Commerzbank's Financials – a Sound Basis
Commerzbank‘s financials – a sound basis German Investment conference
Munich, 28.09.2005 Dr. Eric Strutz Chief Financial Officer German Investment Conference
Highlights of H1 2005 results
Earnings quality significantly improved • Interest and commission income growth • Allocation to provisioning lowered to downside case of €750m
Cost/income ratio of 64.5% reveals our tight grip on costs • However, significant investments in areas with potential for sustainable growth
New structure of our divisions is paying off • Private & Business Customers as well as Mittelstand on a good course • Turnaround of Corporates & Markets • Excellent performance of Mortgage Banks
After-tax RoE of 12.6% well above our cost of capital
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Strengths & weaknesses of H1 2005 results
in € m H1 `04 H1 `05Change Comment Considerable Net interest income 1,547 1,568 1.4% increase in Q2 `05 Further reduction Provisioning -452 -375 -17.0% potential Consistent Net commission income 1,154 1,171 1.5% improvement q-o-q Disappointing Trading profit 445 273 -38.7% ? performance Sale of non-strategic AfS result/participations 234 378 61.5% investments Others* 142 12 -91.5% Cost management a Operating expenses 2,248 2,195 -2.4% permanent task High H1 `04 level Operating profit 822 832 1.2% even exceeded After-tax profit 546 633 15.9% Satisfactory level
* other operating result and net result on hedge accounting
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Comprehensive income reflects the real earnings power
Comprehensive income in € m 533
321 306 RoE on comprehensive 23.3 income in Q2 above Q1 level 237
158 14.1 13.3 10.3 Cost of capital exceeded in 6.9 both quarters 15
-5.2* Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 Σ 1,027 Σ 543
RoE after tax on comprehensive income (annualized, in %)
* after restructuring expenses of €132m
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Core divisions showing positive development Operating profit in € m Private & Business Customers Asset Management Mittelstand
103 99 81 84 73 70 69 68 53 50 46 42 36 37 40 17 18 23 Σ 323 Σ 153 Σ 177 Σ 54 Σ 131 Σ 171 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 2004 2005 2004 2005
International Corporate Banking Corporates & Markets Mortgage Banks 115 149 99 90 84 69 67 Σ −75 Σ 44 45 45 47 38 31 -38 -39 29 25 -55 Σ 311 Σ 76 Σ 139 Σ 159 -147 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 2004 2005 2004 2005
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Private & Business Customers: Tight cost control partially compensated for decreased interest income Operating profit Measures to increase profitability in € m
99 • Focused investments in online, private and business 81 84 banking products/services (€55m in 2005) 73 70 69 • Quality enhancements in financial consulting (mortgage, insurance and investment advisory as central competence) Σ Σ 323 153 • Enhanced branch efficiency by leveraging “Branch of the Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 future” learnings • Strengthen regional presence of Private Banking Q1 `05 Q2 `05 • Review of product complexity, esp. residential mortgages Øequity (€m) 1,882 1,880
Operating RoE* (%) 14.7 17.9 • Individual quarterly performance reviews and central sales campaigns for all major product lines CIR (%) 78.5 76.1
Equity allocation 18.7% within Group
*annualized
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Asset Management: AuM development reflecting distribution strategy
Operating profit Measures to increase profitability in € m • Foster cross-border production and distribution (esp. in UK and France)
53 • Prepare for German REITs (via Commerz Grundbesitz) 46 42 36 37 • Enhance product performance by building upon core 17 competences Σ 177 Σ 54 Q1 Q2 Q3 Q4 Q1 Q2 • Focused marketing of flagship products / innovations 2004 2005 • Increase third-party sales capacity Q1 `05 Q2 `05 • Efficiency programme for fund administration Øequity (€m) 533 513
Operating RoE* (%) 27.8 13.3
CIR (%) 72.0 87.3
Equity allocation 5.2% within Group
*annualized
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Mittelstand: Jump in operating profit thanks to productivity gains
Operating profit Measures to increase profitability in € m 103 • Boosting existing business with value-added products for large corporates 68 • Capital reduction in high-risk exposures / systematic 50 40 approach with special focus on low-value accounts 18 23 • Intensifying risk-adjusted pricing Σ Σ 171 131 • Strengthening focus on innovative products (e.g. Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 derivative business) • Focus on Trade Finance & Transaction Services/ Q1 `05 Q2 `05 “companyworld” internet offer internationalised Øequity (€m) 2,945 2,973 • End-to-end optimisation of core credit processes Operating RoE* (%) 9.2 13.9 • Value-based management of equity CIR (%) 56.1 52.8 • CEE: stabilise turnaround at BRE and tap other growth Equity allocation 29.3% opportunities (e.g. innovative business concept for within Group SME banking in Hungary)
*annualized
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International Corporate Banking: Potential for improving efficiency
Operating profit Measures to increase profitability in € m 115 • Maintain No. 2 position among German financial 84 institutions by concentrating on value-creating 67 structured lending products and trade finance 45 45 • Focus on investment grade loans is keeping 31 provisioning low Σ Σ 311 76 • Weeding out low-margin products Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 • Continuing successful niche strategies in the US and with financial institutions (approx. 6,000 client Q1 `05 Q2 `05 relationships) Øequity (€m) 1,251 1,339 • Streamlining of credit portfolio and regional Operating RoE* (%) 9.9 13.4 concentration CIR (%) 55.4 53.9 • Costs under review in Western Europe Equity allocation 12.8% • Return to former successful treasury profits within Group
*annualized
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Corporates & Markets: Significant cost savings realized
Operating profit Measures to increase profitability in € m 149 99 • Cost reduction ahead of plan, further downsizing by €100m in 2006 • Finalizing back-office restructuring Σ −75 Σ 44 • Securities and CRM join forces to realize synergies on -38 -39 revenue side and reduce regulatory capital -55 • Further equity downsizing to below €1.6bn through -147 Q1 Q2 Q3 Q4 Q1 Q2 more efficient portfolio management 2004 2005 • Hiring of 4 new heads for individual business lines Q1 `05 Q2 `05 (y-t-d) - proof of intention to grow in specific areas Øequity (€m) 1,832 1,848 • Keeping costs under control Operating RoE* (%) 21.6 -11.9 • Closure of Spec Sits (last non-client-related prop CIR (%) 68.0 137.5 trading team) reduces future earnings volatility
Equity allocation 18.3% within Group
*annualized
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Mortgage Banks: Significantly increased profitability
Operating profit in € m • Europe's leading bank specializing in Eurohypo financing mortgages and public finance 90 Share: 31.8% • Roll-out and strengthening of 69 international business
47 38 29 25 • Germany’s most profitable public- EssenHyp sector finance bank Σ 139 Σ 159 Share: 51.0% • Diversification of revenue streams due Q1 Q2 Q3 Q4 Q1 Q2 2004 2005 to new “Pfandbriefgesetz”
Q1 `05 Q2 `05 • Very successful niche player in Øequity (€m) 989 993 EEPK Luxembourg
Operating RoE* (%) 27.9 36.3 Share: 75.0% • Diversification in terms of customers and products CIR (%) 11.5 9.3
Equity allocation 9.8% within Group Result in H2 `05 should exceed H1 `05’s level *annualized
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Commerzbank´s specific strengths – basis to build upon
1. Clear strategic position • German Mittelstand • Private & Business Customers
2. Management 3. Financials strength • Committed to CB’s long- • High loan quality term success • Strong Tier 1 capital • High revaluation reserves
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CB’s strategic options are based on improved loan quality …
Loan-loss provisions in bps 111 106 110 99 90 85 74 Gross LLP 70 74 67 66 Net LLP 57 52 46 Releases 40 44 53 38 Average net LLP 44 44 1997-2004 33 33 33 33 32 1997 1998 1999 2000 2001 2002 2003 2004 2005e
Coverage ratio for non-performing loans in €m 7,509 7,459 In excess: 1,215 1,066 1,085 7,287
5,352 5,402 5,407 119.3% 116.0% 117.5% Non-performing loans 6,924 6,393 6,202 Loan-loss provision 326 334 341 Country LLP + General provision 1,831 1,723 1,539 Collateral Dec `04 Mar `05 Jun `05
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… leading to consistent decline in provisioning needs
in € m 1,321 -12 32 1,084 188 -59 27
197 167 836 55 -29 70 52 760 212 688 208 45 14 33 -10 Others and Consolidation 195 Mortgage Banks -7 17 Private and Business 682 601 Customers 846 405 Corporates and Markets
International Corporate Banking
Mittelstand Budget Current 2002 2003 2004 2005 forecast
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CB’s financial strength is based on a sound Tier 1 ratio ...
Development of Tier 1 capital ratio (BIS) Capital management
in % Projected Tier 1 ratio (BIS) in line with CB 7.5 target range 7.0 ≥ 7.2 target 6.8 corridor CB main focus: realize further growth potential (organic and acquisitions)
• Disposal of participations: cont´d • Optional: securitizations
Q4 `04 Q2 `0507/05 Q4 `05e Additional measures (dividend policy, share buyback) depending on: In particular due to negative: comdirect share • Acquisition opportunities implementation of purchase „Finanzkonglomerate- • Satisfactory earnings stability positive: earnings retention richtlinie“* • Rating considerations
* new “Finanzkonglomeraterichtlinie” requires inclusion of KAGs in consolidation 15/18 German Investment Conference
… a higher revaluation reserve, despite disposals, …
Major participations of Revaluation reserve Commerzbank in € bn as of now + €654m pre-revaluation post-revaluation 1.69 1.60 ≥ 10% KEB 1.43 1.51 1.24 1.25 1.21 1.04
~ 10% Linde (DAX) 0.65
1 - 5% Banca Intesa SpA
Generali Strategic Mediobanca participations -0.26 Number of major Hochtief (MDAX) listed participations 11 ThyssenKrupp (DAX) 7* -1.10 03/03 06/03 09/03 12/03 03/04 06/04 09/04 12/04 03/05 06/05 07/05*
equities bonds equities and bonds
* excluding Heidelberger Druck
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… and an overall strengthened balance sheet
Changes in key balance-sheet items Trend: since 12/2002 in € bn Total as of June `05 6.1 Pension obligations: adjustments due to new mortality tables and long-term interest rates ∆ Others* 0.4 ∆ Excess of 0.5 loan-loss coverage
Capital increase 0.7 Reversals
∆ Reserve in subsidiaries 2.2 Stable, or slight increase
∆ Revaluation Stable reserve 2.3
* including reserves/charges arising from secured underlying transactions and pension obligation
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Commerzbank delivers on its three main challenges for FY 2005
Focus Value drivers
Enhancement of • Germany: revenues, costs and LLPs 1. profitability of Mittelstand division • BRE Bank: turnaround and growth opportunities
• Focusing on regions and products with competitive Turnaround of Corporates 2. strengths & Markets • Increasing capital efficiency
Tight cost 3. • Revenue-related expense strategy management
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Appendix
Appendix – Profitability Analysis
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Profitability analysis H1 2005
Private & International Asset Mittel- Corporates Mortgage Others & Business Corporate Management stand & Markets Banks Consolidation Customers Banking Operating profit (€ m) 153 54 171 76 44159 175
Regulatory capital (€ m) 1,881 523 2,959 1,295 1,840991 596
RoE* (%) 16.3 20.7 11.6 11.7 4.8 32.1
Economic capital (€ m) 1,464 242 2,321 1,073 1,5161,167 1,793
RoRaC* (%) 20.9 44.6 14.7 14.2 5.8 27.2
Av. RWA** (€ bn) 26.7 5.7 39.7 18.5 25.614.1 11.2
Av. Lending volume (€ bn) 36.3 0.8 42.4 15.6 8.745.7 8.7
Net LLP per lending volume* (bps) 51 0 110 35 187 0 Regulatory capital Economic capital defined as risk-weighted assets in each segment defined as aggregation of credit risk, market risk, multiplied by 7% target BIS-Tier 1 ratio plus operational risk and business risk, each calculated differences between book value and equity of on appropriate value-at-risk models at 99.95% subsidiary companies levels * annualized ** RWA including market-risk position 20/18 For more information, please contact: Sandra Büschken Commerzbank Investor Relations P: +49 69 136 23617 M: [email protected] Jürgen Ackermann Ute Heiserer-Jäckel Head of Investor Relations P: +49 69 136 41874 P: +49 69 136 22338 M: [email protected] M: [email protected] Simone Nuxoll P: +49 69 136 45660 www.commerzbank.com/ir M: [email protected] German Investment Conference
Disclaimer
/ investor relations /
This presentation has been prepared and issued by Commerzbank AG. This publication is intended for professional and institutional customers. / Any information in this presentation is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Commerzbank Group with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgement at this date and time, and are subject to change without notice. This presentation is for information purposes, it is not intended to be and should not be construed as an offer or solicitation to acquire, or dispose of any of the securities or issues mentioned in this presentation. / Commerzbank AG and/or its subsidiaries and/or affiliates (herein described as Commerzbank Group) may use the information in this presentation prior to its publication to its customers. Commerzbank Group or its employees may also own or build positions or trade in any such securities, issues, and derivatives thereon and may also sell them whenever considered appropriate. Commerzbank Group may also provide banking or other advisory services to interested parties. / Commerzbank Group accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this presentation. / Copies of this document are available upon request or can be downloaded from www.commerzbank.com/aktionaere/index.html
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