(Bloomberg) -- Commerzbank AG set aside more money for souring loans and slightly lowered a guidance for lending income next year, complicating efforts to fend off an unsolicited approach by rival UniCredit SpA.
Credit loss provisions at the Frankfurt-based lender almost tripled from a year earlier, taking the shine off better-than-expected profit in the third quarter and plans for a new share buyback tranche.
“Commerzbank reported a good set of operational results,” analyst analyst Thomas Hallett at KBW wrote in a note. “However, another miss in provisions and the effective downgrade to 2025 net interest income guidance may trump all.”
The results add to challenges for Chief Executive Officer Bettina Orlopp, who is trying to persuade investors that Commerzbank is better off as an independent bank. The German lender in September pledged to increase profitability and pay out more money to investors, after the Italian rival secured a 21% stake and said a takeover is an option.
Shares of Commerzbank swung between gains and losses, trading 0.1% higher at 9:18 a.m. in Frankfurt. UniCredit rose 2.1% in Milan, after the Italian lender lifted its profit guidance and posted results that exceeded analysts’ expectations.
Commerzbank confirmed a Bloomberg report that Orlopp is working on a plan to free up even more capital for payouts and investments, by curtailing growth in risk-weighted assets further. She wants to achieve that partly by using more significant risk transfers and potentially backing away from some low-yielding clients, people familiar with the matter have said.
“Capital efficiency is clearly an important point,” Orlopp said in an interview on Bloomberg TV. “We will look into doing more” such transactions.
The German company and its Italian rival have both benefited over the past two years from higher interest rates, but that effect is expected to reverse as central banks cut rates again.
Commerzbank said it now expects €8.2 billion ($8.8 billion) in net interest income for the full year, after having flagged in August that it sees “upside potential” for its full-year target of €8.1 billion. Net commission income should increase more than 5%, up from a guidance of 4% for the year.
However, Commerzbank also adjusted its outlook for net interest income next year to between €7.6 billion and €7.9 billion, from a previous guidance of around €7.9 billion.
What Bloomberg Intelligence says:
Commerzbank’s 2% revenue beat in 3Q, 8% fees hike and confirmation of raised 2027 financial goals support its case against UniCredit’s takeover ambition. Yet weak 2025 net interest income guidance (3% below consensus), an uptick in impairments (25 bps vs. 20 bps in 2Q), cost creep and a weak German economy challenge sustainability of improved earnings through 2025 amid interest rate cuts. Commerzbank also applied for another share buyback worth about €400 million.
— Philip Richards, BI banking analyst
Commerzbank’s Robust 3Q Backs Case for Independence: React
Commerzbank applied for another share buyback worth about €400 million, after net income of €642 million in the third quarter came in well ahead of the €550 million analysts had estimated.
The firm said on Monday that it’s implementing a €600 million share buyback after receiving regulatory approval. It had announced plans for the repurchase program in August, along with an intention to pay a dividend on the current year’s profit of €500 million to €600 million. Both are part of a pledge to return €1.6 billion to investors.
--With assistance from Macarena Muñoz, Sonia Sirletti and Anna Edwards.
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