Commerzbank Aktiengesellschaft (CZB)
- Revenues up at €8.64bn (2018: €8.57bn) thanks to healthy client business
- Cost target achieved with costs reduced to €6.77bn (2018: €6.88bn)
- Risk result at minus €620m due to single cases (2018: minus €446m )
- Net profit of €644m includes first restructuring charge of €101m for personnel reduction and higher tax rate (2018: €862m)
- Common Equity Tier 1 ratio increased by 50 basis points to 13.4% in 2019 (2018: 12.9%)
- Board of Managing Directors proposes dividend of 15 cents per share for 2019 based on previous year's pay-out ratio
Commerzbank reported a stable operating profit in the financial year 2019 despite the further deterioration in the operating environment. Customer business remained healthy growing in terms of customers and assets. The Bank gained around 473,000 net private and small business customers in Germany and grew its loan and securities volume by 16% to €261 billion. The Corporate Clients segment increased its lending to corporates by €6 billion to €88 billion and improved its revenues in its direct customer business. Overall, the Bank's growth initiatives resulted in an improvement in net interest income which offset the headwind from the negative interest rate environment. On the cost side, the Bank made further savings through strict cost management, enabling it to meet its cost target for 2019 of below €6.8 billion despite higher compulsory contributions. Meanwhile its negative risk result was higher driven by single cases in the Corporate Clients segment. At the same time the Bank's loan quality showed a further improvement with a non-performing exposure (NPE) ratio of 0.9%.
Commerzbank has made a successful start to the implementation of its 'Commerzbank 5.0' strategy and has already achieved tangible progress. It has increased its stake in its online subsidiary comdirect to over 90%, thereby laying the foundation for a rapid integration. The sale process of mBank in Poland has been started. And by the fast agreement on a part-time retirement program, the Bank has laid the basis for the personnel reduction to be as socially responsible as possible. Provisions of €101 million were already booked in the fourth quarter of 2019 for this purpose.
'We ended the financial year 2019 with a better operating profit than expected. Together with the strong capital ratio, this provides us with a good starting position for 2020. We will take advantage of the extra leeway,' said Martin Zielke, Chairman of the Board of Managing Directors of Commerzbank. 'We have already made tangible progress with our 'Commerzbank 5.0' strategy and are ahead of plan. So, I'm more optimistic about our return expectations than I was last autumn.'
Group revenues rose to €8,643 million in 2019 (2018: €8,570 million) with a further improvement in revenue quality: the growth initiatives resulted in a rise of nearly 7% in net interest income to €5,074 million (2018: €4,748 million). In the fourth quarter of 2019, a higher provision for foreign currency loans at mBank had a negative impact on revenues. Nevertheless in the last quarter, revenues climbed by almost
Operating costs were reduced to €6,313 million in 2019 (2018: €6,459 million). Contributing factors included the progress made in the 'Commerzbank 4.0' personnel reduction, targeted savings and the prioritisation of and efficiency gains in strategic investments. The Bank thereby more than compensated for the further rise in compulsory contributions to €453 million caused mainly by the higher European bank levy and the banking tax in Poland (2018: €423 million). In total, costs were cut to €6,766 million (2018: €6,882 million). In the fourth quarter, they totalled €1,673 million (Q4 2018: €1,642 million).
The risk profit was minus €620 million for 2019 due to single cases (2018: minus €446 million). The fourth quarter accounted for minus €250 million (Q4 2018: minus €154 million), mainly due to individual cases in the international corporate customer business. Overall, the diversification of the portfolio is robust enough to manage slowdowns in individual sectors. The NPE ratio improved further to a low 0.9% by the end of 2019 (end of 2018: 1.0%), underlining the Bank's strong risk profile.
The operating profit for 2019, at €1,258 million, came in slightly higher than the previous year's (2018: €1,242 million). In the fourth quarter it improved to €250 million despite the rise in the risk result (Q4 2018: €240 million). The full-year pre-tax profit of €1,112 million (2018: €1,227 million) includes the restructuring costs of €101 million booked in the fourth quarter for the first part of the personnel reduction. The net result attributable to Commerzbank shareholders and investors in additional equity components for 2019 came out at €644 million (2018: €862 million). The figure reflects the higher tax charge of €369 million (2018: €262 million). This fact and the provisions for the personnel reduction led to a net result of minus €54 million in the last three months of the year (Q4 2018: €113 million).
Capital buffer significantly strengthened
The Bank significantly improved its capital base: its Common Equity Tier 1 ratio (CET 1 ratio) stood at a strong 13.4% at the end of December 2019 (end of September 2019: 12.8%, end of 2018: 12.9%). This already includes the dividend accrual of 15 cents per share for the financial year 2019. The considerable improvement of the CET 1 ratio is attributable partly to the €3 billion reduction in Risk-Weighted Assets (RWA) for credit risk in the fourth quarter, achieved as a result of portfolio optimisation at the end of the year. The Bank also reduced the RWA for operational risk through enhancement in its model which was approved by the regulators. Overall, RWAs decreased by almost €8 billion between the end of September and end of December 2019 to almost €182 billion. The leverage ratio rose at a comfortable 5.1% at the end of 2019 (end of 2018: 4.8%). Total assets rose to €464 billion (end of 2018: €462 billion).
'We have systematically reduced our costs, thereby meeting our cost targets. And we will remain ambitious. Further, we have improved the quality of our earnings thanks to our good customer business and we will pay a dividend again for 2019', said Bettina Orlopp, Chief Financial Officer of Commerzbank. 'Our strong capital ratio of 13.4% provides us with more flexibility in the implementation of our strategy and for focused growth.'
The growth also enabled the segment to increase its net interest income by 5.6%. This allowed it to offset the effects of negative interest rates and the ECB's monetary policy. Overall, revenues increased to €4,913 million (2018: €4,806 million). Revenues rose to €4,883 million in 2019 (2018: €4,851 million) after adjustment for exceptional items such as the sale of ebase. In the fourth quarter, underlying revenues for the Private and Small Business Customers segment, impacted by the increased provision for foreign currency loans at mBank, totalled €1,173 million (Q4 2018: €1,185 million).
Operating costs were lower in 2019, at €3,529 million (2018: €3,586 million). However, compulsory contributions were up again at €285 million (2018: €252 million), particularly at mBank. The risk result rose to minus €253 million (2018: minus €233 million). Here, too, the increase came from mBank. Overall, the segment saw its operating profit jump by a good 15% to €846 million (2018: €735 million). The figure for the fourth quarter was €126 million (Q4 2018: €172 million), largely affected by the provision for foreign currency loans booked at mBank.
The Corporate Clients segment performed satisfactory in direct client business. It increased its lending to corporates by €6 billion to €88 billion in 2019 despite continued competitive pressure, and boosted revenues in its core business. Revenues with the Mittelstand and International Corporates increased by around 4 %, revenues with Financial Institutions grew by around 3%. However, the 2018 figures included profit contributions from legacy portfolios which have since been wound down. The absence of these in 2019 affected the segment's revenues, which totalled €3,241 million (2018: €3,414 million). Underlying revenues came to €3,328 million for the full year (2018: €3,457 million) and €838 million in the fourth quarter (Q4 2018: €845 million).
Financial figures at a glance
* Net income from financial assets and liabilities measured at fair value through profit and loss
2019 figures published in this press release are preliminary and unaudited.
Disclaimer and Forward-Looking Statement
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