I would like to give you a detailed insight into Commerzbank ($CBK (-4,51%)) from the analyst meeting at the Morgan Stanley European Financials Conference, where CEO Bettina Orlopp answered questions. It was an intensive discussion that shed light on many interesting aspects of the bank's current strategy and future direction.
The conference began with a polling questionin which the participants were asked to give their assessment of what will have the greatest impact on Commerzbank's share price in the next 12 months. The majority saw the the leading financial targets and guidance as the most important factor (44%), followed by the improved sentiment on the German macroeconomy (37%).
The introductory remarks focused directly on the new strategic plan and the target of a return on equity of 15%. One analyst noted that the last time such a level of profitability was achieved was in 2006, when leverage was significantly higher. Ms. Orlopp emphasized that Commerzbank had changed significantly since then. The strategy 2024 had already laid the foundation for the current "momentum" strategy byby implementing significant transformation and restructuring measures have been implemented.
The cost/income ratio of 59% last year is a very good starting point that allows the bank to invest in growth invest in growth initiatives. Future development will be a mixture of growth initiatives growth initiatives and efficiency measures efficiency measures, including a reduction of 3,900 positionsmainly in Germany. At the same time growth in all segments and across all sources of income especially in the net commission incomewhich had already shown growth of 7% in 2024. The first quarter of 2025 confirms this positive trend.
Another focus was on the German macro outlook. In view of the positive market reaction to the announcement of fiscal measures, one analyst asked about the specific upside potential for Commerzbank's targets . Ms. Orlopp explained that the planning includes very ambitious targets but realistic assumptions regarding interest rates and GDP growth (only 1% for the coming years, 0.5% for 2025). Any positive impetus will therefore help to achieve the targets more quickly. The first upward adjustments to the GDP forecasts have already been made. The expected formation of a government before Easter could also have a positive impact on sentiment. The planned investments in infrastructure and defense would support precisely those sectors in which Commerzbank is strong, which would benefit both corporate and private client business.
With regard to credit growth one analyst recalled the target of 8% per year in the corporate client business and asked about possible adjustments due to fiscal spending. Ms. Orlopp reaffirmed this target and explained that it was not possible due to the the necessary investments by companies in transformation and growth is realistic. Commerzbank sees itself as a core bank in Germany with a responsibility to make its balance sheet available for these investments.
An important point was the development of marginsespecially with regard to the deposit trends in Germany and the expected monetary easing. Ms. Orlopp acknowledged that competition had increased, particularly in the private customer business. However, she was confident that the bank's conservative assumptions regarding the passing on of interest rate changes to customers would remain valid.
The resilience of the net interest income (NII) was also discussed, with the focus on the structural hedge and the potential tailwinds from a steeper yield curve. curve. Ms. Orlopp explained that a steepening of the yield curve would lead to higher income, as reinvested tranches could generate higher returns. An increase of 10 basis points, for example, would mean additional income of around EUR 10 million per year. We also took a look at Poland and mBankwhere the NII development is currently a positive surprise. This is pleasing, as the Polish market continues to bear the burden of the FX provision from the FX provision. The aim is to close this chapter as far as possible by 2025.
Another major topic was the costs and the planned increase in efficiency. Ms. Orlopp was very confident about the restructuring costs. restructuring costsas the bank has a lot of experience in this area. The early involvement of the works council and the transparent communication of the plans had led to a very good and trusting cooperation, which which even received public support from the works council and the trade union. The implementation of the measures, including the part-time early retirement programshould be implemented quickly.
With regard to investments in technologyespecially AIMs. Orlopp emphasized its strategic importance. There are already numerous use cases being implemented and the organization is being actively familiarized with the new tools (e.g. through the "Sherlock" tool and the Commerzbank GBP tools). The shoring at locations such as Sofia is also an important part of the strategy.
One topic that concerned many analysts was the participation of UniCredit and the potential M&A options. Ms. Orlopp emphasized that Commerzbank is focusing on its stand-alone strategy but would examine all proposals proposals that came to the table. The ECB's approval for UniCredit to increase its stake to up to 29.9% came as no surprise. UniCredit is currently an important shareholder, but will be treated like all others. With regard to the outstanding approvals, particularly from the German supervisory authorities, Ms. Orlopp referred to public statements that the process could take until mid-April. She emphasized that the situation would change fundamentally if a participation of over 30% was achieved. When asked about a possible a possible longer-term decision by UniCredit regarding further options, Ms. Orlopp responded by focusing on the company's own value creation.
With regard to capital and capital allocation Ms. Orlopp reaffirmed the goal of using the surplus capital to the shareholders. For 2024, a distribution of 1.7 billion euros planned (1 billion euros in share buybacks, 700 million euros in dividends). A similar approach is planned for 2025, whereby the restructuring costs are not included in the calculation of the distribution. would be excluded.
The between share buybacks and dividends is regularly is regularly reviewed and depends on the current valuation of the share and the regulatory framework.
In the area of Wealth Management there is an active active funnel for potential bolt-on acquisitionsand transactions are also possible this year if the right opportunities arise. The acquisition of Aquila has proven to be very positive.
With regard to the risk costs Ms. Orlopp explained that for 2025 an increased increased level (850 million euros in risk provisions plus a top-level adjustment of around 230 million euros). This is a consequence of the continuing economic weakness in Germany. Although there are individual major cases, there are no problems in entire sectors. The effects of Basel IV have so far been less than originally expected. The potential impact of the planned fiscal expenditure on the risk-weighted assets (RWA) Ms. Orlopp is currently not critical, as the planning here is rather conservative.
The question of consolidation in the fragmented German banking market was answered rather skeptically by Ms. Orlopp for the short-term future. She sees consolidation within the three pillars (cooperative banks, savings banks, private banks) rather than cross-sector mergers. Progress at EU level with the savings and investment union and, in perspective, the banking union could, however, make cross-border M&A more attractive in the long term. Despite the high level of competition in the German market, Commerzbank is well positioned and is concentrating on offering attractive solutions for its customers.
The positive effects of the fiscal stimulus Ms. Orlopp expects rather from 2026as the implementation of the measures will take time. However, reforms by the new government could possibly provide positive impetus for sentiment as early as this year. The The start to 2025 has been very pleasingand good news is expected when the Q1 results are presented in mid-May. With regard to the concrete impact of the fiscal package on Commerzbank, Ms. Orlopp referred to the expected GDP effect of around 0.5 percentage points for next year.
Finally, the question of a potential takeover potential takeover by UniCredit was raised again. Ms. Orlopp confirmed the openness in principleto examine all offers, but emphasized the focus on its own strategy. She referred to the Ministry of Finance's rejection of UniCredit's previous approach and emphasized that a meaningful evaluation of a combination is only possible in direct talks. She again emphasized the strengths of Commerzbank and the potential of its own strategy. emphasized.
Commerzbank, under the leadership of Bettina Orlopp, is pursuing ambitious goals and is confident of achieving them. The focus is clearly on the implementation of the "Momentum" strategy, which is based on a combination of growth investments and efficiency improvements. The bank is benefiting from the positive trend in commission business and expects a tailwind from potential fiscal stimulus, albeit in the medium term. The capital allocation and plans for distributions to shareholders have been clearly communicated and are being implemented step by step.
The M&A speculation surrounding UniCredit remains, but is not currently seen by the bank as a primary strategic path.
