Commerzbank AG (CRZBY)

[Enterprising Investor]

Commerzbank Second-Quarter Profit Rises as Bad Assets Cut (8/07/14)

By Shane Strowmatt

Commerzbank AG (CBK), Germany’s second-biggest bank, said second-quarter profit more than doubled as the bank shed unwanted assets.

Net income rose to 100 million euros ($134 million) from 40 million euros a year earlier, the Frankfurt-based company said in a statement today. The average of 12 analyst estimates compiled by Bloomberg was for a 127 million-euro profit.

Commerzbank is expanding lending to German consumers and companies while winding down soured shipping and real estate assets as part of an 18.2 billion-euro bailout. Commerzbank’s finances are under scrutiny by the European Central Bank which is reviewing balance sheets of the region’s biggest banks and conducting stress tests before taking over as their supervisor in November.

“They’ve made progress on the cost side, but it’s still a difficult environment on the income side,” Christian Hamann, an analyst at Hamburger Sparkasse, said by telephone yesterday. “The low interest rates are leading investors to buy riskier portfolios, which pushes along the sale of noncore assets, even if it’s bad for the income side.”

Operating profit was 257 million euros, up from 74 million euros in the second quarter of last year. The average estimate of 11 analysts was for 221 million euros. Provisions for risky loans decreased to 257 million euros from 537 million euros a year earlier.

Commerzbank shares dropped 0.7 percent to 10.41 euros in Frankfurt trading yesterday, valuing the company at 11.8 billion euros. The shares are down 11 percent this year, while the benchmark Bloomberg Europe Banks and Financial Services Index fell 3.5 percent in the same period.

Commerzbank said it will cut assets at its noncore unit, where it bundles public and commercial real estate, ship financing and public debt set to be sold, faster than previously expected. Commerzbank previously expected to reduce noncore assets to 75 billion euros by the end of 2016.

Asset Disposals
In June, Commerzbank agreed to sell 5.1 billion euros of commercial real-estate loans in Spain and Japan and non-performing loans in Portugal, including 1.4 billion euros of loans that the bank classified as non-performing. The sale will drop risk-weighted assets by 3.2 billion euros, Commerzbank said at the time.

“A lot of the assets they’ve sold were in the higher-risk block of commercial real estate, so that’s quite encouraging,” Karl Morris, an analyst with Keefe, Bruyette & Woods, said by telephone Aug. 5. Morris has an underperform rating on the stock with a target price of 11.30 euros.

The common equity Tier 1 ratio was 9.4 percent, up from 9 percent at the end of the first quarter.

http://www.bloomberg.com/news/2014-08-07/commerzbank-second-quarter-profit-rises-as-bad-assets-cut.html