Commerzbank, Prismo Metals, Volkswagen - Interest rate decision winners and losers

Commerzbank - Merger with UniCredit?

Commerzbank has experienced first-hand just how important interest rates are for a bank. The bank slipped into a crisis due to the zero-interest rate policy. The low-interest phase severely impacted the bank's traditional interest business. The interest margin, meaning the difference between loan and deposit rates, shrank considerably, significantly reducing the bank's profitability. This led to a strategic realignment in which more than 600 branches were closed and jobs cut. Thanks to the cost savings and focus on digital offerings, the Group was well positioned when the ECB raised interest rates again in July 2022. Since then, the share price has risen.

Commerzbank recorded strong business momentum in the first half of the year, posting group earnings of EUR 1.285 billion, an increase of 12% on the previous year. Net interest income reached around EUR 8.1 billion, while net commission income grew by 4%. The cost-income ratio stood at around 60%. The result is characterized in particular by the strong customer business, although the bank also had to contend with burdens outside its core operations. Commerzbank also increased its return on equity to 8.9%, an increase of 0.8 percentage points compared to the previous year. The CET 1 ratio is over 14%, highlighting the bank's significant potential for capital returns.

The bank confirmed its outlook for 2024 and is targeting a distribution ratio of at least 70%, subject to the development of charges in Russia and mBank's foreign currency loans. The application for a share buyback program of EUR 600 million has been submitted. On July 10, CEO Manfred Knof announced that he would not renew his contract and would leave the bank at the end of December 2025. It is not good news, especially as the German government wants to sell its Commerzbank shares, and UniCredit is interested. This has triggered rumors of a possible merger. As a result, the share price rose to EUR 15.625 on Friday and is, therefore, on the verge of an upward breakout.

Prismo Metals - Progress at the Hot Breccia copper project

Falling interest rates are positive for precious metal companies, as saving is less worthwhile, and so more investors turn to gold and silver. Prismo Metals, an exploration company based in Canada, can benefit from this. The Canadian company focuses on the discovery and development of precious and base metal deposits in Mexico and Arizona. The main projects include the Hot Breccia copper project in Arizona and the Palos Verdes and Los Pavitos gold and silver projects in Mexico. A PEA is already available for the Panuco district of Palos Verdes, which shows 15.2 million ounces of silver equivalent. The Company is characterized by an experienced management team with extensive experience in both exploration and the capital market.

Recently, the Company came into focus after acquiring historic exploration data from Bear Creek Mining Company for its Hot Breccia copper project in Arizona. This data includes detailed drill logs and analysis of a significant drill hole (OC-1) drilled in the 1970s to an impressive depth of 733 meters. The findings indicate widespread copper mineralization transported through multiple veins and breccia pipes. Of particular interest are deep IP anomalies that are consistent with conductive anomalies from Prismo's 2023 ZTEM survey. This new information significantly expands the mineralized area and supports optimistic expectations for future drilling.

The Company is planning a comprehensive drill program of 5 holes, each expected to reach a depth of approximately 1,000 m. These holes are expected to penetrate the entire potentially mineralized Paleozoic stratigraphy and confirm significant copper occurrences. Copper continues to be in demand due to its essential role in modern technology and renewable energy. Drilling at Palos Verdes is also expected to produce new results. The management believes in the Company and, according to insiders, owns around 28.6% of the Company and does not receive a fixed salary. Recently, options were issued that, if exercised, would bring money into the Company's coffers. The share is currently quoted at CAD 0.205 and thus has a favorable market capitalization of around CAD 8 million.

Volkswagen - Opportunities and risks

Volkswagen is in a phase of upheaval. The year 2023 was characterized, above all, by falling sales and tough competition. The economic challenges in China and rising interest rates in Europe and the US have reduced demand for new vehicles. At the same time, Chinese car manufacturers are putting the traditional company under pressure with more affordable electric vehicles. The interest rate cuts could attract more buyers again. Nevertheless, sales in Germany will remain challenging as economic conditions continue to deteriorate.

Another obstacle for Volkswagen is the complex shareholder structure, which hinders quick and targeted decisions. The Company has two classes of shares: voting shares (VOW) and preference shares (VOW3), which pay a higher dividend but have no voting rights. Major shareholders such as Porsche Automobil Holding SE, the State of Lower Saxony, and Qatar Holding LLC hold considerable voting rights, which increases political influence on company decisions. This often leads to conflicts of interest, particularly when it comes to decisions on location and employee policy, and impairs the Company's competitiveness.

Despite the challenges, there are also opportunities for Volkswagen. The Company is planning extensive cost-cutting measures and investments in electromobility, particularly through cooperation with Rivian Automotive. These measures are intended to increase the attractiveness of the vehicles, particularly in markets such as China, where sales figures have recently fallen significantly. Volkswagen also aims to make better use of its brands through potential IPOs of individual divisions. If successfully implemented, these strategies could win back the confidence of investors and increase the long-term value of the share. The share, which is currently trading at EUR 92.38, will remain in a downward trend until the EUR 98.70 mark is broken on a closing price basis.

Commerzbank was able to benefit from rising interest rates through cost savings, a strategic realignment, and reported solid results for the first half of 2024. With falling interest rates, however, earnings will be lower. Prismo Metals has shown promising prospects with new data and planned drilling programs for its copper project Hot Breccia and other precious metal projects. We can look forward to the results here. Volkswagen is facing major challenges, particularly due to competition from China and internal shareholder conflicts, but interest rate cuts and investments in electromobility could provide positive impetus.