Commerzbank Most Favored by Analysts Since Dresdner Takeover

Commerzbank Most Recommended by Analysts
The Commerzbank AG headquarters are seen in Frankfurt, Germany. Photographer: Hannelore Foerster/Bloomberg

Analysts are the most bullish on Commerzbank AG since 2008 after the country’s second-biggest lender raised 11 billion euros ($16 billion) as part of its plan to repay government aid.

Commerzbank, the worst performer in Germany’s DAX Index this year, had 14 “buy” recommendations as of today, twice the number of “sells,” according to data compiled by Bloomberg. Of the 31 analyst ratings, 10 were neutral. The consensus recommendation was at the highest since August 2008, when Commerzbank agreed to buy unprofitable Dresdner Bank -- two weeks before the collapse of Lehman Brothers Holdings Inc.

The German lender received more than 18 billion euros from the country’s Soffin bank-rescue fund amid the takeover. Led by Chief Executive Officer Martin Blessing, Commerzbank is repaying about 14.3 billion euros of the aid after raising money through a share sale and by using excess capital. Soffin maintained a stake of 25 percent plus one share in the company.

“Having successfully completed its 11 billion-euro capital increase and repaid most of the state capital, we expect investors to refocus on Commerzbank’s fundamentals,” Philipp Haessler, an analyst at Equinet in Frankfurt, wrote in a note June 6. “Driven by declining risk provisions and costs we forecast positive earnings development in coming quarters.”

Raising Recommendations

Haessler raised his recommendation to “buy” and has a price estimate of 4.40 euros on the shares, more than the average forecast of 3.95 euros, according to data compiled by Bloomberg. Commerzbank has dropped 29 percent to 3.16 euros in Frankfurt trading this year, compared with a 2.1 percent gain in the DAX Index.

AlphaValue, Silvia Quandt & Cie. AG and WestLB AG were among brokerages upgrading Commerzbank shares this month. ING Groep NV raised its recommendation on the lender to “buy” from “hold” in a note dated yesterday.

The stock is trading at about three times the company’s reported earnings, compared with a ratio of 10.3 for the Stoxx Europe 600 Banks Index. Commerzbank said last month that first-quarter net income attributable to shareholders climbed 39 percent to a quarterly record of 985 million euros as it set aside less money to cover risky loans.

Still, along with other European lenders, Commerzbank also faces concern over its capital strength amid the region’s sovereign-debt crisis. Data from the Bank for International Settlements this month showed German banks were the biggest foreign owners of Greek government bonds with $22.7 billion in holdings last year.

Sovereign-Debt Holdings

Commerzbank owns 3 billion euros of Greek sovereign debt, according to an April 20 research note by Goldman Sachs Group Inc. The lender would be able to absorb any “stress” related to its sovereign-debt holdings, such as a debt restructuring, Commerzbank Chief Financial Officer Eric Strutz said May 6.

The bank’s core Tier 1 ratio, a measure of financial strength, was 9.7 percent at the end of March when including a one-off payment to Soffin, transaction costs for the capital measures as well as first-quarter earnings.

“The capital base has been fixed and the capitalization ratio is now in line with the sector,” Amsterdam-based ING analysts, including Albert Ploegh, wrote in a report. “We expect the focus to return to the core operations now benefitting from the tailwinds of the German economy.”

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