Commerzbank Rises as Profit Beats Estimates on Consumer Rebound

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Commerzbank CFO Engels

Commerzbank AG said profit more than doubled on higher earnings at its consumer and corporate clients divisions, beating analyst estimates. The shares rose.

Net income increased to 280 million euros ($307 million) from 100 million euros a year earlier, the Frankfurt-based company said. That beat the average of seven analyst estimates compiled by Bloomberg of a 252.9 million-euro profit.

“The trend is improving and there’s the perspective of where these businesses could go,” Michael Seufert, an analyst at Norddeutsche Landesbank in Hanover who recommends investors buy Commerzbank shares, said. “The private clients results are really a different league to what they were last year.”

Commerzbank, Germany’s second-biggest bank, is expanding lending to German consumers and companies and cutting costs to improve profitability. Bolstered by a strong German economy, the bank is putting aside less money for loan defaults, while it warned that pressure on expenses remains high.

The shares rose as much as 3.3 percent and were 2.4 percent higher at 12.07 euros as of 11:30 a.m. in Frankfurt.

The bank’s private clients division posted an operating profit of 171 million euros in the second quarter, up from 116 million euros a year earlier.

Mortgage Record

“We achieved higher income from loans on the back of our growing mortgage business,” Chief Financial Officer Stephan Engels told analysts on a conference call. In the second quarter, Commerzbank’s new mortgage business reached a record 3.5 billion euros, he said.

Operating profit at the Mittelstandsbank, its corporate banking unit, was 294 million euros in the second quarter, up from 269 million euros a year earlier. Lower loan-loss provisions helped the division in the first half of the year, the bank said.

Nonperforming loans at the bank, excluding the unit which is winding down unwanted shipping, commercial real estate, and public finance assets, fell to 1.4 percent of the total at the end of the quarter from 1.6 percent a year earlier, a record low, according to Commerzbank.

The bank’s common equity Tier 1 ratio, a key measure of financial strength, was at 10.5 percent at the end of June. The bank’s leverage ratio was 4 percent at the end of the second quarter, up from 3.7 percent in March.

Dividend Commitment

Commerzbank still plans to pay shareholders a dividend and set aside 125 million euros, or 10 cents per share, during the first half of the year for a planned payout for 2015.

Costs in 2015 will be “slightly above” 7 billion euros without accounting for the European bank levy, the bank said Monday. It was previously targeting about 7 billion euros.

“The bears might focus on costs, but this is consistent with what we’ve heard from other banks and they’re targeting an absolute cost number,” said Neil Smith, an analyst at Bankhaus Lampe in Dusseldorf, who recommends investors buy Commerzbank shares.

Operating expenses were about 1.75 billion euros in the second quarter, up from 1.73 billion euros a year earlier. The higher expenses reflected the cost of adding digital services, regulatory and compliance costs and a weaker euro.

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