Commerzbank AG (CBK) Earnings Call Transcript

Good morning, everyone. Good morning, Bettina.

Good morning.

So 2 years ago, when we both were sitting here, and you just took over as CEO, actually -- I mean, to be named CEO literally the day before. Italian bank UniCredit took just the first position. So it was already our intro in the call -- in the meeting. So today, UniCredit sits on close of half of the register. And on Monday last week, your 2 largest shareholders had the first discussion and first meeting, and they both called this constructive. So you laid out 2 phase path, collaborative first and consolidate later. So I would like to spend the next few minutes on where this actually stands and what investors in this room should be watching between now and the moment something is signed. So I will let you maybe do some first introduction, and I will certainly follow up.

Sure. I mean it's important to note that we are now entering a new phase, that's for sure. And we have been very successful in the past 2 years. So we are very proud of that. I think it's also important to note when you look at our performance of the share price, but also when you look on the performance and profitability, I think we can be all very satisfied, and we are at least very proud. We are now in the situation, I call it always the phase zero, where we wait that the approvals come through that will be either by the end of this year or beginning of next year. I think both CFO teams would rather prefer beginning of next year, just because it's much easier to consolidate first quarter as a testing moment than a full year, but we will take it as it comes. So it's now important to really prepare for that. That is number one. And then there is a phase 1, which we phrase it like that, which is where we are still an independent bank that publicly listed, and we have our own strategy. But we are part of a group. And I think it's best if we use this phase for -- and that is why I called it a collaborative approach, where we can already use the power of the group for certain things. I mean, still HVB and Commerzbank are competitors and UniCredit, but we can definitely will have some sources of potential revenue synergies and cost synergies, which you can create in this time. And then it's clear that the question that, that should not be the end, because if you have gone so far, it's very clear that you also want to get at a certain point in time, realizing at least the domestic synergies, which are in place, which means that in this Phase 2, there should be a kind of an integration between Commerzbank and HVB, but -- and for that phase specifically, you need for the structural changes, you need more than the 49% majority. You need to have a majority in an AGM of 75%. And therefore, the talks between UniCredit and the government as a second largest shareholder are pretty important to make that happen.

Very clear. So the press reported potentially an accelerated agenda to what you just described, where you will have a scenario where Commerzbank does a reverse takeover on HVB. That would be definitely an easier option for both parts and make things actually probably smoother and faster. Do you agree with this? And is that something been floated as an idea and discussed?

I mean we have discussed and analyzed all potential options in the last 2 years, and UniCredit potentially has done the same. And I mean, there are always 3 basic options on how you can structure such a structural deal. One is just simply a merger between Commerzbank and UniCredit. Another one is that you go out, make an offer to the remaining shareholders, most likely with a premium. You get above 90%, and then you kind of do this squeeze-out and then you can integrate the 2 things or -- and that is the third option, is that you do basically an acquisition of HVB by Commerzbank, and you pay in shares, which would bring UniCredit up in the shareholdership with Commerzbank. All 3 basic options are on the table. All 3 basic options require a voting in the AGM of minimum 75%, and that is something we need to keep in mind, and that brings us back to the role of the government.

So in these discussions and all these options, what's the role you're playing into this?

Well first of all, I think it's not on us in the moment to discuss at all this Phase 2. I think we have our hands full with preparation of Phase zero, and we also have a bank where everybody expects that we deliver our momentum targets, which we do. I'm pretty sure we will talk about that in a minute. And then for us, it's important now to think about the Phase 1 and how to detail that because that I think is the short-term expectation and rightfully so from investors that they see already in Phase 1, what kind of additional value can be created. And this is where we at Commerzbank focus on to think about potential levers one can pull.

So really last question before we move to -- on the -- before we can move to Phase 2, there was also some -- in the press again, some conditions set by government as the seats in the Board. And is that something you think could be a hurdle to progress into that Phase 2? Is it something really, from the government's point of view, a red line? Or is this start of a negotiation?

Well, I mean, it's pretty clear that the government has 2 hats on in this thing. One is, they are a shareholder. That's clear. But on the other side, they also are keen to see that for the economy in Germany, the situation is the right one, given that we are an important lender for a German economy. And therefore, certain things are important, also from a political standpoint. But at the very end, that is something which needs to be discussed. And I don't like the wording of a red line because I always think that all involved parties should always think to the benefit of the institution and to the benefit of all stakeholders involved in that.

So if this Phase 1 stays longer, investors in this room, how should we think about Commerzbank? Is it like a stand-alone bank, keep beating their targets and reaching this very, very ambitious targets, or actually a subsidiary of a bigger group preparing for integration?

Well, the thing is that, I mean, company laws make this very clear in Germany. We are in this Phase 1. Commerzbank is an independently acting bank. This is a stand-alone strategy. We have a stand-alone strategy out there with some very ambitious targets for 2028 and 2030. We are completely convinced and I have the feeling that investors also believe us, that we can realize these targets. And I think now the trick is to think about what additional value can be created in this Phase 1 to make it even more attractive to be invested in Commerzbank.

Thank you, Bettina. Are there any questions on the floor before we move on to, no, very good. So maybe we can talk about the German economy first. So clearly, the picture looks slightly better versus 12 months or 6 months ago. Can you tell us on the ground from your discussions with the corporate, Mittelstand, what do you see, what do you hear, and how? I mean, you've been saying in the past that you have some constructive discussions to start to leverage again and invest. What do you hear now?

Yes. I think it's a little bit of an up and down, right? If you go back 12 months, I think GDP assumptions were already at 1%, then it dropped after the start of the Middle East conflict, I think down to something very low. Now we are back. And I would say it's even a little bit better because at least our latest research assumptions are that we are at 1.2%. Still not great, but it's a starting point. And what we also see is that there are some positive signals. Just today, we saw the latest new [ Ifo ] data, and they again have improved despite all the noise around the oil price. So that's good. And overall, also PMI data, order data is good. I think if you then do a drill down, you see that there are some -- it's a mixed bag because it depends very much on which industries you look at. There are some sectors which are doing extremely well, who are extremely bullish, who also invest a lot. And then you have some other sectors who are still very cautious, who think a lot about restructuring and things like that. What we do not see is -- I mean, we see a very high level of defaults, but they are very much focused on smaller and younger companies and less related to a certain industry or to larger companies. So it's really a mixed bag, but I would say clearly some signals of recovery. And therefore, we believe we should also see a good outlook for 2027.

And on the fiscal stimulus, and we're all waiting for this to show more than just green shoots. Do you think the latest elections in the [ Länder's ] that has been clearly a breakthrough for the [ AfD ] will slow down or impact the reform agenda for Mr. [ Merz ] or even threaten the coalition?

I think there are two answers to it. I mean my clear hope is that there will be no changes because I think if there's one thing which is clear is that it is super necessary to just implement the reforms as quickly as possible and just -- that's easy to say as a nonpolitician, to just not care about the polls, just do the right things. But then there is a political debate, which is hard to be influenced by anyone from the industry.

Very good. So let's move on now to your CMD strategy. So you've upgraded your guidance earlier this year and with very, I mean, I would say, impressive RoTE targets above 20% in '23, so -- 2030, sorry. So 6 months into the plan, what areas do you think that you've been perhaps too punchy or you see actually more upside?

Actually, we feel very comfortable with the strategy implementation. We just had yesterday our yearly meeting with the Supervisory Board, having a deep dive discussion on the strategy, and we are also in the middle of our multiyear planning exercise for next year. And the good thing is that the targets which we have laid out in May, we feel very comfortable about it. So we are progressing very nicely when it comes also to the implementation of the measures. We have just also launched, again, a very large part-time retirement program offer to also make the redundancies happening, which we have promised to the market. So overall, it's really progressing as expected. There are always some things which are developing differently when you take. I mean, clearly, our expectation was that there would be more growth in Germany, lending growth. Now we have more lending growth internationally. I mean the deposit competition is very high, as we know. But then on the other side, you also have a very nice development of the forward rates, at least from our perspective. So there are different factors. But overall, we feel very comfortable for this year. And we will also have already -- we will see some booking even this year in the fourth quarter, most likely for some of the restructuring and then more to come in 2027. But despite that, we feel very comfortable with the guidance of the EUR 3.4 billion of net income.

I mean your plan was very ambitious because you had behind you the team yellow, and it was almost seen as, of course, we want to do best and improve, but we have the incentive we want to do it. Now with the current situation, do you still have the army behind you and delivering every day?

Yes. I mean we have seen it in the second quarter. I mean we had so much, so much noise in the second quarter because of the takeover offer, and we had an excellent second quarter. And I mean, third quarter, we all know is always a little bit difficult because of the summer breaks and stuff like that. But we do not have the feeling that this is really preventing our team to deliver. And I mean, I have a lot of talks also with our clients. And my first question, I mean, it's always about UniCredit, the question from their side. But I always then ask, "Is the team focused? Do you have the feeling that they are distracted when covering the clients?" And the answer is luckily always no. So team is fully focused. Also, I have to say that clearly, if there is some nervousness in the system just because of all the headlines which we see, that is not entirely helpful. And we also have our competitors hanging around our key talents and our clients, sneaking around trying to convince them to move. But so far, I have to say, clients and also staff has been very loyal and I think the important part now is, and this is why we're also pushing for that is, I mean, people want to have clarity, clients want to have clarity. Our staff wants to have clarity, and that is the most important thing. And I think that is the most important thing we now need to do.

Very clear. So let's talk about your net interest income. You're guiding for EUR 8.6 billion in '26. I mean the first half run rate suggests that second half, you have to step it up quite significantly. What will be the levers to accelerate it? Because clearly, you mentioned the rates are more favorable, but that's new news, I would say. So what was the initial levers? And would that come on top of your guidance?

Yes. Plus, I mean the improvement of the forward rates basically since May, but also the possibility there might be another interest rate hike this year, that is nothing which will really influence the result of 2026. So it's the same. What we said is that, first of all, we have now this or we have this interest rate hike increase in September, plus we always said that most of the additional benefits from replication portfolio, you will only see in the second half, and this is what makes a difference between H1 and H2. And that's still valid and therefore, the EUR 8.6 billion guidance is still a very valid assumption.

Very good. Can you spend a few minutes on deposit competition in Germany? You've always been very comfortable, I mean, Chase is the 13th bank competing. So do you still believe that? And can you maybe tell us on the ground how really you defend your deposit franchise there?