Commerzbank Posts Stronger Profit in Q2, Cautions Higher Costs

German lender Commerzbank AG managed to surpass second-quarter profit expectations on Tuesday, but cautioned about operating costs being slightly higher than initially planned this year.

For the April-June period, Commerzbank generated €272 million ($315 million) in net profit, exceeding forecast of €227 million and reversing the €640 million loss it acquired in the previous year due to restructuring costs.

The company’s revenue also rose from €2.06 billion last year to €2.22 billion ($2.57 billion), marking its strongest revenue growth in at least 18 months.

Commerzbank’s revenue has declined for the past couple of years and it expects higher revenues at the group level supported by its private and small business segment.

Facing a low interest rate environment and intense competition from other banks, the Frankfurt-based firm has been having difficulty turning strong client growth intro extra revenue.

The company is spending a great deal of its money to meet a target of adding 2 million German retail customers in the four years through 2020.

Commerzbank Chief Executive Martin Zielke has pledged to raise revenue to at least €9.8 billion, the level at which it was in 2015, the year before he announced his restructuring plan, which is due to be completed in 2020.

The bank posted a net income of €1.16 billion ($1.35 billion) for the second quarter and reiterated its promise to resume dividend payments in the current fiscal year of 20 cents per share, its first dividend since 2015.

Shares of Commerzbank fell to 1.5 percent to €8.811 on Tuesday after the release of the results.  

Commerzbankz Cautions Higher Operating Costs This Year

With additional regulatory costs and investments in the business, Commerzbank’s operating expenses slightly increased from €1.72 billion a year earlier to €1.75 billion ($2.03 billion) in the second quarter.

While those costs are not as serious this year, Commerzbank Chief Financial Officer Stephan Engels said they have adjusted their operating cost target for the full year 2018 to €7.1 billion ($8.2 billion) from the previous €7.0 billion, citing continued investment in technology.

Their cost target for 2020 on the other hand, remains unchanged at €6.5 billion ($7.5 billion), according to Engels.

The company announced in July its agreement to sell its equity markets and commodities (EMC) unit to French bank Societe Generale SA.

The transfer of the trading books and the corresponding balance sheet and income will be completed in stages, with the first step expected at the end of 2018, according to the bank’s interim report on Tuesday.

Therefore, Commerzbank stated that it is likely that EMC revenue will stop appearing in the income statement over the course of next year, adding that the cut in expenses related to EMC should remove at least €200 million from the firm’s cost base by the end of 2020.

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