DCommerzbank achieved the best result in its company history in 2023. The bank, founded 154 years ago in Hamburg for merchants, earned 2.2 billion euros after taxes in 2023. Thanks to a profit in the fourth quarter of 395 (previous year’s quarter: 472) million euros, this is exactly as much as analysts had expected and 55 percent more than in the previous year.
Commerzbank is promising another higher profit for 2024. “The 2023 financial year went extremely well for Commerzbank,” said CEO Manfred Knof in a press release on Thursday morning. In both customer segments, private and corporate customers, Commerzbank also “started the new year very strongly” in 2024.
Commerzbank shares reacted positively to the outlook and business figures on Thursday morning and initially rose by 1.7 percent to 10.60 euros. The analysts at Deutsche Bank spoke of “solid” figures, the analysts at Royal Bank of Canada of “reassuring” figures.
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Commerzbank’s previous record profit came in 2007, when it earned 1.9 billion euros. A short time later, the financial crisis broke out, Commerzbank bought the similarly sized Dresdner Bank and had to be supported with 18.2 billion euros in state money in the winter of 2008/2009 due to high loan defaults and refinancing difficulties.
Provisions for problem loans are declining
For many years, the credit institution, which has since been partially nationalized, was repeatedly set back in its restructuring. Things are only looking up under Manfred Knof, CEO, who has been in office since the beginning of 2021. A year ago, the company returned to the DAX. The bank not only has its costs and risks under control, but also increased its income by 10.6 percent in 2023.
Happy day: Commerzbank boss Manfred Knof rings the stock exchange bell on the occasion of the DAX return.
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Image: Lucas Bäuml
Provisions for loans at risk of default fell from 876 million euros in 2022 to 618 million euros in 2023, despite the economic weakness and falling real estate prices. Commerzbank is only indirectly affected by the insolvency of the Austrian Signa Group through its subsidiary Commerz Real, which is a minority shareholder in the Elbtower project company. Commerzbank puts the proportion of problematic loans in the total loan portfolio at 0.8 percent. In 2023 she had to spend 61 cents to generate one euro of income. In 2022, this cost-income ratio was a worse 69 percent.
However, Commerzbank still has weak returns compared to competitors. The private customer division, which includes the Polish M-Bank and Commerz Real, suffered a decline in profits from 1.1 to 0.9 billion euros in 2023 due to the provisions on Swiss franc loans from the Polish subsidiary M-Bank. In the fourth quarter, M-Bank operated at a loss; for the year as a whole, despite “massive special charges” of 1.1 billion euros, according to Commerzbank, it contributed 146 million euros to the profit.
Pre-tax profit is slightly below that of ING Germany
The corporate customer division doubled its profit contribution to 2.1 billion euros. Overall, the Commerzbank Group has a pre-tax profit of 3.4 (2022: 2.0) billion euros. For comparison: The national competitors Deutsche Bank, ING Deutschland and Hypo-Vereinsbank reported pre-tax profits of 5.7 billion, 2.5 billion and 1.7 billion euros.
But after years of shrinkage, the Commerzbank board of directors set the levers for growth and more returns in November 2023. Since then, a target of more than 11 percent return on equity has been in effect for 2027. In 2023, this key figure for profit in relation to equity capital employed rose from 4.9 to 7.7 percent. The return on equity should continue to rise, also by Commerzbank buying its own shares, then destroying them and using lower capital.
The federal government’s share increases
Through an initial share buyback program, the federal government’s shareholding, which cost it a good 5 billion euros, increased from 15.6 to 15.75 percent. The federal government’s share will automatically increase further if Commerzbank buys back more of its own shares as announced and the federal government keeps its shares. Dividends should also increase. In May 2024, Commerzbank wants to pay 35 cents per share, up from 20 cents per share in the previous year, only the third profit distribution since joining the state in 2008.
The European Banking Supervision of the ECB, whose head Claudia Buch has just called for higher capital buffers in view of increasing risks, can hardly argue against Commerzbank’s distributions. Your core capital ratio, which compares the highest quality equity capital against the risks, rose from 14.1 to 14.7 percent in 2023.
Commerzbank has benefited like no other bank from the sharp rise in interest rates in the euro area and Poland since summer 2022. Since it has more deposits from savers than it grants in loans, it invests part of the deposit surplus with the European Central Bank (ECB). In recent years, commercial banks have had to pay a fee (“negative interest”) for this, but the ECB is now charging interest on deposits again. In addition, Commerzbank pays its savings customers significantly less interest than it takes from credit customers. This interest margin and the ECB interest rates resulted in a net interest income of 8.4 billion euros in 2023, an increase of a whopping 30 percent compared to the previous year. For 2024, Commerzbank expects a slightly lower net interest income of 7.9 billion euros.
In the future, however, the second source of income should bubble up more strongly, the net commission income. In order to generate more fees, Commerzbank wants to expand its financial investment business. The asset manager Aquila was recently acquired for this purpose. In 2023, net commission income fell by 3.4 percent to 3.8 billion euros, one of the few weak points in the balance sheet of the record year 2023 alongside M-Bank.
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