Commerzbank: 2019 operating profit stable at EUR 1.26bn - Common Equity Tier 1 ratio significantly increased

Commerzbank Aktiengesellschaft (CZB) 
Commerzbank: 2019 operating profit stable at EUR 1.26bn - Common Equity 
Tier 1 ratio significantly increased 
 
13-Feb-2020 / 07:05 CET/CEST 
Dissemination of a Regulatory Announcement, transmitted by EQS Group. 
The issuer is solely responsible for the content of this announcement. 
 
*- Revenues up at EUR 8.64bn (2018: EUR 8.57bn) thanks to healthy client 
business * 
 
*- Cost target achieved with costs reduced to EUR 6.77bn (2018: 
EUR 6.88bn)* 
 
*- Risk result at minus EUR 620m due to single cases (2018: minus EUR 446m 
)* 
 
*- Net profit of EUR 644m includes first restructuring charge of EUR 101m 
for personnel reduction and higher tax rate (2018: EUR 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 EUR 261 billion. The 
Corporate Clients segment increased its lending to corporates by EUR 6 
billion to EUR 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 EUR 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 EUR 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 EUR 8,643 million in 2019 (2018: EUR 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 
EUR 5,074 million (2018: EUR 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 
7% to EUR 2,173 million (Q4 2018: EUR 2,035 million). This is attributable 
to higher net interest income in the Corporate Clients segment and in 
Treasury, as well as increased net commission income on the back of the 
improvement in securities business in the Private and Small Business 
Customers segment. 
 
*Operating costs* were reduced to EUR 6,313 million in 2019 (2018: 
EUR 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 EUR 453 million caused mainly by the higher European bank 
levy and the banking tax in Poland (2018: EUR 423 million). In total, 
*costs* were cut to EUR 6,766 million (2018: EUR 6,882 million). In the 
fourth quarter, they totalled EUR 1,673 million (Q4 2018: EUR 1,642 
million). 
 
The *risk profit* was minus EUR 620 million for 2019 due to single cases 
(2018: minus EUR 446 million). The fourth quarter accounted for minus 
EUR 250 million (Q4 2018: minus EUR 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 EUR 1,258 million, came in slightly 
higher than the previous year's (2018: EUR 1,242 million). In the fourth 
quarter it improved to EUR 250 million despite the rise in the risk result 
(Q4 2018: EUR 240 million). The full-year *pre-tax profit* of EUR 1,112 
million (2018: EUR 1,227 million) includes the restructuring costs of 
EUR 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 EUR 644 million (2018: EUR 862 million). The figure reflects the higher 
tax charge of EUR 369 million (2018: EUR 262 million). This fact and the 
provisions for the personnel reduction led to a net result of minus EUR 54 
million in the last three months of the year (Q4 2018: EUR 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 
EUR 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 EUR 8 billion between the end of September and end of 
December 2019 to almost EUR 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 EUR 464 billion (end of 2018: EUR 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.' 
 
*Development of the segments* 
 
The *Private and Small-Business Customers* segment continued on its growth 
trajectory last year, attracting around 473,000 net new customers in Germany 
- 100,000 of these in the fourth quarter. This means that, on a net basis, 
it has brought more than 1.5 million new customers on board since autumn 
2016. It increased its loan and securities volume by EUR 35 billion to 
EUR 261 billion in 2019 (end of 2018: EUR 226 billion). Here, the volume 
of mortgage lending alone increased by a further EUR 5.8 billion to 
EUR 80.9 billion. 
 
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 EUR 4,913 
million (2018: EUR 4,806 million). Revenues rose to EUR 4,883 million in 
2019 (2018: EUR 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 EUR 1,173 million 
(Q4 2018: EUR 1,185 million). 
 
*Operating costs* were lower in 2019, at EUR 3,529 million (2018: 
EUR 3,586 million). However, compulsory contributions were up again at 
EUR 285 million (2018: EUR 252 million), particularly at mBank. The *risk 
result* rose to minus EUR 253 million (2018: minus EUR 233 million). Here, 
too, the increase came from mBank. Overall, the segment saw its *operating 
profit* jump by a good 15% to EUR 846 million (2018: EUR 735 million). The 
figure for the fourth quarter was EUR 126 million (Q4 2018: EUR 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 EUR 6 billion to 
EUR 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 
EUR 3,241 million (2018: EUR 3,414 million). *Underlying revenues *came to 
EUR 3,328 million for the full year (2018: EUR 3,457 million) and EUR 838 
million in the fourth quarter (Q4 2018: EUR 845 million). 
 
The segment trimmed its full-year *operating costs* to EUR 2,453 million 

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February 13, 2020 01:05 ET (06:05 GMT)