Hello and welcome to the Commerzbank IT conference call regarding the second 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. In the first half of this year, we have achieved the best operating result in the history of Commerzbank. Based on this excellent performance and the momentum we have created, we raised our targets and expectations for 2025. Hence, Carsten and I look forward to walking you through the numbers and performance drivers, including our outlook. I will concentrate on H1 and the overall strategic and macro- picture. Carsten will focus on the performance of the second quarter. The financial dynamics and earnings momentum continue, and our teams have developed the best ever operating result in the first half of the year. The 23% increase is, especially in light of the macro- impacts, a strong proof for the commitment of our staff at Commerzbank and mBank, as well as for the trust of our clients.
The second point of my summary addresses the very good progress in the implementation of our momentum strategy. I will come back to this in a moment. Let me highlight that we are running according to plan regarding the negotiations of our restructuring program. This is thanks to an extremely good cooperation with the Works Council, which demonstrates a high degree of common interest. The third point of my summary is about capital return. Already in mid-July, we have applied for the next share buyback of up to EUR 1 billion. This demonstrates our unchanged strong focus on returning capital to our shareholders. The fourth point is about macro. The investment program of the German government will provide us with ample business opportunities. It translates into a tailwind for our financial development going forward, especially combined with a somewhat more hawkish outlook of the ECB.
This leads me to my last point: we raise our outlook in 2025 for net interest income and net result. Let's have a closer look at the key financials of the first half of 2025. Based on 13% higher revenues, including less burdens from the provisions for FX loans in mBank, we have reached a record operating result of EUR 2.4 billion. This is 23% higher than last year and 36% higher than in 2023. This strong result comes with unchanged high-cost discipline. With our cost-income ratio of 56% in the first six months of the year, we are well on track towards our full-year target of 57%. Bottom line, and when you exclude the restructuring charges, our very good performance is reflected in a return of 11.1% on tangible equity. Hence, we are very confident to meet our target of 9.6% for the full year.
The strong revenue development is also visible when looking at net interest income and fee income. NII, again, has proven to be very resilient in the decreasing rates environment. We managed to keep it at a high level and increase our full-year guidance from EUR 7.8 billion- EUR 8 billion. In anticipation of your foreseeable question, I would say yes, EUR 8.0 billion is probably the floor of our NII expectation for 2025. On net commission income, we are very satisfied with the strong 8% growth we have achieved in the first six months of the year. Driven by the strong securities business in PSBC Germany, this outstanding growth makes us very confident that we will achieve our growth target of 7% in NCI for the full year. Strong client business, which is in particular reflected in NCI, forms the backbone of our momentum strategy.
All three customer divisions grow significantly in fee income: 4% in Corporate Clients, 10% in PSBC Germany, and 14% in mBank lead to the overall 8% growth in the first half of the year. I'm also very pleased with the 8% loan growth in Corporate Clients. This clearly helps to mitigate the impact from lower rates on deposit NII. The lower reported revenues from the net fair value result in Corporate Clients stem primarily from legacy positions and are offset in net interest income. Though many Mittelstand clients are still hesitant when it comes to the deployment of investments in Germany, client interactions are at a higher level, which provides a good pipeline for future revenues. This leads me to the recent achievements with our momentum strategy.
With our value accretive growth strategy, we are heading towards 15% return on tangible equity in 2028 and plan the full distribution of profits for every year. On this journey, we have made further tangible progress in the execution of strategic measures. First, we are completely on track with the restructuring negotiations. This is a further milestone to reach our targeted cost-income ratio of 50% by 2028. All remaining negotiations with the Workers Council about the detail of the restructuring should be finalized by September. We will enter the next phase of strategy implementation and value creation. Second, we have successfully introduced the new account fee structure for private customers in Germany. From overall 2.4 million free-of-charge accounts, already more than 1 million customers agreed to the new fee of EUR 4.90 per month.
Though the second half of consent is always harder to get, this is already a significant and tangible contribution to fee income of PSBC. Third, we have further enhanced our digital trading platform in Corporate Clients. For example, we have introduced online money market deposits for international clients. With targeted investments in technology, we have increased our market share in FX and interest rate derivatives, which contributes to the revenue growth case of Corporate Clients. Of course, the high customer focus, especially in the German Mittelstand, is highly appreciated by our clients. According to Finance Magazine's Banking Survey 2025, Commerzbank was once again singled out as the best Mittelstandsbank. Around 75% of respondents view Commerzbank as a leading bank for the German mid-market sector, which is seen as the backbone of the German economy.
Furthermore, Euromagazine awarded Comdirect as the best direct bank and Commerzbank as the best branch-based bank, both for the eighth time in a row. Third, we have finalized the negotiations with the Works Council regarding our employee share program. We now plan for the rollout of the program in autumn this year. By then, every Commerzbank employee will receive shares with a value of around EUR 500 and become a shareholder of the bank. Follow-ups for 2026 are also already agreed. These successful initiatives are complemented by strong efforts to make further use of AI, which has the potential to be a real game changer also in banking. Now, let me briefly update you on our capital return program. With a dividend of EUR 0.65 approved at our AGM in May, we successfully concluded the capital return of EUR 1.7 billion for 2024.
For 2025, we target to fully distribute the net result of EUR 2.6 billion before restructuring expenses and after EUR 81 million core payments. To ensure a smooth execution of the share buybacks for 2025, we have already applied for a first tranche of up to EUR 1 billion mid-July. Overall, we are fully on track to deliver on our capital return targets with a steadily increasing dividend every year. I also feel very comfortable with our targets for the year 2026- 2028 and see potential for further tailwind. We have made very good progress, strategically and financially. Our standalone momentum strategy works and pays off. We remain firmly committed to creating value for all our stakeholders, and this includes our new largest shareholder. However, the shareholding situation with UniCredit is, to put it mildly, not ideal, as UniCredit is a direct competitor in the German market.
We are convinced that the ongoing successful execution of our standalone strategy is the right focus. Now, let's move to macro. The German investment programs are on everyone's lips. Our view is clear. Things are moving in the right direction. The government has already tackled important topics like energy costs, corporate taxes, and depreciation rules. While defense spending is already increasing, it is now about preparation for the deployment of the infrastructure funds. German corporates demonstrate their strong support with their initiative Made for Germany and an investment spend of more than EUR 600 billion. We as Commerzbank are happy to be part of this important joint effort of corporate Germany. All these activities are clearly positive for Germany and for Commerzbank as a leading bank for the Mittelstand.
Also, the sentiment in the German Mittelstand is improving, and we have seen the fifth upward revision of the business climate with the recent IFO data from July. However, the Mittelstand remains cautious regarding their investment plans in Germany. We do not expect a very visible increase in 2025, but there is great potential for 2026, assuming that issues like bureaucracy and the shortage of skilled workers are addressed. On a net basis, we expect a stimulus to push GDP growth to 1.4% in 2026, despite the expected impact from the tariffs imposed by the U.S. This growth provides us with good tailwinds for our business in 2026. At the same time, we would also benefit from the slightly more hawkish view of the ECB. Our economists now expect ECB rates to bottom out at 2%, which would further increase the confidence in our NII trajectory towards 2028.
This leads me to the raised outlook for 2025. Based on the strong performance in H1, we increase our outlook for net interest income from EUR 7.8 billion- EUR 8 billion. We also increase our target for the net result from EUR 2.4 billion- EUR 2.5 billion, which translates into EUR 2.9 billion when excluding the 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 core payments. We maintain our expectation for the CET1 ratio of at least 14.5% at the end of this year. Now, let me hand over to Carsten, who will walk you through the detailed financials of the second quarter. Over to you, Carsten.
Thank you, Bettina, and good morning, everyone. It is also my pleasure to present you record results. A double-digit return on tangible equity before restructuring expenses is a clear proof of the excellent performance of the business. We are clearly well on our way to reach our financial targets for the year, which we have raised again. The CET1 ratio of 14.6% is around 50 basis points lower than in Q1, and fully in line with our target of at least 14.5% by year-end. It reflects our commitment to return more than the net result to our shareholders via share buybacks and dividends for this fiscal year. The quarter's performance is based on 13% higher revenues compared to last year, reaching broadly the same level as the record Q1 of this year. Net interest income has held up very well and is only slightly lower despite the ECB rate cuts.
Net commission income has grown strongly. The net fair value result is slightly negative and on the same level as last year. Positive valuation effects from investments, compensated FX effects from our U.S. dollar 81 instrument, and derivatives valuations. As in Q1, the relatively high other income, excluding FX loan provisions, stems largely from a positive hedge result. Now to net commission income in more detail. Net commission income grew by 10.3% year-on-year, with good contributions from all customer segments. Following on an already strong Q1, Corporate Clients further improved revenues in the FX and bond businesses. Lending grew fee income from the loan origination business. Even trade finance managed a slight increase compared to last year, despite the sluggish German economy. This is a clear testament to our close client relationships. Private and Small-Business Customers in Germany grew net commission income by a healthy 8.8% compared to last year.
All product areas contributed. Again, the securities business was the biggest contributor. In particular, wealth management performed well, and higher transaction volumes in a volatile market helped at Comdirect. In the payments business, we see the first effect of the higher account fees, which started to meaningfully contribute to revenues in June. Let's move on to interest income. In Q2, ECB rates were on average 50 basis points, and Polish rates 25 basis points lower than in Q1. Nevertheless, the net interest income is only slightly reduced, demonstrating the resilience of our business model. In Corporate Clients, net interest income is up slightly compared with Q1. Lower funding costs and higher income from loans more than compensated reduced contributions from deposits. The lower funding costs are, however, offset in net fair value from connected hedging derivatives. In PSBC Germany, net interest income was slightly lower.
The reason are early mortgage repayments, which are always highest in the second quarter. This is an internal effect with corresponding gains shown in Others in Consolidation. Otherwise, the interest income was basically on the same level as in Q1. In mBank, the lower NII results mainly from a weaker Polish zloty. Lower interest rates were largely compensated by volume growth. In Others in Consolidation, NII is slightly lower. There is, however, an offset in the net fair value result from derivatives. Looking at loan volumes, CC has continued to increase the business with all customer groups. In total, CC managed to grow the loan book by 8% in the first half. There has been a pickup in investment loan demand in Mittelstand. This is encouraging and includes growing demand from the public sector. PSBC Germany has again slightly grown the mortgage book.
In the deposit businesses, we have seen stable volumes and only a small increase of the beta to around 39%, as we have offset the effect of lower ECB rates with strict margin management. At the end of the quarter, we have launched new initiatives to acquire additional deposits in PSBC Germany. 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 7.8 billion to around EUR 8 billion for the year. I will now go through the drivers. The replication portfolio has been marginally adjusted by an increase of EUR 2 billion- EUR 147 billion in June, further stabilizing our future interest income. This has no big impact in 2025, where we continue to expect around EUR 400 million uplift from the replication portfolio, but will stabilize NII in later years.
Looking at the ECB rate-sensitive positions for 2025, we now assume around EUR 600 million less contribution than last year due to the lower rates. This is based on an average ECB rate of 2.17% for the year and is EUR 100 million improved from our expectations in Q1. Current forwards are higher, and there is therefore further upside potential. With 39%, the Q2 deposit beta was only around one percentage point higher than in Q1, thanks to our continued successful margin management. While we expect a higher beta in H2, also due to our attractive offers for new money, we improve our outlook for the full year to 40%. This would then lead to an NII reduction of only around EUR 100 million from the deposit beta compared to last year, while we were originally expecting a drag of EUR 300 million.
Concerning volumes, we continue to plan for moderate growth in deposits towards the end of the year. Due to the composition of new loans and deposits, we lower the expected contribution from volume growth from EUR 200 million to around EUR 100 million NII. For mBank, we continue to plan with around EUR 100 million lower NII offset in net fair value. Given all these factors, we expect NII in H2 to be somewhat below H1, but adding up to at least EUR 8 billion NII for the financial year 2025. When also considering the net fair value results, where we have offsetting positive effects from lower ECB rates, the total rates-related revenues should be on the same level as last year. This would be an excellent result and a good starting point from which we can grow in subsequent years.
Looking beyond 2025 and assuming no further changes in volumes and the current forward rates, we now expect an additional EUR 1.2 billion NII from the replication portfolios in 2028 versus 2025. Most of the EUR 1.2 billion uplift in 2028 comes from the deposit models, but the equity models are also contributing more than EUR 150 million. In total, the outlook for the contribution from the replication portfolios in 2028 is now around EUR 300 million ahead of our original plans. Please keep in mind that part of this is offset by lower interest income from ECB rate-sensitive positions, which is correspondingly reduced when deposits are moved to the replication portfolio. This reduction in volume leads to around EUR 200 million less contribution from these deposits. We clearly see a potential tailwind, but stick to our outlook for 2028 for the time being. Now to costs on slide 19.
Operating expenses have been managed in line with our target of a cost-income ratio of around 57% for the year. The cost increase in the group ex mBank results from general salary increases and the effect of a higher share price on equity-based variable compensation. The cost increases were partially offset by the cost savings we have realized from our ongoing restructuring and cost optimization measures. mBank's costs increased by 16% from investments in business growth and FX effects from the stronger zloty compared to the last year. Furthermore, there was a significant increase in the compulsory contributions in Poland already in Q1. We have concluded the detailed cost and FTE planning for the Momentum strategy in the quarter. This has confirmed our cost targets and has resulted in lower required restructuring expenses for the FTE reductions than initially estimated.
So far, we have booked restructuring expenses of EUR 534 million in the first half. The total required restructuring expenses are now expected around EUR 600 million, with the remainder to be booked in the second half. The next slides cover the risk result. The risk result comes in at EUR 176 million. Overall, the portfolio has been resilient and developed in line with our expectations. We therefore stick to our guidance of a risk result of approximately EUR 850 million in 2025. This quarter's risk result includes the effects of some methodology improvements. In 2020, with COVID, we introduced top-level adjustments as an overlay to the risk result and have used this approach since then. In 2024, we have started to complement the top-level adjustments with collective staging for novel risks. This quarter, we implemented changes in our risk methodology that lead to a higher sensitivity to macroeconomic effects.
These include in-model adjustments for macro effects, mainly due to U.S. tariffs, and the recalibration of our rating methodology for small and medium-sized corporate customers in Private and Small-Business Customers (PSBC) and Corporate Clients. This has resulted in a EUR 142 million increase of the risk result. At the same time, we have released the remaining EUR 182 million top-level adjustments since the covered issues were either resolved or are now addressed by the updated methodology. Net, we have a release of EUR 40 million. On the next slide, I will give you an overview of the total stock of overlays. Overall, we have built up additional provisions of EUR 270 million for novel risks since Q2 2024. Around half are covering macroeconomic or sector-related risks. The other half is for climate and environmental risks, as well as a one-off effect stemming from rating recalibrations.
As with the TLA, the additional provisions will be reviewed on a quarterly basis and adjusted if required. This concludes the view on the key line items. I've already covered the main drivers of the excellent operating result and will therefore only briefly touch the tax rate. The tax rate was 22% in Q2 and 24% for the first half at the low 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 cover the results of the operating segments, starting with Corporate Clients. Corporate Clients have increased loan volumes and grown capital markets revenues by 7% year-on-year. Also, trade finance has held up well.
Nevertheless, overall revenues are 7% lower compared to Q2 last year due to the impact of lower ECB rates on the deposit business. With no significant change in ECB rates expected in the next quarters, income from deposits should stabilize at the current level. This is already visible in the comparison with Q1, where customer revenues were relatively stable overall. Lower revenues in others mainly reflect the lower net fair value results in comparison to the strong first quarter and include effects from legacy positions. Private and Small-Business Customers (PSBC) Germany has again grown its fee business year-on-year. This has come from private customers, while net commission income from small business customers was stable. During the quarter, we have made progress in our asset management strategy and are now reporting our asset management subsidiaries Commerzbank, Yellowfin, and Aquila Capital together.
In Q2, we have impaired intangibles of EUR 65 million of Aquila Capital, which is reflected in the cost line. The impairment results from a shift in the market for early-stage solar projects in Southern Europe in the first half of the year. This has reduced the operating result to EUR 262 million. Before impairments, PSBC Germany's operating result was on last year's level. mBank again performed extremely well on an operating level, more than doubling the operating result to EUR 300 million. Revenues before burdens from FX loans and credit holidays were on the same level as last year. Burdens from FX loans are nearly half the level of last year. For the whole year, we expect the burdens to be less than half of what we have seen in 2024, as mBank continues to manage to make very good progress on settlements, reaching about 30,000 by the end of July.
Next year, we should benefit from the strong performance of mBank's core business, no longer weighed down by FX loan provisions. Others in consolidation delivered a positive result of EUR 109 million in the quarter. While net interest income was slightly lower, the net fair value result was improved compared to the previous quarter. It also includes a EUR 51 million valuation effect related to the IPO of eToro, in which CommerzVentures has a stake. Revenues were further boosted by a positive hedge result and realization gains. For the year overall, we expect a neutral result from others in consolidation. I will now move to the group RWA and capital development on the next slide. The CET1 ratio was 14.6% at the end of the quarter, down around 50 basis points from Q1. There are three drivers.
First, we will return the full net result before restructuring expenses and after AT1 coupon payments to shareholders. We have therefore deducted the restructuring charges after tax from CET1 capital and not accrued the net result. This has reduced the CET1 ratio. Second, RWA have increased by around EUR 2 billion in the quarter, mainly from higher credit risk RWA from growth and higher market risk RWA due to the extreme market volatility in April. Third, there have been other CET1 capital changes, mainly FX effects and regulatory adjustments. With a CET1 ratio of 14.6%, we are now close to our target of at least 14.5% for the year. For H2, we expect modest growth of risk-weighted assets when considering the SRTs planned for the second half and do not anticipate a significant change in capital. This brings me to the end of the presentation and the outlook for 2025.
As Bettina has already mentioned, we have raised our outlook for NII and the net result. We confirm all other targets. We continue to expect growth of net commission income of around 7% compared to last year, a risk result of around EUR 850 million, and the aforementioned CET1 ratio of at least 14.5%. Thank you very much for your attention. Bettina and I are now looking forward to taking your questions.
Ladies and gentlemen, we will now begin the Q&A session. If you would like to ask a question, please press nine and star on your telephone keypad. You will hear a short announcement that you are in the queue for questions. If you wish to withdraw your question, please press three and star on your telephone keypad. The first question is from Benjamin Goy, Deutsche Bank. Please go ahead with your question.
Yes, hi, good morning. Two questions, please. First, on the net interest income and the deposit beta in particular, maybe you can give a bit more color on how much of this potential increase in deposit beta in the second half is accompanied by higher volumes given Comdirect and other campaigns you're running at the moment. Secondly, coming back to the risk result, now EUR 300 million in H1, and your momentum seems to be improving, macro seems to be improving. Maybe you can explain in a bit more detail why you expect actually EUR 550 million and reiterate your full-year guidance. Thank you very much.
On the risk result, I mean, you know, we are a conservative group, so it's still a second half. I mean, we have seen now three years of limited or no growth in Germany. We just stay cautious, and we all remember that the fourth quarter is always a long quarter because it goes once until mid-February, and that's the whole reason that we haven't seen any indication why we now should adjust our guidance. That is the simple story, not that we see anything specific moving here. For NII, I hand over to Carsten.
Yeah, hi Benjamin. On NII, you asked how the deposit beta in the second half will be impacted by the offers we had out in Comdirect. As you've seen, end of June into July, we started offering promotional rates to customers to attract deposits, which we've done over the course of July. We have attracted actually the volume we were anticipating and planning for. From that offer, you can expect a slight impact to the beta, which is also why we're seeing a mild increase to 40% in the second half of the year from the current 39%.
Thank you.
The next question is from Jeremy Sigee, BNP Paribas Exane. Please go ahead with your question.
Morning. Thanks very much. Two questions, please. I thought it was very encouraging to see the loan growth, and I just wanted to get you to talk about that a little bit more, particularly in the Corporate Clients. We're seeing an acceleration here and quite a nice pickup, which is what you were relying on in your plan. Is this the beginning of that trend coming through? Is this all good now, and is this a growth rate that we can expect to continue? My other question was just on costs. I thought costs were a little whisker-heavy in the operating divisions in the quarter. I just wondered, you've reiterated the 57% cost-income for the full year. I just wondered what you're expecting in absolute terms, what the EUR billion cost number is you're expecting for the full year.
Thank you, Jeremy. On loan growth, yeah, I mean, we are very optimistic that the positive trend will continue. As I said in my speech, we really see sentiment improving not only among the large corporates, but also among the medium-sized corporates, the so-called Mittelstand. We see a lot of activity, a lot of discussions about investment plans. There's a pipeline. How fast this will show off, we will see, but it's clearly a tailwind for our 8% growth, which we have predicted year on year for the coming years. We are absolutely confident to achieve that. On the cost side, I mean, it's, you know, where the costs come from, inflation and other things, but I hand over for Carsten.
Yeah, on the cost side, we confirm our 57% cost-income ratio, but for the absolute target, as I also mentioned in the speech, we are also seeing increased costs from our equity-based long-term incentives, which are trending in line with the share price. We're seeing an additional pickup of cost there. We're heading towards EUR 6.9 billion-ish towards the end of the year, a slight increase from EUR 6.8 billion, but again, the 57% cost-income ratio stands, and we are keen to manage the cost down. First half has been encouraging on that path.
That's really helpful. Thanks very much.
The next question is from Tobias Lukesch, Kepler Cheuvreux. Please go ahead with your question.
Yes, good morning. Also, three questions from my side, please. First, touching on the Swiss loan provisions, I was wondering, now you also adjusted the guidance in a way that you no longer say it's subject to potential Swiss loan provisions and also Russia. I was wondering, can we here really calculate with a zero basically for 2026, and would you also expect hardly anything to happen in H2? Secondly, on the NII floor statement, you provided page 18, very helpful. If you say EUR 8 billion is the floor, and we understood that the moving parts you described about the deposit beta, basically the EUR 200 million delta, how should we think about what's giving the upside? If you look at that page 18, is it the replication portfolios? Is it the loans and deposits? Is it coming from mBank? This would also be helpful.
On the risk provisions, you have seen model adjustments, so you stick to that guidance, which gives you a big ballpark number basically for H2 still to provisions. I was wondering, you have seen a couple of changes to methodology, the rebooking of the TLAs, which is now done. Should we expect additional model changes to impact H2 here, or would you rather expect that 90%- 100% of going forward risk provisions is rather coming from actual underlying business trends? Thank you.
For the outlook, we kept actually the guidance or the subject still when you look on page 28, and we still have it in because Russia is something we can't foresee. On the FX loan provisions, I think we have shown pretty nicely that we are always able to absorb the burden quite sufficiently, and it stays what we said before that we really want to end this story this year to not talk about it anymore next year. This is a clear target, and that has not changed. If there are numbers, they will be so small next year that they are not really worth to talk about. When it comes to your third question, additional model changes, the models will be reviewed every quarter, so you can't exclude up and downs. Overall, we feel pretty comfortable in the moment with what we have now put into the models.
For NII, I hand over to Carsten.
Yeah, and with regard to your second question concerning NII, on our way to our EUR 8 billion target for the year 2025, the changes since the beginning of the year mainly stem from a move in the ECB or improvement in the ECB rate-sensitive positions. With the movement there, we're now only expecting a EUR 600 million negative impact that was higher at the beginning of the year. Secondly, the beta actually starting from the beginning of the year, we had a EUR 200 million higher burden anticipated. That's an improvement in that line. On the other hand, on loans and deposits, given the constitution of the business coming in, and also looking at the cost of deposits into the second half, we've taken that down slightly by EUR 0.1 billion.
That in sum actually gives you the move, which brings us up from the EUR 7.8 billion originally to the EUR 8 billion for the end of the year. For us, this is the floor for 2025. On our path to 2028, you will see that especially the replication portfolios and the stabilization there will give us an additional EUR 1.2 billion compared to 2025.
Maybe any indication which kind of these five levers could provide the most upside for H2 in your view?
Sorry, I didn't catch that in your original question. If we're looking into this, I would definitely say looking at the ECB rate-sensitive position and continuing working on our loan and deposit combination is certainly what we're looking at.
Great, thank you.
The next question is from Tarik El Mejjad, Bank of America. Please go ahead with your question.
Hi, this is Tarik El Mejjad from Bank of America. Just two quick questions left from my side. First, on the dividend, I know your policy is 100% payout, but no indication on the split. Could you give us some indication how you see the split, given that your valuation has materially improved since the CMD and earnings grew actually quite fast as well? Would there be another tranche of buyback potentially with Q3? How do you see the mix versus last year? Also, on the credit stake, I would be really curious to know, Bettina, how do you deal with a large shareholder, at the same time, I would say the main competitor in Germany, given the Mittelstand market share? It'd be interesting to see how you compose with that and also discussion about the board seat as well. Thank you very much.
Thank you, Tarik. On the dividend policy, we have paid out last year a dividend in the size of EUR 700 million. We clearly want to increase dividend year on year, and we said that. Also, given that we had a capital return of EUR 1.7 billion last year, and if you now take the numbers which we are guiding, which is the net income before restructuring costs, but after AT1 of EUR 2.6 billion, and we say we have a 100% payout, you can assume that everything will go up. We have now applied for the first tranche of up to EUR 1 billion. We will indeed apply for a second tranche in the third quarter, and then we will also know better what the concrete split will be, but you can assume that dividend will also nicely increase.
When it comes to UniCredit, there has been no reach out on anything with respect to board seats or something like that. I think from the statements, at least we learned that there's also no wish to ask for that in the moment. The situation is difficult because UniCredit is not only an investor, but also a competitor. Our expectation is clearly that they act as an investor and nothing else. It doesn't really make a difference whether someone has 5%, 10%, 15%, or 25%. It is important that we share the same objective, and that is creating value and maximizing value for Commerzbank. That's basically our key focus. Our focus is also on clients and employees so that we make sure that there's stability, that there's a trust in the actions we have.
I think we have proven in the past months that we are very able to manage the situation, and we intend to continue that.
Okay, thank you. Very clear. Just to follow up on the dividend, please. I think in the CMD, you had this extra paragraph mentioning that if the plan goes well, which is the case so far, you would be inclined to ask for a payout even above 100%, which is the case this year given the restructuring charges adjustment. Beyond even restructuring charge, and given your strong capital build and no expectations to have any hit on capital in the second half, would that apply already from this year, or you want to see more development of the plan in the next year or so?
You know, I mean, we take it slow. You know that we have consequently increased our payout. Last year, it was 71%. Now it is even above 100% given that we exclude the restructuring costs from the net income. Everything else will show in the coming years. We really take it year on year, and I think that is also wise to do.
Thank you. Have a good day.
The next question is from Riccardo Rovere at Mediobanca. Please go ahead with your question.
Thank you. Thank you very much for taking my question. Two or three, if I may. The first one is on risk cost. Carsten, the EUR 142 million that you have taken this quarter related to, I guess, recalibration and models, I guess is something that you will not do every single quarter. You'll recalibrate the model, but then they should stay more or less as they are for a while. Is that a fair assumption, a fair way of seeing what you have done in Q2? The second question I have is on the tax rate. You mentioned it was 22%, but you didn't give any particular explanation why that was so low. I was wondering if you could add a little bit of color here.
The other thing I wanted to be sure I understood correctly, Bettina, at the beginning of the call, if I'm not mistaken, you mentioned something that the employees, or maybe all the employees, I'm not sure, will become shareholders of the bank. I heard a number like EUR 500 per employee or something like that, but I'm not sure I got it correctly. If you can explain. The last, maybe the very, very last one, the restructuring charges, are they, just for me to know, just fiscally deductible, or do they go straight to the bottom line? Thank you.
Yeah, thank you. On cost of risk, we said that we have done now the recalibration of the models. We also have done the change between the models and the top-level adjustment. As said, we have the obligation to also review that every quarter. As long as the external conditions stay, I would say, as stable as they can be, you will also see not a lot of changes. It is very much dependent on what happens outside because it's novel risk, it's macroeconomic risk, it's climate risk. I would say for the moment, we expect stability on that. When I take your last question, restructuring charges, they are tax deductive, and that explains also the low tax rate in the second quarter. On the third point, with respect to the employee share program, indeed, we announced this share program already during the Capital Markets Day.
It is part of the story that we really want to create value for all our stakeholders, meaning clients first, but then clearly shareholders, but also employees. This is part to increase also commitment among our staff, feel more connected to the bank. Therefore, we agreed on this plan. It is also in Germany at least supported by the government because it comes tax-free for the employees. It has also the additional benefit that everybody, really everybody, has a securities account after this exercise. It has been always embedded also in our plans on the cost side, and we will continue that also in the years to come. It's exactly EUR 500 or around EUR 500, depending on the share price when we implement the program.
Will all the employees be given EUR 500?
Yeah, in the AG in the moment, it's AG, Commerzbank AG, but that is for Germany and in all the international locations. What is not yet part is mBank, and not yet part are our service units in Germany. We are still in discussions there, but there's also something to come in the coming quarters.
If you had to throw a ballpark, how much at the very end of the day will employees own the bank?
You can make the math. It's EUR 500. We talk about EUR 15 million- EUR 20 million.
Okay, all right. Thanks, Kate. Perfect. Thanks.
The next question is from Borja Ramirez, Citi. Please go ahead with your question.
Hello, good morning. Can you hear me?
Yes.
Perfect. Thank you very much for taking my questions. I have two. Firstly, on the cost guidance, I understand it is EUR 6.9 billion this year because of the share-based compensation due to the better share-based performance. I understand this is only 2025, so assuming that the share price, I mean, hopefully will continue to re-rate, but assuming there's no effect from this variable compensation in 2026 and onwards, this additional cost in 2025 should not be modeled going forward. Is this correct?
Yeah, I can make that short. That is correct. It's a one-off effect this year due to the increase of the share price, and we will not see the same effect from this in the next years. Clearly, we have to see what market movements are, etc., but we stick to the guidance for the next years.
Perfect. Thank you very much. I would also like to ask, on the NII guidance, looking beyond this year, I think it's very helpful that you provide the NII waterfall looking at various lines. I think that you're one of the most detailed disclosures among banks, which is great. I would like to ask on the guidance beyond this year. I think, if I understood well, compared to your CMD targets, the replication portfolio is EUR 300 million more than before. The ECB rate sensitive is EUR 100 million lower than before because of the increased replication portfolio. I would like to ask if there's any other changes that we should think about. Thank you.
When looking at the NII beyond 2025, you're right. We're seeing $300 million more coming from the replication portfolios given the stabilization effect that we are seeing. Also, in the following years, we see countering effects of around $200 million, which are coming from the rate-sensitive positions. We will see bits and pieces that are working against this. You saw that we kept our NII guidance for 2028 stable, exactly for these reasons. As also mentioned before, the stabilization effect out of the replication portfolio should give us a tailwind. What we're seeing at the moment is there are, of course, better forward curves in the market observable as well, which also allows us to rather approach this from the conservative side.
Thank you v ery clear.
The next question is from Stefan Stalmann, Autonomous. Please go ahead with your question.
Good morning. Thank you very much for taking my questions. I actually just wanted to ask about the Aquila impairment, please. Can you give us a rough sense of what share of the intangibles that existed has been impaired? Is it correct to assume that these are amortizing intangibles in normal times? Also, maybe a little bit more strategically, do you think this will have any impact on the net commission income trajectory that you have in mind for coming years? Does it have any impact on more broadly your appetite for external growth in asset management type companies? Thank you very much.
Thank you, Stefan. Strategically, no, it doesn't change anything with respect to our appetite, number one. Number two, it does not change anything on our guidance of the 7% per annum growth rate, which we target. We want to be really an attractive, or we want to provide an attractive offering for our clients with respect to asset management that contains all different areas. We also keep looking on potential M&A opportunities that have not changed and on the details on the impairment cost.
The $65 million we're seeing as a cost item here are roughly a quarter of the overall goodwill and intangibles for Aquila. It would have been a regular depreciation over 15 years. We're basically pulling this part forward. The $65 million would have been depreciated in any case over a longer period of time. We're adjusting for the current market environment and monitoring this.
Thank you very much.
The next question is a follow-up from Tobias Lukesch, Kepler Cheuvreux. Please go ahead with your question.
Yes, thank you for the follow-up opportunity. Quickly, to get that right on the tax rate guidance. You mentioned the 22%. I didn't catch that earlier with regards to the initial 25%-30% guidance. Could you please elaborate again? It's like how we should see that for the full year? I was wondering on the fees for the current accounts. You mentioned that there was progress. Could you please again tell us about the status quo, how many million you basically converted and what you still have on your agenda and how you expect that to continue in H2 in next year or with some clients without fees going forward? Lastly, I discovered this other financial result of EUR 69 million, which was quite big actually in contributing to Q2 results.
I was wondering what is behind that and if this is a kind of recurring part we see over some quarters or if this was a kind of one-off booking. Thank you.
Let me just start with the fee topic on the current account. We have reached out to 2.4 million clients who have been on a zero-cost account so far. We got feedback from over a million agreeing to pay the EUR 4.90. There are some clients who have decided to leave us. That is also part of the deal, that there is some attrition, but it's lower attrition than we originally thought. There are also clients who basically decided to fulfill the requirements, i.e., having more than EUR 50,000 on their accounts, because then you also get a for-free account. That leaves us still with half of the clients that need to be agreed with or find an agreement with. This is what we're currently doing. We're sending out letters and trying to get in contact with the clients.
We always know that the second half takes a little bit more time, but we are very committed to be done with the whole exercise by the end of the year.
Let me get back to the tax question. I think first of all, we should start with seeing that Q2 has clearly a low mark in the tax rate with 22%, especially coming from this quarter's effects from restructuring expenses. When we're looking into the year, we stick to the guidance of 25%- 30%. When making a reference also to mBank, this is mostly because the tax rate in Germany inherently is slightly higher, while a tax rate from our international location income is usually taxed at a slightly lower rate, which is also why the mix then makes a difference. We're sticking to the 25%- 30% for the year and starting with a low 24% out of the first half of the year. Secondly, on other income, your question was whether this was a one-off.
The other income was predominantly moved by hedge result and realization gains that we had from derivatives, partially running against net fair value, but that's what it is.
That's an interesting one. I mean, because the net fair value result was way lower than expected by consensus. You say this kind of realization gain is a kind of offsetting of the net fair value. Has that to be read together kind of?
Yeah, the net fair value and the hedge result, you always have to see a bit in conjunction. Also, we're seeing offsetting effects in this when you're looking at the full year and what the consensus is seeing for the net fair value. If you actually combine that with what we're seeing in the other result, we're sticking to what we're seeing there.
Here, I'm not talking about the hedge accounting $41 million. I'm really meaning the $69 million you have in other financial results. I was just wondering, you said realization gains. I was wondering, is that selling an investment security portfolio at a decent price, or is that something, as you say, which is kind of recurring and has to be read together with the net fair value and ultimately the NII development?
That particular $69 million is mostly coming from realization gains, as mentioned earlier. This is coming out of our activity to also hedge market movements that we're anticipating. It is part of our ongoing business model to manage the risk position of the bank, but clearly is changing from quarter to quarter.
Thank you.
We have another follow-up question from Riccardo Rovere, Mediobanca. Please go ahead with your question.
Thanks. Thanks again for the quick follow-up. At the beginning, you mentioned in the start of the call, if I'm not mistaken, that you have launched new initiatives to grab new deposits. I was wondering, why is that and what those initiatives refer to? I mean, are they particularly expensive? This is what I'm hinting to. The other question I wanted to have an idea about is you mentioned Polish FX provisions 2025 expected to be less than 50% of what you charged in 2024. Once 2025 is gone, would you expect this to be kind of zero in 2026 and 2027, or much, much even, or maybe a very, very small amount? What do you expect here? Thanks.
Yeah, on the new initiatives, you have seen that also in the past years, we also have been out there with a tech product. We are also part of the market and we have stayed away from that in Q1. At the end of Q2, we also started to test a little bit the market on Comdirect, but also for the smaller businesses in Commerzbank. That's what we are doing. I think we have proven also in the past years that we are doing it wisely. They are pretty aggressive and we have been also very successful with that. It's testing the market, basically testing how much client demand we can attract with that and then seeing how much of the client volumes also stay with us. That's a normal business thing which we always do.
It also helps us actually clearly to attract new clients on the Comdirect side, but also on the SME side. When it comes to the FX effects in Poland, yes, we said quarter on quarter we will see less provisions and that is what you see. We also said that we would like to put an end to this story by 2025. We can't exclude that from the passive population there will be someone still coming out in the next years, but it should be so small that it's not worth talking about.
Yeah, that's very clear. Just to get back one second on the deposits, those initiatives, is that something that you have done throughout the quarter, or were they concentrated toward the end of the quarter? Are we talking about kind of cold money, cold deposits as you did before in the previous quarter?
It was very focused only for a couple of weeks. We started end of the quarter, and I think it has even ended already. It's for cold money.
Okay, it's like cold money. Okay, perfect. Thank you.
At the moment, we have no further questions. If you would like to ask a question, please press nine and star on your telephone keypad.
Okay, I would say we call it an end. Thank you very much for your questions, and I wish you a great day and a great summer holiday if it's still ahead of you. Thank you very much.