Commerzbank reports weakened demand for structured products

Commerzbank has reported an operating profit of €1 billion and a net result of €751m during the first nine months of 2018.

In the corporate clients segment the bank posted an operating profit of €523m between January 1 and September 30, 2018, compared to €743m in the previous-year period with the decline in earnings attributable mainly to the competitive environment, which put pressure on margins and ‘clearly weakened demand for structured products’, according to the bank.

Commerzbank made the top 10 issuers – both for issuance and sales – during the first nine months of 2018, according to SRP data. The bank sold 1,300 products (excluding leverage and flow) making it the second most active issuer during the period, behind Vontobel, while estimated sales of €2.4 billion meant it was the seventh most active issuer by sales volume (9M2017: €5.7 billion from 2,844 products).

During 9M2018, the bank sold products in 10 European countries including the UK, where it collaborated with Augere, Idad and Meteor for the distribution of 47 structured products, predominately autocallables. The 22 products in Sweden were available via Exceed, Garantum, SIP Nordic and Strukturinvest while in Russia the bank was the issuing party behind 100 private placements.

Other European markets where Commerzbank was active included Finland, Greece, Italy, Norway, Switzerland, the Netherlands, and its domestic market Germany, where it issued more than 100,000 listed certificates while outside of Europe the bank sold products in Australia, Canada, China, Hong Kong, Japan, Singapore and South Africa.

In the first nine months of 2018 the Commerzbank share lost 29.1% compared with its level at the start of the year, largely due to the fact that general expectations of a rate hike have ‘weakened’ since year-end. Falling rate expectations led to price falls in European banks and cyclical stocks in particular and, as a result, Commerzbank has been listed in the Mdax since September 24, 2018. However, the removal from the Dax at the regular review date was widely anticipated, and the actual event therefore had ‘little impact on performance’, according to the bank.

When applying the international financial reporting standard (IFRS 9), the group exercised for the first time the fair value option for its own structured issues in order to avoid an accounting mismatch between hedging derivatives measured at fair value through profit or loss and the structured issue, which decreased equity by €0.1 billion.

Commerzbank issued €8.2 billion in funding in 9M2018 – average term over seven years – with a focus on longer tenors. Funding included €3.9 billion worth of unsecured bonds and €4.3 billion in covered bonds. In the unsecured area, Commerzbank issued preferred senior bonds for the first time in August, which was made possible by an amendment to section 46f of the German Banking Act (KWG) in July of this year. The transaction saw the parallel issue of two bonds: one with a term of five years and a volume of €1.25 billion and one with a term of ten years and €500m.

‘We increased our underlying revenues and steadily gain new customers,’ said Martin Zielke (pictured), chairman of the board of managing directors, Commerzbank. ‘However, the environment remains challenging and although we have made a lot of progress, we still have some work to do.’

Click the link to view the full Commerzbank interim results and the presentation.