Commerzbank AG ($CBK)

Hi. Good morning, everyone. I'm pleased to be joined today by Bettina Orlopp, CEO of Commerzbank. Thank you for being with us, Bettina.

Thank you, Giulia.

I have plenty of questions for you. I'm sure the room has as well. But first, as always, we start with a polling question. If I can have it please. Okay. So not related to UniCredit. We will get to UniCredit in a second. But what is the best use of excess capital for Commerzbank beyond the planned 100% profit distribution. One, pitch for additional buybacks of the regulator; two, pursue bolt-on acquisitions. Three, pursue organic growth; or four, invest into AI and further cut costs. Buybacks. Okay. We will get to this in a second, but let me start with the topic of the day. UniCredit announcement yesterday, their intention to increase the stake in Commerzbank. Can I hear your thoughts?

Yes. Thank you, Giulia. It's clear that this is topic number one. So let me just do three statements at the beginning, and then we probably dig deeper into it. So first of all, it came as a surprise for us. It was again not pre-aligned. There was no pre-information, anything. So we learned it yesterday, same as everybody else, by the ad hoc. And it was a surprise because it was again a change of narrative when you compare it to the February messaging. The other surprising thing in relation to it is the offer itself because it is at a very low price if you compare it to our target prices. And it comes with this messaging, where we want to go beyond the 30%, but we do not want to get control, which per se is not fitting together, and therefore, it feels a little bit like a tactical move. And the second point belongs to that, and that is this messaging that this is the mean to get us to the table to discuss. And I mean, I don't get it basically because we have said since the beginning of the year since October 2024, we clearly said that we would sit down and evaluate a proposal, discuss a proposal if we get one and compare that in the interest of our stakeholders, starting with the shareholders, with clients and employees, the stand-alone strategy with the combination. But for that, we need something in our hands. And one would expect that someone who has moved now so far has something in the drawer, which they can share with us. And that is the ask which we have. We have now since 15 months, we always said that. I also say that publicly and also with colleagues that they need to be aware that if we get a proposal and we sit down and this proposal makes sense, we will recommend that. But as long as we do not have a proposal, we are back with our stand-alone strategy, and that is my third point, this very promising and successful stand-alone strategy called Momentum, which we are in implementation. We have delivered in 2025 is a record result. We have a very good start for 2026, have a very nice guidance out there for 2026. have good targets out there for 2028, and we will present updated and upgraded targets in the course of this year, not only for 2028, but 2030, making specific use and that fits to this pole by our investments into AI. So all in all, for us, it's strange and brings us back to the question, why not putting a proposal on the table?

So let's expand on that the proposal. What would you like to see?

Well, what you would always see, and I mean, we have said that also several times, and that is a normal behavior if someone is knocking at your door and say, should we do something together? Normally, you come with a draft. And in our case, this draft would include clearly the topic of synergies. What are the expectations on revenue synergies, probably negative revenue synergies given the overlap -- but then clearly, positive cost synergies, restructuring costs, speed of integration, integration structure, price related to that, very important for all the ones sitting here as our investors because our target is to create value for our shareholders, for our stakeholders, and that means we need to know what is the potential premium, which we can see. And then it relates to governance, organizational structure. One should not forget that a combined entity would have as biggest market, the German market, given the sizes. And then it's also because we have not only the shareholders and stakeholders, but we have also clients and staff. There are the stakeholder issues and social topics one need to address. And the thing is that I think we all agree to the fact that takeover integrations are always difficult, and you should only do them if they are value creating. But it's also very clear that it's very, very tough to do it not jointly, but in a hostile environment.

Yes, absolutely. And can I follow up on stuff? It must be difficult to motivate people when these type of headlines are out. So how do you achieve that?

But I think putting a lot of focus on why we are here and what we are doing is -- and we made it very clear from the beginning on that we really need to stay calm first. second, that we really need to focus on our role. And our role as Commerzbank is to be there for our clients and to create value for clients and clearly for our investors, for our shareholders. And that is the thing and the task, and that is also what -- where we -- the whole organization is focused on that. It is full steam of integrating the different topics we have from momentum, implementing that. We are now, as we speak, we are thinking about the elements of our AI strategy and how that can even accelerate the profitabilization of the bank because we have made very good experience over the past year with a number of AI use cases, and that one is now to be embedded in our future plans. And it's really focus, but clearly, yesterday has been a distraction. And clearly, you go out and you then try to calm down people, but it takes a while to get people back on track.

Yes, I can imagine. So in the absence of a proposal, let's focus on defense strategy, maybe the best defense would be to push the share price up. And typically, that happens when beat raise. So let's discuss -- you have an ambitious 15% ROTE target, but then you like the word floor, I guess. So how can we see -- when do we see the upside?

Yes. I don't like the word defense actually in this context because we are not doing defense, we are doing value creation, and that is our task. I mean, we have the commitment to create value for our stakeholders and it starts with the shareholders. And what we have proven with all we have done over the past quarters is that we are committed to create value by moving bank forward, by increasing the profitability, by increasing capital return, and that is what we also intend to do in the upcoming quarters. We have already aspirational targets out there with a 50% ROTE and the 50% cost income ratio. But we made it already clear 4 weeks ago that is, as you said, it is very likely that this is more a floor when it comes to the ROTE and the cap when it comes to the cost income ratio given the movements we currently see and given also what we see already for 2026, where our original plan just a year ago was to reach a cost/income ratio of 56%, and now we are already down to 54%. And therefore, it is very clear that we think about different measures. It's on the growth side also because we see that AI can free up relationship capacities and stuff like that, and that can lead to further growth. But then clearly, also on the efficiency side, when you think about where we can be much quicker, where we can avoid costs through applying AI. And then clearly, some other elements in place, the interest rate environment, which is at least currently an attractive one for us, and we see that also in the development of NII in the past years and also in our guidance for the coming years. But then it's also the point of the stimulus in Germany, where still there is more to come and we probably have not seen yet the full amount.

Thank you. And I want to open it up to the floor. I will do shortly, but let me just ask a couple more. So from a geopolitical perspective now, the German fiscal stimulus also European focus on competitiveness is great. On the other side, you've got, however, an Iran war, which impacts, I would say, Germany, perhaps more than other countries. So how is that impacting your clients and your business at the moment?

Well, short term, not yet. It's very clear because our exposure to Middle East is also very limited. But clearly, the second round effects are the ones where we also now focus on. So if the energy prices still stay up we see more inflation that will -- and that is also the assumption of our economic team is it will put a drag on our GDP growth assumption. We still currently assume that there will be a 0.9% GDP growth for Germany this year. If the war is longer and the energy prices stay up and there is more inflation, there is a risk that this will be a significant lower like reduced by 0.4%, still grows, but then very limited again. And then the question really is what does it mean for us? Is there an impact on the loan growth question mark because we have shown also last year, when we had a 0% growth in Germany that we produced a 10% loan growth. So that one is to be seen. And then the second part is clearly on asset quality. What does it mean for our loan portfolio. And there, we are anyhow always a little bit cautious population. So we have laid out this risk result guidance of EUR 850 million, which is already a little bit an elevated level when you also now compare it to 2025, where the number was lower, but this gives us a certain flexibility, but clearly depends also on the length of the crisis.

Perfect. And actually, since you mentioned the EUR 850 million, that does sound conservative. Consensus is below that. But every week, we have a different topic ping up on the asset quality side. One is oil, we just touched upon it. There is software, there is private credit. So where do you see the risks to this guidance to the upside or to the downside?

But the truth is we have a very well-diversified loan portfolio. But what we all know is what can happen is we finance a lot of medium-sized corporates. And just for that alone, you have one or two more defaults in this larger bucket. risk result can come in higher in a quarter or also for a full year. So it's just very conservative to rather stick to the higher end. When it comes to private credit, our exposure to the U.S. is not there, a direct exposure. So that's at least assuring. But there are other parts, and that is the exposure to German corporates. We know that not all industries are progressing in the same way. But that is reflected in our risk models, and that is also reflected in our risk result guidance. So that's really how we manage the things.

Perfect. And if I can come to the more positive part. So Germany is stimulating and the defense spending is definitely there. Hopefully, the infrastructure is coming as well, and Commerzbank is uniquely positioned with your Mittelstand franchise. So how are you positioned to benefit from that? And what are you seeing on the ground? Because I think on paper, you are definitely positioned to benefit from it. But then the Mittelstand are quite cautious and not to necessarily invest

While the board clearly didn't help to increase the investment plans of German Mittelstand. What we currently see is clearly already effects unfolding when it comes to defense to infrastructure, numbers are developing exactly as planned, and that then has spillover effects, positive ones on suppliers and manufacturers. So that one is clearly there. The topic which we have, and it is also a public debate is about reforms besides the stimulus. And there, there has been progress, but there is more to come, and there's also the ask of German economy, and we do that via the Made for Germany initiative to really see more reforms so that people are really moving and feeling prepared to also invest in Germany because truth is and we see that also in our loan portfolio that people invest specific larger ones, but they do that outside. They do more localizing of business, which also has a reason because of the tariff situation, but it's also about this belief that reforms are sustainable in Germany, and we need to see more to come. And then it would be great if we do not have every second week another crisis. because if you're an entrepreneur who is having a family-owned, not listed company and the fortune of your family and most likely also some larger part of family is dependent on that, you will be always more conservative than some others.

Clear. Let me see if the audience has questions. I wasn't expecting that. So let me ask you another one. In Q4, you commented that Q1 was off to a good start on revenues, but also on the cost side. How has that progressed since the last time?

Yes. I mean we feel comfortable with our guidance. So I mean, February is always a short month. So that one is always a little bit different to all the other months, but we had a very good start in January. March, I mean, volatility also helps. So very confident with respect to the guidance we gave. And more importantly, we also made very good progress on the AI side when it comes to really rolling out several programs to our complete staff and other things.

Yes. And I actually was going to ask you about AI next because I think you are passionate about this topic, you are deploying it. So can you give us some example of the value you are able to extract in AI?

I mean, AI is a really important topic for us, and there are different perspectives we need to take as a bank. One is the one which you all as investors also do with other industries, and we do that as a lender. We really need to figure out what does it mean to our loan portfolio. So who's exposed and who's benefiting from AI, who's less impacted by AI, who's very quickly in adapting, who's probably a little bit slow in adopting. So that is an important topic for us, and that is something for the corporate client and the risk side. The second part is really coming from the client perspective, how clients look at AI, how will they use AI to get in contact with us -- and then we also need to keep in mind that we have very different client groups. We have the super digital native clients who jump on every tool we offer them like we have an Avatar and [indiscernible] app where you can easily ask questions with the avatar, you can block your credit card and things like that. Beautiful. But unfortunately, it can be only used by the ones who have mobile credentials, which is in many countries, I know already not and not a problem. But in Germany, we still have a lot of analog clients who even do not have mobile credentials for the mobile banking. So that is something where we also put a lot of focus this year on how to get more clients onto the digital channels and to really help them in doing their basic services on the digital channels. And the third part is the part which you asked for is where can we apply it. And truth is when looking at a bank, you can apply it basically everywhere. Not always it makes sense because there should be always a business case and one should not forget that there's cost attached also to AI and dependent on whether it's a high-risk process, you need to make sure that you have enough control, human touch control against it. And sometimes it might be that it doesn't make sense, but we see that we will apply it, and we're already applying it in every corner of our bank. It's for the relationship managers preparing and wrapping up the client meetings. It's for the advisory centers where we have already introduced an agent assist who's transcripting calls, providing solutions, summarizing the call for the client history and all these things. We use it in complex processes like KYC, alert monitoring. We use it in detecting fraud when onboarding clients. And we use it also in the central functions like we have just introduced it for contract management and the legal department. And I could go on and on and on. And what we now try to figure out what does it mean for our cost and our revenue base for 2028, but also for 2030 because the developments are much faster than we thought last year when we announced the momentum strategy there would be. And the good part is we are not newbies to the whole thing. We started with big data and analytics back in 2017, 9 years ago. We had our first large language model doing large analytical work in 2019. We have lots of use cases, and therefore, we have a very good starting position to work with that and to accelerate that because we are also not too complex, and we have still -- because we are in a high-cost location, we still also have a cost/income ratio, which gives you some room for improvement actually, which is less easy when you're anyhow in a very -- in a low-cost location. And then last but not least, and that is also very important, and it's equally important to the client part. And that is the part that AI technology only works if you make sure that the people are applying it. So one of our key tasks for this year for leadership, but then also for complete staff is to make sure that people are using the tools. We have rolled out large language models to all employees that they are using it, that they see the efficiency, that they see the benefits out of it, that they are not scared about it, but that they are skilled on it. So we train a lot. And it's really -- that is a cultural change we all need to do in the coming months and rather quicker because the development is at such a speed, which we currently see. And that's how we look on AI. So it's a full program, but it's very different perspectives you need to take.

Absolutely. So if I can unpack some of that. On the cost side, I think you have a plan to offshore some people. But in fact, perhaps AI can help. with part of that? Is that one of the potential upside?

Yes. I mean, it's always a question what do you do? I mean, do you now -- because we have a reduction program planned in Germany, and we are also recruiting our size because we also need certain skills, IT skills, et cetera. But to some extent, we really need to know are we really building up additional capacities? Or is that not something which we can now be dealt with the AI. Same holds true. We have external call center capacities we use as an overflow and to make sure that we handle the volumes. It's pretty clear that the first ones, we will reduce our external call center capacities.

Perfect. And the other aspect that you touched upon is how do you assess your corporate loan book? Because when we lend to corporate and the corporates might be significantly disrupted by AI, that's a risk. How do you go about that?

Yes. I mean we have anyhow a strategic portfolio review, which is done and performed by corporate clients together with risk management, and they do that basically every month where they really go through the portfolio to figure out what might be the impact. I mean, it was very important during the pandemic to understand what the impact is. It was very important when the Russian invasion started to understand with every new topic, we need to understand where our clients are. And same was true for the ESG topic and where are they moving and are they moving at the right speed and the right direction. And then clearly, for the larger ones, they anyhow have their own programs and concepts and AI programs. But specifically for the medium-sized corporates, it's also our task to help them to put a connection to centers to provide, I would say, best practice examples to make sure that they move in the right direction by best practice sharing. And then clearly, it's also not a secret that we will adjust our lending strategies according where we see industries moving to.

Perfect. Let me check back in the room if we have questions. We have one over there.

And at the Capital Markets Day for 2028, you gave us guidance for cost/income ratio, but you also mentioned a range of EUR 6.5 billion to EUR 7.1 billion of costs as an aspiration within that. Does that guidance still hold? And if not, why not?

You're referring to the absolute cost growth versus cost-income ratio. I mean, given that we now constantly improve on the one side, our cost/income ratio and bring it down. I mean, one part is clearly the revenue side, which is developing more nicely than we thought. And that will be one part of the equation. The other part is clearly what happens on the cost side and why we had this increase of the cost side up to 2028. That is one point what we are currently examining. Is this cost baseline still holding the same? Or is it developing differently? Clear is that the 50% is the minimum we want to achieve and the likelihood that we will stay below the 50% is pretty high, and that will be the result of higher revenues and probably even more cost discipline.

Great. Let me see if there are other questions. Okay. So we managed most of the fireside chat without even talking about NII. So finally, we get to an important topic. Comdirect launched a deposit campaign in Germany in January and the guidance is for 42% pass-through, which is up from 40% to allow for this type of campaigns. On top of that, I would say the competitive environment has always been fierce in Germany, but it's, of course, getting perhaps even tougher with Credit Agricole, Chase openly talking about entering the market. So how profitable are these campaigns? What value does this add to your top line?

Yes. I mean that's a fair question. And I mean this attacker product, which you see basically since the year is very different to the first attacker products, which we had seen at the beginning of the cycle because at the beginning of the cycle, we saw basically attacker products, which were still below the ECB rate. So producing regardless on how many clients would stick after that with you as a bank would be profitable because you were just still gaining money. Now it is different because many of the attacker products are far above the ECB rate, which means that this is only a smart case if you have enough interesting options you want to fund with, which create a certain profitability or that you also make sure that there is a stickiness in the deposits so that people, even if you reduce the interest rates on the attacker product, they will still stick with you. And I think everybody is currently figuring that out. And I think it is important to stay really vigilant and cautious on that. What we observe currently is there is this group, which we call the interest rate surface, hoppers, you name it as you want, yes. I'm not sure whether I like hoppers or surface more, but it's the same group. It's a group which is digital native because we see it more in our case, for comdirect brand and then clearly with the ING, DKB and also the neobanks and the new players coming on the scene because you need to be digital native because you must be prepared to open up an account, then move your call money to that, then when the attacker product ends, they move to the next online account. So you need to be some kind of digital nature to do so. And it's also very important to note that people do not move around with the key accounts, so house bank accounts because nobody really is prepared to every 6 months tell his employee or her employee that the account details have changed again. So what is important to note that everything which is on current accounts, the side deposits, is normally not touched by this account or deposit war. It is really about the coal money. And there, it's about the coal money or a specific group, which is prepared to move money around and do this extra effort for, I don't know, 1% advantage on a EUR 30,000, EUR 50,000. And that is certain type, and this competition is clearly getting a new player, whatever JPMorgan is entering this chase. But it's -- they are all hunting, I would say, in the moment very similar group of clients.

Great. Just a follow-up on that. The market has been testing this theory that with the AI agents actually, the trend that you described will become way faster in therefore deposits way more competitive. Do you subscribe to this view?

Well, I mean, one, again, need to -- I mean, it's a regulatory environment. So we have already today the platforms like Raizen who are helping clients in picking the best interest rate offer, which is in the market available. But truth is also that the clients still sit with each and every bank they are moving to. So you have to open up an account and then you have to move the money to that. So this platform idea and whether it's done by an AI agent or it's by a platform, it's very similar. You have that already today. The thing is that to do it really more quicker, you only have -- I mean, you only have still the situation that the clients need to open up with each and every bank they want to move the money to, they would have to open up again and again and again an account. And why is that so? -- because we, as a bank, cannot accept any money from someone we haven't KYC and have under close monitoring. The alternative would be that the company providing the AI agent is acting as a bank with all consequences when it comes to regulatory environment, leverage ratio, liquidity ratio requirements and stuff like that. But then they would also need to onboard each and every client and KYC it and make a transaction monitoring, everything when they would then like to send liquidity to different banks. So it's -- the one thing is not very dissimilar to the other one. And the other thing I can't see that someone is really prepared to really get into the banking license game.

Yes, we had raising here yesterday for our Fintech Day. So exactly. That's also the answer I think about. It already actually exists. Yes. Okay. And then another question on fees instead. So you had quite nice growth in '25, 6% and then consensus is expecting 6.5% CAGR over the next few years. So what are the key levers for growth here?

Yes. And I can say that also 2026 is progressing exactly in the direction we want that. So very much in line with the guidance. And the levers, and that is a good part on it is really multiple. We have on the one side, we have clearly mBank, which was more focused on the payment side, but what is now and also Poland is getting a pension reform to increase the investment culture in Poland and mBank is well situated to also take a benefit out of it, whether this is already the case in 2026, not sure. But this is also a growth area for mBank. Then we have our corporate client side, where one should not forget that with every loan growth, there is also a link to net commission income growth, but it's not only about NII when it comes to loans, but there's also an NCI part in nearly all the loan agreements. And you clearly have the capital market business where we all know that some kind of volatility helps in the moment, no surprise. The whole FX business is a good one. And then you also have payments business also in place for corporate clients. And then again, when you look at private clients, it's multiple levers. It's the payment side, specifically when it comes to the small business clients we have as part of the private clients, but it's also account fees. We have just changed the model for all account fees, which drives net commission income. But then you have Comdirect, which is very much driven by transactions and no surprise. Lots of volatility means lots of transactions. And then you have the wealth management, the discretionary portfolio management with more wealthy clients on the private and the wealth management side, private banking and wealth management side, where, yes, constant increase in volumes also helped to drive revenues. And then there is something which we're driving a lot and where we also have the expectation that the upcoming pension reform will put an additional booster on it, and that comes to -- for the mass market, the whole topic of also security savings plans and things like that, which are small at the beginning because people are saving, I don't know, EUR 50, EUR 100 every month. But if you then, first of all, you roll it out to many, many clients and then it's piling up over time. And that is also one of the concepts in the pension reform to support more the -- what we call the column 3 in the pension system, which is what people do privately and subsidize that with tax advantages so that people are getting more and get more the courage in not only saving the money on the current account or in the call money or at home, worst case, but to really invest that. And that the security savings plans are a good mean. And they are also one lever which helps us specifically midterm and long term to secure the revenues we expect on the net commission income side. So multiple levers.

Yes, quite a few. And if I follow up there, so you are optimistic about the pension reform. -- potentially, we get something more in June, I guess. And also, we just heard from Commissioner Alb on stage about the efforts on the savings and investment unit. And I know you're close to the regulators, of course. So what is your ask? And how confident are you that we get close to that?

Yes. I mean for us, as banks, one is really important and that is where we also talked a lot to the regulator, and that is the securitization framework. it's very complex, lots of regulation and there are now proposals out there. There are some kind of divulging when you look at the one which came from the commission and you have the rapporteur who did something, you have the -- then you have the council, it's moving in the right direction. It will hopefully support the, yes, revitalization of the securitization market in Europe, which is still very, very small in comparison to the U.S. And the other part is really the part which we have just discussed, and that is -- I mean, our capital market in Europe will only get deeper if we make sure that we unlock the potential sitting on our deposits. And Germany is not a great example. I mean we still have only 70% of German savings, of which only 40% currently are investing in securities. The good news is that Gen Z is much smarter than the rest. So they are much higher in their numbers, but still. And we are, however, not an exception in Europe because there are other countries who are doing the same. And what we really need to make sure is that we put enough incentives out there as banks with attractive products, but then also from the governance to make sure that people feel supported in doing investments and therefore, not only securing their retirement plans, but also in making the capital market much more deeper because the more capital we have, the biggest disadvantage we have when you look to the U.S., but also to Canada is they have this huge, huge pension schemes, which can invest a lot of money, and we don't have that. at least in large parts of Europe. There are some who have been a little bit smarter than others.

Great. I'll check one last time. No? Okay. So then my last question. I would like to close the way we started. So with the polling question. How do you agree or disagree with the results?

Yes. I think -- I mean, at the very end, we will do and we currently pursue all the four things. So they are important for us. And I would start the order differently. I think the most important part is how to push organic growth. That is something which is -- and that is linked to the fourth point, which is investing into AI because AI is there to foster growth, but also to support efficiency gains. So that comes together, and that is the organic part which we have. And that will be always our first question, what do we do with our profitability? Do we have ideas on how to invest and how to even increase further our profitability. That is always question number one. Question two is then, are there any interesting acquisitions out there that they need to fit to the requirements which we have when it comes to profitability and also the possibility to really integrate smoothly. And then the last part is capital return. And then on capital return, we have two different options. Apparently. We have dividends, and we have share buybacks. And the thing is that dividend, we understand we want to have a very nice track record of increasing dividends but no up and down. So we really want to have a constant track here. So that leaves us for the rest of share buybacks, and we will continue that. And I think it's also worth to note that share buyback program -- share buybacks from our side are also not a problem for our largest shareholder because there is no way that someone is getting kicked above 30% without not being able to put some countermeasures in place. That's also very important to state because there's always a couple of months of prewarning, number one. And even if for whatever reason, it happens, then there is a grace period of the regulatory authorities where you can go below the 30%, again, if you don't want to be kicked above the 30%. So what we will do is still in the interest of our shareholders, and we think attractive capital return is part of our story, and that is beneficial for all our shareholders.

Excellent. Thank you very much, Bettina.

Thank you.