Release Date: November 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Commerzbank AG (CRZBF, Financial) reported a strong net result of EUR1.9 billion for the first nine months of 2024, translating into a return on tangible equity of 8.8%, surpassing their target of at least 8% for the year.
- The bank has increased its CET1 ratio to 14.8% and plans to further enhance shareholder returns with a EUR600 million share buyback starting immediately and an application for an additional EUR400 million buyback.
- Commerzbank AG (CRZBF) has improved its revenue outlook for 2027, expecting a return on equity above 12% and a cost/income ratio of 54%, driven by a positive view on revenue growth.
- The bank is expanding its offerings for ultra-high net worth individuals and family offices, opening new locations in Hamburg and Stuttgart to cater to this client segment.
- Commerzbank AG (CRZBF) has maintained a strong performance in its corporate client segment, with trade finance and FX business revenues growing despite a sluggish German economy.
Negative Points
- The bank's net interest income (NII) is expected to face challenges due to ECB rate cuts, with a projected decrease in NII for 2025 compared to 2024.
- Commerzbank AG (CRZBF) has booked collective provisions for climate and environmental risks, which contributed to a higher risk result in the third quarter.
- The bank anticipates a significant burden from FX loans in Q4, with provisions expected to be similar or slightly lower than in Q3.
- Operating expenses have increased, driven by higher HR-related costs and the acquisition of Aquila, impacting the cost/income ratio.
- There is uncertainty around the trajectory of ECB rates for 2025, which could impact the bank's financial performance, particularly in terms of NII and fair value results.
Q & A Highlights
Q: Can you explain the trajectory of net interest income (NII) into 2025, and why there is a significant drop expected in Q4?
A: Bettina Orlopp, CEO, explained that the bank is gradually adjusting its core money offerings, which keeps the deposit beta stable despite interest rate cuts. For 2025, it's crucial to consider NII and fair value together. The expected drop in Q4 is due to anticipated rate cuts and adjustments in offerings, but the overall outlook remains positive.
Q: Why was there a significant increase in Stage 2 provisions for climate risk?
A: The increase aligns with regulatory expectations to account for special risks like climate change. Commerzbank decided to book these provisions in collective staging earlier than some peers, anticipating others will follow suit in early 2025.
Q: How does Commerzbank plan to manage capital distribution given the significant capital release and excess capital?
A: Commerzbank is committed to a gradual approach to capital return, with a target of more than 90% return in the coming years. The bank is balancing capital return with growth opportunities, both organic and inorganic, and is in discussions with regulators about potential increases in capital return.
Q: What is the outlook for risk provisions in 2025, considering the current economic environment in Germany?
A: The bank expects risk provisions to remain at a similar level to 2024, as default rates normalize post-COVID. While single cases may arise, no sector-wide deterioration is expected. The economic outlook for 2025 is modest, with GDP growth projected at 0.2%.
Q: How does Commerzbank plan to achieve growth in core businesses given the muted GDP growth expectations?
A: Despite the challenging environment, Commerzbank has seen growth in the Mittelstand and private client segments. The bank expects continued growth, particularly if interest rates decrease, which could stimulate mortgage activity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
