Commerzbank has recently announced the issuance of its 10.25NC5.25 Tier 2 subordinated notes at 6.5%. These bonds carry a maturity date of 10.25 years at 24 April 2034 and will be callable after 5.25 years on 24 April 2029. If the bonds are not called back at the callable date, it will then be reset at the prevailing 5-year SORA-OIS plus the initial margin of 3.099%. As these notes constitute as Tier 2 instrument for the bank. In the event of any insolvency, dissolution or liquidation of the issuer, the issuer may write down the obligation of these notes, convert them into equities of the issuer, amend the terms and conditions or cancel the Notes. These bonds come with a semi-annual coupon payment scheduled on every 24th April and 24th October each year, with the first coupon payment being done on 24th April 2024. The expected rating for this issuance is Baa3 (Moody’s).
Company Overview
Commerzbank Aktiengesellschaft (Commerzbank AG) is one of the major bank in Germany that is headquartered in Frankfurt am Main. The bank has a strong international presence, with operations across almost 40 countries and is represented in all major financial centres, such as London, New York, Tokyo and Singapore. However, the focus of the bank’s international activities is on Europe and it is listed on the Frankfurt Stock Exchange (FRA ticker: CBK). The two primary segments for Commerzbank are primarily – Private and Small Business Customers (PSBC) and Corporate Clients (CC). Commerzbank have a credit rating’s A2/A- (Moody’s/S&P).
1H2023 Financials
With the high-interest rate environment, this tailwind has led Commerzbank’s Net Interest Income (NII) to increase by 41.6% YoY from €2.879bn in 1H2022 to €4.076bn in 1H2023, generally driven by its deposit business. Although the implementation of the “Strategy 2024” programme has several cost-cutting measures in place such as the reduction in the number of full-time employees or salary adjustments, operating expenses rose by 2.9% YoY mainly due to earlier increases in accruals for profit-related variable remuneration. Cost to income ratio (CIR), which is a measure of the efficiency of the bank operation, declined slightly from 64.3% in 1H2022 to 61.5% in 1H2023.
In terms of the bank’s liquidity, Commerzbank has a CET1 ratio of 14.4% as at 1H2023, which is a slight increase from its previous 14.1% back in December last year. This provides a buffer of approx. 430 bps over the regulatory minimum level of 10.1%. Commerzbank’s leverage ratio was also maintained at 4.9% in 1H23 (2H22: 4.9%), while its liquidity coverage ratio decreased slightly to 138.8% (2H22: 141.1%). However, this is still well above the regulatory minimum of 100%.
Overall, although at the start of the year, Commerzbank had issued 5.7% 10.25NC5.25 Tier 2 subordinated notes, this new issuance and the previous issuance are similar based on their risk level as both bonds constituted Tier 2 subordinated bonds with almost similar durations. However, for this new 6.5% 10.25NC5.25 Tier 2 bond, it’s price is slightly more appealing as the final price guidance is at 6.5%, while the previous 5.7% Tier 2 bonds are currently trading at a yield of 5.751%. This new issuance is approx. 75bps higher thus investors who previously held its 5.7% notes might consider a switch or those who have a higher risk appetite may like to consider adding this bond to their bond portfolio mix because these bonds are embedded with a callable feature after 5.25 years. In the presence of a non-call after 24 Apr 2029, the notes will then be reset at a rate of the prevailing 5 years SORA + 3.099 initial margin. As the initial offering has closed for subscription, investors who are interested in these notes will have to head onto the bond’s secondary market in our POEMS platform to get hold of them. These notes can be transacted in a minimum lot size of S$250K.
Bond Overview
