(Bloomberg) — Commerzbank AG raised the prospect of higher shareholder payouts and lifted a key profit target as the turnaround under Chief Executive Officer Manfred Knof gathers pace.
The German lender on Tuesday said it may pay out as much as 5 billion euros ($5.6 billion) to shareholders until 2024, compared with up to 3 billion euros promised last year. By then, the return on tangible equity, a measure of profitability, is expected to exceed the 7% the lender had previously targeted.
“The good progress of our transformation and our strong customer business provide us with a tailwind,” Knof said in the release. “In view of the positive expectations for the coming years, we aim to return more capital to our shareholders than previously planned.”
Knof last year unveiled an ambitious cost-cutting program that’s set to run until the end of 2024. The first year went better than initially planned amid soaring income at its online broker and falling credit provisions, though Russia’s invasion of Ukraine has cast uncertainty over the European banking sector as it digests the impact of sanctions and higher energy prices.
Commerzbank hasn’t included any fallout from the crisis into its financial planning, though it said it’s exposure to Russia and Ukraine overall is “manageable.” The lender has a net exposure to Russia of 1.3 billion euros, equivalent to 0.4% of Commerzbank’s total exposure. Its net exposure to Ukraine is less than 0.1 billion euros.
Knof’s higher profitability target reflects an improved revenue outlook, with Commerzbank predicting the top line will grow to 9.1 billion euros by 2024, compared with 8.7 billion euros targeted previously. Most of the additional growth is to come from the Polish subsidiary mBank, where higher interest rates are already helping lift income from lending.
The new targets don’t yet factor in potential increases in euro-area interest rates, which would lead to “substantial additional revenues,” Commerzbank said.
With inflation accelerating, Commerzbank also raised its cost target slightly, to 5.4 billion euros from 5.3 billion euros.
(Updates with details from the release from fifth paragraph)
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