COMMERZBANK AKTIENGESELLSCHAFT

42
Commerzbank AG
Should the debt crisis in Europe deepen, the possibility of contagion for banks in the USA
and emerging nations should be regarded as a matter of concern. Given the tighter regula-
tory requirements, European banks face the challenge of having to reduce their balance
sheets. Given the sector-wide pressure, they will be forced to offer price reductions on asset
sales and when raising liable capital. At the same time, high volumes of bank bonds fall due
by 2013, clashing with governments’ heavy finance requirements.
Over the medium term, banking in Europe will probably be much less profitable than it
was prior to 2007 or in the surprisingly strong recovery after the sub-prime crisis. Major
profit drivers of the past, such as high lending growth and falling credit default rates, are no
longer available to boost profits. Given the weakening economic trends, loan loss provisions
will tend to act as a dampener on growth in Corporate Customer business. In Private Customer
business, commission income will remain under pressure due to the uncertain economic
situation and comparatively volatile markets. We see a rather difficult year ahead for
investment banking, given the subdued levels of activity in many areas, and we therefore expect
market adjustments.
Even if a solution to the European sovereign debt crisis is found that satisfies market participants,
two major trends will continue to dominate the banking environment. Firstly, the
banking sector must adjust to the realisation that during the crisis, areas with the lowest risk
weightings caused major problems, and re-think the considerable importance of sovereign
finance business. Secondly, the banking industry must realise that the deleveraging process
required of countries and budgets will be patchy rather than smooth, and this will reduce the
overall trend growth. Given weak economic growth, the phase of extremely low yields on
low-risk investments and low inflation rates will continue
This will intensify competition even further – for deposits, which are the main way of refinancing
independently of the interbank market, and for the comparatively crisis-proof business
of German SMEs, which more and more foreign banks are starting to pursue again.
There will be no change in the basic market structure in Germany for the time being, which
is characterised by a large number of cooperative banks and savings banks, so the competitive
situation will not ease.
Expected developments at Commerzbank Aktiengesellschaft
As the Bank is managed via its segments, the information in the following sections of the
outlook and opportunities report is geared towards the performance of the Commerzbank
Group as a whole.
We expect net interest income to fall slightly compared to 2011, in light of the following
key factors: low interest rates, which have a fundamental impact on net interest income; the
intensifying competition, particularly for deposits, which places more pressure on margins;
the reduction in non-strategic holdings; and the expectation of generally higher funding
costs. Although we expect positive effects in the core bank from both the expansion of business
volumes and the buyback of hybrid equity capital instruments and subordinated loans
over the medium term, it will be challenging to compensate for the aforementioned factors.
Any improvement in net commission income in 2012 will also depend on whether market
volatility continues to deter customers from investing. On the sales side, we will benefit from
the fact that there will be no more integration-related charges for our advisory teams. We
also expect higher commission income from foreign business and cash management activities.
Overall, we expect net commission income to be higher in 2012 than in 2011. It is difficult
to forecast trading profit, particularly in light of high volatility in the financial markets and