Commerzbank Sees Profit as CEO Zielke's Turnaround Gathers Pace

Updated on
  • Bank says it may accelerate disposal of soured shipping loans
  • Stock is second-best performer among European lenders in 2017
Commerzbank CFO Stephan Engels discusses full-year guidance following the release of third-quarter results.

Martin Zielke’s turnaround plan is gathering pace.

On Thursday, Commerzbank AG said it may post a profit of about 100 million euros ($116 million) for the full year and plans to complete a disposal of soured shipping loans well before a 2020 deadline set by Chief Executive Officer Zielke last year. The bank is already ahead of target in new client acquisitions, and has booked all charges for some 7,300 job cuts planned over four years.

“We have made good progress in laying foundations for our transformation this year,” Zielke said in a statement. “In the interest of sustainable long-term profitability, we are focusing on growth.”

Commerzbank is among the best performing European bank stocks this year as investors wager that the turnaround plan could get an additional boost once interest rates start to rise. Zielke is refocusing the bank on in its two core segments, the retail and the corporate clients divisions, and aims to add 2 million new customers by 2020.

The shares rose 3.5 percent to 12.14 euros at 10:19 a.m. in Frankfurt. Before today, Commerzbank had gained 62 percent this year, second-best among the 44 members in the Bloomberg Europe 500 Banks and Financial Services Index.

‘Valid Assumption’

The prospect of an “accelerated exit from ship finance should support the share price near term,” said Neil Smith, an analyst with Bankhaus Lampe with a buy recommendation on the stock.

Chief Financial Officer Stephan Engels told analysts on a conference call that a profit of about 100 million euros for the full year would be a “valid assumption.” The company previously predicted a “slightly positive” result, without giving a number.

Net income for the third quarter of 472 million euros missed the 479 million-euro estimate of eight analysts in a Bloomberg survey. Revenue declined 8.9 percent in the third quarter, to 2 billion euros, when adjusting for 502 million euros of one-time effects that were previously announced.

While the bank has reached many of its targets faster than expected, it’s been slow to translate customer growth into higher revenue as ultra-low interest rates continue to erode margins. It has also been reducing or cutting business lines that weighed on the lender after the financial crisis.

‘Seasonally Slower’

Commerzbank said it added 65,000 new clients in its German consumer banking unit in the “seasonally slower” third quarter, bringing the total to 587,000 since Zielke announced his strategy last year. Yet it made less money from those clients than a year ago, with revenue from private customers declining 7.3 percent, reflecting the cost of client acquisitions and “price competition.” The corporate clients segment showed a similar development, with revenue dropping 13 percent.

The company’s shares have been helped by takeover speculation, with rivals including BNP Paribas SA and UniCredit SpA expressing interest in the lender to the German government, people familiar with the matter have said. Berlin, which bailed out Commerzbank in 2009, still owns more than 15 percent in the bank.

Commerzbank’s common equity Tier 1 ratio, a measure of capital strength, rose to 13.5 percent from 13 percent three months earlier, as the bank sold off risky assets and benefited from one-off gains. Engels said the bank is considering accelerating the run-down of that portfolio and will finish it well before 2020.

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE