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November 07, 2013

Commerzbank: operating profit of EUR 103 m in third quarter

  • Revenues before loan loss provisions almost stable at EUR 2.3 bn despite seasonal effects
  • Annual target for portfolio reduction in the NCA segment in 2013 already achieved: NCA portfolio reduced by EUR 12 bn to EUR 124 bn in Q3, portfolio reduced by 18% since beginning of year
  • Risks reduced considerably: RWA lowered to EUR 197 bn (end of June 2013: EUR 206 bn – total assets reduced to EUR 593 bn (end of June 2013: EUR 637 bn)
  • Capital ratios improved: CET 1 ratio with full application of Basel 3 increased to 8.6% and with phase-in regulations to 11.0%
  • Debt ratio improved: Leverage ratio (pursuant to CRD 4, phase-in regulations to Basel 3) increased to 4.1%
  • Net profit in the third quarter of 2013 increased to EUR 77 m
  • Blessing: “We have already achieved very much with our strategic agenda: We have increased the capital ratios, lowered costs, considerably reduced risks and non-strategic portfolios, and successfully launched our growth initiatives. Thus we have further enhanced the stability of the Bank.”

As a result of its growth initiatives Commerzbank Group has attained almost stable revenues in the seasonally weak third quarter of 2013, and at the same time considerably reduced risks and improved the capital ratios. The operating profit was EUR 103 million (third quarter of 2012: EUR 208 million). The reasons for the decline compared to the previous year are primarily the expected increase in loan loss provisions and a weaker trading result. In contrast, the operating profit increased by 32% compared to the second quarter of 2013, primarily due to improved results in Mittelstandsbank and the Non-Core Assets (NCA) segment. The net profit in the third quarter of 2013 was EUR 77 million, and thus higher than in the previous year (third quarter of 2012: EUR 67 million).

 In the first nine months of 2013 the Bank posted an operating profit of EUR 650 million (first nine months of 2012: EUR 1,226 million). The main reasons for the decrease were the weaker interest rate environment compared to the previous year and the expected increase in loan loss provisions. In the first nine months of 2013 the net profit was EUR 26 million (first nine months of 2012: EUR 692 million). The year-on-year decline in profit is due above all to special items in the framework of the implementation of the strategic agenda, such as the restructuring expenses and the implementation of the sale of the Commercial Real Estate (CRE) portfolio in Great Britain. These two effects alone represented a one-off charge of EUR 656 million.

“One year after the presentation of our strategic agenda we have already achieved very much: We have further increased the capital ratios of the Bank, reduced the costs, lowered risks, and reduced the non-strategic portfolios considerably. Thus we have further enhanced the stability of the Bank,” said Martin Blessing, Chairman of the Board of Managing Directors of Commerzbank. “Our growth initiatives are beginning to take effect: For this reason, in a typically seasonally weaker third quarter we were able to maintain our revenues above all in the Private Customers segment and at Mittelstandsbank at a stable level. This is a very good basis for successfully fulfilling the further objectives on the strategic agenda.”

Revenues before loan loss provisions almost stable despite seasonal effects in the third quarter

In the third quarter of 2013 the Group generated revenues before loan loss provisions at almost the same level as in the previous quarter, despite the seasonally weaker capital market-related revenues and the effects from the sale of the CRE portfolio in Great Britain. At the Core Bank the revenues before loan loss provisions also remained almost stable at EUR 2.2 billion. There, the interest and commission income were EUR 1.4 billion and EUR 780 million, respectively, in the third quarter of 2013 and thus at the levels of the previous quarter. Year-on-year the revenues before loan loss provisions at the Core Bank declined slightly. With regard to the loan loss provisions a lower sum of EUR 492 million was booked in the Group in the third quarter of 2013 compared to the previous quarter (second quarter of 2013: EUR 537 million). Although the loan loss provisions in the Core Bank increased as expected in the third quarter of 2013 as a result of individual cases in the corporates portfolios, this development was more than compensated for by the improvement in the NCA segment. In NCA, high loan loss provisions for the CRE portfolio in Great Britain had been booked in the second quarter. In a year-on-year comparison, however, the Group loan loss provisions have increased as expected (third quarter of 2012: EUR 430 million) as a result of the rise in the Core Bank. As of the end of September, the operating expenses in the Group were less than EUR 1.7 billion for the second consecutive quarter. Year-on-year the costs were lowered by 3% in the third quarter of 2013. This reflects the success of the efficiency measures implemented as part of the strategic agenda and of the balanced investment approach of the Bank.

 

Stability of the Bank further improved: reduction of risk-weighted assets and increase of capital ratios

 

The Bank has considerably reduced risks, improved its core capital ratio and thus further improved its stability. Thus the risk-weighted assets (RWA) were lowered by 4% to EUR 197 billion compared to the previous quarter (end of June 2013: EUR 206 billion). The Common Equity Tier 1 ratio was improved in the third quarter of 2013 to 8.6% with full application of Basel 3 (end of June 2013: 8.4%). The Common Equity Tier 1 ratio taking into consideration the phase-in regulations of Basel 3, which is decisive for the comprehensive assessment of the balance sheets of the European banks to be conducted by the European Central Bank, was improved compared to the previous quarter to 11.0% (end of June 2013: 10.3%). The Bank also attained an improvement with the leverage ratio. As of the end of September 2013, pursuant to the current calculation logic of the EU’s Capital Requirements Directive (CRD 4) and taking into account the phase-in-regulations of Basel 3, it was 4.1% (end of June 2013: 4.0%). The leverage ratio under the full application of Basel 3 still amounted to 3.2% (end of June 2013: 3.2%). The Bank lowered the total assets as of the end of September 2013 to less than EUR 600 billion for the first time since 2006. In the third quarter they were reduced by 7% to EUR 593 billion compared to the previous quarter (end of June 2013: EUR 637 billion). In a year-on-year comparison the reduction in the total assets was 12% (end of September 2012: EUR 676 billion).

 

Core Bank: Private Customers segment on course, Corporates & Markets affected by market conditions

 

The Private Customers segment remains on course with an operating profit of EUR 42 million in the third quarter. It has increased the profit by a pleasing 20% compared to the previous year (third quarter of 2012: EUR 35 million). In a year-on-year comparison, the revenues before loan loss provisions were only slightly lower at EUR 825 million (end of September 2012: EUR 832 million). With the loan loss provisions a sum of EUR 31 million was booked in the third quarter. This is a year-on-year reduction of 31%. As a result of the continued cost discipline and despite the investments in products, service, and the brand, the operating expenses remained constant at EUR 752 million year-on-year. Compared to the previous quarter, both the operating profit and the revenues before loan loss provisions declined, but it can be seen that already implemented strategic measures are taking effect. Thus the positive trend was continued with the acquisition of new customers. In the third quarter Commerzbank acquired a net total of 82,000 new customers (second quarter of 2013: up 79,000) helped by its brand positioning and new products. Since the beginning of the year the net number of new customers has thus increased by approximately 180,000. This also reflects the improvement in customer satisfaction. Moreover, in the third quarter of 2013 the Bank posted the strongest growth in the area of payment transaction accounts since the beginning of 2011.

 

In the third quarter Mittelstandsbank generated an operating profit of EUR 349 million, developing very positively compared to the previous quarter with a plus of more than 60%. In this period the segment has maintained the revenues from direct customers at a stable level and has also been able to post positive one-off effects from the pre-payment of a corporate loan. As a consequence, the revenues before loan loss provisions rose considerably by 13% to EUR 789 million. The loan loss provisions were, at EUR 106 million, below the level of the previous quarter, which had been charged by individual cases (second quarter of 2013: EUR 147 million). The credit volume stabilised at the improved level of the second quarter. As a result of the clear increase in loan loss provisions and the ongoing low level of interest rates, Mittelstandsbank was not able to entirely reproduce the successes seen in the same quarter of the previous year (operating profit in the third quarter of 2012: EUR 395 million). In the third quarter of 2012 net reversals of EUR 9 million had been booked in the loan loss provisions; this compares with net additions of EUR 106 million in the third quarter of 2013. The operating expenses were maintained at a stable level in both comparative periods, totalling EUR 334 million in the third quarter.

 

The Central & Eastern Europe segment continued to develop positively in the third quarter. Thus the operating profit increased quarter-on-quarter by 21% to EUR 63 million (second quarter of 2013 and third quarter of 2012: both EUR 52 million). The revenues before loan loss provisions increased in the third quarter compared to the previous quarter by 8% to EUR 209 million. Above all this reflects the strong growth in the acquisition of new customers and the management of the interest margin. The launch of the new mBank online platform has already been implemented. The revenues before loan loss provisions also increased in a year-on-year comparison (third quarter of 2012: EUR 201 million). The loan loss provisions increased slightly in the third quarter to EUR 41 million (second quarter of 2013: EUR 36 million, third quarter of 2012: EUR 28 million). In a quarter-on-quarter comparison the operating expenses remained stable before the launch of the new brand mBank in the fourth quarter of 2013.

 

In the third quarter, Corporates & Markets was impacted by the unfavourable market conditions which affected in particular debt and currencies sales & trading. The operating profit declined to EUR 85 million (third quarter of 2012: EUR 191 million). This includes a negative effect of minus EUR 25 million from the market valuation of the Bank’s own liabilities (“Own Credit Spread”) and from adjustments concerning counterparty risks in the derivatives business. The operating profit was thus considerably lower than the strong EUR 253 million seen in the second quarter. The revenues before loan loss provisions decreased in the seasonally weaker third quarter to EUR 459 million, also as a consequence of the uncertainty in connection with the US debt crisis (second quarter of 2013: EUR 568 million). Corporate Finance saw stable revenues but considerably increased its revenues both quarter-on-quarter and year-on-year due to positive one-off effects from the pre-payment of a corporate loan. The loan loss provisions were at EUR 43 million and considerably higher both quarter-on-quarter and a year on year, which both had profited from reversals of loan loss provisions. The operating expenses remained stable, compared to the previous quarter, at EUR 331 million and were only slightly higher in a year-on-year comparison.

 

NCA: Exposure at Default classified as “higher risk” reduced by 44% since the beginning of the year

 

The NCA segment continued its successful portfolio reduction in the third quarter of 2013. In total, the Exposure at Default (EaD) was reduced by EUR 12 billion, which corresponds to 9%, to EUR 124 billion. Since the beginning of the year the portfolio has been reduced by 18 %. Thus it is already lower than the reduction target of EUR 125 billion for 2013 as a whole. The CRE business area accounted for approximately EUR 9 billion; this corresponds to a clear decrease of 19% compared to the second quarter of 2013. The CRE portfolio could thus be reduced by a much greater amount than the EUR 5 billion from the sale of the CRE portfolio in Great Britain. The sale was concluded in the third quarter and is now entirely reflected on the balance sheet and on the profit and loss account. The ship portfolio declined in the third quarter of 2013 by approximately EUR 1 billion, or 6%, to approximately EUR 16 billion. Thus the EaD in ship finance is already close to the target value of EUR 14 billion which had actually only been formulated for the end of 2016. In Public Finance the portfolio declined by 4% to approximately EUR 68 billion compared to the previous quarter.

 

When it comes to risk reduction the Bank is also consistently continuing the path it has already to take several years ago. As a consequence of the sale of the CRE portfolio in Great Britain, the EaD in CRE and ship finance, which the Bank classifies as having a higher risk (“higher risk cluster”), has been reduced by 44% since the beginning of this year. Thus as of the end of September 2013 the “higher risk cluster” encompasses a portfolio of EUR 8 billion (end of December 2012: EUR 14.3 billion).

 

As a consequence of the risk reduction the segment’s operating profit for the third quarter was minus EUR 272 million. The result improved considerably quarter-on-quarter, however, by 30% (second quarter of 2013: minus EUR 387 million). In a year-on-year comparison the result increased by as much as 43% (third quarter of 2012: minus EUR 477 million). In both cases a considerable contribution to this was made by the lower loan loss provisions, with a sum of EUR 243 million booked in the third quarter. The successful portfolio reduction in the NCA segment led to a net capital release of EUR 208 million in the third quarter of 2013. In the first nine months of 2013 a total of EUR 278 million of capital was thus released.

 

Outlook

 

The outlook remains unchanged: As a consequence of the portfolio reduction and the ongoing weak interest rate environment, the revenues before loan loss provisions are likely to remain under pressure for the Group. The strict cost management is being continued. For 2013 as a whole the costs are not to exceed EUR 7 billion. Commerzbank continues to stand by its expectations for the loan loss provisions. As a result of the accelerated portfolio reduction in the NCA segment and the higher loan loss provisions in the Core Bank, for 2013 it continues to assume that these will be at a higher level than in the previous year (2012: approximately EUR 1.7 billion).

 

“We began at an early stage with the strengthening of the capital ratios of Commerzbank and the reduction of portfolio risks. We have also consistently continued this strategy in the third quarter. We continue to attach high priority to achieving a Common Equity Tier 1 ratio of 9% under the full application of Basel 3 by the end of 2014, and beyond that to always keep the capital resources well above the regulatory minimum requirements. We continue to be determined to implement the measures to increase revenues in the framework of the strategic agenda. In this respect we will maintain a stable cost base despite the investments in our growth and will consistently continue the portfolio reduction in NCA,” said Stephan Engels, Chief Financial Officer of Commerzbank.

 

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Excerpt from the consolidated profit and loss statement

In EUR m Q3 2013 Q3 2012 9M 2013 9M 2012 Q2 2013
Net interest income 1,483 1,281 4,468 4,759 1,629
Provisions for loan losses 492 430 1,296 1,046 537
Net commission income 785 852 2,440 2,485 808
Net trading income –74 224 234 472 –9
Net investment income 136 30 10 –169 –120
Current income on companies accounted for at equity 31 16 50 34 11
Other income –80 –33 –147 –55 –5
Income before loan loss provisions 2,281 2,370 7,055 7,526 2,314
Operating expenses 1,686 1,732 5,109 5,254 1,699
Operating profit or loss 103 208 650 1,226 78
Impairments of Goodwill - - - - -
Restructuring expenses - - 493 43 -
Net gain or loss from sale of disposal groups - 3 - –83 -
Pre-tax profit or loss 103 211 157 1,100 78
Taxes 3 118 60 329 12
Consolidated profit or loss attributable to Commerzbank shareholders 77 67 26 692 43
Cost/income ratio in operating
business (%)
73.9 73.1 72.4 69.8 73.4

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You will find broadcast-ready video material with statements by Stephan Engels from approximately 7 am onwards at www.media-hoster.com.

The videos can be viewed directly using mobile end devices.Statements Stephan Engels: www.media-hoster.com/commerzbank/q3en

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 Press contact:

Simon Steiner               +49 69 136-46646

Nils Happich                 +49 69 136-44986

Karsten Swoboda         +49 69 136-22339

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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 customers as well as institutional investors the banking and capital market services they need. With approximately 1,200 branches Commerzbank has one of the densest branch networks among German private banks and is on its way to become a modern multichannel bank. In total, Commerzbank boasts nearly 15 million private customers, as well as 1 million business and corporate customers. In 2012, it generated revenues of just under EUR 10 billion with approximately 56,000 employees on average.

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Disclaimer

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 its strategic initiatives to improve its business model, particularly to reduce its public finance portfolio in Private Customers, the reliability of its risk management policies, procedures and methods, risks arising as a result of regulatory change 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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