merzbank AG(US:CRZBY)2023-11-09 01:01Financial Data and Key Metrics Changes - The operating results reached nearly €2.9 billion and the net result was €1.8 billion, with a net RoTE of 8.6%, which has doubled compared to the same period last year [4] - Revenues surpassed €8 billion despite burdens of €754 million from Swiss franc loans and mBank, driven by growth in net interest income [5] - The CET 1 ratio increased to 14.6%, well above requirements, reflecting stable risk-weighted assets and a good net result [6][28] Business Line Data and Key Metrics Changes - In the PSBC segment, net commission income decreased by 3% compared to Q2 due to lower volumes in securities transactions [8] - Net interest income (NII) reached a new high, with corporate clients achieving a 3% growth compared to Q2, while PSBC Germany saw an increase of €24 million quarter-on-quarter [9] - mBank's operating level was slightly below Q2 due to a higher risk result, but revenues excluding provisions for Swiss franc mortgages remained stable [21] Market Data and Key Metrics Changes - The deposit beta increased to around 25% in Q3, with expectations of an average of 30% in Q4 [10][50] - PSBC attracted additional call deposits, increasing the volume by €11 billion in the quarter, while side deposits decreased by €7 billion [17] - The overall loan volume in corporate clients increased, achieving levels similar to Q3 last year, with a moderate shift to term and call deposits [23] Company Strategy and Development Direction - The company has improved its outlook for 2023, expecting overall revenues around €10.6 billion, driven by net interest income of more than €8.1 billion [29] - The cost base is maintained at €6.4 billion, with a cost-income ratio expected to be around 61% [30] - The company plans to carry over the top-level adjustment of €435 million into 2024, providing room for potential defaults in the loan portfolio [34][62] Management's Comments on Operating Environment and Future Outlook - Management anticipates a risk result of less than €700 million for the full year, with a conservative economic outlook for Germany [14][34] - The company expects a stable development of the loan book for private clients, while being more optimistic about corporate clients due to investment demand [55] - The tax rate is expected to remain elevated at around 36%, primarily due to provisions for Swiss franc mortgages [15] Other Important Information - The company plans a share buyback of up to €600 million, pending approval from the ECB and the German Finance Agency [30][40] - Operating expenses are higher year-on-year due to salary increases and variable compensation accruals, but overall costs are on track with targets [12] Q&A Session Summary Question: Details on deposits in PSBC and cost of deposits - Management noted an inflow of approximately €4 billion from external sources, with a shift from side deposits into term and call deposits, offering teaser rates up to 4% [32][33] Question: Guidance for NII and loan losses in 2024 - The risk result is expected to be around €800 million due to weak economic development in Germany, with NII guidance for 2024 anticipated to be between €7.5 billion and €7.6 billion [34][35] Question: Impact of deposit mix on NII in Q4 - Management confirmed a headwind of around €100 million from deposit exchange and adjustments to the replication portfolio, which will be offset in others and consolidation [39] Question: Clarification on Stage 2 assets - Management explained that the increase in Stage 2 assets is a regulatory change and does not indicate significant underlying issues [42][46] Question: Expectations for loan growth in Q4 and 2024 - Management expects stable loan growth for private clients, while corporate clients may see increased demand for investments depending on government interventions [55][56]