BCN-36, 37 Slower profit growth no spur to Commerzbank-Deutsche merger

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Slower profit growth no spur to Commerzbank-Deutsche merger

FRANKFURT AM MAIN, Feb 14, 2019 (BSS/AFP) – Germany’s second-biggest lender
Commerzbank said Thursday its profits jumped in 2018, with growth in its
client base and ebbing restructuring costs opening the way for a first
dividend payout in two years.

Now halfway through a four-year cost-cutting programme launched in late
2016, the group nevertheless had to trim a key profitability objective and
fend off questions about pressure from Berlin for it to merge with larger
rival Deutsche Bank.

Net profit at Commerzbank was seven times larger than in 2017, at 865
million euros — slightly short of forecasts from analysts surveyed by
Factset.

The fatter bottom line only lifted its return on capital employed (ROCE) —
a key measure of banks’ profitability — from 0.6 percent in 2017 to 3.1
percent last year, well short of its 2020 target of above six percent.

That goal would have to be revised down to “between five and six percent,”
finance director Stephan Engels acknowledged at a Frankfurt press conference.

Commerzbank had bet on interest rates rising in the 19-nation eurozone once
the European Central Bank ended crisis-fighting stimulus measures.

“That hasn’t happened” as policymakers plan to keep rates at historic lows
at least until late 2019, meaning “the pressure on profit margins has further
increased,” chief executive Martin Zielke said.

On the operational level, Commerzbank was able to lift underlying profits
eight percent in 2018 to 1.2 billion euros, although revenues fell two
percent, to 8.6 billion euros.

– A very German wedding? –

The lender with the yellow triangle logo presented its results weeks after
a new round of speculation over whether it could merge with Deutsche Bank,
the floundering giant whose twin skyscrapers confront Commerzbank’s HQ in
central Frankfurt.

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After reports the German government is keen to create a new national banking
champion with greater weight on the international stage, speculation was
“understandable”, Zielke said.

But the executive said he “would not take part” in the what-if scenarios,
insisting on his bank’s “working business model” and pointing to fourth-
quarter operating profits double their level a year before at 240 million
euros.

For now, Commerzbank says it is hard at work digitising its operations and
roping in new clients, adding 417,000 retail and small-business customers and
3,500 in its corporate bank.

Executives hope the larger client base will make for higher revenues once
interest rates rise.

Meanwhile the bank kept its costs stable at 6.9 billion euros, as 9,500
jobs were slashed over 2018.

Looking ahead, the group aims to increase revenues three percent per year,
while costs should fall slightly in 2019 and to 6.5 billion euros by 2020.

Staff headcount is set to decline from 41,500 at the end of last year to
38,000 people by late 2020.

Commerzbank plans to pay out a dividend of 20 cents per share for 2018
after a two-year freeze — with a major beneficiary the German state, which
still owns a 15.6-percent stake dating back to a crisis-era rescue.

The lender added that it also plans a dividend payout for this year.

And the bank reported a capital ratio — a key measure of resilience to
economic shocks — of 12.9 percent, down from 14.1 percent in 2017 but still
higher than required by ECB supervisors.

Investors welcomed Commerzbank’s results, with the shares gaining four
percent to trade at 6.48 euros around 1:15 pm in Frankfurt (1215 GMT).

BSS/AFP/SR/1935 HRS