Commerzbank’s Lack of Buyback Detail Takes Shine Off Outlook

Commerzbank AG provided few details on a new share buyback plan, disappointing investors even as it raised the outlook for income from lending.

(Bloomberg) — Commerzbank AG provided few details on a new share buyback plan, disappointing investors even as it raised the outlook for income from lending.

While Chief Financial Officer Bettina Orlopp said in an interview that the next program will be bigger than the €122 million repurchase completed this year, Commerzbank is only now starting to seek regulatory approval. Some analysts had expected an announcement along with the publication of second-quarter results on Friday.

Commerzbank fell in Frankfurt trading as the lack of detail took the shine off an improved outlook for net interest income, with the lender predicting at least €7.8 billion this year, up from a guidance of about €7 billion. Net income for the second quarter rose 20%, in line with estimates, as better-than-expected revenue made up for costs that were higher than analysts had predicted.

Rising income from lending has provided a boost for Chief Executive Officer Manfred Knof, who is considering raising a key profitability target along with shareholder payouts as part of a new strategy to be unveiled later this year, Bloomberg has reported. The lender, which is heavily dependent on retail and commercial banking, has been a key beneficiary of higher rates, allowing it to start returning cash again after a long period in which Commerzbank paid little to no dividends.

Commerzbank reported “a solid set of results” and the improved outlook is even “more pleasing,” KBW analysts led by Tom Hallet said in a note. “But we are left underwhelmed around the lack of buyback detail.”

Commerzbank fell as much as 5.5% before paring losses to 2.5% by 12:02 p.m. in Frankfurt trading. 

Orlopp said in the interview on Bloomberg TV that Commerzbank was actually “ahead of the curve” on its next buyback because it’s applying for approval based on an estimate for profit this year. 

She subsequently guided on a call that current analyst expectations regarding the buyback are about right. Asked if that implies a targeted buyback of about €300 million, she said that figure wasn’t “too wrong.”

The bank also improved its guidance for credit provisions, lowering it by €100 million euros for the full year. At the same time, it raised the outlook for costs to €6.4 billion from €6.3 billion and said net commission income will decline from a year ago. The worsening costs reflect expectations for higher staff bonuses. 

What Bloomberg Intelligence Says:

Commerzbank’s upgraded 2023 net-interest-income guidance (2% above consensus) and 6% 2Q beat reflect surging policy rates, but as these near a peak and pressure mounts for greater pass-through to savers, we expect a decline in 2024. Fee income missed estimates in 2Q and are now expected to fall next year, suggesting consensus return on equity of 8.8% then is high. New share-buyback plans and a 50% dividend payout ratio are encouraging, but as expected.

— Philip Richards, BI banking analyst

Commerzbank Latest 2023 Outlook Raise Could Be Its Last: React

Knof said on a call that he will present his strategy update on Nov. 8. He also said the profitability target he will present that day will be above 10%, confirming a previous Bloomberg report.

While the CEO’s next plan will include additional savings as well as targeted investments, he doesn’t see the need for more sweeping changes after he embarked on steep cost reductions more than two years ago, people familiar with the discussions said previously. 

–With assistance from Macarena Muñoz, Mark Cudmore and Anna Edwards.

(Updates with more buyback details in seventh paragraph, details about new strategy in penultimate.)

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