COMMERZBANK’S fortunes are closely hitched to the booming German economy, which is good news for shareholders. The Eurozone’s economic powerhouse grew by an impressive 3.9 per cent in 2010, and recent statements from the Bundesbank saw markets pencil in a further one per cent expansion in the first three months of the year. Little wonder, then, that Commerzbank’s preview of its first quarter results shows the bank has comfortably surpassed analyst expectations with operating profit of €1.1bn, against consensus of €890m.
A one-off €360m revenue gain related to the repurchase of hybrid debt, designed to improve the bank’s capital structure, is in part responsible for the improvement. But the bank’s underlying performance also looks much better. While we won’t get a full breakdown until the complete results, due at the annual meeting on 6 May, the bank was at pains to point out that all four of its core divisions contributed to healthier operating profit.
Crucial among these is the unit that lends to Germany’s much-envied Mittelstand, the high-tech small-and-medium-sized businesses that fuel its roaring exports market. A marked recovery in these firms’ balance sheets has helped reduce Commerzbank’s loan impairments from €644m in the first quarter of 2010 to €320m this time round. Elsewhere, its retail bank, its Central and Eastern Europe arm, and the investment bank have also grown operating profits.
Together, the four divisions contributed €1.2bn to operating profit, suggesting a €100m operating loss at one or more of the non-core units, most likely asset-backed financing or portfolio restructuring.
Still, the overall trend is one of strong recovery, at a pace which leaves many of its European competitors in the shade, not least in the UK. That can’t hurt its plan to raise the €8.25bn it needs to exit the stricture of part-state ownership – but shareholders will still be wary about the massive dilution that could occur.