[FRANKFURT] Commerzbank’s first-quarter profit unexpectedly rose to the highest in 14 years as commissions increased, and the German lender set aside less money than expected for souring loans.
Net income increased 12 per cent from a year earlier and operating profit hit a record, Commerzbank said in a statement on Friday (May 9) from Frankfurt. Loan loss provisions of 123 million euros (S$179.6 million) came in below analysts’ estimate of 162 million euros.
Commerzbank has “a very well diversified, well managed loan portfolio, and that now pays off,” chief executive officer Bettina Orlopp said in an interview on Bloomberg TV. “And therefore we confirm our guidance, despite the tariffs that will clearly have an impact on the German economy.”
In the role for seven months, Orlopp has raised profitability and payout targets as she seeks to fend off a potential takeover by UniCredit. Since the Italian rival first unveiled a large stake in Commerzbank in September, shares of the German lender have almost doubled in value, prompting UniCredit to delay a decision on whether to go ahead with an offer.
Commerzbank rose 1.7 per cent at 9.18 am in Frankfurt, the best performer in an index of European banks.
The trade war has complicated Orlopp’s task. As a major lender to the small and medium-sized companies that form the backbone of the German economy, Commerzbank is caught in the cross-currents of higher tariffs on the one hand and a massive government spending package on infrastructure and defence on the other.
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Tariffs “could somewhat delay the recovery of Germany’s economy, despite the slight improvement in business sentiment observed recently,” Commerzbank wrote in it quarterly report. Increased government spending, meanwhile, “is unlikely to have a positive impact on the economy until next year.”
While analysts welcomed the figures, they also highlighted rising costs as a concern.
The top-line beat is positive” although fee income was “helped by a restatement,” RBC analyst Anke Reingen wrote in a note. “The high growth in costs as well as the release in top level adjustments raise some questions.”
Commerzbank raised its target for a key metric of capital strength, saying it expects a CET1 ratio of at least 14.5 per cent by the end of this year. It previously targeted more than 14 per cent. It plans to seek authorisation in the third quarter for another buyback as Orlopp makes good on a pledge to return 100 per cent of this year’s net income to investors.
Commerzbank in February outlined plans to increase the return on tangible equity, a measure of profitability, to 15 per cent by 2028. Net income is expected to reach 4.2 billion euros by then. For the current year, Commerzbank predicts profit to decline to 2.4 billion euros as it will spend money on the restructuring, an outlook it confirmed Friday.
Headwinds for Commerzbank have come from its exposure to Russia, where it’s facing legal cases, it has said. Its Polish unit mBank has also faced litigation, with the parent gradually setting aside about 2 billion euros to cover the potential costs. BLOOMBERG
