DGAP-News: Commerzbank Aktiengesellschaft / Key word(s): Annual Results
- Operating profit of EUR1.2bn (2017: EUR1.1bn) and of EUR240m for Q4 (Q4 2017: EUR122m)
- Underlying revenues for 2018 up 5% at EUR8.6bn (2017: EUR8.2bn) - net interest income benefits from growth initiatives
- Operating expenses of EUR6.88bn despite investments in digitalisation and growth (2017: EUR6.83bn) - on track to meet cost target of EUR6.5bn
- Number of net new customers reaches one million mark: in 2018 alone, nearly 420,000 net new customers in German retail banking, while Corporate Clients registers a gain of 3,500 clients in 2018
- Scope for growth successfully utilised in lending business - Common Equity Tier 1 ratio of 12.9% by end of 2018
- Board of Managing Directors proposes dividend of 20 cents per share for financial year 2018
- Outlook for 2019: higher underlying revenues than 2018 and cost base of below EUR6.8bn
"Our strategy is right and is working. We are growing in terms of customers, lending volume and underlying revenues. We are making progress and this shows in our ability to pay a dividend", said Martin Zielke, Chairman of the Board of Managing Directors of Commerzbank. "But it has also become clear during the first half of Commerzbank 4.0 that, given the challenging environment, we need to move even faster. That is why we are revamping our head office and interlinking the IT with our product areas. This will help us drive digitalisation forward and bring our offering to the market even quicker and more efficiently."
Group revenues stood at EUR8,570 million for 2018 (2017: EUR8,764 million). The Bank increased its underlying revenues by a total of EUR441 million to EUR8,648 million in 2018 (2017: EUR8,208 million). This shows the quality of revenues has been substantially improved. In 2017, revenues were boosted by exceptional items and valuation effects of EUR557 million, whereas in 2018, these effects amounted to minus EUR78 million. This revenue swing was largely compensated for by the growth in the segments' operating business. The growth initiatives led to a marked improvement in net interest income. In the fourth quarter of 2018, the Bank increased its underlying revenues slightly quarter-on-quarter to EUR2,151 million (Q3 2018: EUR2,122 million).
Operating expenses were in line with expectations in 2018. They amounted to EUR6,879 million (2017: EUR6,834 million). The slight increase on the previous year was due to ongoing strategic investments in digitalisation and technology. Also, costs arising from regulatory charges and compulsory levies continued to increase in 2018, reaching EUR420 million. The Bank managed to counteract these developments by means of strict cost management. Costs were down in the fourth quarter, at EUR1,641 million (Q4 2017: EUR1,731 million).
The risk result, at minus EUR446 million in 2018, remained at a low level. The Bank benefitted from the high quality of its loan books in its core segments and from the steady German economy as well as from write-backs of provisions for loan defaults in the first half of the year. The risk result for the fourth quarter stood at minus EUR154 million, compared with minus EUR133 million for the third quarter. The already very low non-performing loan (NPL) ratio improved again in 2018 to 0.9% (2017: 1.3%). This reflects the Bank's high portfolio quality and its unchanged prudent lending standards.
The operating profit for 2018, at EUR1,245 million, was EUR97 million higher than the previous year's figure (2017: EUR1,149 million). EUR240 million was generated in the fourth quarter, compared to EUR122 million in the fourth quarter of 2017. The pre-tax profit for 2018, including the discontinued operations, came to EUR1,230 million (2017: EUR459 million). So after deduction of taxes of EUR262 million and minority interests of EUR103 million, Commerzbank posted a net result attributable to Commerzbank shareholders of EUR865 million for 2018 (2017: EUR128 million). In the fourth quarter, it was higher year-on-year, despite a higher tax rate, at EUR113 million (Q4 2017: EUR75 million).
Common Equity Tier 1 ratio at 12.9% - healthy risk profile
"Our clean balance sheet gives us scope for growth. We are using it successfully. This is reflected in the improved net interest income, higher underlying revenues and in the Common Equity Tier 1 ratio of 12.9%", commented Stephan Engels, Chief Financial Officer of Commerzbank. "We kept our operating expenses below EUR6.9 billion despite high investments. This means we are on track to meet our cost target of EUR6.5 billion in 2020."
Performance of the segments
On the back of this growth, PSBC generated revenues of EUR4,803 million in 2018 (2017: EUR4,823 million). The previous year, non-recurring effects from the sale of the Concardis holdings and the termination of the consumer finance joint venture with BNP Paribas had a positive impact. Underlying Revenues rose by EUR234 million or 5% on the year to EUR4,847 million in 2018, helped by the fact that net interest income increased again in the fourth quarter, compared to the third quarter, as a result of the growth initiatives. In the fourth quarter, underlying revenues for the PSBC segment totalled EUR1,185 million (Q3 2018: EUR1,226 million; Q4 2017: EUR1,216 million). The decline versus the third quarter and the previous year can be attributed to a lower net fair value result and to the weak equity markets, which weighed on securities business in particular.
PSBC's operating expenses remained almost unchanged at EUR3,835 million in 2018 (2017: EUR3,811 million) despite higher regulatory costs and investments in growth. The risk result came out at minus EUR233 million for this, the first year in which the consumer finance business was entirely on Commerzbank's balance sheet. In total, the segment generated an operating profit of EUR735 million (2017: EUR858 million), including EUR172 million in the fourth quarter (Q3 2018: EUR186 million; Q4 2017: EUR147 million).
The Corporate Clients segment continued on its growth trend. In 2018, the segment gained a net 3,500 new customers, making a total of around 8,900 since the beginning of 2016. The lending volume rose by EUR4 billion to EUR82 billion in 2018 despite competitive pressure. Especially in the challenging market environment during the fourth quarter, Corporate Clients could prove the resilience of its customer-focussed business model.
In Corporate Clients, revenues amounted to EUR3,451 million in 2018 (2017: EUR3,613 million), while underlying revenues totalled EUR3,495 million (2017: EUR3,584 million). Stiff price competition and lower demand for capital market products had an impact here. Net interest income however increased, also in the fourth quarter. Main drivers were International Corporates and the Mittelstandsbank. Financial Institutions continued its positive trend and increased revenues by 3,5% year-on-year. The Mittelstandsbank managed to offset the margin pressure in its lending business through volume growth. In the fourth quarter, the segment's net interest income rose again slightly quarter-on-quarter by EUR20 million to EUR486 million, as a result of growth. This took underlying revenues to EUR857 million in the fourth quarter (Q3 2018: EUR850 million; Q4 2017: EUR896 million).
Strict cost management enabled operating expenses to be reduced in 2018, despite strategic investments, to EUR2,628 million (2017: EUR2,642 million). The cost of risk remained low and benefitted from write-backs in the first half of 2018. Therefore, the risk result was low at minus EUR194 million. In total, the operating profit for 2018 came in at EUR629 million despite the revamping and continued strong pressure on margins (2017: EUR676 million). The fourth quarter accounted for EUR122 million of this (Q3 2018: EUR184 million; Q4 2017: EUR34 million).
* Since 1 January 2018, Commerzbank has applied the accounting standard IFRS 9. This has resulted in changes in accounting policies. In accordance with the transitional rules of IFRS 9, the comparative figures were not adjusted.
2018 figures published in this press release are preliminary and unaudited.
From approximately 7 am onwards you can find broadcast-ready video material with statements by Martin Zielke and Stephan Engels at http://mediathek.commerzbank.de/.
The press conference will be broadcast live on the internet.
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