Commerzbank Leads Volatile Banks Higher in Europe

Lucy Stoeva
12 Feb, 2016
New York City

European shares recovered on the back of a rally in oil, while Commerzbank

[R]4:00 PM Frankfurt, Germany – European shares recovered on the back of a rally in oil, while Commerzbank’s results alleviated investors’ concerns over the banking sector. Deutsche Bank confirmed the buyback of its own debt. Rolls Royce announced adjusted profit of £1.35 billion and additional cost cutting steps.[/R]

European shares recovered on Friday after a rally in oil boosted resource shares, while Commerzbank’s results alleviated investors’ concerns over the banking sector.

The latest data on the European economy also provided reassurance to investors.

Gross domestic product expanded 0.3% in the fourth quarter from the previous three months both in the euro area and in the wider region of EU28, according to Eurostat.

Compared to the fourth quarter of 2014, gross domestic product expanded 1.5% in the euro area and 1.8% in the EU28 region, said Eurostat.

Commerzbank jumped 14% after returning to profitability in the latest quarter and announcing plans to pay its first dividend since 2007.

Other banks also rebounded and Deutsche Bank soared 9.8% after confirming it would buy back €3 billion of its euro-denominated debt and $2 billion of its U.S.-dollar denominated debt.

Resource stocks received a boost from recovering oil prices on Friday.

Brent crude oil futures surged 4.89% to $31.53, while West Texas Intermediate crude oil added 6.30% to $27.86.

In London, FTSE 100 index surged 121.91, or 2.20% to 5,658.88 and in Frankfurt, the DAX index gained 139.33, or 1.59%, to 8,892.20.

In Paris, the CAC 40 index rose 62.74, or 1.61%, to 3,959.45.

Nevertheless, most European markets will close the week down between 4% and 5% as investors remained cautious on the global economic growth and the banking sector profitability.

Commerzbank AG surged 15.8% to €7.39 after returning to profitability in the latest quarter and announcing its first dividend since 2007.

In the fourth quarter, the second-largest bank in Germany reported a net profit of €187 million, compared to a loss of €280 million a year earlier.

The bank announced it would close its ""bad bank"" after reducing the assets in the division to €63 billion in 2015 from €160 billion in 2012.

CFO Stephan Engels said that while the bank expects an increase in net profit in 2016, the low interest rates would prevent the bank from reaching the target of 10% return on equity.

Operating profit in the retail bank network doubled to €160 million, but earnings at the investment bank division tumbled 60% percent to €47 million.

Rolls Royce Holdings Plc rallied 15.9% to 614.20 pence after the aero engine giant announced adjusted profit of £1.35 billion and said it planned further cost cuts.

Sales declined 1% to £13.4 billion.

The company slashed its previously proposed full-year dividend 50% to 7.1 pence per share for the first time since 1992, but decided not to issue more shares to avoid diluting profits.

Rolls-Royce is undergoing a restructuring program that aims to generate £150 million to £200 million in annual savings from 2017. Last year, it announced 3,600 job cuts, including senior management jobs.

Half those savings have already been executed, including the departure of about 50 senior managers.

The company reaffirmed its profit outlook after a series of profit warnings last year, but the company would take an exceptional restructuring charge of £75 million to £100 million in 2016.

ThyssenKrupp AG gained 5.47% to €13.61 despite reporting net loss of €23 million for the first quarter of fiscal year 2016 due to weakness in the steel and materials businesses.

The loss compares with a net profit of €54 million in the same period a year ago.

Sales declined 5% to €9.55 billion as both volumes and prices dropped in the steel and materials businesses.

Adjusted EBIT fell by 26% to €234 million in the three months ended Dec. 31 due to the price pressure.

On the positive side, the components technology unit, which supplies the auto industry with parts, posted adjusted EBIT of €71 million, up from €4 million a year ago. At the elevator technology division adjusted EBIT soared to €203 million from €25 million.

For fiscal 2016, the German conglomerate confirmed its guidance of adjusted EBIT between €1.6 billion and €1.9 billion, depending on a recovery of the materials markets in the second-half of the year.