Commerzbank, Germany’s second-largest publicly traded bank, is set to increase its shareholder payouts to a substantial €1 billion, propelled by surging profits amid rising interest rates, marking its most profitable year since the 2008 financial crisis.
The Frankfurt-based institution, fresh from a dramatic third-quarter performance, where its net profit skyrocketed to €684 million, has confidently raised its yearly earnings outlook. It now anticipates reporting a full-year profit of €2.2 billion, a substantial boost from the €1.4 billion recorded last year.
This remarkable turnaround is in stark contrast to the bank’s lacklustre performance over the past decade, marred by a series of crises, hefty expenses, and sluggish growth in an era of low interest rates, particularly after its merger with Dresdner Bank in 2009.
CEO Manfred Knof, who assumed the role in 2021, following a stint at Deutsche Bank, has spearheaded an aggressive cost-cutting initiative, trimming the workforce by a third and shuttering half of its branches. Chief Operating Officer Bettina Orlopp expressed that “the transformation efforts in recent years are increasingly paying off.”
As part of this transformation, Commerzbank’s payout policy indicates that shareholders will receive a combined €1 billion through dividends and share buybacks this year, a significant jump from the €372 million disbursed in 2022.
Knof’s cost-cutting strategy coincides with Commerzbank’s favorable position amid rising interest rates. In the last quarter, its net interest income surged by 34%, reaching €2.2 billion compared to the previous year, while deposits increased by 2.6% to €157 billion. Despite Germany’s sluggish economy, the bank allocated only €91 million for bad loans in the quarter, a marginal increase from €84 million in the same period a year ago.
Nonetheless, the bank faces pressure to diversify its revenue streams, as the benefits of higher interest rates are expected to wane. Commerzbank is looking to reduce its reliance on interest income by expanding into asset and wealth management by 2027.
Knof, who is set to announce a four-year strategy, aims to boost net profit by 55 percent between 2023 and 2027, reaching €3.4 billion.
Commerzbank back on track
The CEO is targeting a return on tangible equity of more than 11 percent by 2027, a milestone that has eluded the bank for decades. For 2023, Orlopp anticipates a return on tangible equity of 7.5 percent, meaning the bank is on track to achieve its goal a year earlier than originally projected.
Commerzbank’s common equity tier one ratio, a vital measure of its balance sheet strength, rose by 0.2 percentage points to 14.6 percent of risk-weighted assets in the third quarter, comfortably exceeding the regulatory minimum of 10.1 percent.