Commerzbank Posts Surprise Jump in Profit After Adding Clients

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(Bloomberg) -- Commerzbank AG posted a surprise jump in third-quarter profit, a month after Chief Executive Officer Martin Zielke unveiled a new strategy that was criticized by some of the bank’s top investors as not ambitious enough.

In preliminary results more than a week before the bank is scheduled to report earnings, Commerzbank said operating profit increased 29% from a year earlier and net income rose 35%, reflecting higher revenue from lending, reduced costs and lower provisions for bad loans. Both figures exceeded analyst estimates that the bank had compiled. The one sore spot: a 17% decline in operating profit at the business catering to companies.

Zielke is trying show that his strategy of aggressive client acquisitions is working after shareholders and regulators behind the scenes criticized new targets he unveiled last month. The new plan, which builds on a more radical restructuring announced three years ago, is centered on more job cuts and the sale of a Polish subsidiary to finance the measures.

Shares of Commerzbank rose 2.3% in Frankfurt, after gaining as much as 4.5% immediately after the bank published its figures. The shares are down 3.3% this year, compared with a gain of 3.8% at local rival Deutsche Bank AG.

Group revenue rose 2%, marking the first increase since the second quarter of last year. But earnings were also helped by the sale of a subsidiary that brought in 103 million euros and loan loss provisions that were below analysts’ estimates. Commerzbank is scheduled to publish full third-quarter earnings on Nov. 7.

Key figures from Commerzbank’s preliminary third-quarter earnings:
  • Operating profit EU448 million vs EU346 million a year earlier
  • Net income EU294 million vs EU218 million
  • Operating expenses EU1.62 billion, down 2.5%
  • Revenue EU2.18 billion, up 2%
  • Retail unit operating profit EU315 million vs EU186 million
  • Corporate clients unit operating profit EU146 million vs EU175 million

Zielke has pledged to cut a net 2,300 jobs and eliminate 200 branches in an effort to reduce costs by about 9% over four years. To pay for the measures, he’s selling mBank SA, one of his most profitable assets. Shareholders face at least four more years of small dividends and weak earnings, with a targeted return on tangible equity of 2% to 4%.

The plan was met with disappointment by some of Commerzbank’s largest stakeholders. The profitability target is less than half of what it should be and the planned sale of mBank is a mistake in one top investor’s view, people familiar with the matter have said. Another top shareholder has called the plan a disaster. Regulators are unconvinced, too, Bloomberg has reported, with a top watchdog saying the strategy looks insufficient to secure a standalone future for the bank.

Commerzbank has defended the targets as realistic and has said the bank had potential to add value in its core business.

Commerzbank’s biggest shareholder is the German government, with a stake of 15.6%. The Finance Ministry -- through a separate agency overseeing the Commerzbank stake -- has hired Boston Consulting Group to assess the lender’s strategy. U.S. private equity firm Cerberus Capital Management is the second-largest investor, with about 5%.

©2019 Bloomberg L.P.

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