merzbank AG(US:CRZBY)2023-02-16 22:14Financial Data and Key Metrics Changes - Commerzbank reported a net result of €1.4 billion for 2022, more than tripling the result from 2021, marking the best performance in over 10 years [3][12] - The capital ratio stands at 14.1%, significantly above the target range, providing a cushion for potential economic downturns [3][12] - The return on tangible equity (ROTE) reached 4.9%, with a target of over 7.3% by 2024 [12][21] - The cost-income ratio improved to 69%, with a target of 60% by 2024 [12][21] Business Line Data and Key Metrics Changes - Corporate Clients increased underlying net commission income by 6% in 2022, while PSBC Germany's net commission income declined each quarter due to lower transaction numbers [14][24] - The net interest income (NII) for 2022 was 36% higher than in 2021, with a particularly strong increase in Q4 due to several euro rate hikes [14][15] - The operating result for PSBC Germany increased by 43% for the financial year, while mBank achieved a record result of €301 million in Q4 [25][24] Market Data and Key Metrics Changes - The deposit business has seen continued inflows, but there has been no significant passing on of rates to customers, with expectations of a shift from site deposits to term deposits [23][24] - The expected average deposit beta for 2023 is 30%, reflecting competitive behavior in the German market [16][49] Company Strategy and Development Direction - The company aims to maintain speed in restructuring and focus on customer business and revenues, emphasizing strict cost discipline [6][11] - Commerzbank plans to propose a capital distribution to shareholders with a payout ratio of 30% for 2022 and aims to increase it to 50% for 2023 [4][11] - The company is committed to enhancing its ESG journey, targeting €300 billion in sustainable finance by 2025 [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2023, citing a strong performance in 2022 and a good cushion for potential economic challenges [2][3] - The company anticipates a mild recession and has retained a top-level adjustment of €482 million for potential economic disruptions [20][30] - The outlook for 2023 includes expectations for NII to exceed €6.5 billion, with potential upside scenarios reaching €7.1 billion [17][30] Other Important Information - The company has successfully completed 90% of its planned reduction of 10,000 FTEs, with limited execution risk remaining [3][4] - A share buyback program of €122 million has been announced, marking the first step in capital distribution to shareholders [4][5] Q&A Session Summary Question: Clarification on NII guidance and capital ratio - Management explained that the NII guidance reflects adjustments for deposit beta and higher funding costs, with a base case of €6.5 billion for 2023 [33] - The capital ratio of 14% is maintained for comfort and to support ongoing transformation efforts, with potential for further buybacks depending on macroeconomic conditions [34] Question: 2024 NII expectations and cost-income ratio - Management indicated that 2024 NII guidance is uncertain due to market volatility, but improvements are expected if interest rates remain stable [38] - The target for the cost-income ratio remains at 60% for 2024, with expectations to approach this target in 2023 [39] Question: Concerns about FTE headcount reduction and capital return - Management acknowledged slower FTE reductions due to the need for adequate staffing in private client services to minimize churn [42] - The capital return policy aims for a 50% payout ratio, with buybacks considered as part of this strategy [45] Question: Deposit beta expectations and competition - Management expects a higher deposit beta for corporate clients compared to private clients, with a stable growth outlook for deposits in 2023 [49] Question: Risk costs and restructuring impact - The risk result guidance includes considerations for a mild recession, with expectations for potential defaults primarily from smaller business clients [52][56]