Commerzbank AG does not expect to launch a new share buyback program in 2023, dampening hopes that it would return more capital to shareholders amid strong earnings.
Germany's second-largest bank by assets did not detail a new buyback as it unveiled second-quarter and first-half earnings Aug. 4, only saying it would seek regulatory approval for the plan. It would take three to five months to get approval and Commerzbank would need more time to prepare, CFO Bettina Orlopp told analysts during an earnings call.
The buyback launching at the beginning of January is a "very likely assumption," Orlopp said.
Lack of detail
The market had expected Commerzbank to increase shareholders returns amid a bright earnings outlook, and analysts repeatedly quizzed executives about the lack of an announcement during the call. Commerzbank shares slipped as much as 5%, despite the bank upgrading its net interest income (NII) outlook for the year.
The buyback announcement may be taking longer than expected because the bank needs to compile its second-quarter results, second-half expectations and stress test result for regulators, Morgan Stanley analysts said in an Aug. 4 note.
Commerzbank aims to distribute €3 billion to €5 billion in dividends and buybacks by the end of the 2024 financial year under its ongoing strategy. Orlopp said the bank aims to close its planned buyback program before its 2024 annual general meeting and that it remains "very confident" it will deliver against market expectations.
Upgraded guidance
The lack of a buyback announcement overshadowed Commerzbank's expectations-beating financial performance in the quarter. The bank reported €565 million in consolidated quarterly profit, up a fifth year over year and beating a company-compiled consensus estimate of €538 million. Its return on tangible equity for the quarter was 7.9%, above a 7.7% consensus estimate.
Commerzbank also upgraded its 2023 NII expectation. It now expects at least €7.8 billion, versus about €7 billion before. NII in the quarter was €2.13 billion, which takes the NII for the first half to €4.08 billion.
Orlopp said the upgrade was mainly based on a slower-than-anticipated deposit beta — a measure of the sensitivity of a bank's deposit cost to changes in interest rates — so far, noting sensitivity to the beta remains high. A change in the average deposit beta of 1 percentage point in the second half is equivalent to about €45 million of NII, Orlopp said.
The upgraded guidance implied consensus EPS upgrades for Commerzbank of at least low- or mid-single-digit percentage points, UBS Global Research said in a note.
