FRANKFURT • There are early signs of a turnaround at Commerzbank AG.
First-quarter (1Q) net income beat estimates, provisions are dropping and the lender is resuming dividend payments. The bank, a perennial takeover target, also said it was on track to meet most of its strategic goals.
Morgan Stanley lead analyst Giulia Aurora Miotto pointed to “good delivery across the board”, and “extremely benign asset quality trends” with many key measures ahead of target.
The shares rose as much as 4.4% and were trading 3.4% higher at €10.95 (RM54.75) at 11am in Frankfurt yesterday, compared to a 0.3% rise in the Bloomberg Europe Banks and Financial Services Index.
The corporate clients unit is a central pillar in the turnaround plan of CEO Martin Zielke (picture), who is focusing on lending to corporate and retail clients while pivoting from trading. He’s spent millions on acquiring new clients, which is starting to pay off in the retail business, while lending to companies remains challenged.
The bank, which caters to many of the mid-sized companies that are the backbone of Germany’s economy, said the economic outlook had weakened recently.
Zielke still has plenty to do: Revenue fell in year-on-year terms for a fifth straight quarter at the key corporate clients division.
“The first three months of 2018 were challenging for the corporate clients segment, with persistently low interest rates, stiff price competition on the German market and the regulatory environment impacting on earnings,” the bank said in its interim report.
Another part of the CEO’s turnaround strategy is the proposed sale of the bank’s Equity Markets and Commodities division, which also houses its exchange-traded funds business.
The bank said yesterday that talks to sell the unit had entered a “decisive phase” and that a sale in the near term “cannot be ruled out”, without identifying potential buyers.
CFO Stephan Engels said on a conference call that the deal is likely to be structured as a portfolio sale, rather than the sale of a legal entity that would affect capital and tax calculations.
Overall revenue declined 3.7% to €2.3 billion, compared to the €2.27 billion estimate of six analysts polled by Bloomberg. Commerzbank has said 2018 will probably be a third straight year of contraction.
Net income of €250 million in the 1Q beat the €178 million analyst estimate, helped by a lower tax burden and risk provisioning.
Commerzbank has fallen about 12% this year as the prospect of another year of declining revenue weighs on the stock. The bank, seen by some investors as a proxy for the booming German economy, was one of the top-performing bank stocks in Europe last year amid speculation that it may be acquired.
Much of the decline in revenue since Zielke announced his plan in 2016 was focused on the corporate clients segment, headed by Michael Reuther. The business added about 1,000 net new clients during the quarter. The retail unit added 73,000 customers in Germany in the 1Q, accelerating the pace of client acquisition to the fastest rate since the 2Q of last year. Zielke plans to add a total of two million new customers by the end of 2020.
Commerzbank reiterated that it expects adjusted revenue in both units to increase this year.