DGAP-Regulatory: Commerzbank to increase profitability through focus and digitalisation

 
 Commerzbank Aktiengesellschaft / Miscellaneous - Urgent Priority 
Commerzbank to increase profitability through focus and digitalisation 
 
30-Sep-2016 / 10:37 CET/CEST 
Dissemination of a Regulatory Announcement, transmitted by EQS Group AG. 
The issuer is solely responsible for the content of this announcement. 
 
- *'Commerzbank 4.0' strategy with three main thrusts: focused growth, 
digital transformation and increased efficiency* 
 
- *Concentration on future-proofing customer business in two segments: 
'Private and Small Business Customers' and 'Corporate Clients'* 
 
- *Trading activities in investment banking to be scaled back, freed-up 
capital reallocated and balance sheet structure further improved* 
 
- *Evolution into a digital enterprise - 'Digital Campus' to speed up 
implementation* 
 
- *Focusing and digitalisation will lead to staff reductions amounting to 
9,600 full-time positions * 
 
- *Strategy implementation to be financed by targeted deployment of 
resources and retention of profits* 
 
*- Zielke: 'Our business model will be simpler, more efficient and fully 
digitalised, enabling us to sustainably increase our profitability.' * 
 
By the end of 2020 Commerzbank will have sustainably increased its 
profitability. As part of the 'Commerzbank 4.0' strategy, it will 
concentrate on its core businesses and digitalise 80% of relevant processes, 
thereby achieving significant efficiency gains. Its business will be focused 
in two customer segments, '*Private and Small Business Customers*' and 
'*Corporate Clients*'. The Mittelstandsbank and Corporates & Markets 
segments will be consolidated into a single unit and trading activities in 
investment banking scaled back. The downsizing of the trading activities 
will reduce earnings volatility and regulatory risk, and will free up 
capital to be invested in the core businesses. 
 
Commerzbank is aiming for a net return on tangible equity (RoTE) of more 
than 6% by the end of 2020. This target is based on the expectation that the 
interest rate environment will remain challenging. Should interest rates 
improve, a net return on tangible equity of more than 8% will be achievable. 
Commerzbank is expecting revenues for 2020 to total between EUR9.8 and 10.3 
billion. The cost base is to be reduced to EUR6.5 billion, taking the 
cost/income ratio to below 66%. In a normalised interest rate environment, 
revenues could rise to over EUR11 billion and the cost/income ratio could 
fall to around 60%. 
 
The Common Equity Tier 1 (CET 1) ratio, after full application of Basel 3, 
is expected to stay at around 12% and will be above 12% in 2018 taking into 
account currently foreseeable regulatory developments. For 2020 the Bank is 
expecting a ratio of above 13%. 
 
To cover its restructuring costs of around EUR1.1 billion, Commerzbank will 
cease dividend payments for the time being and will retain its full 
earnings. 
 
The focus on the core business, with some business activities being 
discontinued, and the digitalisation and automation of workflows will lead 
to staff reductions amounting to around 9,600 full-time positions. The Bank 
will shortly begin preparatory discussions with the relevant employee 
representative committees. At the same time, around 2,300 new jobs will be 
created in areas of business growth. Hence the net number of jobs shed will 
amount to around 7,300 full-time positions. 
 
'Job cuts are a painful process for the Bank and for each individual 
affected. But they are necessary to make the Bank fit for the future. 
Although Commerzbank is stable, it is not profitable enough', said Martin 
Zielke, Chairman of the Board of Managing Directors of Commerzbank. 'We have 
achieved a great deal in the last few years: we have improved the quality of 
our balance sheet, reduced risk and significantly strengthened our capital 
base. Now, with the general business climate as challenging as ever, we need 
a bold rethink and a real transformation of the Bank. For this, we will be 
concentrating solely on our strengths, automating our processes and thereby 
laying the foundations for profitable growth at lower costs. The new 
Commerzbank 4.0 is focused, digital and efficient.' 
 
*Concentrating on strengths* 
 
With its two segments, 'Private and Small Business Customers' and 'Corporate 
Clients', Commerzbank will in future be even more focused on its core 
businesses. 'We are focusing on the areas where we deliver particular added 
value to our customers, thereby setting ourselves apart from the 
competition. And we are systematically giving up businesses in which we 
can't see any future for us', said Martin Zielke. This relates in particular 
to the investment bank, where trading activities will be simplified and 
aligned with the needs of the Bank's core customers. The existing Corporates 
& Markets segment will be integrated into the Corporate Clients segment. 
Services that are important to corporate clients such as primary issuance 
and distribution and risk management will remain key to the Commerzbank's 
offering. The technology-intensive structured equities business in Equity 
Markets & Commodities (EMC), geared towards market-making and the 
manufacturing of securitised products, will be ringfenced in a separate 
legal entity. The exotic structured rates business will cease, while flow 
credit and bond trading in Fixed Income & Currencies (FIC) will be scaled 
back. The capital freed up by this withdrawal will be reinvested in the 
'Private and Small Business Customers' segment. By 2020 the Bank wants to 
achieve cost savings of EUR1.1 billion by focusing, eliminating redundancy, 
simplifying the infrastructure and by digitalisation. 
 
*Private and Small Business Customers:* *building on our strong position* 
 
The new Private and Small Business Customers segment encompasses 
Commerzbank's private and small-business customers as well as the 
subsidiaries Comdirect, Commerz-Real and M-Bank. The customer group 
'Small-Business Customers' comprises commercial clients and smaller SMEs. 
 
The Bank wants to gain a net two million new customers in Private and Small 
Business Customers in the German market by 2020. Growth will be driven, in 
particular, by the expansion of digital multichannel banking and innovative 
products like a new digital instalment loan platform and digital asset 
management including Robo-Advice. Commerzbank will also maintain a dense 
branch network. Besides the large flagship branches in the main population 
centres, Commerzbank will introduce a new type of small, modern branch, the 
'city branch'. 
 
'For years now, our retail business has posted sustainable, profitable 
growth in a stagnating market. We will continue this success story and 
extend it to small business customers', said Zielke. The Bank is planning to 
substantially increase its market share among small business customers to 8% 
over the next four years, thanks to good regional accessibility, tailored 
product portfolios, digital solutions and its ability to offer private and 
business services in one place. The aim is for these measures to generate 
revenue growth of at least EUR1.1 billion in the new Private and Small 
Business Customers segment by the end of 2020. 
 
*Corporate Clients: national and international growth from a leading 
position* 
 
In corporate banking, the Bank wants to further extend its leading position 
in trade financing. To achieve this it is looking for focused growth in the 
most important trade corridors for German and European corporate clients. 
With its deep penetration of the key German industries - automotive and 
transport, chemicals and pharmaceuticals, engineering, energy and 
infrastructure, consumer and retail - Commerzbank possesses comprehensive 
sector expertise which sets it apart from the competition. In future it will 
increasingly offer this expertise to its international clients in Europe as 
well. Among SMEs with turnover of between EUR15 and 50 million as well, 
Commerzbank plans to further expand its market position with the aid of its 
international expertise and digitalisation. To achieve this it will further 
develop its offering and introduce new digital products and services. 
 
Collaboration between client relationship managers and product experts will 
be further strengthened by the consolidation of Mittelstandsbank and 
Corporates & Markets. 'The Corporate Clients segment builds on the strengths 
of the Mittelstandsbank and incorporates the products and services from the 
capital markets business that are relevant to our clients', Zielke said. The 
aim is for these measures to generate revenue growth of over EUR300 million 
in the new segment by the end of 2020. 
 
*Evolution into a digital enterprise* 
 
Commerzbank wants to evolve into a digital enterprise in the next four 
years. The Bank will invest approximately EUR700 million per year in 
digitalisation and IT by reallocating existing funds, without increasing its 
overall investment expenditure. In future, agile project teams working on a 
'Digital Campus' will drive forward digitalisation projects and automate and 
optimise processes. By 2020 80% of relevant business processes will be 
digitalised. The Bank expects significant cost reductions and efficiencies 
as a result. 
 
The first milestone will come in October when Commerzbank rolls out its 
integrated digital sales interface, 'One'. This will enable sales personnel 
and customers to view information and conduct transactions on the same 
platform at any time. In addition, the Bank will put in place a flexible 
smart data architecture to enable customers to be addressed in a targeted 
way. An integrated cloud-based customer relationship management system for 
private, small business and corporate clients will then be introduced in the 
second half of 2017. 
 
*Outlook * 
 
Due to the reduction in trading activities, Commerzbank will write off 
goodwill and intangible assets of approximately EUR700 million in the third 
quarter of 2016. Consequently, the net result will be negative in the third 
quarter. The write-offs do not affect the Common Equity Tier 1 (CET 1) 

ratio. In terms of Operating profit, Commerzbank expects revenues to be 
approximately the same as in the second quarter. Loan loss provisions will 
be considerably higher than in the first two quarters due to ongoing 
weakness in the ship markets. Despite the goodwill write-offs, Commerzbank 
is expecting a small net profit for 2016 as a whole. 
 
The CET 1 ratio after full application of Basel 3 will be higher in the 
third quarter of 2016 than in the previous quarter. The Bank is expecting 
its Common Equity Tier 1 ratio to stand at nearly 12% at the end of the 
year, provided no significant market distortions occur. 
 
'Efficient use of our capital is our top priority. Our capital ratio will 
remain comfortably above the foreseeable regulatory requirements', said 
Commerzbank's Chief Financial Officer, Stephan Engels. 'We are financing the 
implementation of our strategy through the targeted use of our resources and 
by retaining profits. Therefore we are also ceasing dividend payments. We 
also have the necessary leeway by managing our risk-weighted assets.' 
 
***** 
 
*Press contact* 
Margarita Thiel [phone] 
Alexander Cordes [phone] 
 
***** 
 
About Commerzbank 
Commerzbank is a leading international commercial bank with branches and 
offices in more than 50 countries. The core markets of Commerzbank are 
Germany and Poland. With the business areas Private Customers, 
Mittelstandsbank, Corporates & Markets and Central & Eastern Europe, its 
private customers and corporate clients, as well as institutional investors, 
profit from a comprehensive portfolio of banking and capital market 
services. Commerzbank finances more than 30 per cent of Germany's foreign 
trade and is the unchallenged leader in financing for SMEs. With its 
subsidiaries Comdirect and Poland's M Bank it owns two of the world's most 
innovative online banks. With approximately 1,050 branches Commerzbank has 
one of the densest branch networks among German private banks. In total, 
Commerzbank boasts more than 16 million private customers, as well as 1 
million business and corporate clients. The Bank, which was founded in 1870, 
is represented at all the world's major stock exchanges. In 2015, it 
generated gross revenues of EUR9.8 billion with 51,300 employees. 
 
***** 
*Disclaimer* 
This release contains forward-looking statements. Forward-looking statements 
are statements that are not historical facts. In this release, these 
statements concern inter alia the expected future business of Commerzbank, 
efficiency gains and expected synergies, expected growth prospects and other 
opportunities for an increase in value of Commerzbank as well as expected 
future financial results, restructuring costs and other financial 
developments and information. These forward-looking statements are based on 
the management's current plans, expectations, estimates and projections. 
They are subject to a number of assumptions and involve known and unknown 
risks, uncertainties and other factors that may cause actual results and 
developments to differ materially from any future results and developments 
expressed or implied by such forward-looking statements. Such factors 
include the conditions in the financial markets in Germany, in Europe, in 
the USA and other regions from which Commerzbank derives a substantial 
portion of its revenues and in which Commerzbank holds a substantial portion 
of its assets, the development of asset prices and market volatility, 
especially due to the ongoing European debt crisis, potential defaults of 
borrowers or trading counterparties, the implementation of its strategic 
initiatives to improve its business model, particularly to reduce its ACR 
portfolio, the reliability of its risk management policies, procedures and 
methods, risks arising as a result of regulatory change and other risks. 
Forward-looking statements therefore speak only as of the date they are 
made. Commerzbank has no obligation to update or release any revisions to 
the forward-looking statements contained in this release to reflect events 
or circumstances after the date of this release. 
 
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Archive at www.dgap.de/ukreg 
Language:        English 
Company:         Commerzbank Aktiengesellschaft 
                 Kaiserstraße 16 
                 60311 Frankfurt am Main 
                 Germany 
Phone:           [phone] 
Fax:             - 
E-mail:          [e-mail] 
Internet:        www.commerzbank.de 
ISIN:            DE000CBK1001 
WKN:             CBK100 
Indices:         DAX, CDAX, HDAX, PRIMEALL 
Listed:          Regulated Market in Berlin, Dusseldorf, Frankfurt 
                 (Prime Standard), Hamburg, Hanover, Munich, 
                 Stuttgart; Regulated Unofficial Market in 
                 Tradegate Exchange; London, SIX 
Category Code:   MSCU 
TIDM:            CZB 
Sequence Number: 3450 
Time of Receipt: 30-Sep-2016 / 10:30 CET/CEST 
 
End of Announcement EQS News Service 
507701 30-Sep-2016 
 
 

(END) Dow Jones Newswires

September 30, 2016 04:37 ET (08:37 GMT)