Thank you very much for joining us on the last day of the financial conference in London. I have with me Carsten, Commerzbank CFO. First of all, it's a great day to have you with us because this is the day a year ago you were announced as CFO of Commerzbank. It is perfect timing to give us an exact update after one year of announcement. Maybe, Carsten, I can start there. Can you give us a little bit of your impression, considering you were at Commerzbank, left, and came back, how things have changed, but also kind of what are the top-down issues for Commerzbank at this point, more from a top-down strategic perspective that are focused for you and the management team?
Yep. Very happy to do that. Kian, thank you very much for having me also in this fantastic hall here. Indeed, it has been exactly one year since my announcement. I started at the beginning of this year, so there was a bit of time in between, but quite a bit has changed during that period of time. You asked around what strategically has changed also from possibly the time that I experienced in the bank before I rejoined. I think the firm at the moment is really best described as fully focused and unified in its voice, from management to the employees to our employee representatives in actually getting our strategy enacted that we're having. Talking about that strategy, we announced our strategy beginning of the year, focusing on 2028, focusing on growth and transformation.
That probably is what is accompanying us every single day, seeing how we can grow the business further for our customers. Strategic points we are clearly looking at at the moment is also what's happening economically in Germany. I would say this is pretty much what we're looking at mostly.
Starting on Germany and German stimulus, clearly a lot of questions of how do you see that actually feeding into your numbers w hat are your expectations? There is also a lot of concern. Maybe it is more delayed. As a result, there is maybe overexcitement on German stimulus when you talk to investors. Can you give us an update how you think about it? What are your expectations? How does it impact the bank?
Yeah. Look, the stimulus package came to life earlier this year. I always like to go back to the very beginning of this year when we did not have a stimulus package at all, no government actually at that point in time. Quite a lot has happened since the beginning of the year. I think that from the get-go is a very positive thing to look at. Looking a bit at our expectation for the stimulus package and the impact it will have also for the economy in Germany, we are currently looking at a 1.2% GDP growth next year, which admittedly is not the highest. If you consider the last years, actually, this is a quite big step up now.
A good portion out of this, actually close to a percentage point, 0.8%, is what we think is going to be fueled by the stimulus package and all the investments and then follow-on investments that we are seeing. For us, clearly being so ingrained in the German economy via our customers, clearly it will have an impact. It shall have an impact once these packages actually come to life via actual spending.
If we go maybe a level down and we now look a little bit at net interest income and how that gets impacted by also the top-down environment, you're given a guidance of EUR 8.4 billion for 2026. You actually increased that at your last investor update. Can you tell us the path to that y our guidance has been EUR 8.2 billion for this year? The kind of the environment and the potential of improvement that you see further, considering you went on a path of continuous beating that number clearly in terms of expectations.
Yeah. We started into the year actually with a target of EUR 7.7 billion, so even lower, and we upgraded that in summer. The reason why we went into the year expecting a number that is apparently now lower than the strong performance we have seen, I think, was first and foremost coming out of a relatively OK-ish, high-ish interest rate environment the last years, knowing that we were going into a slight rate cut cycle. Expectation was to first and foremost keep the interest income stable. We did this throughout the full year and managed our books quite intensively also via having a stabilization. We have a good portion of the deposit base that we are having invested in what we call replication portfolios, so a stabilizing longer-term portfolio which supports the NII.
Doing this throughout the year, we saw actually that we are having a more stable and structurally sort of consistent output out of these portfolios, which effectively brought us to this upgrade. For this year, we are now expecting EUR 8.2 billion for the year. For next year, as we said, we are upgrading this to EUR 8.4 billion. The reason why we did this at this point in time before we actually guide for the full year in February with all the other line items was that coming out of our strategy, it is clearly already above what we originally anticipated for 2026. In terms of the stability of this portfolio, for us, again, we are seeing this coming in in a quite stable and strong way. We are on an upward trajectory for net interest income in any case in our strategy towards 2028.
We will see, I think, towards February what this will also mean for the following years. It will definitely be supportive.
Is there a possibility that we should be looking at a further update on NII, the full year results for 2027, 2028?
We have so far not really split out the 2027, 2028 figures for NII. We have a target for 2028 out. I think what I can say is already with the structural changes we made to our book in summer, it became clear that we will have an add-on for the following years, which will carry through also to 2028. I think it is fair to assume that a good portion of the uplift that we have seen throughout the year will also carry stably throughout the following years. In February, I think we will not only for 2026, but we will see actually what we can guide for. In general, it is not wrong to assume that part of this uplift will carry through and basically add on to the full series until 2028.
You're generally comfortable with the consensus that you're seeing, especially for 2028, where you have given a guidance, but there are numbers already well above that from what I can see.
Yeah, given what we've seen this year and for next year, I think the direction is the right one. Yeah, yeah.
If we unpack NII a little bit more between lending, so asset side, liability side, and clearly structural hedge in that context, can we talk first of all about loan growth? Mortgage growth in Germany has not really picked up. You mentioned, I think, in the third quarter call a little bit of an improvement. Corporate client growth has been very strong at 13% year on year. How should we think about the lending picture going forward within your operations?
Yeah. Let's start with the mortgage side, which actually was pretty strong in our books, especially in Q3. As many of you know, we've come out of a phase where, given housing prices, interest rate levels, there was a bit of a depressed mortgage market. This has been continuously picking up. In the third quarter, we actually saw a quite healthy front book, close to EUR 3 billion, actually also considerably higher than in Q2. Overall back book declined a bit. That is also what we showed in Q3, that is mostly because we have early termination rights for customers usually in the middle of the year. There's a technical effect. The new mortgages will be drawn upon and basically roll into the book the next quarter. From that perspective, also the mortgage side is stable to rather inclining again.
I should also say at prevailing rates and margins, so there's no change in the appetite or margin expectation from our end. When it comes to the corporate side, we did actually have a super strong sort of year on year 13% growth in the book, mostly fueled by our customer business, pretty much split half-half into international business, but also German business. In that, we see a quite broad range of loan demand coming in. What you will have seen in Q3, particularly, we see heightened demand from the public sector in Germany, which we interpret as the first signs of the investment packages, the infrastructure packages, which are drawn upon from the public side, if you want so, and hence the loan demand from that end. With that, we see really good sort of risk-adjusted returns in terms of margins on this portfolio.
I would expect this to skip a bit more into the classical corporate book next year once we see the stimulus packages really kicking in. To your question on how do we see the loan growth continuing, we have a loan growth expectation that is quite strong over the full strategy cycle. Clearly, the growth we've seen over the last year is super healthy. Let's see how that carries on, but especially the corporate book I expect to come in strongly next year.
In the corporate segment, you guided towards 8% per annum growth. We are on track?
Yeah, absolutely. Yeah, we're on track. As always with the strategy announcement, I think it's fair to assume that there's always a bit of a structure also when it comes to volume growth. Starting off, especially at a time when the German economy is still a bit sluggish and where there's a lot of positive momentum now and impulse and also where we're getting this feedback from our customers that there is a more sort of forward-looking view, clearly it helps a lot to start into the strategy cycle with such a strong year of growth. Yeah.
Can you talk a little bit about the lending margin y ou mentioned on the mortgage side still attractive, both mortgages and on the corporate side? How are lending margins behaving as I assume it's a competitive environment out there for banks to participate in that growth?
Yeah, absolutely. Especially I think on the mortgage side, the German mortgage market is a heavily competed one or competed for. Margins on that end have been stable actually for us. I think I can also say that margins in the front book that we're seeing at the moment is really healthy. It is not only holding, but rather having a slightly positive tune in it. On the corporate side, it really depends a bit what part of the book we're looking at. All parts by themselves are stable in terms of margin or slightly positive/attractive at the moment. If we're looking at the distribution of the loans that we have been seeing in terms of growth, given that there is a good portion of public sector in it, so municipalities, but also municipality near business, which is often from a margin perspective a bit closer to corporates.
This is what I meant earlier by good risk-adjusted returns because it also comes at super low risk, clearly. This I would again expect to rather shift into the sort of more margin-healthy portion of the book next year. Overall, rather stable and positively tuned margins.
Sounds positive.
Despite the competition.
Yeah. Maybe moving from there to the liability side, deposit growth, you had some very successful campaigns of getting deposits in. How should we think about deposit growth in terms of volumes? Also in this context, can you talk about is there a makeshift happening between checking, savings accounts, so to say, or term deposits? Clearly, you've given beta guidance. If we package that all together, you guided to, I think, 43% beta in the fourth quarter stage. Just wondering how you think how you see that developing.
Yeah. Yeah, then let's start with the activity we've seen and we've been active in ourselves. I think especially beginning of the year was pretty heavily competed for. We saw quite large promotional offers by the competition actually attracting quite a lot of deposit inflow. That was a period of time in Q1, Q2 we didn't want to participate in that market. It also became a bit more subdued towards summer. In summer, we went out with a larger promotional offer ourselves. We collected EUR 8 billion within a few weeks at the conditions we wanted to actually have. Clearly, that's always a bit more expensive than collecting the deposits on a regular basis. We have quite good behavioral, let's say, data on what customers also do, how sticky these deposits are once the promotional offers run out.
For us, in short, I would say this was a rather regular sort of activity we had in the market targeted to the amount we wanted to collect within the budget we wanted to spend. That is probably also it for this year so far. General development also over the next years is clearly an incline. We want to continue growing sort of the deposit base. I think competition has always been high in that space. That is what we are aiming for.
In terms of beta, you're still on track?
Yeah, yeah. Yeah, on the beta, I think when we went into the year, we were cautious in seeing where would especially this year's development go on the personal customer side or personal customer deposits. Clearly, a question of competition on the corporate customer side, always an interplay also with what is required for them from an economic perspective, depleting the deposits versus taking in loans. From a beta perspective, we've actually seen very good margin management on our side. You correctly said we are guiding for 43% in Q4. Overall year will be averaging out more towards the 40% range. We will have to see how this trends into next year. I think Q4 is probably the, I call it the exit velocity, if you want so, on the personal customer and the corporate customer side.
Personal customers will be dominated by whatever competition is out there. Corporates likely stable at this relatively high level, if you want so, mostly because of the current interest rate level altogether.
What is the risk that, considering, I mean, Germany has excess deposits as a system, but what is the risk that lending picks up, especially in the corporate side and also in the mortgage side? It starts to come through on a net basis that there could be more customer deposit pressure, so to say, or competition, I should say, to finance that.
Yeah, absolutely. I mean, I think that's definitely a scenario that could kick in, especially if you consider positively that all of the stimulus will have an effect at some point. That's not an unlikely scenario. If you want, I mean, we're having around EUR 280 billion of deposits altogether collected via corporate customers, personal customers. We're quite active in the market and we have a pretty good overview of what's happening in which economic cycle, how the customers behave, what are the pricing points we have to put out. From that perspective, you see me rather curious and relaxed to see what's coming in collecting deposits. If the demand is really picking up heavily on the loan side, that's clearly also what we can manage. I mean, we have the resources at this point in time, also very conveniently supported by securitization transactions.
In terms of capacity to further grow, I think we're exactly prepared for that in line with our strategy.
Customer behavior on the retail side hasn't changed materially between more term deposits and checking accounts?
Not really. I think what you will always see in a rather rate declining cycle, even at this moment where it is not coming from super high interest rate levels, but we are in a slight decline. The lower the rates are, let's say the less selective retail customers are also when it comes to differentiating between current account and term deposits. There is always a drift towards more term deposits and more attractive offers the higher the rates are. This is clearly having a bit of a mark, but no structural shifts we are seeing.
Maybe we finish then on the structural hedge. Structural hedge is EUR 147 billion. You have mentioned in the past that it could go, based on your modeling, up to roughly EUR 200 billion in that range. I mean, why not move there quicker considering your deposits are expected to grow as it would help your NII quite significantly?
Yeah, I think that's a prudent management of the overall book. The slightly above 200 billion you mentioned, that's technically what we could model from a modeling perspective. We are looking into all of the deposits that are coming in. We look at the stickiness levels. EUR 208 billion is basically what we can model. What's then coming out of the models in terms of expected depletion rates, drawdown rates, et cetera, is having quite a structure. The EUR 147 billion, which you can expect to likely be adjusted rather upwards a bit with the deposits we are having. That is basically what we are happy to have also as a bit of a cushion towards what's happening in the market. If there are quick drawdowns, I don't have to unwind the stabilizing portfolio so quickly. Call that prudent.
I guess that's the difference between running a bank and running a spreadsheet. On the analyst side, it's always easy for us to say. If we move to the fee side, you have a guidance of EUR 4.8 billion by 2028. It's about 6% annual growth, but you're already running at 7%.
Yeah.
Things look pretty healthy. Could you talk about what is driving that and unpack a little bit the fee side, what should drive it going forward?
Yeah. What we set out in our strategy to 2028 was basically a CAGR of 7% on the commission income side. Again, my earlier comments, running or going, entering into a strategy cycle, I should say it this way, always comes with a bit of a structure. You have to ramp up and then you sort of roll into the run rate. Having this strong start into the strategy cycle with 7% to date this year already is a really good start, fully fueled by our underlying client business. That is the positive thing. We basically see increases in every single product category and customer area.
If I take this apart a bit also in terms of what's coming the next years, on the personal customer side, I think this is now reaping a bit the fruits also from previous changes in the setup, in the advisory setup, which we triggered years ago, but also which went into last month completing sort of reshaping our advisory model towards customers, focusing much more also onto value-add products, products for customers with more complex needs when it comes to securities advisory, wealth management, et cetera. That's fueling it. Pretty prominently this summer, actually, we changed our fee model for current accounts and actually charging the better part of our, actually the full part of our accounts in the main brand now and contacted two and a half million customers and actually asked them to please pay up for the accounts going forward.
The return rates actually of accepting this or bringing in further funds to actually make certain thresholds to not pay is coming in quite nicely. This is all underlying business that is fueling the commission income. Lastly, on the corporate client side, what we are clearly seeing is revenue that is coming in, fees, commissions that are coming in in line with our loan growth. It is usually connected to actual customer activity, plus then of course our trade finance and markets business, which also brings in a bit. In terms of growth in next years, as this is all linked towards the customer and volume growth we are seeing coming in at the moment, I am actually very much looking forward to the 7% growth.
Yeah, it feels like it's just ramping up, so to say. In that context, you mentioned clearly lending growth has an impact, et cetera, as well on the fee side. We clearly talked a lot about lending and stimulus impact, et cetera. On the fee side, is there anywhere for us as analysts to think about, okay, how can I translate German stimulus into fees? Should we do it through lending? Or are there other measures that we should look at to get a feeling of what is the potential?
Yeah, that's an interesting one to fill the spreadsheet. Yeah, I mean, first and foremost, looking at the corporate customer side, I mean, the logical sequence would be stimulus actually is coming to life. You see additional activity in terms of production, in terms of providing services, take out of loans, but clearly also increased trade and trade finance business coming out of this. I would say on the corporate side, it's not wrong to go via general volume growth and then also seeing how the stimulus really sort of affects GDP going forward. On the personal customer side, I would always say this is really dependent on customer activity, which we're continuously ramping up. Also, I mean, once if we follow that logic, once the economy actually becomes more stable, clearly this will have a slightly delayed impact, but impact also in every single person's pocket.
Ultimately, we would expect that this is coming in. Another point, probably still a bit on the horizon, but there are also political initiatives at the moment in Germany to rather fuel securities-based investing also for personal pensions in the end. A discussion that I think is long overdue in Germany, but is at least now gaining speed. If something like this comes in, I think that is also something to consider for in a few years because this clearly fuels a lot of the investments.
Maybe we then move to net fair value results, which were minus EUR 60 million on the nine-month stage in 2025, but you're guiding towards EUR 500 million in 2026. There's been some question, how do we get there? Maybe you can explain what happened and how do we see that delta coming through?
Yeah. There are two ways to go about this. I can come from this year or I can start actually with next, and I'll start with next year. We have a net fair value guidance of EUR 500 million for next year. If you disseminate the net fair value line, there are a few components in it. The most important component is our customer-driven business, so usually corporate client-side business, which is fueling the net fair value. That is coming in at a fair and stable rate. This is effectively underpinning these EUR 500 million. What we then have in addition is in a year like this, and this explains a bit the difference to the nine-month result at the moment, net fair value result also has counterpositions of interest rate hedges that we had in the book.
Clearly there is a portion that came in this year, which stands partially against net interest income. You see a bit of a distortion of the underlying sort of base client business. This I would not expect next year given the interest rate environment. That should actually leave that clean if you want so. There is another component, which usually stands against the other income, which is inefficiencies in hedges from an accounting perspective. There can always be a bit of a noise level around the net fair value. If you look into next year and if you take out these effects for this, then effectively next year the EUR 500 million is the underlying business. Ideally, we see this growing and then potentially a bit of fluctuation against other income from the hedges.
If we then move towards cost, you guided to 50% cost income by 2028. We have a forecast of 57% this year. Should we think about the cost income improvement, kind of a linear movement in terms of continuous improvement to get there? Tell us about the drivers that are impacting your cost base.
Yeah. So let's start with the movement. It won't be exactly linear. Our strategy in itself is a growth and transitioning strategy. You will see that over the years, the aim is not to, besides diligently managing the cost base, clearly is not to run down the cost base, but it's rather have an incline in business activity and in income. If you look at the measures that we've taken, we see a slight structure where we will see additional costs or let's say costs that run down a bit slower, especially next year, the following year. For this, we have 57% as a guidance for the cost income ratio. For next year, it's 56%. Then it'll drop off towards 50%.
Main reason is that within the strategy, we are transforming a good portion of our staff base from within Germany, especially headquarter, especially operations-based into our nearshoring or shoring and sourcing hubs. There is a period of time where we want to allow for a handover of tasks, hence slightly sort of delayed decline or stronger decline of the costs as was planned. Secondly, we want to also facilitate the reduction of headcount in Germany in a socially responsible manner, which we fully negotiated and contractually signed off with the Workers' Council. You see a bit of a structure. I think the important thing on the cost side is base costs managed very diligently and staying stable/coming down. The cost income ratio is fueled by income.
In the context of cost, clearly a large proportion is still always with the branches. Should we think about further branch measures in terms of potential reductions?
Yeah, you're talking to the CFO now. On a serious note, we've pretty much transformed the branch setup we've had over the last year significantly. If you consider a few years back, we had a four-digit number of branches in Germany. I think the number of 1,000 branches was hovering around for quite a while. We've reduced this now to 400 branches and transformed the branch setup in itself. It is not so much the classical branch where a customer comes in and we basically have inbound business. A good portion of these branches are now outbound advisory hubs, which we've positioned so that we're using this much, much more for active customer advisory or outbound calls as well if we need to. The branch structure has changed quite a lot. At the moment, this is a good mix.
We are very much looking into exploring also digital channels via our brand. I think time will tell what size is the right one. At the moment, this is exactly what we need for our advisory setup.
Moving towards asset quality, you have a guidance of 25 basis points by 2028. Do you see any major issues on the credit side? It feels like there's not much concern in the market at this point, either in CRE or other areas from your perspective, any red flags?
Yeah, I mean, we're very selective in what we have in our book. Let's put it this way. There are areas which we were active in in very past times that we're also deliberately not active in that much anymore. Our book in itself actually is really stable. What we're seeing this year, and we could also demonstrate that in the Q3 numbers, is effectively a stable book with no surprises in it. Risk guidance or risk result guidance for this year, we just took down because we expect at the current rate and then still pending Q4 and everything that we don't see any extraordinary movements. The interesting discussion clearly is how is the economy in Germany continuing to develop.
Again, on that end, I'm rather on the slightly more positive side because I think the signaling and the stimulus that is actually coming in must leave a mark. The investment packages are too large. The current commitment to actually changing also some of the conditions around it are so concrete. This will leave a mark and hence should hopefully also support the credit book going forward. On our end, you're absolutely right. We're running very stable also towards 2028. Nothing I would have to cautiously warn you on here.
If we look at capital, which is very healthy above your guidance clearly, and you have a payout ratio or a target or guidance of 100 by 2028 continuously, what would trigger a change? I mean, what is it on your side that you say, okay, we want to go above that? Secondly, what do you have to illustrate to your regulator in order to get approval to get to a level above 100?
Yeah, I think that's one of the favorite questions the last month. Capital base is strong. We took.
14.7%.
Yeah, at the moment. We took it actually up from an original guidance for this year of 14%. Actually, we've come in quite strongly, perfectly in line with how business generally is developing for us. You saw that in the numbers. We've basically planned out a path of returning 100% over the next years in line with our strategy to arrive at a target capital ratio of 13.5%, which we at this point in time deem the right level to underpin our business and also be able to yield proper returns for our investors. Consider the next years until 2028 also as a path towards that target ratio. The discussion with the regulator is, of course, a regular one on this. Clearly, there's different positions that the parties are looking at.
I would tend to say that if you look at it from a regulatory perspective, there is always an ambition to keep capital in the system to rather sort of stabilize more than less. There is no benefit in actually encouraging too much of a flush out of capital. From our perspective, I think we are very much focused on having the exact right level of capital in order to also have a proper return. If we were to have a discussion with the regulator to go above the currently agreed levels, I think that really depends on the current state of, A, the overall system, and clearly our own health. The second I would always assume is then there. Otherwise, we would not ask. We have to take that year by year.
In terms of finishing before we open up to the audience, just in terms of your interaction with your main shareholder, maybe you can talk a little bit, how is it different from any other investor? How does the interaction work? In that context, clearly, a potential, I mean, your defense from a potential bid, the way I understand it from the wording is basically it does not make a lot of sense to do that because considering where the numbers do not stack up, a lot of it is related to that in terms of your overall defense, at least the way I interpret it. Can you talk about that? First of all, what are the interactions and what is, so to say, your defense mechanism in that sense?
Yep. In terms of interaction, I think you can consider the interaction being the exact same as we have it with every shareholder that we're having. Regular investor relations meetings around the quarterly figures, absolutely professional. Nothing out of the ordinary. There's one thing we don't discuss clearly in these meetings. Apart from that, nothing out of the ordinary. When it comes to the defense, as you call it, I wouldn't put it too much towards only hinting at the spreadsheet, so to say. That's the result. What we're actually focusing on is generating a lot of value with our strategy and implementing that one. I think that is what we've demonstrated.
If you look at the market capitalization, at the share price incline, at the business and the numbers that are coming in, that is, if you want, not our defense, but this is what we're focusing on, providing and then creating value for our shareholders. That in turn gives us the benefit of having a market capitalization that I think at this point in time puts a question mark behind value accretion for investors in a potential change of the setup.
We open up for questions. Yeah, Ian, please. There's a mic on the table. Yes, thanks.
Thank you. There is a growing fashion in Germany for retail deposit collection to be price-led. You talked about that yourself. Is there any evidence that it is a growing proportion of the deposit base which is becoming price-sensitive, or should we think about this as the same pot of money which is price-sensitive but rotating between the banks?
Yeah, thanks, Ian. Good question. The activity we have seen this year certainly was interesting to watch because we have seen deposit collection by competitors and also us that were marked by really attractive offers for customers. I can only talk for ourselves. We are doing this because we have a pretty good set of, let's call it, behavioral data on what's happening with these deposits afterwards. When we are going into the market with attractive rates, it's also to attract the full customer relationship. The offers that we had out in the market were high, were also partially going beyond ECB deposit rates, but only if you brought your full customer relationship actually to us. There is a point of not only attracting the deposits, but also longer-standing customer relationship. We know that works for some customers. For some, it doesn't.
Some are indeed actually very, let's say, fluent in picking the banks they deposit their money with because they are very sensitive to where the rate is. We don't really see this portion increase, at least not in our numbers. There is always a portion of depositors that jump for the next highest offer. With every single run that we collect deposits on, we have a relatively high sticky quota even once the promotional rate drops off. We manage to keep a good portion of those customers. Those that move on, we usually see a similar amount of customers moving on and then coming back. It really depends a bit on where this is going the next years, clearly. I think the market is growing, but it is also becoming more competitive. I think we'll have to watch that space.
In terms of our competitiveness level, I always like to also highlight that we have a quite large depositor base and also good channels with our two brands in the German market to collect deposits. We know quite well what's happening at which point in time in the market also regarding competitive offers. We're watching this, of course. I think we have to take that quarter by quarter, Ian.
Can you remind me when you do a deposit campaign price-led, what proportion of those deposits you assume remain with you on the other side of the [teaser] rate?
Yeah, we usually don't put that number out. If I say the better part, then it's literally the better part. Consider that really depending a bit on where we are to be in the upper part of the 100%. It's not less than half. It's not much more.
Great. Thank you very much, Carsten. Thanks for joining us. It looks like a very much operational gearing going all in the right direction, even beyond, from our perspective at least, the guided numbers here.
Perfect. Thank you very much, Ian.
Thank you.
Thank you.