Commerzbank’s new targets disappoint investors

Bloomberg

Commerzbank AG’s decision to raise two financial targets fell flat with investors, after results in the third quarter were hit by charges at its Polish unit and the lender flagged cost headwinds.
Revenue at the Frankfurt-based bank declined 5.9% in the three months through September, slightly worse than analysts had estimated, reflecting a hit of almost €750 million at its mBank business in Poland.
The charges overshadowed a jump in net interest income that prompted the lender to raise its revenue forecast for 2024 by almost €1 billion, while also lifting the outlook for costs, resulting in a slightly higher expectation for operating profit.
Chief Executive Officer Manfred Knof is halfway through a turnaround strategy unveiled almost two years ago. While the rates increases by the European Central Bank have allowed the bank to earn more on loans, accelerating inflation has added to cost headwinds and an economic slowdown in its home market has raised the specter of more defaults.
Commerzbank’s new outlook failed to sway investors, who sent the shares down as much as 5.5%. The lender had previously flagged its intention to lift its profitability target.
One particular challenge has come from mBank, where increasing litigation over a legacy portfolio of Swiss franc mortgages forced Commerzbank to set aside €477 million. The firm also took a charge of €270 million related to “credit holidays” in the country. As a result, the unit booked negative revenue in the quarter.
Commerzbank confirmed a target for profit of more than €1 billion this year, and said it expects more than €6 billion in net interest income in 2022. It has previously said that it plans to pay out 30% to 50% of net income in the coming years, with 30% anticipated for 2022.
Chief Financial Officer Bettina Orlopp said that Commerzbank will consider buying back shares as one option to return capital to investors, though such payouts would need approval from the European Central Bank.
Commerzbank must “first deliver on the more than €1 billion and then we will discuss in February, March about how to distribute that and we will consider all instruments,” Orlopp said on a call.

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