Commerzbank AG raised its lending income forecast this year after recording its best quarterly profit in more than 10 years.
The German lender generated net income of 747 million euros ($808 million) in the three months through March, beating analysts' consensus of 656 million euros, Commerzbank said in a statement on Wednesday. The result was supported by continued high interest rates and a bright German economic outlook, but also by lower bank fees.
Chief Executive Officer Manfred Knopf has been riding a wave of interest income that has boosted many European banks over the past two years, allowing him to report higher profits and larger payouts to investors. He is now trying to strengthen the fee-generating parts of the bank where the impact is likely to have peaked.
The bank said its net interest income forecast in 2024 improved slightly to around 8.1 billion euros. Net interest income in the first quarter increased by 9% to €2.13 billion.
“The significant improvement in earnings power and the rise in the CET1 ratio support our plan to increase the payout ratio,” Bettina Orlop, the company's chief financial officer, said in a statement. Orlop later added that the bank would apply to the European Central Bank for approval of the buyback plans “as soon as possible” after the first-half results.
Commerzbank shares were up 3.8% as of 10:14 a.m. in Frankfurt. The CET1 ratio, a measure of capital strength, rose to 14.9% at the end of the quarter.
Commerzbank will also continue to look for acquisitions after purchasing boutique asset manager Aquila Capital in January. “We basically have several things on our table,” Orlaub said in an interview with Bloomberg TV's Jay Johnson and Anna Edwards on Wednesday, adding that cross-border deals would only make sense once a banking union and capital markets union were in place.
Commissions were flat in the first quarter and remained a much smaller contributor to revenue than lending income. Revenues rose by 3% to 2.75 billion euros. Mandatory contributions were approximately 65% lower than in the previous year, mainly due to the significant reduction in the European bank tax.
However, provisions for legal risk arising from Swiss franc loan burdens at its mBank subsidiary in Poland rose to €318 million from €173 million a year earlier, while the unit's revenue fell.