Commerzbank has to prove itself first
Things are going smoothly for Commerzbank. Despite the ongoing battle for customer deposits, it recorded higher interest income in the final quarter than expected. While the institution couldn't quite match the previous quarter's record, the slight decrease was mainly due to the European Central Bank (ECB) no longer remunerating the minimum reserve. Ultimately, the rise in interest margin characterized the year 2023: It rose by almost 30% to 8.4 billion euros. This represents over two-thirds of the total revenue.
Orlopp manages expectations
For the current year, Chief Financial Officer Bettina Orlopp is wise to temper expectations by predicting a decrease in the interest margin to 7.9 billion euros. Given the uncertain economic situation and signals that inflation in the Eurozone is far from being under control, forecasting future interest rate developments is difficult.
Above all, customers also want to benefit from higher interest rates. The so-called deposit beta, i.e., the share of interest that Commerzbank must pass on, increases the longer the interest rate remains relatively high. While this indicator was at 25% in the third quarter, it rose to 30% in the final quarter.
Orlopp noted a shift in direction in December, as the deposit beta increased to 32% due to unexpectedly high inflows into overnight deposits. Consequently, the institute is tentatively anticipating 35% for 2024.
It is quite possible that this is conservative enough to once again exceed market expectations in 2024. Nevertheless, it would be preferable if the institute could genuinely achieve greater independence from the interest rate environment. The management recently reaffirmed its commitment to an average annual increase of 4% in commission income.
Whether the acquisition of asset manager Aquila Capital and the accompanying initiative for organic growth in the sector, as well as additional fee-based services for corporate customers, are sufficient for this, Commerzbank still needs to prove. Details on what the institute expects from the consequences of the acquisition in terms of business economics will only be provided after the transaction is completed. The still restrained development of the stock valuation shows that investors are currently not willing to give praise prematurely.
