EUR 850.00 For Business Accounts Only

Morningstar | Commerzbank Reports Full-Year 2018 Results; Growth in Loan Volumes and Low Cost of Risk Stand Out

Commerzbank reported full-year 2018 operating income excluding exceptional items of EUR 1.2 billion, up 8% compared with last year. Underlying revenue grew EUR 441 million to EUR 8.6 billion on the back of good loan growth of 9% in the private customer and 5% in the corporate client segment. Commerzbank delivered on its cost target of EUR 6.9 billion by disposing of its ECM segment. Excluding the divestment, costs stayed virtually flat as staff reductions nearly offset higher growth-related expenses. The reported cost/income ratio increased to 80% from 79% last year owed to one-offs affecting income generation figures. Cleaning for these extraordinary items, we calculate a cost/income ratio of 80% in 2018 versus 83% in 2017, painting a better picture of the progress the bank has made over the year. Nevertheless, return on equity, 3.1% for the full year 2018 versus 0.4% a year ago, displays significant headroom to our cost of equity assumption of 9%. We maintain our fair value estimate of EUR 10 per share and no-moat rating. We plan to roll our model and update our assumptions if necessary when Commerzbank publishes its annual report for 2018.

Credit risk metrics look healthy at Commerzbank. Its nonperforming loan ratio declined to 0.9% from 1.3% last year and its cost of risk dropped to 10 basis points from 18 basis points. For next year, management guides for a slightly higher cost of risk of above EUR 550 million versus EUR 446 million this year. The common equity Tier 1 ratio stood at 12.9% versus a regulatory requirement of 10.1% and Commerzbank’s target of 12.8%.