Commerzbank Profit Misses Estimates on Lower Revenue
Net income was 200 million euros ($279 million) compared with a 98 million-euro loss a year earlier, when the bank booked a charge for restructuring, according to a statement on its website today. The average of eight analyst estimates compiled by Bloomberg was for a 227.1 million-euro profit.
“A mixed set of numbers, but disappointing in quality, given the revenue miss,” Citigroup analysts including Andrew Coombs and Nicholas Herman said in an e-mailed report.
Chief Executive Officer Martin Blessing is investing in lending to German consumers and companies while winding down soured shipping and real estate loans. Commerzbank’s finances face added scrutiny as the European Central Bank reviews the assets of the euro area’s biggest banks and conducts stress tests before taking over as their supervisor in November.
Net interest income, or revenue from loans minus payments on deposits, fell to 1.13 billion euros in the first quarter from 1.36 billion euros a year earlier.
Commerzbank’s shares dropped as much as 4.2 percent in Frankfurt trading to the lowest level since March 14. They fell 3.3 percent to 12.19 euros at 9:31 a.m., valuing the company at 13.9 billion euros. The stock has more than doubled in value since reaching a record intraday low on July 4 last year of 5.56 euros, after the bank carried out a fifth capital increase in four years last May.
Operating profit was 324 million euros, falling from 464 million euros in the first quarter of last year. That beat the 314 million-euro average estimate of eight analysts.
“Commerzbank’s revenue is under pressure but the lack of restructuring charges boosted profit this quarter,” Ronny Rehn, an analyst with Keefe, Bruyette & Woods who has a market perform recommendation on the stock, said by phone from London. “They’re still a massive restructuring case and the real focus is on their balance sheet and capital.”
The company posted a loss in the first quarter of 2013 after taking a 493 million-euro charge for restructuring such as shedding employees. The bank is targeting 5,200 job reductions by 2016, it said in June last year.
The non-core assets unit, where Commerzbank bundled public and commercial real estate and ship financing as part of a government rescue in 2009, had an operating loss of 172 million euros compared with a loss of 86 million euros in the first quarter of 2013.
The company is selling off or winding down the assets, which include shipping and commercial real estate loans and sovereign and municipal debt, to comply with the conditions of the 18.2 billion-euro bailout.
In February, Commerzbank said it plans to shrink the assets faster than expected, to about 75 billion euros by the end of 2016 after previously targeting less than 90 billion euros.
The size of the unit was reduced to 102 billion euros in the first quarter from 116 billion euros at the end of last year, Commerzbank said today.
The reduction included 9 billion euros of public finance assets, debt which will mostly mature before 2016, the bank said. The securities and bonds were “largely made up of high-grade securities,” Blessing said in the statement.
“The environment - low interest rates and an investor appetite for yield - is great for reducing assets,” Christian Hamann, an analyst at Hamburger Sparkasse with a hold recommendation on Commerzbank stock, said by telephone before the earnings were published. “They’re making relatively good progress on their asset reduction goals.”
Provisions for risky loans decreased to 238 million euros from 267 million euros a year earlier. The provisions will be lower in 2014 than last year, Commerzbank said in the statement.
The core Tier 1 capital adequacy ratio was 9 percent, unchanged from the end of 2013. While Commerzbank doesn’t see “linear development” of the ratio, a goal of increasing it to more than 10 percent by 2016 remains unchanged, it said.
To contact the reporter on this story: Shane Strowmatt in Frankfurt at firstname.lastname@example.org
To contact the editors responsible for this story: Frank Connelly at email@example.com Mark Bentley