Commerzbank AG raised earnings goals for the year as it continues to benefit from higher interest rates and announced a €600 million ($641 million) share buyback.
The bank said it now expects both profit and net interest income — or the difference between what it earns on loans and pays for deposits — to be ahead of its previous forecast. Both measures were higher in the third quarter than analysts surveyed by Bloomberg had expected.
The German lender has been a key beneficiary of the European Central Bank’s rate increases as it relies heavily on lending to consumers and companies and has a big base of deposits on which it pays comparatively little interest. After a series of overhauls, Commerzbank has started returning cash again after a long period in which shareholders received little or no payouts.
Commerzbank intends to conduct the buyback before its shareholder meeting next year and is seeking approval from regulators and the agency that runs the German government’s stake in the lender, according to the statement.
As part of a strategy update announced on Wednesday, the bank said it will seek to it strengthen its revenue base via the “selective expansion of its customer business” with a focus on digital banking, asset management and sustainable finance. Commerzbank said it aims to reduce its costs as a ratio of income to 55% by 2027 and is targeting profit of about €3.4 billion by then.
Commerzbank in September committed to returning a higher share of its profits in an effort to meet a pledge to pay €3 billion to shareholders for net income earned from 2022 through 2024. It raised the expected payout ratio to more than 50% for the years 2025 through 2027, and to at least 70% for 2024. The respective ratios will “depend on the economic development and business opportunities,” Commerzbank said on Wednesday.
For the current year, Commerzbank said it now expects to set aside less than €700 million for losses on loans, before having to dip into a type of additional provisions it has made. That’s an improvement from its previous estimate of provisions of less than €800 million.
(Updates with higher earnings goals for current year in starting in second paragraph)
