Commerzbank said it would miss its 2018 cost target by about €100m and lowered the outlook for its core corporate clients segment, which despite strong growth is likely to suffer a fall in revenue this year.
Shares in Germany’s second-largest listed lender traded down 2 per cent at €8.77 in Tuesday afternoon trading after it published its second-quarter results. The bank confirmed its plan to resume dividend payments of €0.20 a share for the year after paying no dividend in 2017.
The bank posted revenue of €2.22bn for the three months to the end of June, up from €2.06bn in the same period a year ago and just ahead of the €2.18bn forecast by a Reuters poll of analysts. Pre-tax profits of €389m also beat the €341m forecast and compared favourably with a loss of €628m during the prior corresponding period.
However the bank’s common equity tier 1 ratio, a closely watched measure of financial strength, dipped to 13 per cent at the end of June from 13.3 per cent three months earlier, driven by loan growth in the core business, where risk weighted assets increased 3.5 per cent to €176bn.
While confirming the group’s overall guidance of increasing revenue in 2018, the lender on Tuesday warned that the performance in its corporate clients segment will be worse than previously expected.
Compared with the previous outlook of rising corporate client revenue, the lender now said that they are likely to be “below the 2017 figures”. Stephan Engels, chief financial officer, told journalists that the bank was ahead of its growth targets for corporate clients, but is suffering from fierce competition and falling profit margins. “We have to monetise our growth,” said Mr Engels, adding that this has become more difficult because of the tough market environment.
He also flagged that full-year expenses are now expected to be at about €7.1bn, compared with the previous guidance of €7bn. The new outlook implies that Commerzbank will not be able to lower its expenses relative to 2017.
Mr Engels downplayed the significance of the downgrade, stressing that there was not a “big difference” between €7bn and €7.1bn. “Our cost target of €6.5bn for 2020 remains unchanged,” he stressed, adding that the increase in 2018 is driven by higher than expected regulatory costs in the first quarter and higher investments at online lender Comdirect.
Analysts at Citi pointed out that the more pessimistic cost guidance will disappoint investors. “This is the main element in management’s control,” they wrote in a note to clients, adding that expectations for Commerzbank are already “incredibly low” so the repercussions on average analyst estimates would be limited.
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