Commerzbank aims for second share buyback after half-year results

Commerzbank is hoping to announce a second, larger share buyback after its half-year results at the start of August, the bank’s chief financial officer has told the Financial Times.

Germany’s second-largest listed lender more than tripled net profit to €1.4bn last year and in June began the first buyback in its 153-year history. However, at €122mn, the scheme represents just 1 per cent of its €12bn market capitalisation. It has also paid out €250mn in dividends this year.

Bettina Orlopp said in an interview that additional buybacks “make perfect sense” because Commerzbank shares are heavily undervalued, trading at less than half its book value.

“Buybacks effectively reduce capital and improve the [return on tangible equity], which is simply advantageous for our shareholders,” she said.

“We will certainly contemplate [a second one] as soon as we know how our half-year results look,” Orlopp said.

The buyback would require approval from the supervisory board, regulators and the German government, which is Commerzbank’s largest shareholder, owning a stake of more than 15 per cent stake since it bailed out the bank in 2009 during the financial crisis.

Analysts expect on average that Commerzbank’s annual profit will rise by more than 50 per cent to €2.2bn this year because of rising interest rates and a multiyear cost-cutting plan that has involved closing half of its German branches and axing a third of its domestic staff.

The bank’s common tier one equity ratio — a key measure of balance sheet strength — is 14.2 per cent, or 40 per cent above the regulatory minimum. Orlopp suggested that it could comfortably be some 200 basis points lower.

She would not be drawn on the exact size of any second buyback, but stressed that it would be “significantly larger” than the current one. She hinted that it would be more than €200mn but below the upper limit of around €1bn as set out by shareholders.

The main source of uncertainty for first-half results, which the bank will report on August 4, is its Polish mortgage portfolio, said Orlopp.

Commerzbank’s Polish subsidiary mBank is one of many banks that sold Swiss franc denominated mortgages to households in the early 2000s without hedging foreign exchange risk.

Clients were later exposed to huge losses and have successfully been suing their mortgage providers. The sector is expecting a judgment from the European Court of Justice that may rule that banks have to refund all interest payments to clients.

In a worst-case scenario, this could expose Commerzbank to a “three digit million euros amount,” said Orlopp. This would be in addition to the €1.7bn that Commerzbank has so far paid out or provisioned for the issue.

The bank is offering to settle the case with a remaining 40,000 clients in Poland with active Swiss-franc loans. It has paid out a total of €300mn already and provisioned another €1.4bn.