DGAP-News: Commerzbank Aktiengesellschaft / Key word(s): Quarter Results
- Operating profit of EUR273 m for Group in first quarter (Q1 2015: EUR670 m) burdened by difficult market environment
- Good risk profile: low loan loss provisions of EUR148 m - NPL ratio for non-performing loans very low at 1.5% - further run-down of non-strategic portfolios of EUR1.0 bn
- Operating expenses stable at EUR1,893 m (Q1 2015: EUR1,957 m)
- Capital ratio CET 1 unchanged at 12.0% as of end of March 2016 (end of December 2015: 12.0%), dividend accrual of 5 cents per share already reflected
- Engels: "In view of difficult market conditions and the increasingly challenging interest rate environment, the Bank achieved a reasonable operating profit in the first quarter. The Bank's risk profile is good and with its CET 1 capital ratio at 12.0 per cent, it continues to hold a solid midrange position among European peers."
In a difficult market environment, Commerzbank generated an operating profit of EUR273 million in the first quarter of 2016 (Q1 2015: EUR670 million) and a net profit of EUR163 million (Q1 2015: EUR 338 million). Revenues before loan loss provisions declined to EUR2,314 million (Q1 2015: EUR2,785 million), reflecting a further deterioration in the interest rate environment and a slowing client activity within difficult markets. The loan loss provisions decreased again in the first quarter of 2016 to EUR148 million (Q1 2015: EUR158 million). The low level is a result of the high quality of the loan book, the stable condition of the German economy, and the continued run-down of non-strategic portfolios. The operating expenses in the first quarter were at EUR1,893 million (Q1 2015: EUR1,957 million). This already includes the entire European Bank Levy of EUR143 million expected for 2016 as well as the Polish banking tax of EUR13 million for two months. Strategic investments in digitilization as well as regulatory and compliance enhancements were compensated in full by consistent efficiency measures. The capital ratio CET 1 remained unchanged at 12.0% and, as in the same quarter of the previous year, reflects a dividend accrual of 5 cents per share.
The pre-tax profit after three months amounted to EUR273 million (Q1 2015: EUR604 million). On the whole, the first quarter of 2016 saw a net profit of EUR163 million (Q1 2015: EUR338 million).
"In view of difficult market conditions and the increasingly challenging interest rate environment, the Bank achieved a reasonable operating profit in the first quarter," said Stephan Engels, Chief Financial Officer of Commerzbank. Engels added: "The Bank's risk profile is good and with its CET 1 capital ratio at 12.0 per cent, it continues to hold a solid midrange position among European peers."
Capital ratio stable - risk-weighted assets slightly reduced
The Common Equity Tier 1 ratio (CET 1) with full application of Basel 3 as of the end of March 2016 was unchanged at 12.0% (end of December 2015: 12.0%). This ratio takes into account a dividend accrual of 5 cents per share. The leverage ratio as of the end of the first quarter of 2016 remained unchanged at a comfortable 4.5%. Risk-weighted assets (RWA) with full application of Basel 3 decreased in the same period to EUR194.5 billion as of the end of March 2016 (end of December 2015: EUR197.4 billion). Positive impacts included the stronger exchange rate for the euro, in particular vis-à-vis the US dollar and the British pound, and beneficial effects from a new securitisation. The total assets in the Group amounted to EUR536 billion as of the end of March 2016 (end of December 2015: EUR533 billion).
Development in the segments
In the Private Customers segment the operating profit increased significantly in the first quarter of 2016 to EUR191 million (Q1 2015: EUR157 million). This includes a positive one-off effect of EUR44 million from a special dividend from EURO Kartensysteme GmbH. Despite the ongoing burden deriving from the low interest rate environment and customer reluctance in volatile stock markets, revenues before loan loss provisions rose slightly to EUR944 million in Q1 2016 (Q1 2015: EUR935 million). A growth in revenues in the strong lending business contributed to this. Compared to the same quarter of the previous year, the segment's loan volume increased by 8% in the first quarter of 2016. Volumes of new business in mortgage loans totalled around EUR3.15 billion in the first quarter, and grew by 8% year-on-year, while the new business in consumer loans saw a volume increase of 44%. The loan loss provisions decreased in the first quarter of 2016 to EUR9 million and thus remained at a very low level (Q1 2015: EUR14 million). Operating expenses declined to EUR744 million in the same period (Q1 2015: EUR764 million). The segment's customer growth continued with 59,000 net new customers acquired in the first quarter 2016. Thus, the total net growth since the end of 2012 amounted to 878,000 customers.
Year on year, the operating profit at Mittelstandsbank declined in the first quarter of 2016 to EUR209 million (Q1 2015: EUR364 million). This was mainly due to the negative interest rate environment that further intensified. The pressure on the deposit margins increased further with loan volumes unchanged due to a subdued loan demand in Germany. All in all, the core business with German SMEs and large corporates remained stable. The revenues before loan loss provisions decreased in the first quarter to EUR706 million (Q1 2015: EUR807 million), while loan loss provisions increased to EUR53 million (Q1 2015: EUR24 million). The interest income declined significantly, above all due to negative interest rates. Net commission income decreased, among other things, as a consequence of the lower income from FX hedging transactions. In the same quarter of the previous year the strong client demand in this area had led to exceptionally higher revenues. In order to counter the impact of negative interest rates for both the clients and the Bank, Mittelstandsbank has intensified its dialogue with its clients on alternative investment opportunities for excess liquidity. Operating expenses increased in the first quarter of 2016 to EUR444 million (Q1 2015: EUR419 million), primarily due to higher investments in Compliance and IT.
In the first quarter of 2016, Central & Eastern Europe generated a good operating profit of EUR77 million (Q1 2015: EUR88 million) despite the introduction of a banking tax in Poland in February 2016. The result for the same quarter of the previous year included a positive effect from the sale of the insurance business of M Bank. Revenues before loan loss provisions declined in the first quarter of 2016 to EUR220 million (Q1 2015: EUR253 million). Adjusted for the aforementioned effect of approximately EUR46 million, revenues increased. In particular, interest income rose because of the operational growth of M Bank and an improved interest margin. Loan loss provisions fell by almost 50% in the first quarter of 2016 to EUR13 million (Q1 2015: EUR23 million), with operating expenses decreasing in the same period to EUR130 million (Q1 2015: EUR142 million). M Bank continued its prudent cost management. However, the new Polish banking tax of EUR13 million was booked for the first time in the first quarter of 2016. The dynamic customer growth of M Bank also continued: year-on-year the number of customers increased by around 374,000. Therefore, the bank has now passed the level of 5 million customers.
The operating profit in Corporates & Markets - adjusted for effects from the valuation of own liabilities (OCS) and counterparty risks in the derivatives business - declined to EUR70 million in the first quarter of 2016. Alongside weak development of the capital markets, it was considerably lower than the extraordinarily good first quarter of 2015 (EUR250 million). The high degree of uncertainty with regard to capital markets also led to lower demand for investment solutions in the first quarter of 2016, and therefore to a decrease in the revenues before loan loss provisions to EUR475 million (Q1 2015: EUR681 million). The generally low level of primary issuance in syndicated loans and in equity markets were partially compensated by higher revenues from bond issuance. Loan loss provisions increased in the first quarter to EUR5 million, after the same quarter of the previous year had seen a net release of EUR47 million. The operating expenses declined in the first quarter of 2016 to EUR388 million (Q1 2015: EUR431 million).
Ongoing run-down of EUR1.0 billion in non-strategic portfolios
The operating profit in the first quarter of 2016 in the new Asset & Capital Recovery (ACR) segment amounted to minus EUR122 million (Q1 2015: minus EUR187 million). Decreasing losses resulted in particular from lower operating expenses and significantly lower loan loss provisions. The revenues before loan loss provisions in the first quarter of 2016 totalled minus EUR21 million (Q1 2015: minus EUR19 million). In the same period, loan loss provisions decreased to EUR70 million (Q1 2015: EUR109 million) as a consequence of the continued run-down of the portfolio. The operating expenses in the first three months of this year amounted to EUR31 million (Q1 2015: EUR59 million). The Bank has also successfully continued the value-preserving portfolio run-down in the first quarter: the exposure at default (EaD) in the segment fell by EUR1.0 billion compared to the fourth quarter of 2015, to just over EUR17 billion as of the end of March. In the Commercial Real Estate (CRE) area the run-down led to a reduction over the previous quarter of EUR0.2 billion, to EUR2.9 billion as of the end of March 2016. In the Ship Finance area the portfolio decreased by EUR0.6 billion to EUR5.5 billion despite difficult market conditions.
Commerzbank will continue its strategy of increasing market share. In addition, it is further intensifying its efforts to mitigate the effects stemming from the negative interest rate environment. Without taking into account additional external burdens, the aim is to keep the cost base stable. The loan loss provisions are likely to see a moderate increase due to lower net releases. In view of the subdued nature of the first quarter, it will be more challenging to reach the net profit posted in 2015.
Financial figures at a glance
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