The ruling by the European Court of Justice (ECJ) on certain index clauses in Swiss franc loans in Poland impacted Commerzbank’s results in the second quarter.
Commerzbank has to shoulder additional million-euro burdens for its Polish subsidiary mBank. After the judgment of the European Court of Justice (ECJ) on controversial loans in Swiss francs, the Polish institute set aside the equivalent of another 342 million euros, as Commerzbank announced on Friday evening in Frankfurt. The provisions add up to 1.7 billion euros. And that doesn’t have to be the end of the line. The news on Monday was bad for the stock market.
Shortly after the start of trading, the Commerzbank share lost around three percent in value and was among the bottom of the DAX 40. Already on Friday and thus before the announcement of the latest burden, the paper had lost almost six percent after its price had fallen since the judgment of April 15. June had temporarily increased slightly.
Shortly after the verdict, Commerzbank CFO Bettina Orlopp considered a burden to be realistic in the second quarter. As expected, the 342 million euros should still be booked in the quarter that is coming to an end.
The provisions will have a negative impact on the operating result, Commerzbank said. Nevertheless, the board of directors of the Dax group is still targeting a consolidated profit for 2023 well above the 1.4 billion euros from the previous year. For 2023, analysts had assumed an average of almost 2.2 billion euros at the end of May.
Commerzbank bases its profit forecast on two conditions: On the one hand, the forecast depends on the further development of mBank’s Swiss franc loans. It is also based on the assumption that there will only be a mild recession in Germany.
The ECJ had backed Polish bank customers in the dispute over loans in Swiss francs in mid-June. If a mortgage loan agreement is voided because of unfair terms, those affected may be able to seek compensation from the bank.
The verdict related to another Polish bank and is likely to cost other Polish banks dearly. The financial institutions now have to make high provisions for the legal risk of franc loans. In autumn, the Polish financial supervisory authority estimated that the banking sector could face costs of 100 billion zloty (22.5 billion euros) if the ECJ made a negative decision. Because of the burdens, she did not rule out a banking crisis.
In Poland and other Eastern European countries, loans in Swiss francs have been particularly popular since 2004. The banks offered them at a much lower interest rate than loans in the domestic zloty.
The rude awakening for real estate owners came later: as a result of the economic crisis in 2008, the exchange rate of the franc rose. The Swiss currency experienced a further appreciation compared to the zloty in 2015 after it was decoupled from the euro. For Polish borrowers, monthly installment payments increased drastically. In many cases, the volume of the mortgage exceeds the value of the real estate.
The “Frankowicze”, as the several hundred thousand well-organized people affected call themselves, argued that many of the clauses in their loan agreements were wrong. Many of these contracts have already been declared void by courts. According to the judgment of the ECJ, those affected can not only demand the installments paid from the banks, but also compensation. Now the national court has to decide on the specific case.
mBank tries to reach an out-of-court settlement with its customers. “Our strategy of moving forward with the settlement of disputes is the right one,” Commerzbank CFO Orlopp said after the verdict. “And we’re definitely going to push that forward to get agreements and settlements with as many customers as possible.”
However, the manager expected that the topic of Commerzbank and its subsidiary mBank would remain for a while: “Towards the end of this year we should have a clear picture.”
Commerzbank far down in the weak banking sector
At the start of the week there were no signs of relaxation in the European banking sector. With minus 1.2 percent, he was the biggest loser in the Stoxx 600 industry overview. Although it has now recovered somewhat from the crisis affecting the regional banks in the USA in March, it is no longer able to match the price levels it had reached before.
Meanwhile, fears of an even weaker economy are growing in Europe and with them concerns about possible loan defaults and higher bank provisions. The rise in interest rates, which is actually positive for financial institutions, is currently taking a back seat in view of the economic slowdown, according to the trade.
Concerns did not diminish on Monday after the Ifo business climate, the most important leading indicator for Germany. The mood in the German economy deteriorated even more in June than analysts had expected.
“A decline had already become apparent, but it was shocking that it went down so significantly,” explained Jens-Oliver Niklasch, economist at Landesbank Baden-Württemberg (LBBW). His conclusion sounds sobering: “We are in the middle of a recession. Overall economic output is likely to decline noticeably in the second quarter as well. For the time being, an economic recovery is a long way off.”
With a price of EUR 9.194, Commerzbank shares on Monday morning were temporarily heading for their interim low of EUR 9.106 in May. Below that it would be the lowest level since the end of March. In the further course, the papers are temporarily listed 1.19 percent lower at 9.51 euros.
For the Deutsche Bank papers, the downward trend also continued with a minus of 0.65 percent to 9.11 euros. Previously, they had slipped below the nine euro mark for the first time since the end of March.
FRANKFURT (Dow Jones) / FRANKFURT (dpa-AFX)
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