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February 14, 2008

Commerzbank posts record results in 2007

  • The consolidated surplus rose by 20% to EUR 1.92 billion
  • Return on equity after taxes improved to 15.4%
  • Dividend to be increased to EUR 1 per share

Despite the turbulence in the international financial markets, 2007 was a good year for Commerzbank. At EUR 2.51 billion, operating profit was almost the same as it was the year before. The consolidated surplus rose by 20%, reaching a record EUR 1.92 billion. This represents a return on equity after taxes of 15.4%. Shareholders will participate directly in this good result as the Supervisory Board will be asked to increase the dividend from 75 cents to EUR 1 per share.

"We kept our word and met or exceeded our targets, despite the enormous challenges," noted Commerzbank's Chairman of the Board Klaus-Peter Müller as he presented the annual financial statement. "The consolidated surplus rose again. Our profitability is confirmation of the strength and the solidity of our business model and has allowed us to achieve above-average returns on equity in our core business areas even under difficult conditions. The core capital ratio of 6.9% is proof of our good capital base. Overall, the annual financial statement proved the high quality of our risk management," said Müller.

Net interest and commission income at high level

The Q4 2007 result was impacted by further write-downs of EUR 248 million due to the exposure to the US subprime market. Together with the loss reported by subsidiary Essen Hyp and charges as a result of the rearrangements in the public finance business (in total EUR 215 million), this led operating profit to fall to EUR 169 million. However, good performance in the area of net interest and commission income shows that current operations are on solid footing. The consolidated surplus reached EUR 201 million in the fourth quarter.

Revenues remained high for 2007 as a whole, although at EUR 4.02 billion net interest income fell slightly. Excluding the Public Finance and Treasury segment, however, it would have seen a seven percent increase. At EUR 479 million, loan-loss provisions were practically half of the previous year's level. Net commission income in 2007 was excellent, increasing by 6% to EUR 3.15 billion. Despite the market turbulence, trading profit reached EUR 879 million. At EUR 126 million, the net profit on financial assets was considerably lower than in the previous year as a result of subprime write-downsof EUR 583 million.
The net balance of income and expenses resulted in an operating profit of EUR 2.51 billion for 2007. Had it not been for the charges from the US subprime portfolio and Essen Hyp, Commerzbank would have posted a record profit of EUR 3.25 billion - around 20% more than the year before.
The consolidated surplus of EUR 1.92 billion (+19.5%) will be used to increase the distribution to shareholders (EUR 657 million) and improve retained earnings (the remaining EUR 1.26 billion). Earnings per share increased to EUR 2.92, and return on equity after taxes improved from 14.2% to 15.4%.

Private and Business Customers, Mittelstandsbank and Commercial Real Estate remained the key profit drivers

The difficult circumstances in 2007 showed that Commerzbank has a balanced and robust business model. The core operating segments Private and Business Customers, Mittelstandsbank and Commercial Real Estate posted excellent performance, and in some cases clearly exceeded their own expectations.

The Private and Business Customers segment produced an operating profit of EUR 401 million. The return on equity improved to 16.2%. With high-quality advisory services, customer-oriented solutions and attractive products, such as the planned building loan with guaranteed protection against resale,
the branch business and comdirect bank attracted a net total of 400,000 new customers since autumn 2006. The number of domestic private customers is now 5.5 million and is expected to grow to more than 6 million by 2009. BRE Bank in Poland and its direct subsidiary mBank also increased their private customers sharply by a quarter to more than 2 million. Another 260,000 are to be acquired through the introduction of the mBank model into the Czech Republic and Slovakia.

In Asset Management, the focus remains on the implementation of the Alpha growth program. Since the beginning in May 2006, cominvest has increased assets under management by more than EUR 10 billion to EUR 63 billion. The goal is to have more than EUR 70 billion in AuM by the end of this year. The bank expects strong growth through innovative fund concepts in the run-up to the coming withholding tax. Operating profit in the Private and Business Customers segment looks set to rise again in 2008.

With its excellent result of EUR 1.25 billion, Mittelstandsbank made by far the largest contribution to the overall result. High growth in the interest and commission business and the reversal of loan-loss provisions increased the return on equity from an already good 27% to an excellent 39%. This means that Commerzbank now manages a total of around 560,000 corporate customers, including business customers. Lending to Mittelstand customers increased sharply in 2007, rising by 12% - with most of the increase occurring in the second half of the year. Market penetration among German small and medium-sized enterprises will be increased by offering new products, such as a variable-rate loan and a loan with protection against resale. Mittelstandsbank expects an operating profit this year of more than EUR 1 billion.

The Corporates & Markets segment was hurt by the turbulence on the international financial markets last year and the resulting comprehensive revaluation of the portfolio of collateralized debt obligations. However, trading profit remained at a good level. This relatively high independence from market fluctuations confirms the bank's earlier decision to focus on client-related business.

The revaluations of residential mortgage-backed securities hurt the Commercial Real Estate segment. Had it not been for these write-downs, the result in this segment would have been much better. Net interest and commission income profited from the focus on high-margin business and a record EUR 37 billion in new commitments for real estate financing by Eurohypo. CommerzReal also made a large contribution to the result.

Public Finance and Treasury ended 2007 with a minus of EUR 90 million caused by a loss at Essen Hyp. Commerzbank Group aims to be among the two leading European providers by rearranging its public finance business and merging Essen Hyp with Eurohypo. Despite the additional costs as a result of the integration, public finance business should break even this year.

Commerzbank confident about the future

Overall, Commerzbank sees itself well equipped for the future. "Our goal and our challenge remains to make Commerzbank the true No. 1 in the German banking market," said Müller, reaffirming the bank's ambition. "After getting off to a good start we are confident for 2008. If we are spared unpleasant surprises, we will be able to reach again our good results from 2007. If markets allow, we can even top these results."

Commerzbank Group: income statement (in million euro)

  2007 20061) 4th Q 2007 4th Qy 20061)
Net interest income 4020 3937 973 996
Loan loss provisions - 479 - 878 - 61 - 79
Net commission income 3150 2927 735 798
Trading profit 879 1111 73 286
Result on financial assets 126 770 -123 50
Other result 183 - 14 - 29 - 4
Operating expenses 5366 5204 1399 1395
Operating profit 2513 2649 169 652
Restructuring expenses 8 253 8 39
Taxes on income 580 595 20 182
After-tax profit 1925 1801 141 431
Profit/loss attributable to minority interests - 8 - 197 60 - 72
Consolidated surplus 1917 1604 201 359
Earnings per share (€) 2,92 2,44    
Return on equity after taxes 15,4% 14,2%    
Cost/income ratio in operating business 64,2% 59,6%    

1) after restatement

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