By Christian Kirchner
Commerzbank intends to wrest Commerz Real from far more profits over the next few years than before. To this end, according to the recently published annual report of Commerz Real, the main bank in Frankfurt has commissioned its asset management subsidiary Wiesbaden to carry out a transformation project called “Next Level 2025”. Therefore, the agenda of the strategy should lead to “drastic changes in the future”. Commerz Real wants to focus “much more on profitability and scaling its products” and above all demonstrate “significant growth rates” in “all key KPIs” in the planning period to 2025. The goal is to become “a leading global asset manager for real estate and renewable energies.”
Ambitious plans show that Commerzbank is once again placing much greater emphasis on asset management as part of its corporate strategy – quite a remarkable move. For the record: In fact, people thought Commerzbank was more or less done with asset management. Even before the financial crisis, the Frankfurt-based company sold its UK subsidiary, Jupiter; shortly thereafter, Cominvest was sold to Allianz; and in 2018, the ETF division (including the certification area and other EMC activities) finally moved to French Lyxor. Then it smelled a lot Tabula rasaespecially since it was rumored that Commerzbank did want to secede from Commerz Real. But she never did.
The Klimavest Fund shows how ambitious we are
Instead, Commerz Real was reorganized during the Corona crisis (though not always entirely voluntary, see our article -> Commerzbank subsidiary gains fourth president in twelve months); In the middle of last year, the CEO, Coby Manfred Knof, moved to the top of the supervisory board. Also, in addition to bread and butter with real estate, people are thinking about larger scale again, especially with the launch of “Klimavest-Fonds” (see -> Biggest product launch ever: Commerzbank is loading an eco-bazooka).
The vehicle, which has been on the market since October 2020, was originally supposed to collect a gigantic EUR 10 billion of equity capital from investors and transfer up to EUR 25 billion, including debt. According to Finanz-Scene calculations, this would give Commerzbank a one-off sales commission of EUR 400 million and a further EUR 40 to 60 million in existing payments per year. Of course, there is still a long way to go: now – one and a half years after its launch – the fund is worth EUR 830 million. According to the recently published annual report, another intermediate target is: “By 2025, volumes should continue to grow to a total of EUR 4.5 billion, with a target equity capital of around EUR 2.2 billion.” Klimavest also aims to reduce the heavy dependence on the real estate fund Hausinvest, where more than half of Commerz Real’s assets under management, worth EUR 33.7 billion, recently stood at EUR 18.8 billion.
Despite the still slow start of “Klimavest”, Commerzbank believes that its subsidiary is able to achieve much higher profits than recently. Long-term comparison shows …
… that 2016-2020 results tend to decline – but a possible contrary move has emerged recently. Not only operating profit improved (+ 29% to EUR 124.1 million), but also the cost-income ratio (from 56.9% to 53.6%), return on equity (from 60% to 86.1%) . Neither Commerzbank nor Commerz Real have provided specific targets under the “Next Level 2025” strategy. However, the annual report shows that the key performance indicators that should improve significantly are the cost-to-income ratio and return on equity.
From a strategic point of view, pushing through asset management activities makes sense. The splits hardly bind capital and therefore provide a very high return on capital. Classification: At Deutsche Bank, the subsidiary DWS recently made almost a quarter of a pre-tax profit of € 3.4 billion in 2021. At the same time, however, the fund industry is struggling with the continued decline in margins, particularly driven by the passive product boom.
As such, asset management is primarily a business that grows through size and scaling. Only those who are expanding and can at least defend their assets are usually able to increase profits. Moreover, business is considered to be highly cyclical – when capital markets crash, asset managers’ incomes and profits have traditionally dropped much faster than their costs. Changing Commerzbank’s strategy is therefore quite risky – especially in the context of the impending recession.