Commerzbank’s 4.0 strategy on track

Commerzbank has had good progress in  implementing its strategy Commerzbank 4.0 and has its hard core capital ratio improved further. The Bank has fully booked the announced restructuring charges in the second quarter and reached an agreement with employee representatives on a framework social plan and a framework of interests. At mid-year, the bank in the segment for private and corporate clients has already gained more than 500,000 new customers net in Germany. The ship portfolio in Asset & Capital Recovery (ACR) was significantly reduced by 0.9 billion euros and now stands at 3.9 billion euros in the first half. By the end of the year it will be reduced to about 3 billion euros.

The operating result for the first half fell Transformation year and in the course of subdued markets in the second quarter was lower than in the previous year and amounts to 515 million euro (first half of 2016: 633 million euros). In the second quarter, operating profit was 183 million euros (second quarter 2016: 351 million euros). Income before provisions remained in the first half with 4,460 million euro (first half of 2016: 4,563 million euros) at a stable level. Adjusted for special items, income rose compared to the same period last year by 93 million euros to 4,344 million euro (first half of 2016: 4,251 million euros). In the second quarter, net revenues amounted to 2,068 million euros (second quarter 2016: 2,240 million euros).

Loan loss provisions in the first half of the year at 362 million euros (first half 2016: 335 million euros). In the second quarter accounted for EUR 167 million (second quarter 2016: 187 million euros). The continued low compared to other European quota for non-performing loans (NPL ratio) of only 1.5% reflects the healthy risk profile of the bank. Administrative expenses in the first half of 3583 million euros in the first half of 2016 (3,595 million euros). In the second quarter accounted for administrative expenses of 1,718 million euros (second quarter 2016: 1,702 million euros).

The pre-tax result for the first half of 2017 was minus EUR 292 million (first half of 2016: 593 million euros). Includes restructuring charges of 807 million euros. Originally, the bank had with restructuring costs amounting to approximately 1,100 million euros, spread over the years 2017 and 2018, calculated. Reasons for lower burden are the job cuts already achieved, employee turnover and expected more efficient exchange and transfer chains.

After taking into account tax expenses in the amount of 69 million euros and minority interests of 45 million euros, Commerzbank achieved a net result of minus EUR 406 million (first half of 2016: 384 million euros). In the second quarter Net income was Euro 637 million (second quarter 2016: 215 million euros).

“We have booked provisions for workforce reductions early and completely and have taken a further important step in implementing our strategy. In the sales growth, we are ahead of plan, partly because we have invested. Until our customer growth translates into earnings growth, but is still something pass the time. However, this way we create in the transition years 2017 and 2018, the basis for sustainable higher profitability, “said Martin Zielke, CEO of Commerzbank.

The common equity Tier 1 ratio (CET 1) at full application of Basel 3 rose to 13.0%, after 12.5% ​​at the end of March 2017. The increase was essentially due to the decline in risk-weighted assets (RWA) , These have fallen from the full application of Basel 3, including through active portfolio management in credit risk and relieving effects of currency changes. The RWA amounted to the end of June 2017 178.5 billion euros, compared to 186.2 billion euros at end-March 2017 and 198.3 billion euros at end-June 2016. The leverage ratio was 4.6%. The balance sheet total was 487 billion euros (end of March 2017: 490 billion euros).

“Our hard core capital ratio rose to 13.0%, despite provisions for restructuring and we expect for the full year with a slightly positive net result. Despite increased investment in digitization, we have our costs reduced compared to last year,” said Stephan Engels, CFO of Commerzbank.

The digital transformation of the Commerzbank is on schedule. The Digital Campus, where the bank is combining its digitization activities is fully equipped and 8 Journeys are being implemented. In the second quarter, Commerzbank published its new home loan app and Comdirect went with their new digital asset management at the start. In addition, the Bank has the area Big Data & Analytics Advanced created will be working around 100 data specialists.

Development of the segments

The private and corporate client segment is the growth in customers and assets under control in Germany over plan. The number of net additions since October 2016 is around 522,000.
Of these, approximately 385,000 were recovered in the first half of 2017, with approximately 100,000 customers from the acquisition of Onvista contained by the Comdirect. The assets under control rose in the first half to 19 billion euros to 357 billion euros. New business in mortgage lending in the first half year, a volume of nearly 8 billion euros (same period last year 6.1 billion euros).

The operating profit was EUR 336 million below the same period last year (first half 2016:
572 million euros). Shall take into account, among other things, a positive one-off effect from the second quarter of 2016 from the sale of Visa Europe shares in the amount of 123 million euros and increased investment in growth initiatives. Such investments pay for themselves usually in about 18 months. Operating profit in the second quarter amounted to 142 million euros (second quarter 2016: 295 million euros). Income before provisions were in the first half compared to last year slightly to 2,279 million euro (first half of 2016: 2,427 million euros). A major reason for the decline in investment is to attract customers, which are financed out of current income. In the second quarter accounted for revenues of 1,111 million euros (second quarter 2016: 1,232 million euros).

Loan loss provisions in the first half rose to 75 million euros (first half 2016: 65 million euros), of which 42 million euros were booked in the second quarter (second quarter 2016: 42 million euros). General administrative expenses rose in the first half to 1,868 million euro (first half of 2016: 1,790 million euros). In the second quarter, administrative expenses amounted to € 927 million (second quarter 2016: 895 million euros). Reasons for the increase in the first half, the introduction of the European bank levy in Poland (28 million euros) and investments in future growth.

in the first half mBank scored 2017 income before provisions amounting to 484 million euro (first half of 2016: 493 million euros). Of which 243 million euros were generated in the second quarter (second quarter 2016: 273 million euros). The new business volume of consumer loans increased by more than 20% in the first half. MBank gained around 200,000 net additions also in the first half, including about 100,000 in the second quarter. They thus now has some 5.6 million retail and corporate customers in Poland, the Czech Republic and Slovakia.

The Corporate Banking segment’s strategic realignment is proceeding. Operating profit in the first half year amounted to EUR 502 million (first half of 2016: 600 million euro); in a weak market environment, the operating result for the second quarter (first quarter 2017: 267 million euros) in solid 235 million euros. Income before provisions decreased compared to the same period last year to 2,043 million euro (first half of 2016: 2,240 million euros). Of which income of 943 million euros were generated in the second quarter (second quarter 2016: 1,095 million euros).

The areas Affairs and International Corporates experienced a strong contribution from corporate finance, but lower market activity in interest rate and currency trading and continued headwinds through the low interest rates. The strategic realignment and reorganization of financial institutions is on course. The Equity Markets & Commodities benefited in the first half of solid customer activity; particular investment products went well.

Loan loss provisions for the segment decreased in the first half of 2017 to 76 million euro (first half of 2016: 128 million euros), of which 33 million were booked in the second quarter. Despite strategic investments and higher spending on Regulatorik and compliance costs could be reduced in the segment: Administrative expenses decreased compared to the same period last year to 1,465 million euro (first half of 2016: 1,512 million euros).

In Asset & Capital Recovery (ACR) the portfolios of ship finance and commercial real estate financing in the first half were reduced by 1.5 billion euros. The ship’s portfolio has for a reduction of 0.9 billion euros in the first half is now valued at around 3.9 billion euros. The operating result improved in the first half of 2017 to minus EUR 115 million (first half 2016: minus EUR 251 million). In the second quarter it was minus 82 million euros (second quarter 2016: minus EUR 132 million). Income before provisions rose to 154 million euros (first half 2016: minus EUR 42 million). In the second quarter accounted for income of 39 million euros (second quarter 2016: minus EUR 24 million). Loan loss provisions increased in the first half to 211 million euros (first half 2016: 145 million euros). In the second quarter, loan loss provisions amounted to 92 million euros (second quarter 2016: 75 million euros). She was booked exclusively for ship financing. Administrative expenses decreased in the first half of 2017 to 58 million euro (first half of 2016: 64 million euros). Of which fell 29 million euros in the second quarter (second quarter 2016: 33 million euros).

outlook

In fiscal 2017, the Bank will continue to strengthen its market position and focus on the implementation of the Commerzbank 4.0 strategy. The Bank aims – including the effect of the introduction of IFRS 9 from 1 January 2018 – a hard core capital ratio CET one of around 12.5%. The cost basis is expected at 7.1 billion euros. The allowance for losses is likely to be around 800 million euros, of which some 450 million euros to the segment ACR. The result of the second half will benefit from extraordinary income of more than 390 million euros from sales and reviews. The bank expects a slightly positive net result for the full year.