Morningstar | Commerzbank's 1Q Results Bring No Surprises
With merger talks between Deutsche Bank and Commerzbank off the table for the next couple of years, Commerzbank find itself back in day-to-day operations trying to pull itself up by its bootstraps. First-quarter results brought no surprises, and we maintain our EUR 10 fair value estimate and no-moat rating. Cost targets are on track; however, we believe the larger task in the bank's quest for profitability lies in its ability to increase revenue.Pretax profits for the first quarter came in 25% lower at EUR 225 million as a result of lower income as well as higher compulsory contributions compared with the same period a year prior. Excluding exceptional items and valuation effects, underlying revenue declined to EUR 2,190 million from EUR 2,216 million, although net interest income generation was good. In the private and small-business customer segment, higher volume in residential mortgage loans more than offset continued margin pressure (NII up 8%), while higher income from the lending and capital markets business resulted in higher NII contributions from the corporate client segment (NII up 12%). The good performance in NII was offset by lower commission income, net fair value contributions, and other income, however. Compulsory contributions include the European banking levy (EUR 204 million), contributions to the deposit protection fund (EUR 36 million), and the Polish bank tax (EUR 25 million). Because bank levies are mostly booked in the first quarter, these charges will form less of a headwind in the remaining quarters this year. Total operating expenses were down nearly 3%, bringing Commerzbank en route to its cost target of EUR 6.8 billion.
Commerzbank operates through five segments: Private Customers, which comprises the Private Customers, Direct Banking and Commerz Real divisions; Mittelstandsbank, which include the Mittelstand Germany, Corporate Banking & International and Financial Institutions divisions; Central and Eastern Europe, which consists of the universal and regional banking and direct banking activities; Corporates and Markets, which consists the Equity Markets & Commodities, Fixed Income & Currencies, Corporate Finance and Credit Portfolio Management divisions; as well as Non-Core Assets, which includes the operations of CRE Banking Germany, CRE Banking International, Public Finance and Deutsche Schiffsbank.
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