Commerzbank Sees Flat Profit This Year, May Float EMC Unit

  • Operating income to decline this year, costs remain stable
  • ‘We expect the environment to remain very challenging’

Commerzbank AG said it expects earnings this year to be little changed as it implements a strategic revamp that may include the initial public offering of a business that provides exchange-traded funds.

Operating income for the bank is expected to decline as one-off gains won’t be repeated, while costs should remain stable, the Frankfurt-based bank said in its annual report on Thursday.

“We expect the environment to remain very challenging in the current financial year and do not anticipate any significant relief from the interest rate environment,” Commerzbank said.

Chief Executive Officer Martin Zielke, responding to low interest rates and stricter regulation, in September announced plans to cut 9,600 jobs, suspend dividends and shrink securities trading in the biggest overhaul since the lender’s bailout in the financial crisis. A retail banker by training, he is focusing the bank on its consumer and corporate clients and has vowed to expand they base of retail customers by 2 million over the next four years.

As part of the overhaul, the bank has said it wants to segregate parts of its Equity Markets & Commodities division. Commerzbank said today it plans to spin off the business that includes investment and financial products as well as the associated market-making, and “float the new subsidiary on the stock market,” according to the English version of the report.

Shares Rise

Chief Financial Officer Stephan Engels said in February that the bank was seeking to bring the unit “to market,” without detailing the preferred avenue for the sale. The German version of the annual report repeated that phrase on Thursday.

Commerzbank rose 1 percent to 8.43 euros at 4 p.m. in Frankfurt, bringing gains this year to 16 percent.

Profit plunged 74 percent to 279 million euros ($301 million) in 2016 as the euro area’s negative interest rates ate into margins and loan loss provisions for the bank’s portfolio of shipping loans soared, it reported in February. Operating income was boosted by, among other things, the sale of assets and valuation gains on bonds, which won’t be repeated this year.

“The outlook suggests that the current year will be pretty much a repeat of the last one in terms of revenue and costs -- unless the ECB’s interest rates rise, which could give a significant boost to Commerzbank” said Daniel Regli, an analyst with MainFirst who has a buy recommendation on the stock.

Commerzbank has estimated that a 1 percentage point increase in interest rates would add as much as 550 million euros to its annual revenue in the first year, and almost twice that much four years out. Negative rates cut net interest income at Commerzbank’s two biggest units by 277 million euros last year.

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