So, good morning. Last day of the financial conference. First presentation, we have Commerzbank. Bettina, thank you very much for coming. Guten Morgen. Bettina, maybe we can start a bit more general. Maybe a lot has happened this year, to say the least. Maybe you can talk a little bit about the mood in the bank, the mood also by Mittelstand clients following the recent developments.
Yeah, I mean, the mood in the bank is very good. We have excellent results, as you might have seen after Q3. So you always know that mood also in staff is good when you're presenting good results and teams are seeing that it's paying off all the work they have done. We also have really a momentum with respect to standing together. Some might be familiar with the My heart beats yellow campaign, which our employees started in LinkedIn. And that really shows off a little bit the mood in the bank. So standing together, working for the clients, being at the side of the clients, a very positive mood, actually. With clients, also, they stand at our side. I mean, we are at their side, they are at our side, and very supportive. I mean, some have raised their concerns, but they're clearly in a wait-and-see mode.
They know that we are serving them without any changes, and I think everybody is waiting for what's happening next.
If you talk a little bit around the current situation, the current thinking around the interest by UniCredit, can you give us an update, the pros, the cons from your perspective at this point?
I mean, nothing has changed from our point in the moment. We have three priorities. We said that very clearly. One is to really implement our today's strategy, 2027, with the updated targets to really keep the business running and have the key strategic initiatives being implemented in time and budget. So that's very clear, and that's first priority and the most important one. The second is that we have started to work on an upgraded strategy, which we will present during Capital Markets Day in February. And the third priority is clearly to stay prepared that if there is a proposal coming on our table regarding a potential combination, that we can evaluate such a proposal.
Has there been more discussion with top management of UniCredit?
I mean, we said that there have been some interactions very much related also to the investments, but nothing else.
Okay, and I mean, if I think about the potential transaction, in case there is one, what would you like from Commerzbank's perspective to achieve to make this transaction happen? What's the ask, so to say?
Oh, you will understand that I will not come to that one today because I think that is something which you should discuss behind closed doors when there is a proposal on the table, and then we discuss about what's necessary.
That's fair enough. That's fair enough. Totally understand. Now, if I switch a little bit to the government position, and clearly we are going to have elections. Based on today's outcome and polls, the CDU/CSU will be the majority party. Merz has made quite strong statements about this transaction in the past. He indicated this is a disaster for German banking, quote unquote. How should we think about a change in government and the position around a potential transaction and hence different outcomes?
Well, I mean, when you take the statements, I think statements have been very, very clear and very similar. And the thing is that all parties thought that they would just keep the shares of the state for the time being and that they wait on the business teams, the management teams to sort it out. And I think that is a position which is also shared by the CDU. And so therefore, I think regardless of what will happen in February, I think it's up on the management teams to decide the next steps.
And if I think about coming just back to clients, you mentioned the corporate clients where you have Mittelstand. You're the Mittelstand Bank of Germany. You had discussions with them. And just wondering, do they care who the counterparty is behind, or is it, it's Commerzbank, we have a relationship with the advisor, that's all that counts, or do they care more around the background of the bank? Is that important to them or not really?
It seems to be at least important for them because this is what we get as feedback, but also, if you take recent surveys, one has been just done by one magazine, and there, the treasurers and the CFOs of these Mittelstand clients were pretty clear that they rather would like to keep on with two banks because that's helpful for them, so the majority was more supportive of keeping things separate, but that is something you have to deal with when discussions might go further.
Is that more because they want more competition in that area, or they prefer ultimately a German counterparty which sits in Germany? Clearly, with the government stake, you have that support as well.
Yeah, I think it depended a little bit on with whom you talk. I think some made some not so good experience during the financial crisis, and they knew that by the time it was the German banks who had their back. That's number one. Number two is that they clearly fear that dependent on their size, that there is a [Basel IV ] coming into play and that they would need to proactively search for another bank because exposures would be too high with a single bank. And then there are others who really like to have a diversified banking portfolio, and therefore they do not like if there's one going away and they need to look for another one. So multiple reasons.
Maybe if we switch to the strategic update, you mentioned it as well. That's clearly a key date, and we're looking forward to that on February the 13th. Can you talk about key topics? You highlighted a bit in the third quarter, but can you maybe go into those topics slightly and, if possible, elaborate a little bit what the thinking is?
I mean, we have this updated target out there with the 12% RoTE in 2027 and the 54%, but it's also very clear that this is apparently not enough when you compare that to other peers. We have to think about further steps to also accelerating some of the things. We really have this, I mean, it's very obvious for a bank, the key levers you have. One clearly is RWA efficiency to think about how we can most likely reduce RWAs even further. We have done a first step by adjusting the forecast for 2027 by EUR 10 billion, which we believe we will see there.
The task now is to really think about VRSRTs, but also reviewing client relationships, uncomfortable ones, legacy portfolios, but also our RWA models on how to reduce RWA further to increase RWA efficiency with clearly no impact on the revenue side. That must be the objective. That's one angle. The other angle is clearly that, and that is an ongoing job, is to think about efficiency. And that has a lot to do with end-to-end processes, how we can simplify them, how we can change them, still bundling activities wherever you can, thinking about offshoring, given that Germany is a high-cost location. And then finally, the whole automation, AI, I think, is really now hitting, yeah, hitting the ground. And you see first very promising results where you can basically use AI for services, customer services, but also operations.
Then, thirdly, we are also thinking, given our now profitability, how we can further accelerate growth. We consider how to think about our risk return profile, whether we want to do any adjustment there given the strong profitability we have already today.
I mean, the RoTE guidance of 12%+ by 2027, you've already revised this upwards. Do you think the franchise and the environment that you're seeing in the next several years alludes to significantly higher RoTEs?
Well, I mean, the situation has become more difficult than we probably would have thought one and a half , two years ago. But still, I mean, we know what the macroeconomic assumptions are in the moment. This is also one part of the upgrading to think about that, what has changed. I mean, we have already taken into account the adjusted interest rate environment that was already also part of the September update. That is clearly something which makes it more difficult on the one side. But on the other side, we think there is huge potential for growth and also for efficiency measures.
If I come back to the discussion on risk-weighted assets, as you mentioned, you have started a process already of guiding to lower risk-weighted assets around EUR 10 billion lower to EUR 186 billion by 2027. So there's a lot of capital efficiency. It looks like more is to come. You're optimizing your risk-weighted assets capital position. How do you put that in context of acquisitions?
The question is clearly, what do we do with the free capital? That's clearly a question which you have already today. But looking on our plans, given that our target ratio is 13.5%, we now guide for 15% by year end. So there is already a strong path for capital return on the one side.
When we cannot pay out more than 100.
In the moment, our capital return policy says that it should be below 100%. But we always said that, I mean, you have three things what you can do with surplus capital. One is clearly bolt-on acquisitions, which we look at. But also to say it clearly here, we only do things which really, first of all, are value-accretive for our shareholders, but second, also which really enhance our value proposition. And thirdly, we do not want to get directly into a very complicated integration and things like that. So these are the three prerequisites for any acquisition we think about. That is number one. Number two is clearly growth where we can use capital. And the third one is to think about the payout ratio.
And I mean, we have also seen in the past players who were able to go beyond the 100% as long as they had a strong capital ratio, a strong profitability. And then I think you also have a case with the regulatory authorities to discuss that. But you also need to meet certain requirements to even be able to discuss a one-time higher payout ratio. And I think when we reach these conditions, we can also cross the bridge and start debating with regulatory authorities about that.
And can you be a little bit more, even from a top-down perspective, what those conditions mean? What are these kind of conditions that you could meet in order to do that one-off payment?
I mean, if you look at that, I mean, you just need to look on other players who have been allowed to do it, and they all earn cost of capital. They have a very decent cost-income ratio, and I think they are very clear, transparent, and they have a strong capital ratio, so I think the conditions are pretty clear. We are on our way earning our cost of capital. I think we're also improving cost-income ratio, so we are moving in this direction.
And if I put this together, you know, shareholders would applaud you by risk-weighted asset efficiency, building up capital. Even if you don't pay out today over 100, maybe in a few years' time, ultimately the capital comes back. But clearly, we're in a slightly different position considering you have an interested party. And the more excess capital you generate, the more attractive actually you become as a target. So how should we think about the balance of freeing up cash and at the same time not being able to pay out? i.e., doesn't the return on investment on an acquisition suddenly become more attractive?
I mean, we always said that. I mean, our target and our aspiration and also obligation is pretty clear. And that is creating value for our stakeholders and most importantly, our shareholders. And so we do whatever we can do to maximize the value for our shareholders. And that means all shareholders.
Okay, and in terms of a timeframe of maybe potentially paying out more than 100, is this a three, six months basis? How does the process work?
I mean, it's really very much dependent on the plan and also whether we find any acquisitions and things like that. So you can't plan for that for the moment. And we are known for taking gradual steps. So we now have the 70%+ payout ratio for this year. Next year, we are clearly targeting even a higher number, also targeting a higher profitability. So we really take it step by step. And then we will also give some transparency on that one during the Capital Markets Day in February.
Yeah, we look forward to that Capital Markets Day. Maybe before we go into a little bit more on the operational side on the P&L, maybe just can you give us an update on the fourth quarter, how that is progressing?
Well, I mean, we have the October now in the books. It seems to be also a very good fourth quarter. October was very strong for us. The positive surprise was clearly also NII. NII was very stable. We even managed the deposit beta a little bit down, which is good because we would expect another interest rate cut by ECB by year end. So it's good to a little bit be prepared for that because then automatically deposit beta will go up again. So that's a good thing. Net commission income is very strong. So we feel really comfortable also with the guidance here. Risk result is not something you have. It's an interim month. It's a very long quarter. As we all know, it's a difficult macroeconomic situation in Europe.
We said that we expect further single cases, but everything very much in line with our guidance. Also we stick to the risk result and our guidance was below 800. We feel very comfortable with that.
So positive tone in particular on NII, what we can see.
Yeah, but also on NCI, I would say. Those revenue drivers are very strong. Yeah.
Great. And you also in that context, you have appointed a new CFO. Maybe you can just tell us about the expectation, but also the thinking about the new hire.
Yeah, I mean, I'm very happy. Obviously that I like being CFO, but being CFO and CEO is some kind of a stretch, so it's good that it comes to an end, and I know Carsten for quite a while. We have worked closely together, so I'm very, very happy that he is coming back to Commerzbank. I think he will also have a very quick start given that he knows the bank for over two decades, and he has been in the role of head of finance, so he also knows most of the CFO area very well. I think he's a great addition to the board personally, but also content-wise, and expectation is clear. He needs to help us to probably even start still thinking a little bit about the upgraded strategy, but then also with the implementation of the strategy, and it's good.
So maybe moving to the operational side a bit more and talking net interest income in particular, you're given guidance for 2025, which is EUR 7.6 billion-EUR 7.9 billion. And then in 2027, EUR 8.4 billion. This year should be around EUR 8.2 billion. Seems to be a bit better, going a bit better based on what we're discussing just now. But maybe you can tell us about the path of 2025 in particular into 2027. And maybe also if I could just add one more comment on what if interest rates are below 2% for a longer period of time. Does that really change things significantly or is it just a 25 basis points, let's say, difference?
So I mean, first of all, the EUR 8.2 billion is a good number for 2024. And let's start with that. And when you look to 2025, so how do we come to the EUR 7.6 billion-EUR 7.9 billion? If you take the EUR 8.2 billion, you have approximately EUR 200 million, which you can put on top, which is for the additional revenues from the replication portfolio, and EUR 100 million for growth because of deposit and loan growth, which brings you to approximately EUR 8.5 billion. You could stop here and would be all very happy. But unfortunately, there will be something around EUR 300 million less because of mBank, because we expect quite some rate cuts in Poland. That brings you back to EUR 8.2 billion. And then it's very much dependent. And we said we simply don't know.
In the moment, it feels more likely that it's rather the 2.1% than the 2.8% average interest rate level, which we expect for next year. It will be something between EUR 7.6 billion-EUR 7.9 billion. And the difference between the EUR 8.2 billion, which where I ended, and the EUR 7.6 billion- EUR 7.9 billion is basically the interest rate cut, so EUR 300 million-EUR 600 million. But there I always ask to not forget that there is a corresponding effect, the positive one on the fair value, depending on which interest level we will see, you will see positive effects in the fair value. So the burden on our top line is less explicit than you might think if you only look at the NII. So that's for 2025.
If you then take, for example, the EUR 7.6 billion as a basis and you think about 2027, then you can add to the EUR 7.6 billion approximately EUR 500 million for replication portfolio, additional revenues, which we expect in 2026 and 2027; that brings you up to EUR 8.1 billion. And then approximately EUR 300 million is our current estimate. We will see from further growth in deposit and loans for mBank and Commerzbank, and that brings you to the EUR 8.4 billion.
What would happen if we fall below the 2% midterm? I think it's all also dependent a little bit on the impact, what happens with the curve overall, what happens with the 10 years, et cetera. So you can't say that it might be less a burden or more of a burden, but it really depends on how the whole interest rate profile is developing.
But in the moment, we feel very comfortable with our current estimates.
If we maybe put that in context in terms of loan growth and deposit growth, clearly some concern. We heard that also at the conference a bit, questions about German economic environment, which is no surprise. How should we think about loan growth, Mittelstand mortgages, but also deposit growth? How do you envision that?
Yeah, in the moment, we have been very conservative on the mortgage side because we also always thought that the interest rate levels would be a little bit higher. We now see activities coming back. Prices also have stabilized. So we see more activity here. So we expect some more growth. Specifically, if we really hit the 2.1% average rate, you should expect some more growth on the mortgage side. That's the private client side. On the corporate client side, we actually are one of the few institutions, I think, who have even seen loan growth now for two quarters. And the thing is, however, it's very much focused on less investments in Germany. It's more about going abroad.
And I think that is a trend which unfortunately will continue as long as we do not see a clear signaling by the new government that there will be investments also by Mittelstand clients, large corps anyhow. But they will most likely not happen in Germany, but they will rather happen abroad, be it U.S. or Asia. Then given our international network, we will be at the side of the clients, so we will see it. But it's clearly not a positive signal for Germany. Germany will, I think, only change when hopefully we have a, now I'm an optimist, have a stable government in February with a clear mandate, clear alignment on what needs to be done. Then you will also see a positive impact in Germany. But people are waiting for that, clearly now.
Okay, and maybe we can then also touch on commission income. You've done really well on commission income this year, and you increased your CAGR to 5.6% by 2026. Maybe you can talk about commission outlook, and clearly, with the market environment, et cetera, it should be all helpful, I assume, but also how do you see that developing? What are the focus areas in order to grow that?
I mean, the good thing on the net commission income, we are not relying just on one product or one area. It's really broad-based across all segments and product lines, basically. So you have on the private client side, you have the comdirect, which is doing well with respect to number of transactions and new clients. Then you have the retail banking side where we have been very active in the securities savings plans. And hopefully, a new government will also help to increase appetite on these topics with respect to retirement planning and stuff like that. And then we have our wealth management, asset management, where also our additions to our portfolio, be it Yellowfin, but also Aquila is really supporting the net commission income growth and also increasing effectiveness of our value proposition. That's on the private client side. Then mBank is doing very well.
And that's with respect to payments, but also they start to do more on the investment side. We have for the SMEs, which are still part of the private clients, we see payments paying off also with Globalpay , where we have the joint venture with Global Payments. And then moving to the corporate client side, also here we see different areas where we see very nice growth. And there's no reason why that should not be continued. It's a little bit more dependent. It's a little more seasonal, whether FX is high in demand or more commodities and things like that. But it's really coming from very different angles. And that is also helping in our guidance because even if one area is not developing as planned, then most likely there are other areas which can balance that out.
Maybe before we go into audience questions, just briefly on also on asset quality, you illustrated 20 basis points, second quarter, 25 basis ponts, third quarter, and clearly have given a guidance of EUR 800 million, including the TLA for this year. How do you think about provision outlook, in particular in Germany, considering a difficult economic environment ahead?
I mean, we said clearly that one should rather expect a very similar risk result for next year as for this year because it is not an easy situation in Germany. And one also has to say that we have seen an increase in default rates. It's not really bad or something like that because it's basically we are back on the levels pre-COVID, probably a little bit above. But we are also, I mean, we are in the third year nearly of stagnation in Germany. But it's really very much single engagement, which we see, which gets into difficulties. It's not complete sectors turning into difficulties. I mean, we have a close eye on some who are apparently struggling, take the automotive industry. And we are preparing for that. But the 2025 will be again a more difficult year. But we feel very comfortable with our guidance on that.
Maybe if you open up for questions. Yeah, there's one.
Hi, good morning. My name is Christoph [Wortig]. Maybe could you elaborate on your strategy for the branches, for the branch network in Germany?
I mean, we are now with 400 branches. We feel very comfortable with it. It was quite a journey from 1,000 to 400 in a very short period of time. We thought that given that COVID pressured us to anyhow close down, partly 600, and then midterm was only 400, that it would be an easy one. And the first 400 were really easy. The next 200, from 600 to 400, were really difficult. We had a lot of queuing and things like that because to our surprise, I have to say, clients did not use the pandemic to really change their behavior. So they basically went back to their original behavior, rather than not using digital channels, but going into the branches even for simple service questions and things like that. It's getting better. And our advisory center now are really working very efficiently.
But we feel for the moment, given that we really need to wait for a more digital behavior in Germany, we feel very comfortable with the 400.
Question, yeah?
I don't want to overinterpret this, but on the new CFO, your successor, the logic, maybe from his point of view, of beginning his post after the CMD and possibly after any bid is forthcoming, shouldn't that person be in situ already?
I do not want to interfere with boss's dialogue with his colleagues up in the north, but you can be assured that we try to get him on board as soon as possible. I would love to have him at my side when presenting the 2024 numbers, to be very clear. That's not on me to decide, that there are others to decide that.
Thanks, [Christiane Vorspel]. There has been rumors in the press about Commerzbank potentially looking at [HCOB ] Commercial Bank. And I guess IKB could also be for sale. Would those types of assets be of interest for Commerzbank? And would that fit the idea of only looking at things that are easy to integrate?
It's exactly what I said, is that we always look on acquisitions. However, we would not consider acquisitions which are not value accretive. Number one, they need to fit to our business model. They need to enhance our value proposition. We said that we don't really want to be messed up in integration, specifically not IT integration on the retail side. This is very difficult. That excludes at least some of the things you have just mentioned because it's a very difficult one. We're experiencing it on our own at the moment because we move our onvista clients, which has been a subsidiary of comdirect for quite a while. We just have to move them to comdirect. That's without any system integration because we just decided to shut down onvista infrastructure and move clients on the comdirect infrastructure.
But this is still a very manual process where you have to ask every single client for its approval to get moved, and we see by that how complex it is with consumer protection, et cetera, to moving clients from A to B, so it's what I said. There must be interesting synergies, must be value enhancing, and adding to our value proposition, and then we would consider it.
In respect to M&A, is there any areas of interest? You mentioned Aquila clearly, which was a recent acquisition. But is there any other segments where you would say we would like to be there, geographies that you would like to be there? Is there anything that you can share with us?
First off, I mean, we said wealth management, asset management is really one of our focus areas. On corporate clients, it would be if there's a product area which we find interesting to add. Otherwise, I think we have been very successful in the last years to really focus with respect to also the core markets. We believe in this connectivity point, which in our case means that our core markets for the time being are Germany, Austria, Switzerland, and Poland, clearly. Whatever we do with respect to the international activities, there must be a connectivity to our core markets because coming back to the question of our RWA efficiency, local business in some of the branches, international branches, which we have, has never been really profitable because it is like in Germany, you then get the products nobody else wants.
But when it comes to the interesting, profitable products, you always use your house bank to do business with. And therefore, the connectivity point is an important one.
Maybe I can just ask a question on your overall group. I mean, you're on to make 12% RoTE, 12%+ RoTE, I should say, by 2027. Your valuation is still quite low despite the interest by another party. Do you feel there are certain parts of your business that are not well valued by the market that are kind of missing and that you can either highlight strategically somehow, or that we should be aware of where you feel you guys should be a bit more focused on this area? We should do our job, me specifically.
I mean, if you take the target price at the moment from the analysts, it's at EUR 18.60. And there's clearly a range in that. But you see, if you follow up on Commerzbank's development, we have seen a constant improvement of share price and also target price. And I think it's something which happens month by month, quarter by quarter, that you basically seeing is believing. So you really need to see that profitability is increasing, that we really deliver. And the more we show, and I think we do, I'm pretty sure that automatically things should go up. Indeed, there are some analysts who understand us better than others, I would say so. So we clearly think that our value is higher than our current share price. We feel undervalued.
I mean, that's also one of the reasons why we think the share buybacks are a very good thing because they should also strengthen our share price.
On this note, things are going in the right direction. So hopefully, the revaluation will continue as we've seen in the past. Thank you very much, Bettina.
Thank you.
Thanks for coming.
Thank you.
See you hopefully next year.