Commerzbank returns to profit as revenue rises
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.