Commerzbank disappointed investors on August 09 with weaker-than-expected performance in its key business of lending to smaller companies, although trading income helped underpin earnings.
Pretax profit of 486 million euros ($624 million) in the second quarter beat the equivalent 406 million euros a year earlier and was slightly above analysts' expectations.
But shares in Germany's second-biggest listed bank fell sharply as analysts flagged what they said were slack margins from lending to small and medium-sized businesses - customers that the bank is targeting as central to its growth strategy.
"These are quite weak numbers," said Daniel King, an analyst with Lehman Brothers. "If you look at it, the highlight is the investment banking. But their business in retail and most other divisions missed my expectations."
Olaf Kayser, an analyst with Germany's LRP echoed his view, "I would say the quarter presents a mixed picture. Commerzbank did very well in trading, but the commission income developed weakly. In all, the quality of the results is worse."
It was the latest in a string of European banks, including Credit Suisse and ABN Amro, whose shares have taken a beating after quarterly results failed to come up to expectations.
Net interest income - or earnings from lending - was just over 1 billion euros, slightly below the previous year's level and short of the more than 1.1 billion analysts had forecast.
Commission income from the sale of financial products at 659 million euros was also below the more than 700 million that analysts had forecast.
BUMPER TRADING:
It was a bumper trading profit from buying and selling shares and other securities that saved earnings.
Trading profit, often seen as a volatile, rose to 355 million euros from an equivalent figure of 20 million a year earlier.
Commerzbank reiterated its goal of a net return on equity of 10 percent this year as it strives to catch up with the profitability of its international rivals.
The result for the first six months follows an almost tripling of profit in 2005, a turnaround year that marked the German bank's return to financial health after costly forays into investment banking in London.
Since taking over in 2001, Chief Executive Klaus-Peter Mueller has taken the bank back to its roots - focusing on small and medium-sized businesses while paring back its loss-making investment bank.
Last year, the Frankfurt-based lender, which many had seen as a potential take-over target, bought German mortgage bank Eurohypo for 4.5 billion euros in a transformational deal.
Mueller has flagged his interest in making further buys. Commerzbank was recently pipped by larger home rival Deutsche Bank in an auction for Norisbank.
Commerzbank is rated more highly by investors Deutsche Bank, and its shares trade at roughly 13 times forecast 2006 earnings, compared with about 9 times for Deutsche.
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