Commerzbank surpassed the European Banking Authority’s target of raising 5.3 billion euros ($6.9 billion), the biggest assigned to six German lenders, by 1.1 billion euros at the end of March, the Frankfurt-based company said today in a statement. The bank beat the EBA’s June 30 deadline by reducing risk-weighted assets, retaining profits and selling assets.
Europe’s leaders sought to restore confidence in the banking industry’s ability to withstand the region’s sovereign debt crisis by ordering lenders to boost capital. The EBA told banks in December to raise 114.7 billion euros in fresh capital to attain a core Tier 1 ratio, a measure of financial strength, of at least 9 percent of risk-weighted assets after accounting for writedowns on some European sovereign bonds.
“Fulfilling the EBA capital requirement ahead of the deadline is definitely positive,” said Christian Muschick, an analyst with Silvia Quandt Research in Frankfurt who has a neutral recommendation on the stock. “Now we have to see if the markets remain positive for that result to be sustainable.”
Commerzbank rose as much as 3.4 percent and was up 1.2 percent to 1.55 euros as of 1:40 p.m. in Frankfurt trading, bringing this year’s gain to 19 percent. The stock is the only advancer on the 53-company Bloomberg Europe Banks and Financial Services Index, which is down 2.4 percent.
First-quarter net income fell to 369 million euros from 985 million euros in the year-earlier period, Commerzbank said. That missed the 437 million-euro mean estimate of 10 analysts surveyed by Bloomberg.
“The earnings were pretty weak and fulfilled the bottom end of expectations,” said Christian Hamann, an analyst with Hamburger Sparkasse who recommends investors sell the stock. “They still have to work on lowering their risk and that will reduce earnings.”
Profit declined after the loss at Commerzbank’s ABF business, which includes its Eurohypo and shipping units, more than tripled to 425 million euros from the year earlier period.
Commerzbank will wind down Eurohypo, the lender’s public finance and real estate finance unit, to meet European Commission conditions for state aid received during the financial crisis.
More than half of Commerzbank’s first-quarter loan-loss provisions of 212 million euros were booked at its ship finance unit, Chief Financial Officer Stephan Engels said on a conference call. Ship finance provisions are expected to increase this year from 2011 and were about 110 million euros in the first quarter, Dirk Wilhelm Schuh, the bank’s chief credit risk officer, said on the call.
Commerzbank became the world’s third-largest shipping lender after acquiring Dresdner Bank AG in 2008, doubling the size of its maritime-loan portfolio just before the industry entered its biggest crisis since World War II.
The bank is targeting “a maximum of 1.7 billion euros” of loan-loss provision this year, said CFO Engels. That equates to a 22 percent increase on 2011.
Operating profit at the corporate clients unit, known as the Mittelstandsbank, rose to 487 million euros from 415 million euros a year earlier. Commerzbank is the biggest lender to German corporate clients.
Commerzbank reduced its risks related to Greece, Ireland, Italy, Portugal and Spain to 12.1 billion euros at the end of March, from 12.3 billion euros three months earlier. The lender said it wound down its Greek debt portfolio in the first quarter.
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