Commerzbank AG — Earnings Release 2008

Feb 18, 2009

News Details

UK Regulatory | 18 February 2009 07:02

Commerzbank: Neutral consolidated surplus in 2008

Commerzbank AG / Final Results/Quarter Results

Release of a UK Regulatory Announcement, transmitted by DGAP – a company of

EquityStory AG.

The issuer is solely responsible for the content of this announcement.

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Commerzbank: Neutral consolidated surplus in 2008

– Operating profit at minus EUR 378 m

– Operating profit without one-offs at EUR 2.1 bn

– Core capital ratio (Tier 1) 10.1%

– No bonuses paid for 2008

– Blessing: ‘The fourth quarter of 2008 was one of the most difficult

ever for Commerzbank’

In 2008, Commerzbank’s consolidated surplus attributable to its

shareholders amounted to EUR 3 million. In the extraordinarily successful

year 2007, the consolidated surplus attributable to Commerzbank

shareholders stood at EUR 1.9 billion. After a respective positive

consolidated surplus of around EUR 0.8 billion for the first nine months of

2008, in Q4 the consolidated loss amounted to EUR 809 million (Q4 2007: EUR

201 million).

The operating profit came at minus EUR 378 million, compared to an

operating profit of EUR 2.5 billion as at December 31, 2007. For the fourth

quarter, the bank posted an operating profit of minus EUR 822 million (Q4

2007: plus EUR 169 million). Excluding one-offs, the operating profit for

the past year remained positive at EUR 2.1 billion. The bank’s operating

earnings potential remained impressive even in the financial markets crisis

in the core segments Private & Business Customers, Mittelstandsbank and

Central and Eastern Europe (CEE). However, this was not sufficient to

offset the negative impact of the global market turbulence.

‘With its strong core business, the bank developed well into the second

half of the year in spite of the difficulties for the beleaguered financial

markets’, said Martin Blessing, Chairman of the Commerzbank Board of

Managing Directors. ‘Caused by the worsening developments and the

deteriorating economic environment since the end of the summer, we were not

longer able to escape the effects of the global downturn during 2008. The

fourth quarter was one of the most difficult ever for Commerzbank.’

Core capital ratio (Tier 1) 10.1%, Hybrids will be serviced

For 2008, Commerzbank’s core capital ratio (Tier 1) was reported in

accordance with IFRS for the first time. It came at 10.1% at year end. The

outstanding profit-sharing certificates, the SoFFin’s (Sonderfonds

Finanzmarktstabilisierung) silent participation and the other hybrid

instruments will be fully serviced; there will be no participation in

losses. Commerzbank will not pay any dividend for 2008. For 2007, a

dividend of EUR 1.00 per share was awarded.

In the fourth quarter, the revaluation reserve amounted to minus EUR 2.2

billion. The major factors behind the EUR 1.1 billion decrease in the

fourth quarter were the widening spreads among various Western European

government bonds in the wake of Lehman Brothers and the Iceland moratorium

requiring adjustments in the Public Finance portfolio. On the other hand

stood positive silent reserves from claims and liabilities (fair value)

amounting to EUR 5.9 billion pre-tax. In the fourth quarter, Commerzbank

has utilized the changes in reclassifying assets (IAS 39 and IFRS 7) for

parts of the securities allocated to Public Finance (EUR 33 billion). For

the full year 2008 this resulted in charges of EUR 25 million in loan loss

provisions. In Q4 the revaluation reserve was relieved by EUR 750 million

net.

Private & Business Customers, Mittelstandsbank and CEE achieve positive

operating profit

In spite of the turbulence in the financial markets, the core business

areas Private & Business Customers and Mittelstandsbank continued to

perform well in Q4 2008. The number of private customers in Germany rose by

574,000 throughout the year to more than six million (an increase of 10%).

Dynamic growth was also recorded in customer deposits. They were at EUR

101.1 billion as of end-December after EUR 81.1 billion in the previous

year (plus 25%). The credit volume to the Mittelstand in Germany rose by

more than 10% to EUR 46.5 billion. Operating profit of the two segments was

EUR 551 million and EUR 868 million respectively (2007: EUR 401 million and

EUR 980 million).

The segment Central and Eastern Europe (CEE), which was newly formed in

2008, achieved an operating profit of EUR 304 million (2007: EUR 272

million). BRE Bank in particular posted a good annual result, despite being

hit by the effects of the financial market crisis in the fourth quarter.

Loan loss provisions increased for the capital market related businesses

For 2008, Corporates & Markets (including Public Finance and Treasury)

posted an operating profit of minus EUR 1.7 billion, compared with minus

EUR 67 million in the previous year. In the fourth quarter 2008 the

operating profit was at minus EUR 754 million. This includes the negative

effects from a total return swap of minus EUR 303 million. The position has

since been closed with a positive income contribution for 2009 totalling

almost EUR 90 million. Profits were also dampened by trading activities,

especially in credit derivatives (minus EUR 271 million). Adding to this

were Lehman Brothers and the Iceland moratorium.

Commercial Real Estate (CRE) closed 2008 with an operating loss of EUR 424

million (2007: plus EUR 447 million). Increased loan loss provisions for

possible defaults in the international real estate business (EUR 618

million) and a net investment income (minus EUR 473 million) weakened by

writedowns on securitised US mortgages (RMBS-Portfolio) were the main

reasons for the negative performance. The operative core of the real estate

business, i.e. excluding the RMBS portfolio, delivered a positive result in

2008.

Net interest income reaches record level

In 2008, the net interest income of Commerzbank Group increased by 18%

year-on-year to EUR 4.7 billion. The business segments Private & Business

Customers and Mittelstandsbank played an important role in this success.

Even in the difficult fourth quarter of 2008, net interest income in these

segments was up 7% to EUR 364 million quarter-on-quarter and 22% to EUR 354

million, respectively.

Despite the challenging situation in the global financial markets, net

commission income in the fourth quarter was EUR 677 million and only 8%

below the same quarter last year (EUR 735 million). Again, this was due to

encouraging results in the business segments Private & Business Customers

and Mittelstandsbank. With regard to the whole year, net commission income

was down 10% year-on-year at above EUR 2.8 billion.

Against the background of worsening economic expectations, the year closed

with loan loss provisions up by EUR 1.4 billion to EUR 1.9 billion. In the

fourth quarter, loan loss provisions totalled EUR 638 billion (a q-o-q

increase of EUR 577 million). Strict cost management across all business

lines paid off also in 2008, with operating expenses falling by 8% to EUR

5.0 billion.

Trading profit and net investment income with a loss

Following an outstanding trading profit in the second quarter (EUR 375

million), the capital market related segments posted considerable losses

from July 2008 onwards. Corporates & Markets (including Public Finance and

Treasury) alone showed a negative trading profit of EUR 674 million in the

final quarter. On group level, 2008 trading profit was also negative at

minus EUR 450 million (2007: EUR 879 million).

Net investment income decreased by EUR 126 million compared with 2007 to

EUR 665 million, attributable primarily to impairments on asset-backed

securities. Altogether, for the full year 2008 write downs on asset backed

securities in trading profit and net investment income totalled around EUR

1.0 billion, thereof EUR 514 million on securitised US real estate loans

(US-RMBS portfolio and CDOs), as well as EUR 350 million on Corporate CDOs.

In 2008, Commerzbank posted a consolidated surplus of EUR 62 million well

above the operating profit (minus EUR 378 million). This was caused by tax

loss carry-forwards capitalized in accordance with IAS 12. Thus at

year-end, the tax entry showed an income of EUR 465 million (previous year:

expenses of EUR 580 million). EUR 59 million of the consolidated surplus

were allocated to minority interests.

Key liquidity ratio at a comfortable level

The key liquidity ratio according to the standardised approach under the

Liquidity regulation was constantly maintained throughout 2008 at a

comfortable level between 1.06 and 1.21. By the end of the fourth quarter

the actual value was at 1.18. This also shows that the Commerzbank Group

has a solid positioning and that funding was implemented according to plan.

The balance-sheet total for the Commerzbank Group in 2008 remained almost

unchanged at EUR 625.2 billion. Claims on customers increased slightly to

EUR 284.8 billion; a result of the deposit growth in the private customers

segment. Claims on banks decreased considerably by 15% to EUR 63.0 billion.

Liabilities to banks rose only slightly to EUR 128.5 billion (+3%).

No bonuses to be paid for 2008

‘Our pre-tax earnings were negative. As a result, employees and members of

the Board of Managing Directors of Commerzbank will not receive a bonus for

2008. Nevertheless we have to reward employees individual extra payments

acknowledging their contribution and individually agreed salary components

will also be settled’, said Eric Strutz, the Chief Financial Officer of

Commerzbank who is also in charge of Human Resources. This principle

applies to Commerzbank AG and all fully owned subsidiaries.

‘Of course, we know that our employees worked hard in 2008 and displayed

great dedication and commitment. Many departments were profitable and many

employees delivered the performance that was expected. This makes it all

the more regrettable that the profit is insufficient for bonuses’, Strutz

continued. Commerzbank is currently working on a new incentive and

compensation system. The new model will have to cope with the capabilities

of the new Commerzbank in all business areas while at the same time it will

have to be in line with the sustainability of returns. ‘This will continue

to make us attractive for employees and to make high performers join us for

the long term’, said Strutz.

Outlook: 2009 will be another very difficult year

‘We had a good start in January 2009, mainly driven by net interest income

and trading profit. We will face further economic charges, which will

however decrease in 2010′, said Strutz. The integration of Dresdner Bank is

proceeding according to plan. As budgeted, in 2009 the integration will

generate costs that will be more than offset by synergy effects that the

merger will produce over time. Strutz added: ‘Thanks to our effective

structure, our high-yielding core business lines and the synergies, we will

reap above-average benefits from an economic recovery. But we have to be

realistic: 2009 will be another very difficult year.’

Excerpt from Commerzbank’s consolidated profit and loss statement 1)

in € m Q4/08 Q4/07 31.12.08 31.12.07

Net interest income 1,325 971 4,729 4,007

Loan loss provisions – 638 – 61 – 1,855 – 479

Net commission income 677 735 2,846 3,150

Trading profit – 701 73 – 450 879

Net investment income – 324 – 123 – 665 126

Other result – 137 – 27 – 27 196

Operating expenses 1,024 1,399 4,956 5,366

Operating profit – 822 169 – 378 2,513

Restructuring expenses – 8 25 8

Taxes on income 43 20 – 465 580

Consolidated profit attributable to – 809 201 3 1,917

Commerzbank shareholders

Earnings per share in € – 1.22 0.31 0.00 2.92

Return on equity on the consolidated – 22.5 6.5 0.0 15.4

surplus 2)

Cost/income ratio in op. business 121.9 85.9 77.0 64.2

1) unaudited figures of Commerzbank Group without Dresdner Bank

2) adjusted for entire year

***

Wednesday, February 18, 2009 we will be hosting a teleconference for

journalists at 10:30 a.m. (CET). At the teleconference, Eric Strutz, the

Chief Financial Officer of Commerzbank, will explain the annual financial

statement in detail. The dial-in number is +49 (0)695 8999 0509 or +44

(0)207 1620 177. A presentation will be available at this point on the

Commerzbank website.

Commerzbank AG

Group Communications

Telephone +49 69 1 36-2 28 30

pressestelle@commerzbank.com

18.02.2009 Financial News transmitted by DGAP

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Language: English

Issuer: Commerzbank AG

                Kaiserplatz

                60261 Frankfurt am Main

                Deutschland

Phone: +49 (069) 136 20

Fax: –

E-mail: ir@commerzbank.com

Internet: www.commerzbank.de

ISIN: DE0008032004

Indices: DAX, CDAX, HDAX, PRIMEALL

Listed: Regulierter Markt in Berlin, Frankfurt (Prime

                Standard), Hannover, München, Hamburg, Düsseldorf,

                Stuttgart; Terminbörse EUREX; Foreign Exchange(s)

                London, SWX

Category Code: MSC

LSE Ticker: CZB

Sequence Number: 92

Time of Receipt: Feb 18, 2009 06:58:38

End of News DGAP News-Service

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