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Commerzbank shares slump on outlook, despite 20% profit rise
Global Banking & Finance Review®
Company
By Tom Sims and Frank Siebelt
FRANKFURT (Reuters) -Commerzbank’s shares sank 5% on Friday, despite a big jump in net profit in the second quarter, after the German lender raised its cost outlook and cut its commission income forecast.
The less rosy outlook for net commission income and the raised cost expectations due to higher employee compensation were in line with what analysts had been expecting.
But analysts at KBW said they were disappointed about a lack of detail on plans for Commerbank’s share buyback.
The bank announced plans for a further buyback that it hoped to conclude well ahead of next year’s annual shareholder meeting, saying it had applied for regulatory approval.
Shares in Commerzbank, one of Germany’s best-known lenders that is partially owned by the government after a bailout more than a decade ago, widened their losses during morning trade and were the biggest loser on Germany’s benchmark DAX index.
The fall came despite Commerzbank’s net profit rising a better-than-expected 20%, aided by higher interest rates but held back by previously flagged problems in Poland.
Commerzbank raised its outlook for full-year net interest income to 7.8 billion euros ($8.54 billion) from previous expectations of some 7 billion euros, above expectations.
The bank is in the middle of a major overhaul, slashing its workforce and branch network to restore profits.
Like many banks, it is benefiting from a rise in interest rates and the income that generates, which was up 44% in the quarter from a year earlier.
Net profit of 565 million euros in the quarter compared with a profit of 470 million euros a year earlier. Analysts had on average forecast profit of 538 million euros, according to a consensus published by Commerzbank.
Analysts with Deutsche Bank called the results “solid”.
The bank increased the provisions it sets aside for bad loans and related writedowns to 208 million euros, up from 106 million euros, but it said credit quality remained high.
It took a 347 million euro hit in the quarter from a provision it announced in June following a court ruling on how banks treat Swiss franc loans in Poland, where it has extensive operations with its mBank unit.
Commerzbank said that it now expects costs of 6.4 billion euros this year, up from earlier expectations of 6.3 billion.
($1 = 0.9132 euros)
(Reporting by Tom Sims and Frank Siebelt; additional reporting by Tristan Veyet; Editing by Miranda Murray, Friederike Heine and Alexander Smith)
Net profit is the amount of money a company retains after all expenses, taxes, and costs have been deducted from total revenue. It is a key indicator of a company's profitability.
Commission income is revenue earned by a company or individual for facilitating a transaction or service, typically calculated as a percentage of the total transaction value.
Provisions for bad loans are funds set aside by banks to cover potential losses from loans that may not be repaid. This helps maintain financial stability and manage risk.
A share buyback occurs when a company repurchases its own shares from the marketplace, reducing the number of outstanding shares and often increasing the value of remaining shares.
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