* Q1 net profit 200 mln euros vs forecast 231 mln
* Shares fall 5 pct, biggest fall by a European bank
* CET1 fully loaded Basel III ratio stable at 9.0 pct
(Recasts with details from conference call, shares)
By Arno Schuetze
FRANKFURT, May 7 Commerzbank,
Germany's No.2 lender, swung to a smaller-than-expected profit
in the first quarter, held back by low interest rates, fierce
competition for its core mid-sized business customers and its
drive to clear out weaker assets.
Shares in the bank fell 5 percent in early Wednesday
trading, the biggest decline among European peers, to
the lowest level since the middle of March as investors worried
about its slow pace of recovery.
Commerzbank was one of the highest-profile casualties of the
global financial crisis, with the German government spending
around 18 billion euros ($25 billion) to bail it out.
It has since cut costs and sold assets, and returned to
profit in 2013. But like rivals it is struggling with low
interest rates and weak fixed-income markets, and also faces
growing competition for its core mid-sized company customers -
the backbone of Europe's largest economy.
"The quality of the result is poor," said Ruland Research
analyst Heino Ruland of the first-quarter performance.
Interest income and fees for providing financial services
were both weaker than expected, he said, adding: "The
conventional business suffered badly."
Commerzbank made a first-quarter net profit of 200 million
euros, up from a loss of 98 million in the same period last year
but below analysts' mean forecast of 231 million
Falling income from lending and fees led to an 8 percent
drop in revenue to 2.26 billion euros, while operating expenses
Trading revenue declined, dragged down by a fall in income
from buying and selling bonds and currencies. Similar declines
have already hit investment banking results at Deutsche Bank
Barclays, JPMorgan and Citi.
"Compared to the year-earlier period we could not uncouple
from the weak market environment in fixed income," said Chief
Financial Officer Stephan Engels on a call with analysts.
Commerzbank's Mittelstandsbank unit, which caters to
Germany's raft of medium-sized companies, saw operating earnings
rise 4 percent as lower loan loss provisions compensated for
Its internal non-core asset unit shrank by almost a third to
102 billion euros compared with a year earlier as the bank sold
off underperforming investments in property and shipping
stemming from an expansion drive that backfired.
"Overall, a mixed set of numbers, but disappointing in
quality, given the revenue miss," said analysts at Citibank in a
note to clients.
At 0910 GMT, Commerzbank shares were down 4.1 percent at
Commerzbank said earlier this year it expected profit to
rise considerably in 2014 and that it was well prepared for a
"health check" of banks' finances by the European Central Bank,
designed to make sure they have enough capital to withstand
future economic shocks.
Since the financial crisis Commerzbank has been cutting
costs and selling assets in a bid to return to health and Chief
Executive Martin Blessing said the restructuring was paying off,
with the bank turning a corner in 2013.
It reiterated on Wednesday its turnaround plan was on track,
allowing it set more ambitious targets for improving its capital
position and shedding weaker assets, and easing investor fears
it might need to raise more cash after selling shares worth more
than 10 billion euros since its bailout in 2008.
($1 = 0.7177 Euros)
(Editing by Thomas Atkins and Mark Potter)