Status: 05/11/2022 1:12 p.m
At Commerzbank, profits are rising surprisingly sharply. The bank has cut costs and wants to close more branches. But the Ukraine war is also an economic risk.
The analysts had not expected this either: Commerzbank presented the best operating result in years at its general meeting. The second largest German commercial bank was long considered unlucky and not well managed. Round of austerity followed round of austerity, nothing seemed to lead to more profits. Now the turn.
Operational turning point seems to have been achieved
The CEO Manfred Knof stands calmly at the lectern of the digital general meeting and says: “The four cornerstones of customer orientation, digitization, sustainability and profitability stand for new business opportunities and sustainable success. Last year we decided to set out on this path.”
Apparently, Knof managed to turn things around operationally. In the first quarter of this year, the bank generated a net profit of 284 million euros. That was almost half more than analysts had expected. Even the stated goal of achieving a return on equity of seven percent in two years seems achievable.
Thousands of jobs will be lost
The bank got off to a good start this year and lost few customers, according to Andreas Thomae, portfolio manager at Deka Investment. But it has to stay that way. From once 1000 branches, 450 should still be left by the end of this year. This saves money in the medium term, but customers can no longer simply stop by the branch. And it will probably cost more jobs. Twelve advice centers, mostly digital, should continue to guarantee the service. By the end of Knof’s restructuring program, 10,000 full-time jobs will have been eliminated.
“Commerzbank’s digitization strategy is crucial for customer communication and a cornerstone of profitability. In 2022 we will measure the bank by how well customer advice works in the digital advice centers,” says banking specialist Thomae. “The most important thing here is that customer proximity is maintained. A streamlining of the product range will help customer discussions to be more focused. Less is more here.”
The Polish subsidiary M-Bank shines
The Polish direct bank subsidiary M Bank wanted to sell Knof’s predecessor Martin Zielke two years ago due to lack of money. But there was no one who wanted to pay the price requested by the then CEO. Thanks to rising interest rates in Poland, the direct bank is now more profitable than the parent company and is raising its earnings. “Commerzbank was lucky that the sale didn’t work out,” says Hans Peter Burghof from the University of Hohenheim.
There is no dividend for the shareholders for the past year, but that should change for 2022. “The bottom line is that we continue to expect consolidated earnings of more than one billion euros,” said Knof at today’s Annual General Meeting. “This also means that from today’s perspective we want to propose the payment of a dividend for the 2022 financial year. The payout ratio should be 30 percent of the consolidated result.” However, according to Knof, the economic effects of the Ukraine war must remain limited.
Risks Corona and Ukraine war
According to Hans Peter Burghof from the University of Hohenheim, the financial economy in Germany has come through the previous pandemic better than feared – but this is also due to the fact that the state has rescued many companies whose loans would otherwise have defaulted.
Now, with the war in Ukraine, the entire economy faces a completely different risk, according to the economist Burghof. No one knows how the war will end, and high inflation is causing people’s disposable income to shrink. The result could be rising unemployment. The banks were then threatened with loan defaults. Commerzbank CEO Knof is trying to counteract this with risk provisioning of EUR 464 million. However, no one knows today whether that will be enough.