Commerzbank and Deutsche Bank are two of the most prolific issuers of structured products in Europe. Between them they launched more than 92,000 products (mainly leverage and flow certificates) during the first quarter of 2017, down 16% from 110,000 products issued during the same period in 2016.
SRP reviews the data and financial results of the two German investment banks for 1Q 2017.
Commerzbank issued more than 44,000 structured products across Europe between January 1 and March 31, 2017, down 23,000 products year-on-year from the 67,000 products that were issued during Q1 2016, according to SRP data. Of these, 40,256 products, predominately leverage and flow certificates, were listed products targeted at German investors. In Italy the bank launched 11 products in the first quarter, including seven phoenix certificates, a product which was also popular in the UK market. In the Netherlands, where Commerz has been expanding its product range since July 2016, the bank introduced six discount certificates, nine rendement certificates and six bonus certificates in Q1 2017.
Commerzbank posted an operating profit of €314m for the first quarter of 2017 (Q1 2016: €282m). After deduction of taxes of €77m and minority interests of €20m, Commerzbank made a net profit of €217m (Q1 2016: €169m). Earnings per share came in at €0.17 (Q1 2016: €0.13), according to the bank's interim results.
"Commerzbank had a good start to the new year and achieved a decent operating profit in the first quarter," said Martin Zielke (pictured), chairman of the board of managing directors, in a statement. "But it is also clear that it will take some time for our growth to be sufficient to significantly outweigh the burden resulting from the negative interest rate environment."
The bank corrected an error by retrospectively deconsolidating as of March 31, 2016 three exchange-traded funds (ETFs) that had been previously consolidated. This correction was necessary because control had been permanently relinquished, according to the bank's results. In the first quarter of 2016, commission expenses fell by €2m, net trading income by €1m and other income by €1m. Claims on banks increased by €2m and trading assets by €71m. In addition, liabilities to customers increased by €270m, while trading liabilities declined by €8m and other liabilities by €189m.
Trading liabilities, which show the negative fair values of derivative financial instruments that do not qualify as hedging instruments for hedge accounting purposes and also include own issues in the trading book and delivery commitments arising from short sales of securities, included €5.5bn of certificates and other notes issued as of March 31, 2017 up 14.7% from €4.8bn on December 31, 2016.
Deutsche Bank issued 48,284 structured products across seven European countries during Q1 2017 (Q1 2016: 43,480 products), according to SRP data. As was the case with Commerzbank, the vast majority of Deutsche's products (more than 48,000) were listed investment certificates targeted at the investors in Germany. In Belgium 14 fully capital protected products worth €152m were distributed via Deutsche Bank Belgium's retail network, including offerings issued in collaboration with BNP Paribas, Credit Suisse, Societe Generale and Natixis. Deutsche also three structured notes (€16m) in Portugal and five structured notes in Spain (€100m), including the Luxembourg listed 10-year Eurostoxx 50 autocallable notes which collected €31.9m during the subscription period.
Deutsche Bank reported a pre-tax profit of €878m for the first quarter of 2017, up 52% from €579m in the same period last year while net income, at €575m was up 143% year-on-year.
As of March 31, 2017, total liabilities decreased by €25.8bn (or 2%) compared to year-end 2016. The overall reduction was primarily driven by a €64.8bn decrease in negative market values from derivative financial instruments. This decrease was partly offset by a €19.8bn increase in brokerage and securities related payables, primarily due to the same factors as the movements in brokerage and securities related receivables as discussed above. Trading liabilities increased by €16.3bn, mainly attributable to increased trading activities in EU & US rates business.
Trading assets and positive market values from derivative financial transactions with associated companies amounted to €32m as of March 31, 2017, and €8m as of December 31, 2016. Trading liabilities and negative market values from derivative financial transactions with associated companies were €0m as of March 31, 2017, and €0m as of December 31, 2016.
The Private, Wealth & Commercial Clients division registered net new money inflows of €3bn while net revenues increased 11% to €1.9bn in the first quarter of 2017. Revenues in the Wealth Management (WM) businesses increased by €136m, or 27%.
On February 3, 2016, Lehman Brothers Holding, Inc. (Lehman) instituted an adversary proceeding in United States Bankruptcy Court for the Southern District of New York against, among others, MortgageIT (MIT) and Deutsche Bank AG, as alleged successor to MIT, asserting breaches of representations and warranties set forth in certain 2003 and 2004 loan purchase agreements concerning 63 mortgage loans that MIT sold to Lehman, which Lehman in turn sold to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), according to Deutsche's interim report. The complaint seeks indemnification for losses incurred by Lehman in connection with settlements entered into with Fannie Mae and Freddie Mac as part of the Lehman bankruptcy proceedings to resolve claims concerning those loans. On December 29, 2016, Lehman filed its second amended complaint against DB Structured Products and MIT alleging damages of approximately US$10.3m.
Click the link to view the Q1 interim report for Commerzbank and Deutsche Bank.
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