Commerzbank profit drops; shares tumble as 2024 forecasts disappoint

By Tom Sims and Marta Orosz

FRANKFURT (Reuters) -Germany's Commerzbank said on Wednesday its net profit fell by 52% in the third quarter in a better-than-expected outcome helped by higher interest rates, though previously flagged problems at a Polish unit weighed.

Germany's No. 2 bank also maintained its full-year profit outlook, even as its home market faces soaring inflation and a slowing economy, while spelling out a grim scenario if the counry resorts to rationing gas in its current energy crisis.

But shares fell more than 7% after the bank said its 2024 costs would be higher than anticipated, with revenue and operating profit for that year missing analysts' current forecasts.

The quarterly profit, while down from last year, is still a healthy sign for the lender, which is engaged in a 2-billion-euro ($2.01-billion) restructuring programme that has closed hundreds of branches and cut 10,000 jobs.

"We have made great progress in the execution of our strategy ... and are well on track to achieving our targets," said Chief Executive Manfred Knof.

Net profit of 195 million euros in the quarter compares with a profit of 403 million a year earlier. Analysts had expected profit of 116 million euros on average in a consensus forecast published by the bank.

Some of Europe's largest banks have warned of growing risks as the economy fizzles after posting stronger-than-expected profits for the third quarter, and executives at Commerzbank have said they foresee a difficult fourth quarter.

The bank nevertheless kept its full-year outlook for a net profit of more than 1 billion euros, helped by an increase in net interest income, even though prospects for commission income are less rosy, because of turbulence in financial markets.

The biggest quarterly drag came from neighbouring Poland and its mBank unit. In July, Commerzbank said it would be affected by a Polish law that lets mortgage borrowers skip monthly repayments up to eight times through the end of 2023.

In September, it flagged that it would take a hit after the unit booked additional provisions for its Swiss franc loans. The two issues amounted to a burden of about 750 million euros in the quarter.

Commerzbank, which focuses on the medium-sized firms known as Mittelstand that form the backbone of the economy, is a barometer of Germany's health.

In a scenario presented to analysts, Commerzbank said it would potentially need to book an additional provision of up to 600 million euros if Germany rations gas, as corporate clients would faces shortages that affect production.

Any potential provision would be distributed among all its business segments and clients, it said.

Looking ahead to 2024, the bank said it now expects operating profit of 3.2 billion euros, below analysts' expectations.

In a note, Deutsche Bank analysts said the forecast was "below consensus" and asked, "How conservative is the 2024 guidance?"

($1=0.9933 euros)

(Reporting by Tom Sims and Marta Orosz; Editing by Jan Harvey and Clarence Fernandez)