In recent years, the DZ Bank Group has often been more profitable than Deutsche Bank and Commerzbank. In 2022, however, the leading institute of the Volks- und Raiffeisenbanken, which includes the insurer R+V, which is currently in deficit, which also includes the loss-making Bausparkasse Schwäbisch Hall and the fund company Union Investment in the second half of the year, suffered a decline in gross profit by 42 percent to 1.8 billion euros . Deutsche Bank and Commerzbank, on the other hand, were able to increase their pre-tax profit to 5.6 and 2 billion euros. The DZ Bank Group benefited less from the higher interest rates and had to let the competition pass.
However, Cornelius Riese, who will be sole CEO from summer 2024, expects that after two years there will be no negative effects from the abrupt turnaround in interest rates in 2022 in the DZ Bank Group – not even in Bausparkasse Schwäbisch Hall, which issued bonds at a loss in the past financial year to reduce risk sold and renounced interest income. After this “dent”, the DZ Bank Group will exceed the previously planned profit range of 1.5 to 2 billion euros, “move out of this range”, as Riese told journalists at the balance sheet press conference in Frankfurt on Tuesday. According to his forecast, the DZ Group will already achieve a pre-tax profit at the upper end of the profit range by 2023, despite a risk provisioning requirement that will probably increase from 304 to more than 500 million euros. For the years that follow, Riese aims for a return on equity after taxes of 7 percent. In 2022, with a net profit of EUR 1.1 billion, the return was between 5 and 5.5 percent.
However, 7 percent after-tax return is less than Deutsche Bank (more than 10 percent) and Commerzbank (more than 9 percent) want to achieve in the medium term. Riese explained his lower goal with the fact that the central bank of the Volks- und Raiffeisenbanken also does business without great returns for its owners. At the end of 2022, around 38 billion euros in state development loans were on the balance sheet of DZ Bank, which they passed on from state banks such as KFW to Volksbanks and Raiffeisenbanks so that only they – with a profit margin – were awarded to their customers. With its business model, DZ is similar to a state bank such as LBBW or Helaba, which sometimes provide services for their owners, the savings banks, with low margins. Nevertheless, the banking business in the DZ Group was brilliant in 2022.
profit and loss maker
With 904 million euros, the commercial and network bank contributed more to the group result than ever before. It also performed better than any subsidiary, which was completely unusual. Less so in the case of DAX companies, which usually have American and French banks as their main lenders anyway, but in the “classic medium-sized companies” DZ Bank is “on an equal footing” with Deutsche Bank and Commerzbank – in terms of the assumption of competence, but not the risk appetite, said Uwe Fröhlich, who will also be Riese’s co-CEO until the summer of 2024. After loans, corporate customers also purchased interest rate hedging solutions, said Fröhlich, pleased with the increased cross-selling.
In addition to its normal IT budget, DZ Bank invested a good 300 million euros in digitization, for example in payment transactions and blockchain projects. A crypto custody license for business with institutional investors will be applied for in the first half of the year. In 2023, together with Atruvia and DWP Bank, a solution should be ready so that private customers of Volksbanks and Raiffeisenbanks can trade cryptocurrencies as self-deciders. However, bank advisors should not suggest crypto investments to their customers on their own initiative.
Unlike the bank, two important subsidiaries in the DZ Group are worried. With regard to Schwäbisch Hall, the board of directors spoke of a “good operational development”. However, the building society was only helped by released provisions by 180 million euros in view of an annual gross profit of 143 million euros above the breakeven point. In the second half of the year, a loss of 25 million euros was incurred. The booming business with new home loan and savings contracts, which is booming in the face of rising interest rates, must not be slowed down, but must be undertaken cautiously so that difficulties do not arise in about five years, said Riese, who is also chairman of the supervisory board of the building society.
The second problem child is R+V, which, as has been known since the first half of 2022, will have to cope with a temporary accounting effect: As an insurer in the banking group, R+V, unlike independent competitors, now has to account for assets such as bonds at market prices according to IFRS, while the debts the liabilities side of the balance sheet may only be valued in the summer of 2023. Therefore, in 2022, R+V incurred a loss of 267 million euros, which, however, after the change in balance sheet in mid-2023, will be corrected into a profit in the low three-digit million range, as the board of directors announced. Only then will the unchanged planned dividend of 20 cents be paid out and the core capital ratio rise from 13.7 to at least 14.5 percent.