Commerzbank Exceeds Revenue Estimates, Shares Dip on Credit Costs (CBK)

In a much-anticipated financial update, Commerzbank AG has reported a successful third quarter with revenues surpassing consensus estimates by approximately €55 million, driven by robust net interest income, diverse income sources, and fees. However, the bank did face some challenges with a weaker-than-expected trading income performance.

Markets have reacted to the downside, with Commerzbank shares (ETR: CBK) down 2.98% through the early part of trading.

Specifically, the net interest income outperformed expectations by 2%, adding €39 million to the top line. This welcome increment comes even though there was a slight 1% downturn from the preceding quarter. Operating expenses slightly undercut expectations, fostering a drop in the group cost-to-income ratio by around two percentage points from the previous quarter, down to 58%.

Credit costs, unfortunately, posed a cause for concern, overshooting estimates by €39 million. The quarterly cost of risk settled at 25 basis points. This hike in credit costs is attributed to substantial credit charges linked to three distinct cases, alongside updates to the bank's risk assessment methodology.

Nevertheless, Commerzbank's fiscal health was evidenced by their pre-tax profit and net profit figures. Pre-tax profit modestly eclipsed consensus by 2%, while net profit impressively beat expectations by 21%, amounting to €113 million above consensus. This can be ascribed to a lower-than-anticipated effective tax rate of 22% for the quarter.

Further financial solidity is visible in the bank’s capital structure, with the CET1 ratio standing at 14.8%. This figure not only edges past previous estimates but also demonstrates steadfastness on a quarterly basis. It is noteworthy that capital strength remains unshakeable despite some minor adjustments.

Looking towards the future, Commerzbank has either reaffirmed or updated certain aspects of its 2024 financial guidance. This includes a projected net interest income (NII) of approximately €8.2 billion, a non-interest income expected to grow by over 5%, and credit costs anticipated to stay below the €800 million mark.

For the longer term, Commerzbank projects the NII for 2025 to be between €7.6 billion and €7.9 billion, with expectations for a stabilization at €8.4 billion in the year 2027. However, it's not all smooth sailing; the bank anticipates headwinds in the NII of its subsidiary, mBank, expecting it to be €200 million to €300 million lower in 2025 compared to 2024.

Commerzbank's third-quarter performance, apart from signalling effective cost control and stable profits, suggests that the bank is gearing up to navigate through an environment marked by credit challenges. Their reaffirmed and updated financial guidance indicates a strategic focus on maintaining profitability and capital strength, even as it prepares to contend with potential future headwinds.