Good morning. Welcome to the last day of the European Financials Conference. I am joined here on stage today by Ms. Bettina Orlopp. Thank you very much for joining us.
Good morning.
CEO of Commerzbank. There are a lot of things that we want to talk about, discuss today after we've also heard from a lot of your peers. Before we get into it, we're going to begin with a polling question. You already know how it works. If you see up on the screen, we want to know what you think will drive Commerzbank's price over the next 12 months. The first option: beating financial targets or guidance. The second option: progress of the buybacks. Third option: M&A optionality. Fourth option: improving sentiment on German macro outlook. Okay. I would say torn between two. The first one: beating financial targets/guidance with 44%, and improving sentiment on the German macro outlook with 37%. With that in mind, let's start, and I will use that for my first question. You presented a plan, a new strategic plan recently.
It's targeting 15% of ROTE. Now, it's a changing environment. Of course, a lot has happened. The last time that we saw this level of profitability was in 2006, when leverage was significantly higher than what it is today. With the visibility that we have now, why are you so confident that you'll be able to deliver that, and thinking that we're going into a lower rate territory? What will change so much that you think you can continue improving ROTE?
First of all, we have changed a lot. I think that is the important part to start with, because with the strategy on 2024, we really set the basis for the momentum strategy now, because we have done a lot of transformation, restructuring. Now, with this basis of last year of 59% cost/income ratio, this is a very good starting point, specifically because we now have the power to invest and to also invest in our growth initiatives. When you look forward in the next quarters and years, it's really this mixture of growth initiatives on the one side and then transformation initiatives on the other side. We couple a growth strategy with also very, very clear efficiency measures. I mean, we will reduce headcount by 3,900, specifically in Germany. On the other side, we invest a lot in growth.
The growth will happen across all segments, and it will happen across all revenue lines, meaning on the NII side, but more importantly, also on the net commission income side, the fee side. 2024 has showed us that our initiatives are working well. We have seen already significant growth in 2024, if you take net commission income by 7%, for example. It is a mixture, and it is a bundle of a lot of different measures. Actually, the first quarter proves us that we are also on a very good way.
You have a detailed roadmap to get there.
Definitely, yes.
Thinking now specifically about the German macro outlook, because it was one of the things that we saw people believe will drive the share price. After the announcement of the proposal for fiscal spending in Germany, we did see as well a positive reaction from the market. In particular, we saw it in the price for Commerzbank shares. I would love to hear from you. What do you think specifically will change, or what is the upside to your targets, and by how much do you think they can improve?
I think the benefit of our plan was that we had set very ambitious targets on the one side, but very realistic assumptions on the other side with respect to the net interest level, but also the GDP development. Because in our plans, we have just embedded a 1% growth for the coming years and only a 0.5% for this year. Whatever comes as a positive impulse will clearly help us to achieve our targets and probably even achieve them faster than we could think of. What we now see is basically already the first adjustments also in the GDP assumptions. For next year, economic departments, including our own, are expecting a 1.5% instead of a 1%. For this year, they are all even more cautious, one has to say, because of the tariff situation with the U.S. I am more an optimist.
I think that if the government now is also new, quickly formed, which we believe will happen before Easter, there might be also some positive impulse by a more positive sentiment. What does it mean for us? I mean, it's clear there will be a lot of investments into infrastructure, into defense. It's exactly the industries we are also supporting. There will be a very positive momentum on the corporate client side, but also on the private client side, because private customers, the businesses, also living very much from positive sentiment from people spending, from people investing.
Can we think about the loan growth with that in mind? Can you remind us what your targets currently are, and therefore what could they be with that fiscal spending?
I mean, we have out there quite an ambitious growth target for our loan growth on the corporate client side. It's 8% per annum. We will not adjust that. It is clear that it's a realistic one. We said that when we explained also back in February why we have set this number, is because we said there is so much the necessity to invest by corporates into transformation and into growth. We, as one of the core banks in Germany, will be part of it. It is basically just supporting the message we already gave in February that we will be there, that we will provide our balance sheet for our corporates to invest and to transform.
It's very clear that there is upside to the volumes and that contributing to both NII and fees, as you just said. Let's also talk about margins, because it will determine as well the path for net interest income. Can you tell us how you're seeing deposit trends in Germany, and how do you see deposit trends progressing as we move maybe deeper into monetary easing?
In the moment, you see that competition has increased. There are, specifically on the private client side, again some attacker offers, to say it like that, out there. We have seen that also over the past two years. Attacker products come, then they go. Clients sometimes move with it. Overall, I mean, we have certain assumptions on our deposit beta , and there's no reason to believe that we need to adjust that. We have been anyhow rather conservative also on that side, with respect to what is the pass-through rate we believe we will see. There's no reason to believe that we are wrong on that.
One of the things that you've also addressed when you talk about NII resilience is the tailwinds coming from the structural hedge.
Yeah.
A lot of your peers have talked about how the steepening of the yield curve will also help. You have presented the evolution of NII plus the trading line, explaining that the trading line incorporates the structural hedge help. Is there any upside that you see to the numbers that you presented from a steepening of the yield curve?
Clearly, I mean, on the longer end, if you have a steepening, it means that as we have a tranche which is coming in every month, we will generate, basically, as we speak, more revenues, because we can just reinvest at a higher level than we originally thought. If you just take it for this year, approximately 10 basis points mean EUR 10 million over the year. That is basically how you can think about it. It is an interesting play which we have here. Yeah.
Very clear. Thank you. Now, away from Germany and into another important market for you, Poland, mBank. How are you seeing NII in Poland, and how much of the NII resilience at the group level will come from Poland?
In the moment, the situation is very stable. They have also assumed quite some significant reductions there. In the moment, we are pleasantly surprised by the NII development. We all know that this is also a good thing, because the Polish market still has to absorb some of the burden from the FX provisioning. It helps to overdeliver on the one side, to absorb some of the things which will still happen on the FX side. We always said that we would use this year, the year 2025, to make as much progress as possible on the FX side to really close this chapter, hopefully, this year, at least the one where we have to talk in rounds like that about this topic. Yeah.
Okay. Now let's move to fees, because it's also an important part of the core revenue resilience. You have talked about the 7% growth that you're expecting, and you talk about the real wage growth, the tight labor market, helping consumption. That's your driver. Still, you don't own product factories like a lot of your peers. Do you feel that maybe you have a disadvantage versus that type of business model?
I mean, we just have to live with the fact of the environment we have. We had a factory a while ago, and it got sold in a transaction by that time, so we can't get it back. I mean, having a factory is a nice one, but we haven't included that. As we said, we have included that we will do some bolt-on acquisitions, and that might also include some smaller players. More to really enhance our value proposition, we have strong partners at our side, and we feel very comfortable to achieve our net commission targets, also with not having a large factory on our own, but with our partners and the offerings which we have in place. You have seen it in 2024 that it's possible, and we will show in 2025 again that it is possible.
You mentioned bolt-on acquisitions potentially being in the picture. You have capital, and you talked about the need to address excess capital optionality because you want to get to your target capital level. What type of bolt-ons are you considering now?
I mean, you said that. It's basically asset management is one area, but really specialized players there. The other one is technology providers, which are interesting for us. The thing is that it always needs to meet certain requirements. We have certain ROTE targets, and also the capital impact should be not too big. We are looking for that. Everything needs to be right for us, and specifically the price. Sometimes price expectations differ, and then you close the deal, and then it doesn't turn out to be possible.
Maybe something larger, would you consider maybe?
I mean, larger must be really, really attractive, and it must help our own value proposition. The thing with larger transactions is always that you are completely eaten up in integrations if you do so. You really need to have a very good case on it. Specifically with respect to IT integration, we are cautious, because we have seen also in our own experience how much you can occupy your IT organization by migrating systems, by getting legacy systems out. We rather would like to focus in the moment on innovation, on development, and modernization, because that is what is also creating value for our customers.
It's the efficiency or the push for efficiency that was also part of the business plan. Now that you say that, let's move on to costs. You also are saying that you have more room to continue doing restructuring, and you talk about onshoring. Is there any risk that maybe the costs of doing so end up being higher than what you anticipate in the plan? How are the talks progressing with the restructuring, with the unions? Can you give us an update?
First of all, unfortunately, we have a lot of experience with restructuring, so we know how to calculate restructuring costs pretty well. I am very confident that we did not do a mistake on that one. We feel very comfortable with the number we have laid out. I think the good thing is that we started early on to include our colleagues from the Works Council part, and we really made it very transparent what the plans are. We have already a transformation agreement in place.
We did that really right before the 13th of February, which was really, really good, because it created also a very good spirit within the bank, which is important, because it's a balancing act on the one side to say that you're hiring a lot of people, that you want to grow, that you want to achieve a 15% ROTE, and you have a record year 2024. On the other side, you're telling people that you want to reduce headcount by 3,900. The vast majority in Germany, which is percentage-wise, quite something. Given the fact that also our age structure clearly helps in that, that we will have very socially responsible measures in place, pre-agreed already with the Works Council, it went very well. Actually, we got the public support by the union. We got also public support by the Works Council.
I have at least not seen in my career that there's an information going to old staff by the Works Council publicly supporting the strategy of the management team and asking to put trust in the management team that they do the right thing. I have not seen that. I think that's really helpful, and that will help us also to implement very quickly the measures. We will most likely even start these part-time age retirement programs in the second quarter already. We will finalize all negotiations by the end of the year. We will do that really step by step so that we can already start implementation as soon as we have agreed on a certain area. That is very helpful, because also it gives a lot of stability into the organization.
It sounds like a very disciplined process.
Very disciplined, but it's also a very trustful process between the Works Council and us. We are very grateful also to have a partner at our side who's very open to go this way with us.
You're restructuring people, but you're also investing in technology. I've heard you talking a lot about what you want to do, how you also want to implement AI. Some of the things that you say in the plan you want to invest in are contingent to getting there or delivering certain targets.
Yeah.
What specific investments are subject to you delivering?
At the very end, I mean, all investments should help us to achieve our targets. You said it, AI is an important element of the strategy. We have a huge number of use cases in the moment in implementation. It's also about getting the organization familiar with working with the tools. We have just rolled out an AI tool to all staff to basically scan and find all regulatory requirements you have called Sherlock. We have also rolled out a kind of a cobaGPT tool so that people are really getting familiar with it. We have a number of use cases who are about to already create either revenues or costs already this year. It will be a strategic program within the bank. It is one of our focus areas, clearly. The other important one is also shoring.
We will do a lot, again, in shoring and use our locations in Sofia and Łódź, but also in KL to move people there.
Very clear. Now, I want to move to a topic that I know everyone is thinking about.
It took a while.
The standalone story for Commerzbank is very important, of course.
Yes, I think so.
Let's now talk about the optionality of UniCredit that your peer discussed about yesterday when he was here with us. Have you had any conversations now that he has gotten one of the approvals to go up to 29.9% stake?
No. I mean, we have normal dialogues as we have with all our shareholders during and after the numbers that we had after the CMD. We also had clearly a talk with UniCredit, but it was an investor meeting. It is purely an investor meeting or investor meetings, which we have in the moment. I mean, the approval of the ECB is of no surprise. I think nobody expected really that there would be another outcome than the outcome which we have seen. I mean, for us, UniCredit is in the moment a big shareholder, an important shareholder, and we treat them as we treat all other shareholders. Our target is very clear. We want to create value for our stakeholders, specifically our shareholders. I think we are pretty successful in the moment on that, and we intend to continue that path.
You said that it was expected that they would get the approval. They mentioned they're still waiting for some of the approvals, including the local regulators in Germany. Do you have that same feeling that they will indeed get it, and that's the expectation?
In the moment, we are still everything below 30%. I mean, the whole game changes if you go beyond 30%. That is pretty clear. The whole procedures are completely different. We are not talking about that. We are just talking about someone who wants to have participation below 30%. Yes, there is one other procedure I am aware of, and that is with the Federal Cartel Office in Germany. I think they made a public statement yesterday. I at least read something in the press, and they said that they assume that this process will last until mid-April. That is the only thing I am aware of, as long as you stay below 30%.
Okay. One of the things that we heard from them is precisely that it might take longer than 2025 before they decide on what the remaining optionality could look like. Now, let's think about, again, your standalone position and views on capital and capital allocation. We just mentioned that you have a very specific target, and you want to get there. Are you comfortable that you will have enough time to distribute the excess capital and that the ECB will be comfortable allowing you to distribute potentially even more than 100% of the net profit as you will or you have committed to doing this year?
Yeah. I mean, we take it step by step. We always say deliver first, then you do the next step. I mean, I think we have shown that now with 2024, we will distribute EUR 1.7 billion to our shareholders, EUR 1 billion by share buyback, 700 by a dividend, which we will propose to the AGM. We will do the same thing for 2025. I think the difference for 2025 is that we have pre-agreed, pre-aligned with the ECB that we will exclude restructuring costs from our considerations when thinking about the distribution. I am pretty confident that as long as we deliver the results, which we have laid out as guidance for this year, we will do it exactly as planned. Therefore, nothing has changed for us. We always said that we are very committed in value creation.
I think I'm pretty proud of the Commerzbank team, because they really mastered the philosophy of Keep Calm and Carry On. They really stick together as a team. Therefore, I'm very confident that we will also deliver the capital distribution that we have promised.
One big happy family sounds.
It's actually, I mean, we all talk about positive spirit, positive sentiment also when it comes to Germany and so on. I can only tell you that positive spirit, positive sentiment is super important to deliver your targets. Yes, we are on a very good path there within Commerzbank.
Thinking about the capital distribution path, how are you thinking about the split of cash versus buybacks? How will it progress? Because we heard you saying in results when you presented for your results that buybacks will be a preferred way to distribute capital, looking at where you're trading at this moment. How are you thinking?
I mean, we will definitely have a look on it. I think it's important also to note that, I mean, you also have to follow certain rules when doing share buybacks. I think it's also very important to say here that you always have to ensure that there's enough liquidity in the market. There's a market abuse rule. Nobody has to fear that there is not enough liquidity in the market when we do our share buybacks, also as we speak. Looking forward now, it's something which we definitely will analyze what makes more sense. I mean, the situation clearly has a little bit changed, given that we are now really at a price-to-book ratio of one, nearly to one. Still, also if you're above one, share buybacks can have a huge benefit. At the very end, our plan is very clear.
We want to achieve the 13.5% CET1 ratio as a target. Therefore, we will sort out what the best way is to achieve this target. Next time, we will most likely give an update on that. It will be with the half-year results, because then we have seen two quarters coming in. Then we will lay out what the plans are for the distribution of 2025.
Okay. Looking forward to hearing it. Again, thinking about capital, you've said before that you're prepared to doing SRTs to generate more business or when you generate more business. Would you also consider doing SRTs on the stock to free up even more capital?
I mean, we will look at it in the moment. We have not yet decided on that. We will see on that.
Okay. I am now going to open the floor for Q&A. Are there any questions that you would like to ask Ms. Orlopp? I can keep going on. Okay. One of the partnerships that you've discussed multiple times is on wealth management and how you've been pushing for partnerships and bolt-on acquisitions, again, like Aquila. Do you think that you would be interested in doing something as soon as 2025, or are you still going for the buyback as the priority?
No. I mean, as we speak, we have a funnel which we look at. It is very much just opportunity-driven, whether we find something or not, with the right conditions. If we would find something, we would definitely also do something this year. Absolutely. There is no way. I mean, because it is bolt-on acquisitions, we can also easily absorb them. Aquila has proven to be a very good acquisition. We have just started the first joint fund, and it is well received also by our clients. I mean, it is one of our important growth areas. Also with the team, the Yellowfin team, we have really a very, very nice value proposition specifically for our wealth management, high-net-worth individuals. This one proves to be very successful, specifically because we also have on the other side the balance sheet.
We can not only support the clients on the asset management side, but we also now have several cases where we also support them in larger investments in real estate, etc., what they want to do.
Okay. We haven't discussed about cost of risk. Maybe we can hear from you. Have you seen any asset quality deterioration in any specific pockets that you're maybe particularly worried about? Because we've had some peers for when we had discussions about other European banks that have flagged. We should be now at a point where cost of risk will begin picking up. It is a cycle.
Yeah. I mean, we have said that in the guidance already for 2025, that we will have an elevated level of cost of risk with a guidance of EUR 850 million out there of risk result, plus the top-level adjustment, which we still have out there of approximately EUR 230 million. That shows you that this is an elevated level. That comes because we are in the third year of recession in Germany. It is very clear that you will see consequences out of that. I mean, we have seen that already in 2024, but they were all single cases, large single cases partly. This story continues a little bit this year. I mean, you see single cases, but you do not see complete sectors getting into trouble.
Clearly now the question is, specifically for some sectors, how quickly they now will also turn into this defense direction. That might help some of the players we otherwise would be a little bit more worried about, how quickly they can shift here. We stick to the fact that 2025 will be a year with higher risk results, because it is a natural consequence of the macroeconomic environment. So far, nothing which worries us specifically.
Okay. I'm going to ask again in case anyone has thought of a question they want to ask you. Okay. I will again. Now, let's go back to capital. January 1st, Basel IV, what is the impact that you've seen more than what you initially anticipated, and how are you coping or planning to cope?
Actually, less than we originally thought. I am very confident with respect to our RWA guidance. I think I said it already back in February that probably the guidance for this year has been a conservative one. That has not changed. I am pretty sure that we will see, despite growth within the segments, we will see, at least also for Q1, a pretty stable development. Basel impact has been very limited.
Okay. With all that we've talked about, the potential growth that you would expect from this EUR 1 trillion package and the push for defense and infrastructure spending, could there be a risk to your guidance on risk-weighted asset moving forward, maybe a higher inflation given the volume growth?
No, not in the moment, because I think we have been rather conservative with respect to our RWA development, specifically if you take this year. I think we have quite some buffers in there for even potential additional growth. We feel very comfortable with our RWA projection.
Okay.
You always have also SRTs to use, which we have to a certain effect. If necessary, and if it makes sense and is value creating, we could also do more.
You have been very clear about that, precisely. You will generate new business and have the SRTs as a tool to do so. Now that I have you here, I want to ask you in general about the German market. It is a fragmented market. Do you think that there are opportunities for consolidation?
That is a question we discuss in Germany, I think, since I'm in banking, which has been 30 years. I mean, the thing is that there's consolidation happening within the three columns. We have the corporate banking sector, the savings bank sector, and the private banking sector. You have seen consolidation in all three subparts. There has not been yet any consolidation across. If you ask me now whether I believe that something will happen short term on that one, I don't believe that. I think rather focused in the moment on standalone. I mean, we put a lot of expectations into the EU. Hopefully, they will make huge progress on the Savings and Investment Union. As a next step, there might be even something like a banking union.
Would that be maybe what we need to see before we see cross-border M&A?
I mean, I think so, yes, because you could create quite some benefits out of it. One needs to align on some important steps, like a European-wide deposit protection scheme and things like that. I think it is good if we would start to see progress on the Savings and Investment Union. That would help already, because a deeper European capital market, which definitely would be beneficial for Europe as a whole.
For now, still fragmented for the time being.
Profitable, right?
Profitable. I was going to ask about that.
Increasingly profitable. At least we do our part that, I mean, we are an attractive investment. I think if we would have said to anybody that we would communicate a number of 50% cost-to-income ratio and 15% ROTE for 2028, and people would really think that this is something absolutely realistic, two years ago, nobody would have believed that. It is very realistic. I think it is a very good progress and shows how attractive even a German market can be.
That's why it was the first question that I asked you. What is this ROTE target? And why are you so comfortable you are going to get there? Thinking that it will still be somewhat of a fragmented market, are you worried about competition impacting prices and therefore limiting the upside from this push for spending and therefore loan growth here?
I mean, I think the important part, which we did already back in 2020, was that we decided to no longer, yeah, to no longer wait for something to change, like margin improvement and consolidation happening or something like that. Just take the market as it is and the market conditions and live with it and make the best out of it. That is what we also do now. I think for us, Commerzbank is the important part that we deliver solutions for our private, but also more specifically for our corporate clients, which are so attractive that they pick us. That is what we intend to do. There is competition. You have to live with competition. We think that we have the right answers for that to also compete in a highly competitive market.
Highly competitive market, but positive catalysts. In terms of the timing of those catalysts, when do you think you expect to see that volume growth really materializing? Is it a 2025 story or further down the line?
I mean, if you believe our economic research departments, they clearly think that you will only show off in 2026. There are clear reasons why this is probably a realistic assumption, because first, it now needs to put in place. Then the organizations have to start. It's a lengthy process. It's also public administrations who have to do RFPs and stuff like that. It will take time. That's the one side of the story. As said, we now need to wait what the new government will do. My understanding is that they will also have a 100-day program in place with respect to reforms. That might also create some very positive impulse already for this year, but likely not necessarily linked to the "Whatever It Takes" program, but overall to the sentiment in Germany. Latest in 2026, you should see it, yes.
That's a constructive sentiment for 2026 onwards. In 2025, can you tell us how you're seeing we've come almost to the end of the first quarter. How are you seeing the year beginning?
I mean, it has been a very nice start in the year. We are very confident that we will have some good news in our package in mid-May when we present Q1 results. It is always important to start the year well, because it gives you momentum for the rest of the year. I have no reason to believe that this will be different this year. A very good start. That across all segments.
Okay. I'm going to give them one last chance. We have Ms. Bettina Orlopp.
There's a question.
Yes, please, here in the middle of the room. Thank you.
Okay. Thanks. I think everyone's just a little tired on day three. I think a big debate right now is how much of an impact is the fiscal package actually going to have? There's some talk about, okay, maybe it adds 100 basis points to 2026 GDP. You've obviously given us your economist estimate. Some of it, I guess, is implicit in your loan growth estimates. Maybe you could give us a little bit of a better feel for how you think the package could impact Commerzbank, where you see lending opportunities. Is there room for private-public partnerships and infrastructure? How does it affect the SME sector? Is there more to do in defense, all of that?
Yeah. I mean, we'll need to see how it unfolds. I mean, the impact on the GDP is clearly described around 50 basis points is the assumption for next year. If you now look in the different markets, I mean, what will happen for us? It's specifically also the guarantee business, which most likely will get an uptick. It is really the question how quickly things will unfold. I mean, there have been a lot of resistance on private partnerships, but we think they might also create a lot of value in infrastructure. We are prepared to be part of it. It is probably a little bit too early to tell now how much. Given that 30% of German export runs through our books, it gives you a sentiment that whatever happens, we will be part in the discussions.
I think we have one huge benefit. We have been always very close also to the defense industry, when many other institutions were very much distanced to the defense industry. I think the colleagues in these respective corporations definitely remember that, who was at their side in times where not a lot of people were at their side. That is clearly a benefit for Commerzbank also now.
Thank you very much for that. We have 30 seconds in case anyone has one last question. We do have one right here up front. I think we had another one at the back. Yes. I think we can go over a few minutes, because it took you a while to warm up.
Thank you, Bettina. Thank you for all the plans and the targets that Commerzbank has put in place. Unfortunately, I have to ask about M&A. The former German government said or expressed doubts on a potential takeover of Commerzbank by UniCredit. Also, I think that said that the way UniCredit had bought Commerzbank shares was not completely clear. I think that Commerzbank also sort of said publicly that a combination would be detrimental in the German market somehow. Do you think the question is, do you think that the new government will have a different attitude towards a potential combination of UniCredit and Commerzbank? If so, why? Thank you.
First of all, I have to say that we always said that we will concentrate on our standalone strategy, but that we as Commerzbank and as management team are always open to evaluate any combination, any proposal which comes on our table, because that is our aspiration and also our obligation towards our shareholders, towards our stakeholders. That has not changed. That is very important message, number one. With respect to the new government, I mean, I can't speak for the new government. I only know what different parties have said publicly. I mean, the Social Democratic Party will be also part of the new government. You might have seen the statement which came out last Friday by the Ministry of Finance, where they said they still do not like the approach which has been taken so far. I think that is what's out there.
The Christian Democratic Union has made some public statements. I think it's about also the management team to sort it out and to find out if there is and what would be the value of a combination. That is something you can only do together when talking to each other. That's the trick.
We had one last question at the end, I think.
All right. Thank you. My question was very, very similar to the previous one. I just wanted to see, are there any positive things that you could see from combining Commerzbank with UniCredit? What would you want UniCredit to say to take this further?
First of all, I have to say that we are really focused on our strategy implementation momentum. We think that we can create a lot of value for all our stakeholders. That is our primary goal. If someone has a very good idea about a potential combination, we will certainly look at it. Our focus is really on us in the moment. I think we do good in that.
Thank you very much, Ms. Orlopp. Thank you, everyone. Have a very productive rest of the day.
Thank you.