Despite a loss at its Polish subsidiary M-Bank, Commerzbank comfortably stayed above breakeven in the third quarter of 2022.

As the partially nationalized bank announced on Wednesday, it earned 195 million euros after taxes between the beginning of July and the end of September, around 50 million more than previously expected by analysts on average, but 52 percent less than in the same quarter of the previous year.

In the first half of 2022, Commerzbank has already brought in 768 million euros, so that after nine months in 2022 there is now a net profit of 963 million euros.

This means that the target of an annual profit of EUR 1 billion set by the CEO Manfred Knof for 2022 has almost been achieved.

Hanno Mussler

Editor in Business.

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Commerzbank has suffered greatly from the years of low interest rates imposed by the European Central Bank.

With the turnaround in interest rates this year, business is now bubbling up.

This is due to the fact that customer deposits are still subject to very low interest rates, while the interest rates that banks and savings banks have been paying since February have yielded significantly higher interest rates than before.

This interest surplus is Commerzbank's most important source of income.

In the third quarter of 2022 alone, it climbed by a whopping 44.5 percent compared to the same quarter of the previous year.

As a result, the board of directors increased the earnings forecast for 2024 from 9.2 to 10 billion euros on Wednesday.

Since the costs are also increasing more than planned, the profit target increases only slightly from 9 to 9.2 billion euros.

Board announces new phase

After years of cost discipline with job cuts and branch closures, CEO Knof now wants to redirect his attention.

"The next phase is about tapping the earnings potential in both customer segments even more consistently," said Knof on Wednesday.

In doing so, Commerzbank is also using the “Comdirect” brand in private customer business and a new direct banking offering in corporate customer business.

In addition to the better earnings prospects, Commerzbank is currently primarily interested in the need for risk provisioning for bad loans, after all, the institute is the most important financier of German medium-sized companies.

On Wednesday, Commerzbank announced that it only had to make moderate provisions for loans at risk of default in the third quarter, despite the probable impending recession, due to the still high credit quality of EUR 84 million (previous year's quarter: EUR 22 million).

Corporate customer board member Michael Kotzbauer had previously reported in an interview with the FAZ that there is currently little to be seen of loan defaults among his customers.

Kotzbauer made the promise: "We will get through the recession at the side of our customers." In the third quarter, Commerzbank earned 536 million euros gross from its 26,000 corporate customers, the best result in seven years.

The private customer division, which also includes the Polish M-Bank, contributed 321 million euros to the pre-tax profit of 267 million euros.

In the first reactions on Wednesday morning, stock analysts were positively surprised by the business figures.

With a price gain of 24 percent, the Commerzbank share is one of the few positive developments on the German stock market this year.

With a stock market value of a good 8 billion euros, Commerzbank has now become the most valuable company outside of the Dax.

So far, however, the new criterion of the index operator Deutsche Börse, which requires two years of profitability, has prevented a rise in the elite league of German stock market values.

If nothing seriously unexpected happens, Commerzbank should meet this requirement from spring 2023.

Whether and if so when Commerzbank will actually make the comeback into the Dax depends on the further stock market development of other Dax aspirants such as Rheinmetall, possible Dax relegators such as Puma and the Commerzbank course.

In any case, a return to the Dax would be a triumph for Knof, after his predecessors had tried in vain to restructure the bank several times and Commerzbank, of all things for the then hip but now insolvent Wirecard AG, had to vacate its place in the Dax in September 2018.

Special charges in M-Bank

The main reason for the drop in net profit in the third quarter by a significant 52 percent compared to the same quarter of the previous year is the Polish M-Bank.

Like other Polish banks, M-Bank has granted many loans to private individuals for construction financing in Swiss francs.

This seemed attractive to customers when interest rates on the Polish zloty were significantly higher than on the Swiss currency.

However, since the Swiss franc is constantly appreciating, Polish borrowers found it increasingly difficult to pay off the loans in Swiss francs with their zloty income.

This called the Polish government and resourceful lawyers into action, who proved to the banks that they had not sufficiently informed borrowers of the risks of Swiss franc loans.

In addition to exchange offers, which are becoming increasingly expensive, proceedings are also pending before the European Court of Justice (ECJ) that will decide on errors in the loan agreements.

As a result, M-Bank has already made some provisions for impending losses from these Swiss franc loans, in the third quarter alone it set aside 477 million euros at the expense of profits.

In addition, charges of EUR 270 million were booked because the Polish government allowed borrowers to suspend interest and principal payments ("credit holdays").

Nevertheless, Commerzbank acknowledged its Polish subsidiary and spoke of increasing earnings momentum.

Adjusted for the charges, M-Bank's net interest income increased by more than 40 percent compared to the same quarter of the previous year.

In Poland, the National Bank initiated the turnaround in interest rates much earlier than the European Central Bank.

M-Bank benefits particularly from this.