
In the first six months of 2012 the Portfolio Restructuring Unit (PRU) achieved a good result. The operating profit was EUR 184 million and 45 % higher than in the same period of the previous year (H1 2011: EUR 127 million).The reduction in the portfolio is now so advanced that the remaining portfolio was largely transferred to the Corporates & Markets segment as of July 1, 2012. This does not apply to the public infrastructure investments portfolio of EUR 1.5 billion, which is now being managed in the Public Finance business area within the NCA segment.
New allocation of responsibilities within the Board of Managing Directors comes into effect as of August 9, 2012
Following the decision to significantly expand the Non Core Assets (NCA) segment and not to launch the Real Estate and Ship Finance (RES) segment, the responsibilities within the Board of Managing Directors of Commerzbank are being reassigned. In addition to Group Human Resources Ulrich Sieber is, together with Jochen Klösges, assuming overall responsibility for the expanded NCA segment. In order to focus on the value-preserving reduction of the portfolios in the new NCA segment, Sieber is relinquishing his responsibility for Central and Eastern Europe (CEE). In the future CEE will be part of the responsibilities of the CEO. In return, Martin Blessing is handing over responsibility for Treasury to Michael Reuther, who is already responsible for the Corporates & Markets segment. Reuther is a proven treasury expert, and previously headed Treasury from 2006 to 2008. As of August 9, 2012 the new allocation of responsibilities within the Board of Managing Directors comes into effect as already announced.
Outlook: No short-term stabilisation of the market environment expected
"We still do not expect the macroeconomic and market environment to stabilise in the second half of 2012. Therefore we expect operating profits to continue to be under pressure," said Engels. "We have costs firmly under control. Even though we expect a slight increase in the second half of the year, we will significantly overachieve our cost target of EUR 7.6 billion. Our target for the loan loss provisions of EUR 1.7 billion is achievable. Considering current market conditions, this target is however becoming increasingly ambitious. Against this background, we expect the net profit in the second half of the year to be below the net profit of the first six months."
Commerzbank is currently reviewing all business areas within its annual strategic planning process. The results will be presented on November 8, 2012. "Our management focus is on the strategic repositioning of the Private Customers segment as well as on the strategy for the run-down portfolios within the Non Core Assets segment," said Engels. "In view of the difficult revenues situation, we are subjecting the costs to a consistent review. The strategic goal remains to consistently focus Commerzbank on a customer-centric and sustainably profitable core business while continuing to reduce risks and capital lockup."
Excerpt from the consolidated profit and loss statement
|In EUR m||H1 2012||Q2 2012||Q1 2012||H1 2011||Q2 2011|
|Net interest income||2,762||1,333||1,429||3,517||1,790|
|Provisions for loan losses||-616||-404||-212||-596||-278|
|Net commission income||1,600||757||843||1,948||928|
|Net trading income||1,012||555||457||1,095||576|
|Net investment income||-199||-23||-176||-942||-954|
|Current income on companies |
accounted for at equity
|Net measurement gain/loss on the
prospective selling price of disposal
|Consolidated profit attributable to
|Cost/income ratio in operating
Armin Guhl +49 69 136 42764
Simon Steiner +49 69 136 46646
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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.
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.