Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Commerzbank AG (CRZBF, Financial) reported strong business momentum across all segments, with increasing revenues year-on-year and growth in fee income.
- The company achieved a half-year net result of almost EUR1.3 billion, translating into a return on tangible equity of 8.9%.
- The CET1 ratio remains strong at 14.8%, supporting capital distribution plans for 2024 and beyond.
- Loan demand showed positive development, with the corporate loan book growing by 5% compared to Q2 last year.
- The company is on track to meet its 2024 targets, including a cost-to-income ratio of 60% and a payout ratio of at least 70%.
Negative Points
- The macroeconomic environment remains challenging, with a slight contraction in German GDP and weaker-than-expected PMI and Ifour data.
- Core inflation is expected to stabilize above 2%, preventing aggressive easing of monetary policy by the ECB.
- The company faces significant non-operational burdens from Russia and Poland, amounting to EUR395 million.
- Higher personnel costs and regulatory requirements are expected to drive up operating expenses in 2025.
- The company remains cautious about potential larger single default cases, despite maintaining high asset quality.
Q & A Highlights
Q: Can you clarify the impact of deposit growth and deposit beta on the second quarter results, and the expected benefit from the replication portfolio in 2025?
A: The deposit growth has been favorable due to attractive call money offerings, contributing positively to NII. The replication portfolio increased by EUR10 billion, which will have a slight negative impact in 2024 but a positive impact in 2025, expected to add around EUR100 million. (Bettina Orlopp, CFO)
Q: Can you provide a bridge to your 2027 NII target of EUR8.4 billion, considering potential ECB rate cuts and deposit adjustments?
A: Starting from the 2024 forecast of EUR8.1 billion, we expect a EUR600 million reduction due to rate cuts, partially offset by deposit growth and replication portfolio contributions. We anticipate loan and margin growth of around EUR100 million, leading to an NII of around EUR7.9 billion in 2025, with further increases expected towards 2027. (Bettina Orlopp, CFO)
Q: What is the outlook for fee income from the new globalpay initiative, and how does it impact existing payment businesses?
A: Globalpay has just launched and has not yet contributed significantly to income. It is expected to add revenue without causing attrition to existing payment businesses, offering new payment solutions to SMEs. (Bettina Orlopp, CFO)
Q: Can you elaborate on the single cases driving the increase in Stage 3 exposures and whether this indicates broader credit quality deterioration?
A: The increase in Stage 3 exposures is due to a few single cases related to individual business models and management decisions, not indicative of broader credit quality deterioration. Corporate clients remain resilient. (Bettina Orlopp, CFO)
Q: How do you plan to manage the cost-to-income ratio below 60% in 2025, considering the expected 5% cost increase?
A: We are committed to achieving a cost-to-income ratio below 60% in 2025. This includes a 5% cost increase due to investments and acquisitions, but we will adjust costs if revenue growth does not meet expectations. (Bettina Orlopp, CFO)
Q: What is the potential impact of Basel IV on your capital requirements, and how are you preparing for its implementation?
A: We expect the Basel IV impact to be manageable, with an increase of around EUR6 billion in credit RWA, mitigated by EUR4 billion, resulting in a net increase of EUR2 billion. Market risk impact is limited due to delays in FRTB implementation. (Bettina Orlopp, CFO)
Q: How are you addressing the potential risks from your Russian exposure, and what is the likelihood of recovering the EUR95 million litigation charge?
A: We are in hibernation mode in Russia, with limited net exposure. The EUR95 million litigation charge was booked conservatively, but we see a good chance of recovery. We continue to monitor the situation closely. (Bettina Orlopp, CFO)
Q: What are your plans for capital distribution in 2024 and beyond, considering your strong CET1 ratio?
A: We target a CET1 ratio of 13.5% and plan to distribute EUR1.6 billion in 2024, including dividends and share buybacks. Future distributions will aim to maintain this target ratio, with payout ratios between 50% to 100%. (Bettina Orlopp, CFO)
Q: How are you managing the competitive landscape for deposit pricing, especially in light of potential ECB rate cuts?
A: We adjust our deposit offerings to remain competitive while ensuring profitability. We have already made adjustments in anticipation of rate cuts and will continue to do so as needed. (Bettina Orlopp, CFO)
Q: Can you provide more details on the sectors affected by the collective staging to Stage 2 and the potential for further risk transfers?
A: The sectors affected include automotive, IT suppliers, and machinery. This is a methodological update to introduce additional cushions for potential credit deterioration. We will review the situation quarterly and adjust as needed. (Bettina Orlopp, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
