Commerzbank jumps amid signs of progress

Commerzbank AG, the German bank forced into an €18.2bn bailout, jumped the most since Oct 2011 in Frankfurt trading after second-quarter earnings fell less than analysts estimated.

The bank climbed 16% to €7.66, valuing the company at €8.7bn. The stock has plunged 29% this year, the biggest drop on the benchmark Stoxx 600 Banks Index after Spain’s Bankia SA.

Germany’s second-biggest bank, which increased capital for the fifth time in four years in May to repay state aid, is firing staff to help boost profitability as it tackles souring shipping and commercial real estate loans.

Standard & Poor’s cut the firm’s debt rating to A-, four levels above junk, two months ago saying poor economic conditions mean it will struggle to boost earnings sustainably.

“We are on the right track and we intend to press ahead systematically with the strategic measures that have been decided on,” CEO Martin Blessing said in a letter to shareholders. “The early signs indicate that we are in fact on the right path.”

Net income slid 84% to €43m from €270m in the second quarter of last year. That beat the €4.6m average estimate of eight analysts surveyed by Bloomberg.

“This really isn’t enough profit for a bank of this size, but the expectations were so low that they could beat them,” Ingo Frommen, an analyst with Landesbank Baden-Wuerttemberg in Stuttgart who recommends investors hold the stock, said.

Loan-loss provisions rose 33% to €537m in the second quarter from a year ago, driven by UK commercial real estate lending, said Commerzbank. The bank took a one-time charge of €134m in the quarter on the UK loans, Chief Financial Officer Stephan Engels said.

The loan losses weren’t so bad if you stripped out the UK, Neil Smith, an analyst with Bankhaus Lampe in Dusseldorf, who advises investors buy the shares, said.

The bank sold €5bn of UK property loans to Wells Fargo & Co and Lone Star Funds last month at a 3.5% discount to book value.

Commerzbank increased its core Tier 1 capital ratio to 8.4% in June from 7.5% three months earlier after selling €2.5bn of shares in May. It reiterated a goal of increase the ratio to 9% by the end of next year.