Commerzbank Aktiengesellschaft (CZB) Commerzbank Aktiengesellschaft: Commerzbank: Third quarter with robust performance in challenging environment 07-Nov-2019 / 07:04 CET/CEST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. *- Further growth in customers and assets: a net 141,000 new private customers gained in Germany, loan and securities volume up by EUR4bn* *- Higher operating profit of EUR448m (Q3 2018: EUR346m) due to increased revenues, reduced costs and a lower risk result* *- Net profit of EUR294m, improved year-on-year (Q3 2018: EUR218m) * *- Net Return on Tangible Equity (RoTE), including AT 1 interest coupon, stands at 4.4%* *- Cost reduction on track: costs in the first nine months down by around EUR130m compared to 2018 - costs reduced to EUR1.62bn in Q3 (Q3 2018: EUR1.66bn)* *- Risk result of minus EUR114m (Q3 2018: minus EUR133m) - NPL ratio of 0.8% (Q3 2018: 0.9%)* *- Common Equity Tier 1 (CET 1) ratio of 12.8% includes TRIM effect* Commerzbank increased its operating profit on a year-on-year basis in the *third quarter of 2019*. Higher revenues, reduced costs and a low risk result contributed to this. In the Private and Small Business Customers segment, the Bank gained 141,000 new customers and grew its business volumes. The Corporate Clients segment recorded a third-quarter result below the previous year, but generated higher revenues in client business. The segment saw a significant improvement in its result compared to the second quarter, due in part to the lower drag from the risk result. The Bank cut its costs further: year-to-date it achieved savings of around EUR130 million compared to 2018 despite a rise in compulsory contributions. In September, the Bank presented its *'Commerzbank 5.0'* strategy and kicked-off its implementation. The evolved strategy builds on the proven foundations of the past few years. The focus will continue to be on growth in the core areas of business with private, business and corporate customers, cost reduction and digitalisation. The aim is to achieve a significant increase in value in the Bank's core business areas. In order to implement its growth and investment programme at a faster pace and self-financed, the Bank is seeking to sell mBank in Poland. One first milestone in the implementation of Commerzbank 5.0 is the planned *integration of comdirect*, with the aim of pooling digital competencies and enhancing synergies in innovation and costs. At the end of October, the Bank took the first step in this process and made an acquisition offer for all outstanding shares of its direct bank subsidiary. The offer of EUR11.44 per share in cash is subject to achievement of a minimum acceptance threshold of 90 % and ends on 6 December 2019. After that, comdirect would be merged into Commerzbank by means of a merger-law squeeze-out. If this is not successful, Commerzbank intends to take the steps required for a direct merger of comdirect into Commerzbank. In this case, the shareholders of comdirect would receive Commerzbank shares in exchange for their shares following consent granted by the general meetings of both companies. The exchange ratio would be determined on the basis of expert reports on the value of comdirect and Commerzbank. 'Commerzbank 5.0 is the logical next step in our strategy. We have already started the implementation and are working hard to reach our milestones quickly. We deliberately set long-term success above short-term return targets. Wishful thinking is not helpful in the face of low interest rates, an economic slowdown and geopolitical uncertainties', said Martin Zielke, Chairman of the Board of Managing Directors of Commerzbank. The Bank increased *Group revenues* by 2 % year-on-year in the third quarter to EUR2,183 million (Q3 2018: EUR2,140 million). The figure after adjustment for exceptional items was EUR2,170 million (Q3 2018: EUR2,122 million). Net interest income was increased by 2.7% as a result of this growth, while net commission income remained almost stable. *Operating costs* were trimmed to EUR1,560 million in the third quarter (Q3 2018: EUR1,607 million). Consequently, the Bank reduced its cost base to EUR5.1 billion in the first nine months (first nine months of 2018: EUR5.2 billion). The successful internalisation of previously outsourced activities was a contributing factor here. Overall the significant reduction in operating expenses by around EUR250 million outweighed the rise in compulsory contributions and in personnel costs. The *risk result* was down year-on-year at minus EUR114 million in the third quarter (Q3 2018: minus EUR133 million) and the risk indicators remained stable overall. The NPL ratio, at 0.8%, remained at a very low level. In total, the Bank increased its *operating profit* to EUR448 million in the third quarter (Q3 2018: EUR346 million) and its pre-tax profit to EUR440 million (Q3 2018: EUR331 million). The *net result* was also up - from EUR218 million in the third quarter of 2018 to EUR294 million. The net Return on Tangible Equity (RoTE), taking into account the interest coupon for the Additional Tier 1 capital (AT 1), stood at 4.4% (Q3 2018: 3.5%). The Bank had strengthened its capital base at the beginning of July with its inaugural AT 1 issue in the amount of US$ 1 billion. The *Common Equity Tier 1 (CET 1) ratio* was down slightly in the third quarter, standing at 12.8% at the end of September (end of June 2019: 12.9%). The ratio already includes a dividend accrual in line with the pay-out ratio for 2018. The slight fall in the CET 1 ratio was mainly attributable to the increase in risk-weighted assets (RWA) in connection with the regulatory review of internal risk models (Targeted Review of Internal Models, TRIM). The Bank offset almost the whole of the TRIM effect in the third quarter through capital accumulation. RWA totalled EUR189 billion at the end of September (end of June 2019: EUR187 billion, end of September 2018: EUR178 billion). While RWA for credit risks rose by EUR3 billion after effects from TRIM and mitigating factors, RWA for market and operational risks remained largely unchanged. The *leverage ratio* stood at 4.7% at the end of September (end of June 2019: 4.5%). *Total assets* came to EUR513 billion (end of September 2018: EUR518 billion). 'In the third quarter we achieved a good result. This is based on higher revenues, reduced costs and a low risk result', said Stephan Engels, Chief Financial Officer of Commerzbank. 'We continue to grow our customer and asset base, thus tackling undiminished margin pressure. Looking forward, we substantially invest in the Bank's digitalisation and further cost reduction.' *Development of the segments* The *Private and Small Business Customers* (PSBC) segment continued its growth in customer numbers and assets. In the third quarter, the Bank gained a net 141,000 new customers in Germany (Q3 2018: 117,000), two-thirds of these at Commerzbank and one-third at comdirect. These new customers count towards the target of more than 1 million new customers by 2023. Volumes in loans and securities grew by EUR4 billion in the third quarter and amounted to EUR251 billion. The volume of the mortgage lending portfolio expanded by a further EUR1.1 billion to EUR79.2 billion over the same period, with an increased margin in new business. Revenues after adjustment for non-recurring items were higher year-on-year in the third quarter at EUR1,243 million (Q3 2018: EUR1,226 million). This was helped by the successful growth in customers and assets, and the good performance of the subsidiaries. The segment's total revenues in the third quarter were also higher than the previous year's, at EUR1,327 million (Q3 2018: EUR1,204 million). This figure includes positive and negative exceptional items amounting to EUR84 million. The negative side included the ongoing purchase price allocation write-downs in connection with the consumer finance joint venture, and the positive side the proceeds from the sale of ebase. The segment made further progress on the cost side, reducing its operating costs to EUR873 million (Q3 2018: EUR897 million). The third-quarter risk result came out higher year-on-year at minus EUR87 million (Q3 2018: minus EUR69 million), though on a nine-month basis it was nearly on a par with 2018 at minus EUR187 million (first nine months 2018: minus EUR184 million). The segment increased its operating profit to a total of EUR315 million in the third quarter (Q3 2018: EUR186 million). The *Corporate Clients* segment recorded resilient client business in the third quarter. The corporate loan book expanded by EUR1 billion to EUR89 billion. Based on higher loan volumes and good performance in capital market business and trade finance, the International Corporates and Financial Institutions divisions increased revenues. The Mittelstand division was able to compensate for the margin pressure and to keep earnings stable through growth. Revenues from customer business were offset by a lack of contributions from legacy portfolios and negative valuation effects. As a result, revenues for the third quarter came in at EUR782 million and were lower than in the same quarter of the previous year (Q3 2018: EUR855 million). The segment was able to further cut its operating costs in the third quarter, to EUR596 million (Q3 2018: EUR617 million). The risk result was lower than in Q2, which had been affected by single cases, and stood at minus EUR31 million (Q3 2018: minus EUR61 million; Q2 2019: minus EUR127 million). On a nine-month basis, the drag from the risk result was higher in 2019 than in 2018, on account of lower write-backs of provisions. In total, the segment generated an operating profit of EUR146 million in the third quarter (Q3 2018: EUR175 million). *Outlook* As was already communicated in the strategy update at the end of September,
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