CRZBF - Commerzbank AG (CRZBF) Q1 2024 Earnings Call Transcript
2024-05-15 16:24:01 ET
Commerzbank AG (CRZBF)
Q1 2024 Results Conference Call
May 15, 2024 3:00 AM ET
Company Participants
Manfred Knof - Chairman of the Board of MD & CEO
Bettina Orlopp - CFO, Head of Tax, IR, Treasury & Deputy Chairwoman of the Board of MD
Conference Call Participants
Kian Abouhossein - JPMorgan
Johannes Thormann - HSBC
Benjamin Goy - Deutsche Bank
Vishal Shah - Morgan Stanley
Riccardo Rovere - Mediobanca
Rohith Chandra-Rajan - Bank of America
Mate Nemes - UBS
Borja Ramirez - Citi
Anke Reingen - RBC
Stefan Stalmann - Autonomous
Timo Dums - DZ Bank
Jeremy Sigee - BNP Paribas Exane
Presentation
Manfred Knof
Good morning, and welcome to our conference call. We are looking forward to present and discuss our performance of the first quarter. We had a strong start in 2024. The first quarter with its record result clearly supports our equity story. Our earnings power has significantly improved. Both client segments effectively managed the rates environment and successfully developed their fee business.
The good development of our revenue base is the foundation of our strong net result of €747 million. This translates into a healthy return on tangible equity of 10.5%. Obviously, the double-digit return in Q1 is seasonally supported by high client activity and low risk provisions, but it also includes a burden of more than €300 million from Swiss franc loans in Poland. Hence, it is another good step towards achieving our targets.
With our client-driven business model in a rates environment between 2% and 3% until 2027, Commerzbank will be able to earn its cost of capital. On this path to 2027, we are very confident to reach at least 8% return on tangible equity for 2024. And let's keep in mind that the current rate -- the current return is based on a very high capital level. This 14.9% in the first quarter, we run 140 basis points above our target ratio, which translates into more than €2 billion of capital not considering any future earnings. In essence, it has never been clearer than today that Commerzbank has a huge potential for capital return, and we will deliver on this.
Strong performance in the first quarter has been achieved in a very dynamic macro environment. Recessionary trends, fading rate cut expectations, political uncertainties to name just a few require strong navigation skills of our whole management team. So far, we did well. And going forward, we tend to see the glass half full than rather half empty. The German leading indicators point to a pickup of GDP. German PMI and Ifo came in better than expected. We are, however, not out of the woods and challenges remain, but German Mittelstand is highly resilient and shows creativity and coping with the challenges. Overall, we do no longer expect the recession in Germany for 2024.
Looking at inflation, we are not strong believers of a fast track towards 2%. We are rather convinced that the inflation problem is not yet solved. Service prices should continue to rise because of rapidly increasing wage costs. Hence, core inflation is likely to stabilize well above 2% and should prevent ECB from easing their monetary policy significantly. We expect the ECB to cut rates by 75 basis points by the end of this year, largely in line with current market expectations. The expected sticky inflation requires us to keep the high level of cost discipline to safeguard our targeted cost/income ratio. Loan demand in Germany is still muted....
Commerzbank AG (CRZBF) Q1 2024 Earnings Call Transcript