Commerzbank aims for second share buyback after half-year results

Commerzbank is expecting to announce a second, larger share buyback after its half-year results in early August, the bank’s chief financial officer told the Financial Times.

Germany’s second-largest listed lender more than tripled last year’s net profit to €1.4 billion and launched the first buybacks in its 153-year history in June. However, at €122mn, the scheme represents just 1 per cent of the €12bn market capitalisation. It has also paid out €250 million in dividends this year.

Bettina Orlop said in an interview that the additional buyback “makes perfect sense” because Commerzbank’s shares are heavily undervalued, trading at less than half of its book value.

“Buybacks effectively reduce capital and improve (return on tangible equity), which is beneficial to our shareholders,” she said.

“We will certainly have a second look (as soon as we know how our half-year results look),” Orlop said.

The buyback would require approval from the supervisory board, regulators and the German government, which is Commerzbank’s largest shareholder with more than 15 percent since it bailed out the bank in 2009 during the financial crisis.

Analysts expect Commerzbank’s annual profit to soar more than 50 percent to €2.2bn this year because of rising interest rates and a multi-year cost-cutting plan that will include closing half of its German branches and a third of its domestic ones. to do is included. Employee.

The bank’s common tier one equity ratio – a key measure of balance sheet strength – stood at 14.2 per cent, or 40 per cent higher than the regulatory minimum. Orlop suggested it could comfortably fall 200 basis points lower.

She would not be drawn on the exact size of another buyback, but insisted it would be “much larger” than the current one. He indicated it would exceed €200mn but would be below an upper limit of around €1bn set by shareholders.

The main source of uncertainty for the first half results, which the bank will report on August 4, is its Polish mortgage portfolio, Orlop said.

Commerzbank’s Polish subsidiary mBank is one of several banks that sold Swiss franc denominated mortgages to households in the early 2000s without hedging foreign exchange risk.

The customers subsequently suffered huge losses and are successfully suing their mortgage providers. The sector is anticipating a ruling from the European Court of Justice that could rule that banks must return all interest payments to customers.

In a worst-case scenario, this could expose Commerzbank to “a sum of three-digit million euros”, Orlop said. This will be in addition to the €1.7bn that Commerzbank has so far paid or made provisions for in the issue.

The bank is offering to settle the remaining 40,000 customers with active Swiss-franc loans in Poland. It has already paid a total of €300mn and made provisions for another €1.4bn.