Commerzbank has continued its growth strategy in the third quarter of 2017, further increased its capital participation and reducing portfolio further reduced. The business of the customer segments was stable compared with the previous quarter. In the segment of private and corporate clients, Commerzbank has already won YTD net 450,000 new customers in Germany and increased its assets by 28 billion euros. With its growth, the bank lays the foundation for future profitability. The hard core capital ratio stood at the end of September was 13.5% compared to 11.8% a year ago. The ship portfolio in Asset & Capital Recovery (ACR) was significantly reduced in the first nine months of 2017 to 1.5 billion euros and at the end of the third quarter at 3.3 billion euros.
The implementation of the “Commerzbank 4.0” was continued as planned in the third quarter. The dissolution of the joint venture “Commerz Financial Inc.” and the acquisition of the installment loan portfolio of about 3.5 billion euros on the books and bank systems were completed in the third quarter. This transfer now offers the possibility to expand the business on its own platform. The aim is to increase this portfolio by 2020 to over 10 billion euros. Investment in digitization and the reaction in the “Digital Campus” run as planned.
“We have achieved this year good progress and laid important foundations for our transformation. We focus on growth to be sustainable and profitable in the long term. For customers and assets we have continued to grow, released RWAs and capital we have allocated to our core business and invested heavily in our digitization and iT. the installment loan business, we have now successfully transferred to our books and can build on it now, “said Martin Zielke, CEO of Commerzbank.
The operating result, the Bank has increased in the first nine months of 2017 compared to the same period last year by 7.7% to 1,144 million euros (9M 2016: 1,062 million euros). This increase the already previously announced non-recurring income and valuation effects in the amount of 618 million euros after nine months have contributed (9M 2016: EUR 543 million). In the third quarter, operating profit was EUR 629 million (Q3 2016: 429 million euros). The extraordinary income particularly from real estate sales, the sale of Concardis and the resolution of consumer finance joint venture with BNP Paribas amounted in the quarter to 502 million euros, impacted thus stronger than the special effects in the same quarter last year (Q3 2016: EUR 231 million) , The income before provisions developed in line with the first nine months of 6971 million euro stable (9M 2016: 7,000 million euros). In the third quarter they rose by 3.0% to 2,511 million euros (Q3 2016: 2,437 million euros). The extraordinary items, reported net revenues before provisions in the first nine months of 6353 million euros below the previous year (9M 2016: 6,457 million euros). This shows that the bank could mitigate the negative interest rate environment and lower margins with the growth in customers and thus in assets. In the third quarter, the bank posted adjusted income of 2,009 million euros (Q3 2016: 2,206 million euros).
With 530 million euro net less risk provisions were formed in the first nine months than in the previous year (9M 2016: EUR 610 million). of which EUR 168 million euros (Q3 2016: 275 million euros) in the third quarter. This is accompanied by the continuing low compared to other European quota for non-performing loans (NPL ratio) of only 1.5%, which reflects the healthy risk profile of the bank. Administrative expenses decreased in the first nine months slightly to 5,297 million Euro (9M 2016: 5,328 million euros). While personnel expenses decreased due to the job cuts, the cost of the various bank charges to 42 million euros raised. In the third quarter accounted for administrative expenses in the amount of 1,714 million euros (Q3 2016: 1,733 million euros).
Considering the booked in the second quarter for the strategy “Commerzbank 4.0” restructuring charges of 807 million euros, pre-tax result for the first nine months of 2017 at 337 million euros (9M 2016: € 338 million). In the same period last year, profit before tax was impacted by a write-down of goodwill and other intangible assets amounting to 627 million euros and restructuring charges of 97 million euros. After deducting income taxes totaling 204 million euros and minority interests of 67 million euros, Commerzbank achieved so during the first nine months of 2017 a consolidated net profit of 66 million euros (9M 2016: 96 million euros). In the third quarter, consolidated net income at 472 million euros (Q3 2016: Euro 288 million). In the first nine months of 2017, earnings per share 0.05 euros was (9M 2016: EUR 0.08).
The common equity Tier 1 ratio (CET 1) at full application of Basel 3 rose at the end of September 2017 to 13.5%, compared to 13.0% at the end of June 2017. This increase contributed to a the higher hard core capital at: the CET-1 capital from the full application of Basel 3 increased mainly due to the improvement in net profit to around 0.7 billion euros. On the other hand, the risk weighted assets (RWA) reduced further. Planned growth in the core business of the bank and higher RWA from operational risk stood by lower RWA of market risks as well as the portfolio reduction in ship financing over. The RWA at full application of Basel 3 amounted end of September 2017 to 176.6 billion euros, compared to 178.5 billion euros at end-June 2017 and 194.6 billion euros at the end of September 2016. The leverage ratio was the end of the third quarter 2017 4.7%. The balance sheet total was 490 billion euros (end of June 2017: 487 billion euros).
“We have increased our hard core capital ratio significantly to 13.5 percent. Taking into account the IFRS 9 effect we strive for a common equity ratio of at least 12.5 percent on January 1, 2018. In addition to growth, cost management remains a high priority. through active management, we have our costs “stable level despite the investment in digitization and IT, explained Stephan Engels, CFO of Commerzbank. “The degradation of our ACR ship portfolio we’re getting on well. We are on track to achieve our full-year target of around 3 billion euros. We check with views of the IFRS conversion of the year to assess our ship’s portfolio so that we can degrade more quickly than previously planned. ”
Development of the segments
The private and corporate client segment continued its growth strategy and is in the growth of customers and assets under control in Germany remain ahead of plan. Since October 2016, the Commerzbank has gained approximately 587,000 net new customers. accounted for about 450,000 of these customers to the first nine months of 2017, of which around 100,000 to the acquisition of Onvista by Comdirect. The assets under control rose in the same period by 28 billion euros to 366 billion euros. New business in mortgage lending reached in the first nine months of 2017 a volume of 11.3 billion euros (9M 2016: 9.2 billion euros).
The operating profit was 717 million euros in the first nine months of 2017 under the previous year (9M 2016: € 845 million). The decline is primarily due to an increase in administrative expenses. During the third quarter – supported by special effects – an operating profit of 381 million euros achieved (Q3 2016: 273 million euros). Income before provisions remained in the first nine months of 2017 with 3,642 million euros compared to the same period stable (9M 2016: 3,643 million euros). In the third quarter accounted for revenues of 1,363 million euros (Q3 2016: 1,216 million euros). They included special items amounting to 238 million euro in particular from the previously announced sale of Concardis shares and the assessment within the framework of the resolution of the consumer finance joint venture with BNP Paribas. Adjusted for special factors, net revenues were before provisions at 1,125 million euros, at a stable level with the previous quarter (Q2 2017: 1,110 million euros).
Loan loss provisions increased in the first nine months of 2017 by 23.8% to 130 million euros (9M 2016: EUR 105 million). Of which 55 million euros were booked in the third quarter (Q3 2016: EUR 40 million). General administrative expenses rose in the first nine months to 2,795 million Euro (9M 2016: 2,693 million euros). A major reason was 24 million euros higher mandatory contributions in Poland. Of the administrative expenses accounted for € 927 million in the third quarter (Q3 2016: 903 million euros).
MBank increased its income before provisions in the first nine months of 2017 to 738 million euros (9M 2016: € 721 million). Of which were in the third quarter earned 254 million euros (Q3 2016: 228 million euros). The new business volume of consumer loans increased in the first nine months compared to the same period last year by more than 15%. Year to date, net mBank could win around 208,000 new customers. In the third quarter of 2017, the mBank has retroactively adjusted the number of customers to authorized users of current accounts of business customers. Overall, mBank had at the end of September 2017 approximately 5.3 million private and corporate customers in Poland, the Czech Republic and Slovakia.
The Corporate Banking segment had to face a challenging capital market environment and the challenges of the negative interest rate environment, pointing to the first nine months, operating profit of 742 million euros (9M 2016: € 927 million) from. Of this amount, 241 million euros in the third quarter (Q3 2016: 327 million euros). Adjusted income before provisions went to 2,981 million Euro (9M 2016: 3,147 million euros) in the first nine months of 2017 back. In the third quarter, they totaled 961 million euros, slightly above the previous quarter (Q2 2017: EUR 952 million).
The Group division Mittelstand recorded subdued credit demand in the first nine months of 2017, but could this partially offset by a solid performance in capital market products. The Group Division Corporates International expanded its lending business compared to the first nine months of last year slightly off, at the same time, however, demand declined for structured capital market products. The strategic realignment and reorganization of financial institutions is on course. The proceeds have now stabilized. The Equity Markets & Commodities benefited in the first nine months of solid customer activity due to friendly equity markets.
Loan loss provisions for the segment decreased in the first nine months of 2017 to 123 million euros (9M 2016: EUR 215 million). During the same period, administrative expenses decreased to 2,148 million Euro (9M 2016: 2,219 million euros). Costs were reduced despite strategic investments and higher expenditure on implementation of regulatory and compliance regulations.
In Asset & Capital Recovery (ACR) the portfolios of ship finance and commercial real estate financing in the first nine months were reduced by approximately 2.3 billion euros. The ship’s portfolio has a loss of 1.5 billion euros, or more than 30% after nine months now worth around 3.3 billion euros. Operating profit in the first nine months of 2017 to minus EUR 215 million (9M 2016: minus EUR 359 million). The third quarter was a loss of EUR 100 million (Q3 2016: minus EUR 108 million). Income before provisions increased by nine months to 141 million euros (9M 2016: 30 million euros). Loan loss provisions fell in the same period to 277 million euros (9M 2016: EUR 292 million). It was almost booked exclusively for ship financing. Administrative expenses decreased in the first nine months of 2017 to 79 million Euro (9M 2016: 97 million euros).
The Bank will continue to strengthen its market position and focus on the implementation of the “Commerzbank 4.0”. The bank seeks a hard core capital ratio of at least 1 CET 12.5% - including the effect of the introduction of IFRS 9 from 1 January 2018. The cost basis is expected in 2017 at 7.1 billion euros. The allowance for losses is likely to be around 800 million euros, of which around 400 million euros to the segment ACR. The bank continues to expect a slightly positive net result for the full year.