Commerzbank sticks to revenue target after missing estimates
Commerzbank AG saw earnings hit by a series of one-time expenses in the second quarter, highlighting the challenges for Chief Executive Officer Manfred Knof as he seeks to grow the lender amid deep cost cuts.
Revenue fell 18% from a year earlier and it slumped to a net loss of €527 million, both worse than estimated after some of the setbacks also affected the top line. Commerzbank reiterated a forecast for revenue to increase slightly this year and said a key measure of capital strength will probably come in better than it had expected.
“Performance was impacted by a number of one-offs,” Anke Reingen, an analyst at RBC Capital Markets, wrote in a note. Still, “we calculate that operating performance was better than expected.”
Knof in February embarked on a restructuring that aims to restore profitability by cutting 10,000 jobs and lowering costs by a fifth. The CEO has chalked up a few successes -- he has signed an agreement on the cuts with the workers’ councils and another one with Oddo BHF to outsource equities trading -- but he has also faced a number of setbacks, including unexpected expenses and turmoil in the top ranks.
Knof wants to lower expenses to €5.3 billion in 2024 while increasing revenue by 6% to €8.7 billion. Commerzbank initially expected the cutbacks to result in declining top line this year, but it changed the outlook to a slight expansion after rapid growth in the first quarter on the back of the global boom in capital markets.
Chief Financial Officer Bettina Orlopp said in an interview that a 7.7% increase in net commission income bodes well for the remainder of the year, while provisions for bad loans may also help assuming Germany can avoid new lockdowns.
The higher commission income is “very important and also very promising for the next months,” Orlopp said on Bloomberg TV. “We’re still say cautious” on loan loss provisions but if there aren’t any more lockdowns in the coming months, then “hopefully there will be quite some upside” by the end of the year.
One-off items fueling the miss in the second quarter include a German court ruling voiding some fee increases; a write-off on a failed IT project initiated under Knof’s predecessor; higher contributions to Germany’s deposit insurance; and additional costs for the planned job cuts.
Some of those items also affected revenue, the bank said. The court ruling resulted in provisions of €66 million, while a Swiss franc loan portfolio at its mBank subsidiary caused €55 million in provisions. The failed IT project also affected income.
Commerzbank made additional provisions for potential claims relating to a controversial tax practice known as “cum cum” that banks offered to investors in the past. The change in provisioning comes after the German finance ministry issued a new decree on the practice, Commerzbank said in its quarterly report. The bank estimates “the potential financial impact in the upper double-digit million” euros range, while saying it’s unlikely it will have to pay out the money.
On the positive side, the lender booked a gain of €101 million on investments made by its venture capital fund. That portfolio includes Marqeta Inc., a US-based payments processor that listed in June.
Turmoil among top leadership has compounded the challenges for the CEO. Supervisory Board Chairman Hans-Joerg Vetter abruptly resigned in March for health reasons, just months after Knof had taken up his role, setting off the departures of more supervisory board members. The management board likewise has seen upheaval, with the role of retail head vacant while Chief Operating Officer Joerg Hessenmueller attracted criticism for his role in the failed IT project.
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