Commerzbank announces 5-year AUD senior preferred bonds at an IPG of around 5.815%

Commerzbank AG (‘Commerzbank’) plans to issue new 5-year AUD senior preferred bonds at an initial price guidance of around 5.815% based on a 120 bps spread, for accredited and institutional investors only.

Commerzbank is rated A (Positive) by S&P and A2 (Stable) by Moody’s. The bonds are expected to be rated A (positive) by S&P and A2 (Stable) by Moody’s. The bonds are expected to be priced on 03 June 2026 (Wednesday) and will mature on 12 June 2031. Proceeds from this new issue will be used for general corporate and financing purposes.

Financial highlights

(Percentage changes are year-on-year [y/y] unless otherwise stated.)

Commerzbank delivered solid revenues in 1Q26, with total revenues rising 5% y/y to €3,219m. This reflected a strong 9% y/y growth in net commission income (€1,102m), with multiple drivers from its securities business, bond issuances, and syndicated loans. Meanwhile, net interest income fell only -1% y/y to €2,047m, as Commerzbank navigated interest rate pressures* via higher lending volumes and hedging effects.

(*Commerzbank did not explicitly reveal its net interest margin. However, taking net interest income divided by average earning assets, net interest margin fell from 1.84% [1Q25] to 1.75% [1Q26].)

Cost discipline was visible, with the cost/income ratio improving by 2.7 pp to 53.4%. Operating expenses fell -1% y/y to €1.6b. Compulsory contributions* increased by €21m to €125m; excluding this, however, cost/income ratio would have improved from 3.2 pp to 49.5% instead.

(*Compulsory contributions are regulatory levies paid by banks, including contributions to the Polish resolution fund at mBank. These are reported separately from operating expenses but are still counted toward the calculation of operating profit.)

Overall, Commerzbank’s profitability improved, helped by stronger revenues and robust cost discipline. Operating profits (‘operating result’) rose 11% y/y to €1,358m, while net profits attributable to shareholders also grew 9% to €913m.

Segmental breakdown

Commerzbank primarily breaks down its segments into two parts: Private & Small-Business Customers (PSBC), and Corporate Clients (CC). PSBC continued to be the primary earnings driver in 1Q26, contributing €1.9b in revenues and €788m in operating profits (58% of total). As with the broader group, net commission income was the main driver within PSBC, growing 10% y/y to €734m, while net interest income fell -2% to €1,178m.

Meanwhile, CC revenues rose just 1% y/y to €1,252m, but operating profits fell -6% to €567m. There were several factors in play, including higher risk result* (from -€77m to -€106m in 1Q26) and higher operating expenses.

(*Risk result reflects provisioning for individual exposures and defaulted counterparties.)

Hence, the group result (improved profitability) was primarily driven by PSBC, rather than broad-based profit growth across all segments. Specifically, PSBC benefited from stronger German retail activity and improvement in mBank performance (in Poland). Meanwhile, while group-level non-performing exposures remain stable, we will continue monitoring provisioning (risk result) on both a group level and within each division especially CC.

Credit profile

Commerzbank’s capital position remains comfortable, although excess capital is being managed down through growth and capital returns. The CET1 ratio stood at 14.5% at end-1Q26, down from 14.7% at end-2025 and 15.1% at end-1Q25, mainly due to higher RWAs. Tier 1 and total capital ratios were 16.4% and 19.7%, respectively, while the leverage ratio was stable at 4.3%. RWAs rose 2.2% q/q to €180b, largely due to higher credit-risk RWAs from business growth and model effects at mBank.

Asset quality remains benign, but the direction of credit costs is slightly less favourable than in 2025. The NPE ratio remained low at 1.1%, unchanged from end-2025. However, the risk result deteriorated to -€142m from -€123m a year earlier, driven mainly by defaults by individual exposures and higher loan-loss provisions in Corporate Clients mentioned above. The default portfolio also increased to €7.16bn from €6.82bn at end-2025, with the increase mainly attributable to the corporate segment.

Liquidity and funding remain clear credit strengths. Commerzbank had a €148b liquidity reserve at end-1Q26 and reported an average LCR of 140.5%, comfortably above the 100% regulatory minimum. Average deposits were stable, at €228b in Private and Small-Business Customers and €101b in Corporate Clients.

Proposed takeover by UniCredit

UniCredit’s proposed takeover is the key source of uncertainty for Commerzbank bondholders. In September 2024, UniCredit had amassed a 21% stake in Commerzbank (September 2024) using derivatives. More recently, on 16 March 2026, UniCredit announced that it had a 26% direct exposure in Commerzbank and intended to conduct a full takeover of Commerzbank. On 05 May 2026, UniCredit officially submitted its takeover offer. On 02 June 2026, UniCredit announced it had increased its direct stake to 34.4%.

First, there is uncertainty over whether a takeover can even go through. Commerzbank’s management has framed the bid as ‘not adequate’ and recommended shareholders reject the bid. Its second-largest shareholder (after UniCredit) – Germany’s federal government – has also opposed the bid thus far. For reference, the offer was 0.485 UniCredit shares per Commerzbank share; based on the latest share prices of €74.93 (UniCredit) and €37.17 (Commerzbank) respectively, this implies a 2.2% discount to the prevailing Commerzbank share price.

In the event of a successful takeover, there would be further uncertainties over the credit implications. A successful combination could create a more diversified European banking group as part of UniCredit’s pan-European expansion (‘UniCredit Unlocked’) alongside potential synergies in Germany, where UniCredit already has a presence through HypoVereinsbank (HVB). On the other hand, such a takeover would likely involve a multi-year restructuring, where execution risks are prominent, specifically whether promised cost synergies can outweigh restructuring costs.

(We also note that UniCredit is currently rated A-, lower than Commerzbank. A successful takeover could hence exert upward pressure on credit spreads for Commerzbank’s bonds.)

Bond comparison

We include some European bank bond peers (all senior) in Table 1 below. The peer group below includes German banks (Landesbank – LBBW), as well as other European banks from France (BPCEGP, ACAFP), Spain (Banco Santander - SANTAN) and Netherlands (ING Groep - INTNED).

Overall, we find that the initial price guidance of this new issue looks only marginally higher than yields of existing bonds of these peers, except for ING Group, possibly due to ING’s lower Moody’s rating. Considering the additional overhang of a potential Unicredit takeover, we find this new issuance fairly priced.

Table 1: Bond comparison

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.