Analysts have upgraded estimates on Commerzbank AG's financial performance as Germany's second-largest bank by assets guides for buoyant earnings and higher capital returns.

Commerzbank upgraded its capital return policy in late September and announced a 2027 net return on tangible equity (ROTE) target of more than 11%, assuming a common equity Tier 1 ratio of 13.5%. It plans to have returned as much as €3 billion to shareholders through dividends and buybacks for the 2022 to 2024 period, and said its payout ratio for 2024 will be at least 70%.

S&P Capital IQ mean consensus estimates have increased over the past few months. As of Oct. 27, full-year 2023 estimates project a net income of €2.15 billion and net revenues of €10.75 billion. These were up from €1.93 billion and €10.64 billion, respectively, as of April-end. Net interest income (NII) is also now projected at €7.87 billion, more than 10% higher than the €7.11 billion estimate in April.

S&P Global Ratings said in a bulletin that Commerzbank's meeting the 2027 ROTE target "could prompt us to no longer regard persistently low profitability as a key rating constraint."

Commerzbank upgraded its 2023 NII guidance to at least €7.8 billion during the release of its second-quarter earnings statements in August. The upgrade was principally based on a slower-than-anticipated deposit beta, CFO Bettina Orlopp said.

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For 2025 to 2027, the bank plans a payout ratio of more than 50%, but not more than the net result after the deduction of additional Tier 1 coupon payments and minorities.

A spokesperson for Commerzbank declined to comment to S&P Global Market Intelligence.

Higher payouts

Analysts have expected Commerzbank to hike shareholder payouts as it stands to benefit from the rise in interest rates. The bank has performed well in recent years, leading to its reentry into Germany's blue-chip DAX index in February.

Analysts welcomed the updated shareholder return plans, with UBS Global Research saying Sept. 29 that this was a step in the right direction. According to Deutsche Bank analysts, the plan is "very attractive and well ahead of consensus expectations."

Commerzbank paid out 24 cents per share in dividends for 2022 and is expected to boost this to 47 cents per share in respect of its 2023 performance, S&P Capital IQ mean consensus estimates showed. This is projected to increase to 65 cents per share for 2024 and to 75 cents per share for 2025.

New business plan beckons

Commerzbank is due to release its third-quarter and nine-month financial statement Nov. 8. It is expected to unveil a new business plan for 2024 to 2027 that same day.

The bank is projected to earn €2.37 billion in net income in 2024, according to S&P Capital IQ mean consensus estimates as of Oct. 7. NII is projected to slip to €7.67 billion next year as central banks begin to hold or gradually cut interest rates.