Commerzbank Aktiengesellschaft (CZB) Commerzbank: Strong customer business in the first quarter of 2020 - Effects of coronavirus weigh on earnings 13-May-2020 / 07:04 CET/CEST Dissemination of a Regulatory Announcement, transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. *- Revenues at EUR 1.85bn (Q1 19: EUR 2.16bn) due to temporary valuation effects - Good development in customer business: overall net interest income and net commission income up by 10% * *- Risk result at minus EUR 326m (Q1 19: minus EUR 78m) due to coronavirus effects amounting to EUR 185m* *- Operating costs down to EUR 1.50bn (Q1 19: EUR 1.57bn), but significantly higher bank levy with negative effect * *- Operating result of minus EUR 277m (Q1 19: EUR 246m) includes EUR 479m negative impact from pandemic* *- Private and Small-Business Customers with around 142,000 net new customers in Germany and increase in revenues of 10% - Corporate Clients segment with stable revenue development in customer business and higher lending volume* *- Strong capital ratio of 13.2% and high liquidity (LCR 130%) * Owing to the coronavirus crisis, Commerzbank reported an operating result of minus EUR 277 million in the first quarter of 2020. Temporary valuation effects exerted a negative impact here along with a higher risk provision booked on account of the pandemic. However, the Bank posted good development in client business and thereby increased its net interest and commission income overall by 10% in a comparison with the year-earlier quarter. Deducting the negative impact arising from the coronavirus totalling minus EUR 479 million, the Bank would have achieved an operating profit of EUR 202 million. In spite of the coronavirus effects, the Common Equity Tier 1 ratio at 13.2% remained at a comfortable level and forms a good basis for managing the crisis and the implementation of the Bank's strategy. The Bank has made considerable progress on this front. The complete takeover of comdirect is in the final straight, after a resolution on the squeeze-out under merger law was passed at the Annual General Meeting of comdirect. Furthermore, Commerzbank economically completed the sale of the Equity Markets & Commodities (EMC) business division to Société Générale with the successful handover of the final trading books and systems a few days ago. Meanwhile, the Bank has decided to not pursue the sale of the Polish mBank in the light of current market distortions and its own strong capital position. With the outbreak of the pandemic, Commerzbank implemented a range of different measures directed towards safeguarding stable and secure business, and providing support for clients. At the highpoint of the coronavirus lockdown, around 80% of the employees were working remotely. Nevertheless, more than 80% of the branches were staffed during the lockdown and more than 200 large locations were open. Since the beginning of May, the Bank has adopted a step-by-step approach to opening further branches. All the self-service zones are open. Overall, more than 18,000 financing and information enquiries relating to the crisis were received from corporate clients and small business customers. The Bank carried out significantly more than 20,000 advisory consultations on financing for coronavirus with corporate clients and small business customers and it has provided them with around EUR 11 billion of additional liquidity in Germany and abroad until the end of April. As early as the first seven weeks of the crisis, Commerzbank approved around 2,500 loan applications for the German Development Bank (KfW) amounting to a volume of nearly EUR 4 billion. Until the end of April, Commerzbank deferred more than 20,000 loans from private customers and corporate clients with a volume of more than EUR 2.5 billion. At the same time, user figures reached record values for digital offerings. The upward trajectory of customer growth continued with the Bank acquiring around 10,000 new customers on average each week in the first quarter primarily through online channels. 'At this moment, we are experiencing historically unprecedented circumstances. The coronavirus pandemic is putting the world and our economic system under a severe strain. We have not seen a comparable crisis since World War II. The banks have a key role to play in overcoming this crisis by providing liquidity and thereby helping their customers to get through these difficult times. We accept this responsibility and we have already provided around EUR 11 billion of additional liquidity,' said Martin Zielke, Chairman of the Board of Managing Directors of Commerzbank. 'Our strong balance sheet and our robust liquidity and capital position place us in a good position to meet this challenge and help the German economy with full strength.' *Group revenues* benefited from good customer business during the first quarter. Net interest income went up by in excess of 7%, and net commission income grew by more than 14% on the back of an excellent securities business. This contrasted above all with the temporary negative valuation effects on hedging transactions for customers and on own account amounting to EUR 295 million. This was due to the high level of market volatility. When markets stabilise, the valuations of these derivatives are likely to recover. Overall, revenues amounted to EUR 1,853 million (Q1 2019: EUR 2,157 million) in the first quarter of 2020. *Costs *came down to EUR 1,804 million (Q1 2019: EUR 1,832 million), and operating expenses were reduced by 4% to EUR 1,503 million (Q1 2019: EUR 1,567 million). Effective cost management was the most important contributing factor here along with advances in personnel reduction. At the end of March, the number of full-time employees in the Group stood at 39,800, a reduction of around 1,200 by comparison with the year-earlier figure. As announced, the Bank launched a new phased part-time retirement programme in April as part of the strategy 'Commerzbank 5.0' to bring about further job reductions. On the other hand, negative impacts arising from compulsory contributions rose to EUR 301 million (Q1 2019: EUR 265 million) in the first quarter. The reason for this was the significantly higher European bank levy, which was reported in full during the first quarter. The *risk result *increased fourfold to minus EUR 326 million (Q1 2019: minus EUR 78 million) as a result of the coronavirus pandemic. Of this, EUR 185 million are due to the effects of the crisis. Apart from actual losses amounting to EUR 74 million as a consequence of the pandemic, this amount is primarily made up of top level adjustments for expected credit losses amounting to EUR 111 million. This takes account of the charges that are currently foreseeable and of the comprehensive government aid programmes. Overall, the loan book continued to be healthy with a low ratio of non-performing loans of 0.8% thanks to the massive reduction in risk over recent years. The *operating result* was minus EUR 277 million (Q1 2019: EUR 246 million). The effects of the coronavirus on the risk profit and in loan loss provisions amounted to minus EUR 479 million. The pre-tax result was minus EUR 233 million (Q1 2019: EUR 227 million). It includes extraordinary proceeds from the EMC sale. The *net result *attributable to Commerzbank shareholders came out at minus EUR 295 million (Q1 2019: EUR 122 million). The *Common Equity Tier 1 ratio* (CET1 ratio) stood at a strong 13.2% at the end of March 2020 despite increased Risk-Weighted Assets, also due to credit demand in the Corporate Clients segment (end of December 2019: 13.4%; March 2019: 12.7%). The leverage ratio was 4.7% (March 2019: 4.5%) and was hence clearly above the requirements. The Liquidity Coverage Ratio (LCR) of 130% at the end of March also significantly exceeded all regulatory requirements and demonstrates the comfortable liquidity position of the Bank. 'Thanks to the far-reaching measures adopted by the Federal Government, we anticipate that German companies, which make up the lion's share of our business, will come through the crisis comparatively well,' commented Bettina Orlopp, Chief Financial Officer of Commerzbank. 'We have a healthy loan book and the proportion of impaired loans has been below the average for Germany and Europe for many years now. We will therefore be able to cushion additional effects resulting from the pandemic. At the same time, we will intensify our cost management even more this year. This is because cost efficiency and powerful digital structures are absolutely essential particularly during the current period.' *Development of the segments* *The Private and Small-Business Customers* (PSBC) segment posted an excellent quarter in all business areas. Revenues increased by 10% to EUR 1,317 million (Q1 2019: EUR 1,201 million). Strong securities business made a major contribution to this, which generated an increase of 25% for net commission income. Furthermore, despite the restrictions caused by the coronavirus, the segment acquired a net increase of 142,000 customers in Germany especially on the basis of online acquisitions. The volume of mortgage lending went up by 7% to EUR 82.2 billion. The volume in consumer finance business rose to EUR 3.8 billion (year-end 2019: EUR 3.7 billion). The risk result of the PSBC segment increased to minus EUR 160 million (Q1 2019: minus EUR 52 million). Thereof, EUR 83 million were attributable to mBank. Overall, revenue growth compensated for the higher risk result so that the operating profit remained stable with EUR 150 million (Q1 2019: EUR 153 million). Without the coronavirus effects totalling EUR 62 million, the segment's operating profit would have been EUR 212 million. The *Corporate Clients* segment succeeded in maintaining revenues in the
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May 13, 2020 01:04 ET (05:04 GMT)
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