Hello and welcome to the Commerzbank AG Conference Call regarding the first quarter results 2025. Please note that this call is being transmitted as well as recorded by audio webcast and will subsequently be made available for replay on the internet. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following Bettina Orlopp's and Carsten Schmitt's presentation. Let me now turn the floor over to our CEO, Bettina Orlopp.
Good morning, everyone, and welcome to our Earnings Call for the first quarter 2025. The strong momentum we have created in recent quarters has continued in Q1, and we are looking to the future with confidence. We are happy to walk you through our very good results and provide you with our largely unchanged outlook for 2025. I start with an overview before Carsten takes over to present the details of the financials. Let me start with four key messages before I discuss them a little bit more in detail. First, we delivered the best quarterly net result for Commerzbank in more than a decade. Second, the implementation of our strategic program towards 15% return on tangible equity in 2028 has kicked off well with first tangible milestones already reached. Third, our business model is robust, and we are well positioned to cope with the macro challenges ahead.
Last, we confirm our positive financial outlook for 2025 and increase our expectation for the CET1 ratio to at least 14.5% by the end of this year, which is our forecast and not any new threshold. Let's have a closer look at the key financials in Q1. The strong start to the year is reflected in the very good cost-income ratio of 56%. As always, Q1 benefits from some seasonal support, and the improvement is driven by revenues, while strict cost discipline has been maintained. This performance further increases our confidence to reach our full-year target of 57%. The same holds true for our net result and return on tangible equity. With a net result of more than EUR 800 million in Q1, we are well on track to reach our 2025 target of EUR 2.8 billion ex restructuring and EUR 2.4 billion, including the expected restructuring charges.
The double-digit return on tangible equity demonstrates our ability to earn cost of capital and supports the re-rating of our share. The targeted 9.6% ex restructuring for the full year 2025 will be another major milestone in Commerzbank's profit generation. Higher revenues have been the basis for the increased profitability in Q1, and special interest goes to the development of net interest income and net commission income. NII is holding up well in a decreasing rates environment. While ECB rates decreased by 100 basis points in the last six months, NII decreased by only less than 1% in Q1 compared to Q4 2024. This achievement reflects good margin management and the support from the replication portfolio, which will also drive NII going forward. Based on this, we still expect a very good NII of base case EUR 7.8 billion, even on current forward rates.
Carsten will further expand on this in his presentation. On NCI, we are also very pleased with the performance and the revenues in the first quarter. Especially the securities business with private customers has been very strong and leads to an overall 6.4% increase in NCI. Hence, we remain confident to reach our 7% target for 2025. The strong securities business has also been the key driver for overall revenues in PSBC Germany. The respective growth in fee income could fully offset the rates-driven pressure on NII. A similar logic applies for corporate clients. Based on very good FX business, the financial markets revenues and corporate clients have largely offset the expected decline in NII from deposits. For revenues, mBank increased again to almost EUR 700 million due to good margin management and volumes.
With decreasing burdens of FX loan provisions, the reported top line of mBank contributes significantly to our revenue growth in the group. Overall, the revenue development, including treasury contribution, is very healthy and reinforces our confidence to reach our financial targets for 2025. Q1 was not only a very good quarter in terms of financials, but also regarding progress in the execution of our momentum strategy. We have reached the first important milestones. Our negotiations with the Workers' Council are progressing very well. We have already agreed on an early partial retirement offering and booked the respective restructuring charges of EUR 40 million. Based on the very constructive collaboration with the employee representatives, we are confident to conclude the majority of negotiation topics in Q2. Hence, we expect to largely book the remaining restructuring charges this quarter.
Still in May, we expect to agree on the employee share program, which we announced at our Capital Markets Day, and we will implement it later in the year. In terms of capital return, we have delivered what we promised. Our share buyback program for the year 2024 has successfully been concluded, and next week's AGM will most likely approve the distribution of 65% dividend per share. In total, we have distributed more than EUR 3.1 billion over the last three years. Looking ahead, we plan to apply for our next buyback at ECB and the German Finanzagentur early in the third quarter. This will already be part of our planned capital return for the fiscal year 2025. On the operational side, we invest a lot in our core systems to ensure high stability, which is of utmost importance in our daily business.
Besides this, we have a strong focus on NII and have set up an infrastructure which we can leverage for business purposes. Let me highlight three important use cases. First, our Avatar has just gone live for private customers. General questions regarding our products and services can be answered by the Avatar and provide a human-like interaction that caters to customer needs and enables efficiency gains in our service units. We will continuously upgrade the capabilities based on customer experience and feedback. Second, we have implemented the AI-assisted documentation for advisory calls with corporate clients. Starting in financial markets, this saves about 30 minutes per case. Based on the good experience, we will roll it out to Mittelstandsbank later in the year and free up significant sales capacity. Third, we have introduced an AI-based tool for fraud detection.
It helps to reduce losses through automated fraud alerts and creates potential for efficiency gains. These use cases illustrate the potential of AI as a significant contributor to our cost-income targets. Q1 was a successful quarter for Commerzbank, financially, as well as with respect to the strategy execution. Looking ahead to the next quarters, I guess everybody tries to make up their mind on macro impacts. Obviously, we also have done our homework. We developed an initial view on the German stimulus package and on US-imposed tariffs. Furthermore, we squared this with the sentiment in the German Mittelstand and reviewed our view on asset quality. As a result, we do not see reasons to change our financial outlook, neither for 2025 nor beyond. April, as a first checkpoint, has provided us with a good set of financial results supporting our outlook.
Let me discuss the different topics step by step. Regarding stimulus and tariffs, we are convinced that in 2025, current tariffs will have some negative impact, while we will hardly see positives from the German fiscal package yet. This should lead to zero growth in 2025 but does not change our financial outlook for the year. In 2026, however, we model the positive impact of the fiscal package to 0.7% impact on GDP compared to minus 0.2% burden from tariffs. Hence, we expect German GDP in 2026 to grow by 1.4%. Inflation is not expected to be materially impacted in the Eurozone. The sentiment in the German Mittelstand fits to this picture. They are reluctant to invest, factoring in uncertainties from tariffs while facing a high level of bureaucracy. With the fiscal package, however, the picture might become more positive.
This is what we already see when studying the recent IFO data. While the negative impact of tariffs in the manufacturing sector in Germany is lower than expected, the business climate in the construction industry has improved significantly due to the announced fiscal package. For Commerzbank, we see clear opportunities regarding our business with clients in the field of infrastructure and defense. Being a reliable banking partner for corporates in the relevant sectors for decades, we are convinced this will pay off in the upcoming quarters and years. In terms of asset quality and our outlook for 2025, we anyway planned with conservative GDP assumptions and feel no need to adjust at this stage. This leads me to the confirmation of the key elements of our outlook for 2025.
We confirm our target to reach a net result of EUR 2.4 billion, which translates into EUR 2.8 billion when excluding the expected restructuring charges. We stick to our cost-income ratio target of 57%. Regarding capital return, we plan for a 100% payout based on the net result before restructuring charges and after 81 coupon payments. We increase our expectations for the CET1 ratio from 14.0% to at least 14.5% at the end of this year. All of this, of course, is subject to further developments with respect to macro as well as FX loan provisions and our Russian subsidiary. In summary, we had a strong start to 2025 and confirm our outlook despite the challenging macro environment. Now, let me hand over to Carsten, who will walk you through the detailed financials of the first quarter. Over to you, Carsten.
Thank you, Bettina, and good morning, everyone.
Let's start directly with the overview of our financial performance. Our financial metrics have improved compared to the previous quarter and Year-on-Year. We achieved a double-digit return on tangible equity in the quarter, providing an excellent starting point for our ambition to reach a return on tangible equity of more than 9% before restructuring expenses for the year. It was reached with an unchanged CET1 ratio of 15.1%. The performance is based on record-level revenues of more than EUR 3 billion, our best quarterly revenues since 2011. Net interest income has come down a bit as the ECB has cut rates, but we more than compensated for this with higher net commission income. The positive net fair value result has also contributed. It is based on the steady performance of our capital markets business and Corporate Clients. The Year-on-Year increase is mainly due to the offset to net interest income at lower rates from derivatives.
The relatively high other income, excluding FX loan provisions, stems largely from a better hedge result. This is mainly due to some hedge accounting inefficiencies that can produce fluctuations in the hedge result, with largely offsetting effects in the net fair value result. This is, for example, from tenor basis valuation effects and the large size of the hedge portfolio in combination with market movements. Net commission income grew by 6.4% Year-on-Year, with good contributions from all customer segments. Outstanding have been the contributions from PSBC Germany with growth of 11.4% and mBank with growth of 7.9%, while Corporate Clients managed to reach the level of the strong Q1 last year. In Corporate Clients, better FX revenues offset lower contributions from the bond business, which had benefited from especially high issuance volumes last year. Trade finance revenues were stable despite the sluggish German economy.
Private and Small-Business Customers in Germany had an exceptionally strong growth in the securities business based on high customer activity in the quarter, with transaction volumes driven by volatile markets. This was especially true for Comdirect. The securities volume ended on the same level as at the end of last year. This is due to falling market values towards the end of the quarter. In asset management, we had good inflows and benefited from favorable market developments at the beginning of the quarter. Let's move on to interest income. While ECB rates were 50 basis points lower than in Q4, the net interest income is only slightly reduced. In Corporate Clients, net interest income is up slightly, in PSBC Germany slightly lower, and in mBank slightly higher. Therefore, the net interest income from our customer businesses is virtually on the same level as in Q4.
In others in consolidation, NII is EUR 13 million lower compared to the previous quarter. However, this is compensated for by a higher connected net fair value result from derivatives. Therefore, in total, the NII-related income is on the same level as Q4, which is an excellent result. Looking at loan volumes, CC has continued to increase the business with Mittelstand and institutional clients. Volumes with international corporates were stable before US dollar FX effects. PSBC Germany has maintained volumes as expected. In the deposit businesses, there have been some movements as rates have come down. In corporate clients, there has been a reduction of around EUR 3 billion of high-beta, rate-sensitive call and term deposits. In PSBC Germany, the term and call money volume has also decreased. An important driver was a successful sales campaign to convert deposits to investment products supporting fee income.
Additionally, we had some reduction of rate-sensitive deposits in a more competitive market. Overall, with our disciplined pricing, we have kept the beta stable in the quarter and thereby stabilized our income from the deposit business. This brings me to the next slide with the outlook for NII and related net fair value result in 2025. We raised our baseline NII outlook from EUR 7.7 billion to around EUR 7.8 billion for the year. I will now go through the drivers. The replication portfolio has been increased by EUR 7 billion to EUR 145 billion in April, further stabilizing our interest income. This higher volume increases the NII from the replication portfolio by EUR 200 million, leading to EUR 400 million additional NII in total for this year. Assuming no change in volumes, we expect additional EUR 1.1 billion NII from the replication portfolios in 2028 versus 2025, based on current forward rates.
Most of the EUR 1.1 billion uplift in 2028 comes from the deposit models, but the equity models are also contributing more than EUR 150 million. Thanks to this steeper curve and the adjustments we made to the replication portfolios, the current outlook for the contribution from the replication portfolios to 2028 is EUR 200 million ahead of our original plan. However, we stick to our 2028 targets since the curve will continue to move and there might be other effects from a steeper curve as well. It is definitely a potential tailwind. For 2025, we have assumed an average ECB rate of 2.15% in our plan. Current forward rates are at this level. We therefore do not see a need to adjust our forecast at the moment. Our original guidance was for around EUR 500 million less NII due to lower rates compared to 2024.
As we have reinvested additional EUR 7 billion in the replication portfolio, we have a EUR 7 billion lower ECB rate-sensitive position, reducing NII by a corresponding EUR 200 million. In total, that leads to EUR 700 million less NII from ECB rate-sensitive positions. With 38%, the Q1 deposit beta was on the same level as last year. We expect the beta to increase in the next quarters, reaching 41% on average for the year. This would lead to an NII reduction of around EUR 300 million. Concerning volumes, we continue to plan for moderate growth in deposits towards the end of the year and stick to our target to grow loan volumes and manage margins supporting NII. This should add around EUR 200 million NII. Further, we are more optimistic about the rates in Poland.
While we continue to see lower rates in the course of the year, they are now expected to be higher on average than originally anticipated. This should lead to a slower reduction in NII than planned at mBank. Finally, with more than EUR 2 billion, the Q1 NII was above expectation. This gives us a head start to the year. For the positive effect from the lower short-term rates on the fair value result, we are currently assuming around EUR 300 million. Overall, we expect NII and connected change in fair value to be around EUR 8.1 billion in 2025. Now to costs on slide 18. Operating expenses were managed in line with our target of a cost-income ratio of around 57% for the year.
The cost increase in the Group and mBank of around 7% compared to the first quarter of 2024 was mainly due to higher HR-related costs and the acquisition of Kühler Capital. The cost increases were partially offset by FTE reductions in Germany and ongoing shoring activities. mBank's costs increased by almost 18% because of investments in business growth and an increase in compulsory contributions. The next slide covers the risk result. The risk result came in at EUR 123 million. Overall, the portfolio has been resilient. Nevertheless, based on the muted economic outlook for 2025, we stick to our guidance of a risk result of approximately EUR 850 million in 2025, assuming further usage of the top-level adjustment. This completes the overview of the key line items, and I will now move on to the result summary.
I have already covered the main drivers of the operating result and will therefore just briefly cover the tax rate. The tax rate was 26% at the lower end of our expected range of 25%-30% for the year. For now, we stick to this guidance as the tax rate also depends to some degree on future developments in Russia and Poland. The next slides contain the results of the operating segments, starting with Corporate Clients. Corporate Clients again delivered a good performance with the operating result of EUR 592 million, well above the levels of the last three quarters, but not reaching the exceptionally strong Q1 of last year. Revenues are on the same level, sorry, revenues are on the level of Q4 last year, but lower Year-on-Year due to the effect of lower ECB rates on the deposit business.
This is especially pronounced in Mittelstand, where revenues declined by EUR 41 million compared to Q1 last year. Expenses were lower than last quarter. As communicated on the Capital Markets Day in February, we have transferred structured solutions and investments from others in consolidation to Corporate Clients. Accordingly, we have restated the 2024 figures. In Q1, the revenues of structured solutions and investments are reported in Institutionals: EUR 14 million in Q1 and in Others: EUR 67 million in Q1. Structured solutions and investments brought around EUR 16 billion of RWA to Corporate Clients. With the transfer, also some of the technical offset between NII and the fair value result moved to Corporate Clients. The main source are some legacy positions, which consist of cash instruments with corresponding derivatives, better economical hedges, but are reported in different line items.
In line with the Ambitions of our momentum strategy, we have changed the way we calculate the return on equity for the segments going forward. We now use 13.5% in line with our CET1 target, leading to lower reported figures. This obviously has no bearing on the actual performance of the business, but it ensures that businesses use the right yardstick to capital allocation decisions. PSBC Germany managed to reach the same operating result as in Q1 last year and is also well above the last three quarters of 2024. This has been achieved mostly by slightly higher revenues supported by an even lower risk result. The driver has been the growth of the fee business that is most pronounced in private customers, with growth of 14% Year-on-Year, more than compensating lower interest income.
With 8%, small business customers also managed to grow fee income substantially, but could not fully offset the drag from deposits at lower rates. Commerzreal has slightly higher revenues due to valuation effects and other income compensating lower fee income. mBank again performed well on an operating level, more than doubling the operating result to EUR 204 million. Revenues before burdens from FX loans are up 5% compared to Q1 last year. The main driver for the better operating result is the ongoing reduction of the quarterly burdens from FX loans over the last quarters. mBank continues to work on settlements and bringing the number of open court cases down. On current trends, mBank is well on its way to largely book required provisions for legal risks of FX loans this year, with the quarterly booking falling from quarter to quarter.
As a housekeeping note, we have adjusted the way revenues from the FX business of mBank are reported to be in line with the rest of the group, where the sales margins from the FX business are reported as fee income. This has led to a restatement between fee income and trading income, but did not change the total reported revenues. Finally, a quick look at others in consolidation. Others in consolidation had a slightly positive result of EUR 6 million in the quarter based on good revenues. Following the transfer of structured solutions and investments to Corporate Clients and the reallocation of pre-booked risk-weighted assets for expected changes relating to internal models to the segments, the footprint of others in consolidation has reduced substantially. Of the remaining EUR 14.6 billion risk-weighted assets, around EUR 5 billion are from treasury activities, especially the liquidity portfolios and connected hedges.
The remainder is due to corporate items like DTAs, equity participations, real estate, etc. I will now move to the Group RWA and capital development on the next slide. RWA have increased by around EUR 1 billion compared to the end of last year. There has been no adverse impact from the implementation of the CRR3 as expected. As mentioned, pre-booked RWA were reallocated from others in consolidation to the other segments. In total, EUR 10 billion of pre-booked credit risk RWA remain across the segments to cover expected changes relating to internal models. Also, the allocation of operational risk RWA to the segments was increased as RWA pre-booked for CRR3 in others in consolidation were replaced by the new CRR3 operational risk RWA. While we had an effect from the US dollar on RWA, this was offset by other currency moves, in particular the Polish złoty.
Capital is up slightly as we had positive valuation effects in other comprehensive income, resulting in an unchanged CET1 ratio of 15.1%. As we target a payout ratio of 100% before restructuring expenses, we did not accrue any net result and deducted the restructuring expense after tax from capital. Nevertheless, based on current RWA and taking into consideration planned loan growth, we expect year-end risk-weighted assets of less than EUR 180 billion. Except for the deduction for the restructuring expenses, we do not anticipate a significant change in capital. This should result in a CET1 ratio of at least 14.5% by the end of the year, leaving a significant potential to maintain a high payout in the next years. As a forward-looking remark, you will have seen that BaFin has reduced the sector-specific buffer for mortgages from 2% to 1% effective from May.
This will reduce our MDA by around four basis points from Q2. This brings me to the end of the presentation and the outlook for 2025. We confirm our outlook, adjusting some details following the very successful first quarter. We now expect net interest income of around EUR 7.8 billion and an increase of the related net fair value result by around EUR 300 million, based on our base case assumptions. This leads to a combined contribution of around EUR 8.1 billion. We continue to target around 7% growth of the net commission income. We confirm our targets for the cost-income ratio of around 57% and the risk result of around EUR 850 million, assuming usage of the top-level adjustment. We also maintain our outlook for the net result of around EUR 2.4 billion after and EUR 2.8 billion before restructuring expenses.
Also, our target of a payout ratio of 100% before restructuring expenses and after EUR 81 coupons is unchanged. We increase our expectation for the CET1 ratio from more than 14% to at least 14.5% following the implementation of Basel IV and our updated RWA outlook. Thank you very much for your attention. Bettina and I are now looking forward to taking your questions.
Ladies and gentlemen, let's now proceed to the Q&A session. If you would like to ask a question, please press 9, followed by the star key on your telephone keypad. In case you wish to cancel that question, please press 3, followed by the star key. Just one moment for the first question, please. The first question comes from Jeremy Séguier, BNP Paribas Exane. Please go ahead, your line is open.
Morning, thanks very much, and congratulations on the strong numbers.
I just wanted to get you to expand a little bit on a couple of points that you've already touched on. The first is if you could just talk a bit more about the conversations you're having with Mittelstand clients in particular in relation to this sort of, you know, the negatives of tariffs, the positives of German stimulus. What are they tangibly doing and working on? You know, are they starting to invest, preparing to invest, or are they more in wait-and-see mode? If you could just describe those conversations, that would be really interesting. The second thing, the CET1 guidance being slightly higher for the full year, I think you've said that this is just a numbers thing.
It reflects the strong starting point and the improved RWA outlook, but I just wanted to get you to confirm that, and it is not about being more prudent in a wobbly environment, it is just really a numbers thing.
Thank you, Jeremy. Dialogue with Mittelstand, I mean, the Mittelstand clients are clearly currently analyzing the situation and are cautious, but they all have their investment plans ready. We know that because we have the dialogue with them very intensively over the last quarters, and you see also now in the EFA data things are getting better. Sentiment is improving.
I think a lot will also depend on the first actions of the new government now in the next couple of weeks, but clearly the stimulus package will help, and Mittelstand clients also see that as a positive, but it will take time until you will see really the stimulus package unfolding, meaning that the real positive impact of the stimulus package will come or will start next year. This year, we will rather have the tariffs putting some pressure on German economy, but still we expect that investment plans will now start to be started in second and third quarter, assuming that the situation is not worsening and that hopefully also the European Union can strike kind of a deal with the U.S., as we have just seen by the U.K. On the second point, you are totally right, it's just a number thing.
I mean, we have just adjusted our RWA forecast, and capital forecast stayed the same. Our target CET1 ratio is unchanged with 13.5%. This is what we want to achieve until latest 2028, hopefully, probably also even before. You see that also what Carsten said with respect to the allocation, we use that now also as a target ratio for the segments, the 13.5%. That has not changed at all. It only gives you good sentiment that our possibility to return capital probably has even improved.
Fantastic, thanks very much.
The next question comes from Benjamin Goy, Deutsche Bank. Please go ahead.
Yes, hi, good morning. Two questions also from my side. First, it seems like the usual question every year, net interest income guidance. You're tracking well ahead your full year numbers.
Really appreciate slide 17, but still the question is why you went from elements for conservative, maybe in particular deposit beta, and so what could change that guidance throughout the year? Coming back to the fiscal stimulus in Germany and your long-term targets, I mean, early days, and obviously you're not changing one quarter into the plan, but maybe you can frame the debate a little with on the corporate side, you have a relatively punchy 8% CAGR targeted, but I think the German clients is much, much lower. What could be an outcome here? On the other hand, on the mortgage side, it's very low. Now you mentioned German mortgage buffer coming down, mortgage rates feel actually all right at the moment. Is there something of a renaissance of mortgage growth over the next quarter for you? Thank you.
Thanks, Benjamin.
Let me take the first question on NII and specifically on the beta that you asked for. As you could see, we were able to keep our beta stable into the start of the year. There have been a few effects to this. First and foremost, we had positive effects from larger deposits in Corporate Clients that ran out. I think mostly we have to also look into Q1 and see what the market situation gives us, especially on the PSPC side, where we see quite a competitive market at the moment in terms of rates that are offered to clients in the market, which will mean that from the low beta in Q1, we are conservative in our estimate towards the end of the year.
As you can see, we plan for a 3% increase in beta once we actually increase our volume in deposits throughout the year, especially on the PSPC side. We cannot rule out that there are pricing effects given the competitive market at the moment. Therefore, you see that we are still planning for 41% towards year-end and clearly continue our active margin management on this end to aim to keep it as low as possible. Secondly, there is a technical effect with lower rates overall in the market. Clearly, we have to expect that managing the beta will become challenging.
On your second question, I mean, we have seen already in Q1 with respect to mortgages, very nice development of the new business. The Mortgage market has clearly recovered. Price development is also more favorable than a year ago.
Therefore, yes, we expect positive impact there. We have been very cautious on mortgages in our momentum strategy. We have been more ambitious on the corporate client side, and the stimulus package, the fiscal package will definitely help us to also fulfill the targets here. Therefore, we feel very comfortable also with our plans going forward. I think it has proven right that we had been rather conservative back in February with respect to our macro assumptions.
Thank you very much.
The next question comes from Kian Abouhossein, JP Morgan. Please go ahead.
Yes, hi. Thank you for taking my questions. I have a question, first of all, on slide 17. Just on the NII, I am trying to understand, just putting the EUR 7.8 billion in context of what you said in the past, which is a range of EUR 7.7-7.9 billion, what we should read into this.
As you know, consensus is closer to 8, and just wanted to see if you could comment around your guidance compared to the range that you've given in the past. Secondly, on deposits, you highlight on page 16 the competition within PSBC, and I was hoping you could discuss that a bit. If I may, this is still the same question, if you could just comment briefly also on beta velocity in a lower interest rate environment. I know you do great work around beta, and you just mentioned you had a comment here that there's pressure potentially at lower rates, but I'm just trying to understand how we should think about beta velocity. I assume it's convex to lower rates, and as a result, I would like to understand that as you do great work around betas.
Yeah, thanks, Kian, Let me start with the first question on NII. I think what we want to clearly bring across is that we are increasing our base NII case from EUR 7.7 billion to EUR 7.8 billion with these quarterly results. You were referring to the range that we gave in February. If I can just take a second or a step back to February, we indicated EUR 7.7 billion as a base NII scenario, and back then saw forward rates that indicated potential upside of EUR 0.2 billion. By now, the rates have come down, as we all know, given the ECB moves, and hence this EUR 0.2 billion actually as market movement has gone.
Our base case, however, we increased to EUR 7.8 billion, and on top to this, you would see the connected net fair value, which then brings us to EUR 8.1 billion for the year, as stated, and that keeps us relatively stable compared to last year despite the ECB movements. On the second point on competition in PSBC, and that is pretty much linked to the beta side, what we're referring to here is especially in the deposit market, we've seen competitive offers in the market all through Q1, which means that competitors are out and offering quite lucrative rates for short-term deposits. We have not participated in this first quarter game. We're waiting to see what's happening in this, but expect that this will be still a challenging market, especially in a sinking rate environment, and hence also our statements to cautiously plan with a slightly higher beta.
In general, beta sensitivity, that's to your last part of the question, would go down with lower rates. As you said, we are constantly monitoring and managing this in order to keep the beta stable.
Thank you, Carsten.
The next question comes from Stephan Steinmann , Autonomous. Please go ahead.
Yes, good morning. Two questions from my side, please. The first one, just a numbers question on the expected credit losses in the first quarter. Could you tell us how much of that number was actually stage three provisions, please? The second, a bit more broad on your dollar.
Taken place in stage three, and it was then the usual mixture of things which we have seen occurring. On the dollar funding side, I hand over to Carsten.
Yeah, your question on the dollar funding side, I think I should start with looking at our issuance plan for the year. We have actually started quite strongly in Q1 already, covering more than half of our funding requirement for the year. Regarding the dollar funding, we do have dollar funding also covering our original business that we have in US dollar, but mostly manage this via cross-currency swaps. At this point in time, actually, we feel no additional pressure while watching, of course, what is happening to the US dollar funding and issuance markets.
Okay, thank you.
The next question comes from Johannes Thormann, HSBC. Please go ahead.
Morning, everybody. Johannes Thormann, three questions, please. First of all, you argued about your NII guidance increase that it is mainly due to the stronger-than-expected performance from mBank, which was up 1%, quote-unquote.
German PSBC, considering the rate cuts, was also just down 1%, surprisingly stable. Can you explain the stable performance of both businesses? Is this a good run rate for the next quarters? That's my first question. Secondly, just on technical numbers, do you still expect a remaining restructuring style of EUR 560 million? Is this fully tax deductible? In this context, what tax rate are you planning for the full year? Last but not least, if we look at your indices or industries in your loan book and your exposure, you talk that construction probably becomes, the outlook becomes better. Are there any other Industries where your outlook has changed versus previously? Thank you.
I'll start and then give it over to Carsten.
Just on the NII guidance, I mean, you have well spotted that mBank and PSBC have proven to be very resilient with respect to NII, and this is what Carsten said. Our EUR 7.8 billion is now our base scenario. You know us, we wait for the next quarters to come. We have been very cautious, very conservative also on the beta management, which gives us also some flexibility given that we are still at a 38%, and our average plan for this year is 41%. I think we can all do the math and know that there is some positive upside still available for us. On the restructuring charges, yes, they are fully deductible. We expect to close our negotiations very soon with respect to the frame agreements with the Workers' Council that is the so-called Teilhessen Ausgleich and the social plan.
Based on that, we will book the vast majority of restructuring costs in the second quarter, and we will deduct it from tax. I think tax rate, you take.
Yeah, tax rate, as you've seen, actually is very low with 26% in the first quarter. We still guide for 25%-30% for the year. The restructuring expenses will certainly be deducted in that calculation, but we also have other effects that might play into this. We still stick to the 25%-30% guidance.
Regarding sectors, I mean, we have special sectors which are under special attention. We will talk about automotive. Machinery has been also under monitoring, but we have no need to change any outlook or something like that.
We have been rather conservative for this year with respect to our risk results, and we keep that, but we also do not have to increase our guidance or something like that.
Okay, thank you. Just coming back on your NII guidance, you did a bridge, and now I'm doing a bridge of EUR 2.1 billion, EUR 2 billion in the next quarter, EUR 1.9 billion and EUR 1.8 billion to get to your guidance despite more interest days every quarter now coming, at least from Q1 to Q2 and Q3. Is this really the worst-case guidance, EUR 7.8 billion, or what would need to trigger that threshold?
Nice try. I would say a base case means that we really mean base case. It is the floor, and everything else will come as the icing on the top, to say it like that.
Okay, thank you.
The next question comes from Boha Ramirez, Citi. Your line is open.
Hello, good morning. Can you hear me?
Yes, we can hear you. Good morning.
Perfect. Good morning. Thank you very much. I have three quick questions, if I may. The first is on the deposit market in Germany. I understand there has been increased competition in Q1, but if I understood well, some competitors have cut rates. There was one large bank that cut rates last week in the deposit rates in the German deposit market. That could maybe alleviate the competition and maybe suggest better trends in deposits. That is my first question. My second question would be if you could provide some details on the potential upside linked to the fiscal stimulus. I think you mentioned you have a better relationship with the defense sector. That can help your loan volumes.
Also, any details on the tailwinds from the capital markets and savings union. Lastly, linked to the steeper yield curve, I would like to ask, given you have a sizable fixed-rate mortgage book, if there could be upside from the renewal at higher rates and also maybe in your own portfolio, if there could also be upside there. Thank you.
Thank you for your question. I mean, with respect to competition, what we have seen since the change in the interest rate environment, you always have banks with attacker products out there, and they change. I mean, also Commerzbank and Comdirect have been part of the banks with attacker products at a certain point in time.
This quarter, we were not part of this group, and you will see that also in the upcoming quarters that banks come out with a certain product, and then they also decrease their offering after that. I would say there is not a big change, but the competition has not changed, but stays strong, and it is always dependent on who is doing it. If some of the smaller players are going out, we feel that less and see it less than if a large player has an attacker product out there. You asked for the potential upside from the stimulus package. I mean, first of all, I think we will see for the German economy only a positive stimulus from that, from the fiscal package in 2026, as I said in my speech. Before that, it is too early.
I would say given our quite aggressive loan growth numbers in our momentum, I think we will use that first to deliver and then use that as a tailwind to see perhaps even more positive upsides. We have no indication at the moment given that we do not know how this program is unfolding to now increase today our figures for the coming years. I think it is a good confirmation, and it gives us a lot of confidence. With respect to Capital Markets Union, I mean, it is part of the coalition treaty also that the new German Government wants to push it, but I think that is still a way to go. We first wait and see how and when it comes, and then we will see the upside.
We are a big supporter of the Capital Markets Union because we think it's important to ensure sufficient financing across Europe. First, we have talked about this topic for quite a long time. We would like to see first actions and see some effects, and then we will judge what it means also for us, Commerzbank.
Your third question regarding the steeper curve, let me reiterate that we use the current development in the rate environment and the steeper curve to reassess. If you look at the development of our replication portfolio, for example, we increased the size, and we also slightly sort of changed the duration of the portfolio to longer tenors, which will give us, as we demonstrated earlier, EUR 0.4 billion in additional NII this year and an increase up to EUR 1.1 billion to 2028.
You can already see the steepened curve and the effects reflected in our numbers from the recent movement.
Thank you.
The next question comes from Tobias Lukas . Please go ahead.
Yes, good morning. Also two, three questions from my side, please. Firstly, touching again on the NII and the net fair value. I was just wondering, you guided basically for this EUR 8.1 billion combined, I understand, forward rate slightly down. Is the message actually that you achieved that with lower capital intensities since this capital calculation and the RWAs you are now guiding forward are actually way less than initially thought? Secondly, with that EUR 1.1 billion in additional revenue from the replication portfolio, what does it mean for 2028 now with a longer duration? Is that kind of EUR 8.9 billion forecast, or let's take the combined EUR 9.5 billion? Is there an upside to that number?
Secondly, again, on that RWA calculation, maybe you can shed a bit more light on what changed here. And very lastly, maybe a quick word, is there any update regarding UniCredit? Thank you.
Yeah, let me take the first questions before I hand over to Bettina. So the NII of EUR 8.1 billion, I would like to reiterate, is combined of the slightly increased base case of EUR 7.8 billion plus the net fair value of EUR 300 million. And your question was regarding achieving this with lower capital intensity. I think you can draw that conclusion. We guide for lower RWA towards the end of the year and hence also slightly increased capital. So that's a yes. Then on the second question on the additional EUR 1.1 billion for the replication or from the replication portfolio, yes, we do see an increased amount coming from this given the recent changes.
We do, however, stick to the guidance for 2028. We actually have a benefit of a slightly changed duration in the portfolio, but we also expect that from the steepened curve, we will or might see slight changes in other line items. As I mentioned earlier, we definitely see this as a tailwind to 2028.
Thank you. If I may. Yeah, UniCredit, no news actually. We do what we have done also the past six months. We focus on our own standalone strategy called Visa Name Momentum, and we focus on delivery and the value creation for our key stakeholders. Nothing has changed.
Thank you. The last one is, if I may.
It is clear that we—sorry. It is clear that if, I mean, if something would come on the table, we would evaluate the option. I think that is needless to say.
Thank you. Very last one, if I may, on other income and the hedge result, which was also quite positive and actually beat basically consensus expectations for this quarter. Looking ahead into 2026 to 2028, you have basically a zero other income or minus EUR 100 million guided. Is there a potential upside still from changed hedging positions .
Good morning. Thank you for taking my question. I'll keep it short. The first is on the buyback request at the start of Q3. Are you willing to share with us a bit of the way of thinking on the amount you would request? Is it sort of like 50% of your net profit and then part of it in buybacks or any sizing?
If there is time for a second question, on the cost trend in Q1, your cost-income ratio 56% is within your guidance, but an absolute level should be rethinking. It could be coming down Q2, Q3, and then seasonality in Q4 in terms of the absolute progression. Thank you very much.
Thank you. On buyback, yes, we plan to request or ask for approval for next buyback beginning of the third quarter. I mean, we have been very clear on our capital return plans for this year, which means 100% before restructuring. We guide for a net income of EUR 2.8 billion before restructuring. Then you have to deduct the 81 that gives you a flavor of our total number we target as a capital return. The concrete split between share buyback and dividend is not yet decided.
However, you can assume that the next share buyback program will be larger than the last one, which was EUR 1 billion. We will do it very similar as we have done it last year in several tranches. There will be a first tranche we will apply for based on the results we see in Q1 and Q2.
Does that mean like a 50-50, or is it, I mean, first half is generally like a stronger profit? Would you consider to request a higher level in the first half than second half?
We will now, I mean, we had also a very good start in the second quarter with the April numbers, but we would definitely wait on how numbers are evolving in May and June. Then we will make up our mind what we ask for.
Thank you.
Very briefly on your cost question, yes, the 56% out of Q1 gives us a good head start into the year with our target to 57%. We know there is seasonality in Q1, but still we want to stick to the 57%. EUR 6.8 billion for the full year. Of course, we are applying due management and intend to or expect that we manage that potentially even a bit lower, but we will see that throughout the year.
Thank you very much.
The next question comes from Tarek El Mejjad, Bank of America. Please go ahead.
Hi, good morning. I think we established well in the call that your NII target is conservative. Just a quick two follow-ups on this. On deposit beta, I think in a previous instance, you mentioned that Q1 is usually weaker, I mean, seasonally weaker because of the more attackers.
I hear your comments about which banks are actually coming with low rates and has different impacts on competition. Do you still reiterate the fact that Q1 is seasonally weaker from that perspective with some challengers, banks doing their budget in terms of deposit growth early in the year, or is it not necessarily the case anymore? I understand competition is through the whole year, just seasonally in Q1, is it higher still or not given the rest? In Poland, I mean, the governor of Central Bank sounds a bit more dovish now than earlier this year, probably because of political reasons. Now you change your stance about being slightly more positive on rate direction versus what you had in the plan. What is your read on that and how confident you are in that there is no big dovish turn in Poland?
Just on NII, can you confirm that the relationship between NII and NFV is the same as we had before, and there's no kind of different challenging dynamics? This is for our own modeling. The last one, just by curiosity, what exact Basel IV for CET1, Basel IV impact you had on CET1 that you expected for the first-time application in Q1? Thank you.
Okay, let me briefly go through the questions. On beta, I think what we said applies, right? It's really tough to assess 100% what's happening in the market regarding competitors' moves in this. I wouldn't necessarily be able to extrapolate that into the year. Q1 has been quite competitive. We see this at the moment still. Some move out of this. Some don't. I would rather say we monitor this going through the next quarters.
On your question regarding Poland, we were extremely conservative, I should say, going into the year with our rates that we had. Meanwhile, the rates have come down in Poland, but we expect a higher average throughout the year. We still have a slightly more conservative stance on our Polish rate assumptions in our plans and hence go with that. Your third question was on NII net fair value mechanics. Yes, that is still, as we described it also in the last call. We have counter effects from connected net fair value that move counter to the interest rate movement and hence support our NII. Your last question on Basel 4, we do not see any effects in Q1 from this. As we mentioned, we pre-booked RWA before and have now reflected those in the segments. We do not see anything out of Q1. Thank you.
Just on the Basel 4, I understand you do not have any impact, but going into Q1 and the implementation, I think you expected some small impact from the first-time application. I just want to know the delta between what you anticipated and what actually happened of being neutral. It is okay. We can take that offline. We will take that offline.
Thank you.
The next question comes from Riccardo Rovere, Mediobanca. Please go ahead.
Good morning. Good morning, everybody. Thanks for taking my question. Two or three, if I may. The first one is Bettina, Carsten, you have delivered 11.5% return on tangible equity net of restructuring in a quarter, and you still aim at 9.6% at the end of the year. You think it is going to be easy to lose 1.5 percentage points of ROT in only nine months?
Related to that, if the situation remains as it is, I understand that it's first quarter, we got tariffs. There is no incentive for you at the moment to change the message. I get that. Would it be June 2025? Would enough time have Passed into 2025 to make a broader assessment of where you stand? Because 1.5 percentage points of lower ROT in only nine months is not a small number. The second question I have is on asset quality. The EUR 850 million guidance was set before deliberation day, if I'm not mistaken. That stands unchanged. Implicitly, and correct me if I'm wrong, you are basically saying the underlying is going better than you think because otherwise the EUR 850 million would have become, I don't know, EUR 1 billion with the addition of the macro uncertainty from tariffs and so on.
Somehow related to that, why should we get to EUR 850 given that you have reported EUR 120 and you're using PLAs? To be honest, Germany is flirting with stagnation, technical recession, or whatever it is since a while, a couple of years. If something had to go wrong, maybe we would have already seen something while, honestly, we do not see much. Implicitly, are you basically saying the younger line is better than you thought six months ago? Last but not least, when you say negotiations, sorry, negotiations, restructuring charges will be mostly booked in the second quarter of 2025. Would it be ahead of schedule in respect to what you had in mind? Does it mean eventually that the cost-cutting could be accelerated, cost-saving could be accelerated in respect of your original expectations? Last, on Polish FX provisions, what do you expect in 2026?
Thank you.
Thank you, Riccardo. Lots of questions. I try to be as fast as possible on it. On the first question, which is back to what we have today and what we guide for the full year. You said that rightfully we are after the first quarter, there are three quarters to come, and it is clear that we will closely look on the H1 quarters and then think about our guidance. For now, we feel very comfortable with what we have guided. I want to not forget specifically when you look on the risk result, for example, that we guide for a much higher risk result for the full year. It is just the truth that the sensitivity of our ROT is pretty high with smaller changes of net income.
I would say stay tuned, and you should take from here that we have lots of confidence in achieving our targets. The second point is a little bit related to that. You said that we have come out with our risk result guidance before liberation day. First of all, I would say that lots also have happened since liberation day, and a lot of things have also calmed down again. Nevertheless, we have been any how rather conservative at the beginning of the year with respect to this year. When it came to a risk result, we had our GDP guidance from our own economic research, which was just at 0.2%. That one we now have lowered to 0%, and we feel still comfortable with the risk result guidance because we had that in mind already.
The positive effect, as I said, from any stimulus will only come in 2026. I think that covers also your third question, which were all related about what we think about the risk result of what's happening in the credit portfolio. We think we have a, and that's a benefit now. We have a very well-diversified loan portfolio, and that helps in the moment clearly. On the negotiations with the Works Council, I would say we are absolutely according to plan. It was always our Aspiration to be finished in Q2 with a frame agreement. We will manage that, so therefore we can book it. What we then need to do is we need to agree on the partial agreements with each and every executive area, which will see headcount reduction.
That will come after that in the third quarter and will be latest ended in the fourth quarter. On FX for 2026, I would say expectation is we will not talk about it anymore because it will not be worth talking about. That is our expectation.
Okay. Thank you. Thank you, very clear. Thanks.
The last question at this point comes from Jochen Schmitt Metzler. Please go ahead.
Thank you very much. Good morning. One question on private clients' business Germany. Following the announcement of your new fee structure for current accounts, have you observed any change in the Client Churn rate from either Commerzbank to Comdirect or, obviously, more important, from Commerzbank to third-party banks? That is my question. Thank you.
Yeah, thank you. We have now nearly 50% approval already. All clients have received their letters. 50% have already signed or agreed to the change.
There is a churn, but it is much more limited than we thought. Some are indeed moving in the direction of Comdirect and some moving out. Overall, we are pleasantly surprised by the development.
Thank you. I think we come to an end. Thank you very much for your questions. We look forward to the upcoming quarters. Later today, have a great weekend. Thank you very much. Bye.