Com­merzbank re­turns to profit as rev­enue rises

The Pak Banker - - COMPANIES/BOSS -

Com­merzbank re­turned to profit in the fourth quar­ter as pro­vi­sions for bad loans fell thanks to Ger­many's ro­bust econ­omy, al­low­ing it to draw a line un­der a six-year re­struc­tur­ing by an­nounc­ing to close its ' bad bank' com­pris­ing non-core as­sets.

Ger­many's se­cond big­gest len­der said on Fri­day it posted a quar­terly net profit of €187 mil­lion, in line with ex­pec­ta­tions, af­ter it lost €280 mil­lion in the year- ear­lier pe­riod. Com­merzbank also said on Fri­day that it ex­pects a slight in­crease in net profit in 2016.

"For the first time in five years we have at­tained a (full-year) net profit of more than 1 bil­lion euros and have seen fur­ther sig­nif­i­cant strength­en­ing of our cap­i­tal base," said out­go­ing chief ex­ec­u­tive Martin Bless­ing. Ac­cord­ing to peo­ple fa­mil­iar with the bank, the len­der plans to present a suc­ces­sor for Mr Bless­ing by its an­nual share­holder meet­ing on April 20.

An­a­lysts see Com­merzbank as hav­ing strength­ened its fi­nan­cial po­si­tion markedly over the last few years by slash­ing its multi-bil­lion euro com­mer­cial real es­tate and ship­ping port­fo­lios and boost­ing cap­i­tal.

Af­ter re­duc­ing the port­fo­lio of its non-core as­sets divi­sion to €63 bil­lion at the end of 2015 from €160 mil­lion in 2012, and af­ter halv­ing the divi­sion's full-year op­er­at­ing loss to €401 mil­lion , the re­main­ing as­sets will be trans­ferred to other divi­sions. Like other lenders, low in­ter­est rates con­tinue to ham­per Com­merzbank's abil­ity to boost prof­its in its home mar­ket, where fierce com­pe­ti­tion among banks keeps mar­gins wor­ri­somely thin.

While Com­merzbank saw the op­er­at­ing profit of its retail bank dou­ble to €160 mil­lion in the quar­ter, the re­sult of its cash cow Mit­tel­stands­bank - which caters to Ger­many's prized medium-sized com­panied - de­creased 15 per cent to €212 mil­lion on lower mar­gins. Earn­ings at its in­vest­ment bank shrank by 60 per cent to €47 mil­lion, in line with the per­for­mance seen at peers like bell­wether Deutsche Bank.

Com­merzbank's Pol­ish sub­sidiary mbank re­mains vul­ner­a­ble to pos­si­ble changes in that coun­try's bank­ing laws, with an­a­lysts wor­ried govern­ment moves to con­vert Swiss franc­de­nom­i­nated mort­gages into zlotys could her­ald a more hos­tile en­vi­ron­ment gen­er­ally for banks.

Mean­while, Com­merzbank is to close its in­ter­nal "bad bank" and pay a div­i­dend for the first time since the fi­nan­cial cri­sis, af­ter post­ing bet­ter than ex­pected fourth-quar­ter re­sults.

Shares in Ger­many's se­cond-largest bank by as­sets, which had fallen 12 per cent this week amid a bru­tal sell-off in fi­nan­cial stocks, leapt 13 per cent dur­ing early trad­ing in Frank­furt.

The twin moves mark im­por­tant mile­stones for the bank, which has been work­ing its way back to fi­nan­cial health since an €18.2bn state res­cue dur­ing the tur­moil that fol­lowed the col­lapse of Lehman Brothers.

To aid that re­cov­ery, Com­merzbank in 2012 set up its Non-Core As­sets unit - an in­ter­nal bad bank - to house a port­fo­lio of risky ship­ping, com­mer­cial real es­tate and pub­lic fi­nance loans. The bank ini­tially put €160bn of as­sets into the unit, but hav­ing cut the fig­ure to €63bn by the end of 2015, it plans to re­ab­sorb €46bn into its nor­mal busi­nesses. The re­main­der will be run down by a new unit.

In the three months to the end of De­cem­ber, Com­merzbank posted net in­come of €187m, up from a loss of €280m a year ear­lier when the bank was hit by le­gal charges. An­a­lysts had ex­pected net prof­its of €156m.

The im­prove­ment took the bank's full-year profit to €1.06bn, up from €689m in 2014. Rev­enues im­proved from €8.8bn in 2014 to €9.8bn in 2015. Martin Bless­ing, who is to step down as chief ex­ec­u­tive later this year hav­ing led the bank since 2008, said the re­sults showed "that our strat­egy is right and that the im­ple­men­ta­tion has been suc­cess­ful".

"For the first time in five years we have at­tained a net profit of more than €1bn and have seen fur­ther sig­nif­i­cant strength­en­ing of our cap­i­tal base," he said, adding that as a re­sult the bank would pay a div­i­dend of €0.20 per share.

Com­merzbank's core tier one ra­tio - a key mea­sure of fi­nan­cial strength - stood at 12 per cent at the end of the year, up from 9.3 per cent a year ear­lier.

The len­der's im­proved for­tunes dur­ing 2015 were largely driven by its Ger­man retail bank, where pre-tax prof­its in­creased 65 per cent to €751m as it man­aged to ex­pand its loan book.

How­ever, at its core Mit­tel­stand unit, which caters to the scores of small and mid­sized com­pa­nies that make up the back­bone of the Ger­many econ­omy, prof­its fell from €1.22bn in 2014 to €1.06bn in 2015. Com­merzbank blamed this on the im­pact of neg­a­tive in­ter­est rates, as well as the de­pre­ci­a­tion of a share­hold­ing.

Its two other divi­sions also posted de­clines in earn­ings. Profit at its in­vest­ment bank­ing unit fell from €675m in 2014 to €610m last year, while profit in its cen­tral and east­ern Euro­pean busi­ness fell from €364m to €346m.

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