EUR 850.00 For Business Accounts Only

Morningstar | Commerzbank Reports Good 1H 2018 Results; Shares Fairly Valued

No-moat Commerzbank reported good first-half 2018 results as the group is working through its restructuring plan. Consolidated profit came in at EUR 533 million versus negative EUR 414 million last year as the result of lower interest expenses and no restructuring costs that hurt results a year ago. Net interest income increased 7.5% to EUR 2.2 billion, slightly ahead of our forecast of EUR 4 billion for the full year, primarily thanks to good credit volume growth and positive consumer lending contributions. On the cost side, Commerzbank is behind our expectations for 2018. We anticipate a cost/income ratio of 75% for the full year, while the ratio stood at 81.3% for the first half of year. Operating costs came in EUR 101 million compared with last year, which was largely owed to investments into digitalization and growth more than offsetting lower personnel expenses as a result of head count reductions. Returns on equity remain underwhelming. For this period, ROE came in at 4.3%, which is above our midcycle forecast of 3.5% but far below our cost of equity assumption of 9%. The common-equity tier 1 ratio stands at 13%.

In the second quarter, Commerzbank came to an agreement with Societe Generale to sell its structured trading and investment products business as well as its ETF market making arm as part of its restructuring efforts. Commerzbank expects EUR 200 million in cost reductions by 2020 as a result of this deal. We plan to integrate first-half results and the divestment into our analysis but do not expect a material change to our fair value estimate of EUR 10 per share. Our no-moat and stable moat trend ratings remain unchanged.