Commerzbank AG (CRZBY)

[Enterprising Investor]

Commerzbank Profit Up on Revenue, Taxes (8/03/15)

German bank’s performance owed largely to midsize corporates and retail customers

By Eyk Henning

FRANKFURT— Commerzbank AG said Monday that second-quarter net profit more than doubled as the German bank increased revenue and paid less tax.

Net profit for the period was €280 million ($307.23 million) compared with €100 million a year earlier and against analysts’ forecasts of €245 million.

The upbeat performance was owed largely to the strength of its business with midsize corporates and retail customers. Germany’s second-largest bank by market value said that helped boost revenue by more than 9% to €2.42 billion compared with €2.24 billion a year earlier and against €2.4 billion expected by analysts.

“The substantially improved operating profit in the first six month of the year is clear testimony to the successful turnaround achieved by Commerzbank,” Mr. Blessing said. He reiterated that the bank aims to pay a dividend for 2015 next year, the first since 2008. It aims to pay out 40% of its net profits in dividends to shareholders, finance chief Stephan Engels said. The news helped lift Commerzbank by around 2%.

The earnings gains were made despite a roughly €100 million hit taken by the bank on the sale of unwanted commercial real estate and shipping portfolios worth more than €3 billion.

But, as with its larger domestic rival, Deutsche Bank AG , Commerzbank’s net profit was also propelled by a dwindling tax ratio, which fell to 22% from around 50% a year earlier. “The tax rate should float around 25% for the full year,” Mr. Engels said.

The partially state-owned lender is trying to boost growth after repaying most of the €16 billion in state aid it received at the height of the financial crisis in 2008. Chief executive Martin Blessing, one of the few European bank CEOs to have remained in place since the crisis, is refocusing the lender as an adviser to midsize companies and as a retail bank, alongside a lean investment bank and its Polish unit, mBank. Operating profit in these units rose to €641 million from €442 million.

While the bank has made progress in adapting to tougher capital rules, it still needs to work on its profitability, said Equinet analyst Philipp Hassler. Commerzbank’s overall net return on equity stood at around 4% in the second quarter, its equity capital ratio, a measure how well it can absorb losses, rose to 10.5%.

Mr. Engels said the bank is continuously working on profitability by cutting costs, but said it didn’t plan a broader cost-cutting program. In contrast to Commerzbank, domestic rivals including Deutsche Bank AG and Italian bank UniCredit SpA’s German unit HVB, have cost-cutting programs in place and have or are working on shedding retail branches.

http://www.wsj.com/articles/commerzbank-profit-up-on-revenue-taxes-1438580348