RPT-UPDATE 4-Commerzbank profits lifted by economic rebound

(Repeats to remove link to Insider interview)

* Q4 profit 257 mln euros vs poll avg of 132 mln

* Expects 2011 oper profit significantly up vs 2010

* Core Tier 1 ratio 10 percent at end-2010

* Lower provisions, write-backs drive profits

* Shares down 1 percent, underperforming sector

(Adds CEO comments, buy-side analyst comment, parliamentary spokesman comment)

By Arno Schuetze and Edward Taylor

FRANKFURT, Feb 23 (Reuters) - Commerzbank (CBKG.DE) said it will post higher earnings in 2011 and start to repay its bailout money as a rebounding German economy lifted profits at its core businesses, including investment banking.

"For 2011, we expect to close the year with an operating profit ... that will be significantly higher than that seen in 2010," Chief Executive Martin Blessing said in a statement.

In 2010, Germany's second-biggest lender posted net profit of 1.43 billion euros ($1.96 billion), above analyst expectations of 1.3 billion euros.

Shares rose as much as 3.6 percent in early trade but later turned negative. The stock was trading 1 percent lower at 6.159 euros by 1043 GMT, underperforming the STOXX Europe 600 Banks .SX7P index, which was up 0.6 percent.

Earnings were lifted mainly by the rebounding German economy, which allowed the lender to lower risk provisions by almost half, and write back the value of some toxic assets rather than by significant growth of the top line.

Commerzbank's core Mittelstand business, which focuses on lending to mid-sized German companies, posted a record result for 2010, and the investment banking and portfolio restructuring units benefited from a favourable market environment, write-backs and lower risk provisions.

"What the market likes is stable commission and interest income. But earnings today were mainly driven by lower credit loss provisions and volatile trading income," said Christine Schmid, an analyst with Credit Suisse Private Banking, which had about $1 trillion of assets under management in September.

Property finance unit Eurohypo was the only weak spot in 2010, causing an impairment of 1.9 billion euros. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Breakingviews column on repaying aid [ID:nLDE71M0NL] Scenarios on the state's exit from Commerzbank [ID:nLDE71M09E]

For a story on Commerzbank's pay [ID:nLDE71M15L] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

German business morale rose to a record high in February, signalling the strong recovery in Europe's powerhouse economy remains intact, shrugging off spending cuts and slowing growth abroad. [ID:nLDE71K0Q0]

"We had a good start in January, February has so far also developed positively," Commerzbank's finance chief Eric Strutz said in the statement.

The lender said it expected further growth in 2011 at the Middelstand business, its investment bank and in central and eastern Europe.

By stark contrast, the eurozone's largest bank Santander (SAN.MC) earlier this month saw net profit weighed down by the struggling Spanish economy. [ID:nLDE7112KX]

Commerzbank also said it expects to see a further decline of at least 200 million euros in loan loss provisions this year, giving the bank leeway for the repayment of the state's non-voting capital contribution, called silent participation.

"They are keeping their options open when it comes to repaying the state's silent participation. Now the crucial question is by how much will they dilute earnings per share by raising capital," Credit Suisse's Schmid said.

German state bailout fund SoFFin injected 16.4 billion euros of so-called silent participations, a form of non-voting capital contribution, and took a 25 percent stake in Commerzbank during the financial crisis.

"We intend to reduce the silent participations by a significant amount as early as 2011," CEO Blessing said on Wednesday, without specifying by how much.

Klaus-Peter Flosbach, parliamentary spokesman for finance in Chancellor Angela Merkel's German conservative party, said he welcomed Commerzbank's plans to start paying back.

"But it is a matter of course that state aid is repaid promptly if performance-based remuneration is paid at the same time," he said.

After it took a stake in the lender, Germany imposed a cap on pay for Commerzbank board members, which will be extended to all staff members this year. The cap will be lifted when Commerzbank returns to profitability when measured by German accounting rules, which the bank expects this year.

Aside from paying back part of the bailout, Commerzbank said it would also pay interest on the funds this year, a precondition for lifting a state-imposed cap on pay for board members. (Additional reporting by Matthias Sobolewski, Jonathan Gould and Ludwig Burger; Editing by Louise Heavens) ($1=.7300 Euro)