Banks profit despite crises: Why Commerzbank & Co. achieve record profits
Commerzbank isn't holding back. Germany's second-largest private bank surprised with strong business figures for the first three months of the year. This was a surprise long in the making, as banks in Europe and across the Atlantic have posted substantial profits en masse, setting new record highs.
And this despite numerous geopolitical crises, despite stagnation in the German economy and despite a US president who, in his ludicrous economic policy, wants to impose punitive tariffs on the entire world (except Russia).
Commerzbank, which is currently fighting a defensive battle against a hostile takeover by the Italian bank Unicredit, increased its bottom line profit for the period from the beginning of January to the end of March to €834 million. A year ago, it was only €747 million. "We have achieved our highest quarterly profit since 2011, demonstrating that we can grow even in difficult times," said CEO Bettina Orlopp on Friday.
Or is this happening precisely because of the turmoil? In any case, net commission income climbed by double digits to €545 million, primarily due to flourishing securities transactions. Customers of the subsidiary Comdirect, in particular, "traded heavily in light of the stock market fluctuations," the management board explained.
Above all, major US banks such as JP Morgan Chase, Wells Fargo, and Morgan Stanley generated enormous profits because large investors also restructured their portfolios on a large scale. The banks collect fees from their clients for each transaction. They also enjoyed success on the stock markets on their own account.
Once again, the old banker's wisdom proves true: when it comes to making money with money, it doesn't really matter whether the financial markets are going up or down. The main thing is that something's moving. And there was no shortage of movement in the first quarter.
Take the German stock index (DAX), for example: Initially, it climbed vigorously, exceeding the 23,400 point mark at the beginning of March. Then Trump brought out his tariff hammer, and the DAX plummeted to around 19,600 points. It abruptly rebounded. On Friday morning, the index reached a record high of 23,529 points.
Deutsche Bank, the local industry leader, also benefited from market volatility in the first quarter, specifically in fixed-income and foreign exchange trading. Revenues jumped by 17 percent. Trump's erratic back-and-forth in trade policy drove up risk premiums on U.S. Treasuries and massively weakened the dollar—one way to make money is by betting on falling prices.
All of this more than offset the often weakening lending business at numerous European banks due to falling interest rates. This was also the case at Commerzbank, although net interest income declined from €660 million to €598 million compared to the previous year.
At the same time, industry experts such as analysts at CMC Markets emphasize that the sluggish European economy has led banks to "storm-proof" themselves over the past two years, primarily by cutting costs. Digitalization is a key factor in this. Commerzbank CEO Orlopp also highlights the "Momentum" project. Users of the banking app have recently been able to receive assistance from an avatar with their transactions. AI solutions are being increasingly used to enable corporate clients to handle even complex transactions independently online.
The goal is to reduce personnel costs. The Frankfurt-based bank plans to eliminate around 3,300 full-time positions in Germany by the end of 2027. Instead, it plans to create jobs in low-wage locations in Asia. Investors are applauding this move. Since September, Coba's share price has nearly doubled, making a complete acquisition for Unicredit significantly more expensive. The Italians, who are already a major shareholder, have postponed a decision on a takeover for the time being.
How things develop here also depends heavily on the overall economic climate. On the one hand, the powerful head of JP Morgan Chase, Jamie Dimon, has urgently warned of a recession in the US – should Trump's tariff fantasies actually become reality. As a precaution, he recently set aside an additional $1.4 billion to protect his bank against loan defaults. Deutsche Bank also operates with similar provisions.
On the other hand, however, the same bank this week assembled a team specifically dedicated to financing the defense industry. Demand is expected to rise here—the German government plans to massively increase defense spending. In addition, a €500 billion special fund for infrastructure will be established. Both of these measures will "definitely have a very positive impact on the German economy starting next year," Orlopp said on Bloomberg TV on Friday. And this will "also have positive effects on Commerzbank."
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