UPDATE 3-Commerzbank overhaul on track as profits, shares rise
* Net profit rises 15 pct, beats estimates
* T1 capital ratio up to 8.6 pct, leverage ratio 3.2 pct
* Risk-weighted assets fall 4 pct at end-Sept vs end-June
* Revenue before loan-loss provisions still under pressure
* Shares up 12 pct (Adds analyst, CFO comment)
By Arno Schuetze
FRANKFURT, Nov 7 (Reuters) - Commerzbank on Thursday reported an unexpected jump in third quarter profit and said turnaround plans were on track, moving the German government a small step closer to a sale of its 17 percent stake.
Germany's second-largest bank, bailed out by the German state after the financial crisis, produced a 15 percent net profit increase, ahead of forecasts, mainly due to fewer problem loans than last year.
The bank's shares shot up 12 percent in response to the performance, in which the bank sold assets more quickly than planned and said losses in problem portfolios like shipping were unlikely to rise.
Signs that Commerzbank is returning to health could potentially make it easier for Germany to sell its stake. But the bank's shares still trade at less than half the roughly 26 euros price at which the government would have to sell at to avoid losses.
Europe's banks have lagged far behind those in the United States in terms of paying back state aid after the crisis. But this week Dutch financial group ING said it should complete its restructuring two years ahead of schedule, potentially making it one of the first euro zone casualties of the crisis to emerge from a state rescue.
"Commerzbank could say that they are getting closer because they again reduced their non-core assets and again advanced their restructuring," analyst Ingo Frommen at bank LBBW said.
But the fate of the government's holding in Commerzbank got little attention in the run-up to Germany's September election. It has also not featured in negotiations between Chancellor Angela Merkel's CDU party and possible coalition partners.
A finance ministry spokesman declined to comment. The government said previously that a stake sale was not in sight.
The bank still has to make more progress shedding assets held in its "bad bank", or non-core unit, which holds some 124 billion euros in investments. It also needs a convincing track record of profitability, Frommen said.
STEADY AS SHE GOES
Commerzbank itself remained cautious, saying revenue was likely to remain under pressure and that the operating result for the last quarter of 2013 would fall short of that achieved in the previous quarter.
Its profit rise mainly reflected lower costs for bad loans in its bad bank, which the bank set up as part of a four-year restructuring plan begun in 2012. The bank aims to cut 5,200 jobs as part of the revamp.
In its core business, Commerzbank had to set aside more cash to cover potential bad loans. But bad debt provisions are returning to more normal levels because the German economy's strong performance in 2012 allowed the bank to reclaim bad-loan reserves over the past few quarters that it had set aside during the financial crisis.
"We have perhaps hit the turning point on the positive side," analyst Guido Hoymann at Metzler Securities said. "The worst could be behind us despite possible setbacks."
Commerzbank said it had more than enough capital to comply with rules put in place since the crisis and did not expect to have to raise anything extra after a health check on Europe's banks by the European Central Bank next year.
"I feel well and sufficiently buffered (for the ECB stress test)," Chief Financial Officer Stephan Engels said.
The bank reported a 15 percent rise in quarterly net profit to 77 million euros as it set aside less cash to cover ailing loans held in its restructuring division, beating an average forecast of 31 million in a Reuters poll.
Commerzbank shares have gained around 60 percent since July 1, compared to a 17 percent rise in European banks overall . But its shares trade at about 0.4 percent of its expected book value for the next 12 months, against an average of 0.9 percent among its European peers. (Reporting by Arno Schuetze; Writing by Thomas Atkins; Editing by Jane Merriman)
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