Commerzbank beats estimates as earnings from trading surge

Bloomberg

Commerzbank AG benefited from a rise in income from trading securities six months after it rolled out a strategy to scale back the business.
The Frankfurt-based lender posted net income of 217 million euros ($237 million) in the first quarter, compared with 169 million euros a year earlier. That beat the 74 million-euro average of four estimates compiled by Bloomberg. Interest and trading earnings rose to 1.45 billion euros, compared with bank-compiled estimates of about 1.31 billion euros.
Banks benefited at the end of last year as clients rushed to wager on the direction of the US economy under President Donald Trump, a trend that continued in the first quarter. While Commerzbank Chief Executive Officer Martin Zielke plans to cut 9,600 job cuts by the end of 2020 and sell its equity markets and commodities unit, rising markets prompted an increase in investor activity at the business in the three months through March.
“Equity Markets & Commodities saw strong client demand for investment products in the first quarter of 2017 due to rising equity markets,” the bank said on its website. The bank also benefited in the first quarter from a 68 million-euro gain related to the recovery of a
previously written off position.
Commerzbank, in a strategy announcement in September, also said it would downsize trading activities to free up about 500 million euros in capital, leading to a loss of about 400 million in revenue. The lender also scrapped its dividend last year and will probably do so again this year as it presses ahead with plans to expand its retail and corporate business.

Core Divisions
Operating profit in the bank’s two core divisions – retail and corporate clients – fell to the lowest level since at least the first quarter of last year. The only unit showing revenue growth in the corporate clients unit was Equity Markets & Commodities, which Commerzbank is hoping to sell or float on a stock exchange after a carve out.
“Commerzbank has earned more money but the source of that increase does not elicit any cheers,” said Andreas Plaesier, an analyst with Warburg Research with a hold rating on the stock. “One factor driving
the result was the market
environment.”
The shares rose 1.7 percent to 9.56 euros as of 9:57 a.m. in Frankfurt after earlier gaining as much as 2.6 percent.
The stock has gained about 32 percent this year, giving the bank a market value of about 12 billion euros.
Restructuring costs, low interest rates and risk provisions for the bank’s shipping portfolio have weighed on profitability. Loan-loss provisions rose to 195 million euros from 148 million euros a year earlier. The bank said that was due to higher reserves for maritime
finance.
Zielke, a retail banker by training who is focusing the bank on its consumer and corporate clients, aims to add 2 million new retail customers by the end of 2020. The bank announced last month that it gained 151,000 new private and commercial clients in the first quarter.
Zielke has said he will consider acquisitions to achieve its retail client growth target. Commerzbank recently announced the purchase of a small online bank, OnVista, which added about 90,000 new clients. The bank’s common equity tier 1 ratio will be kept “stable” at 12 percent or above, the bank said in its outlook, and now stands at about 12.5 percent.
The lender aims to keep its cost base stable and said it will book the first part of restructuring charges for the September plan — dubbed Commerzbank 4.0 — later this year.