Comdirect: How to make money in German retail

German retail banking is not best known for digital advances, let alone high profitability and growth. But in Commerzbank subsidiary Comdirect, the sector has one of Europe’s largest online-only banks, with more than three million clients.

Despite its lack of a branch network, Comdirect is far bulkier in terms of its employees (about 1,400) than some banks’ online units. Partly as a result of this, its cost-to-income ratio is higher than investors would like, at around 70%. 

Even so, thanks to a heavy weighting towards fee income, it posted return on equity of around 11.9% in 2017, while its share price has gradually risen to more than 2.5 times book value in the last five years.

Comdirect started almost a quarter century ago offering telephone savings accounts, before evolving into an online broker around the time it listed – just as the dotcom bubble burst. It made a strategic change after the 2008 crisis, when it became a straightforward digital bank, targeting current accounts.

Now it is growing more rapidly than ever, adding more than 100,000 new customers in the first half of 2018. Its €151 million sale of B2B custody provider ebase this year will allow new investments in areas such as online marketing, as part of an aggressive customer-acquisition drive.

When Arno Walter arrived as chief executive in 2015, he took a pessimistic stance on the chance of an early rebound in euro interest rates. Comdirect has subsequently focused more on shoring up its position in brokerage and investments in the hope that Germans will become less conservative in their savings choices and invest in more securities. It has also restructured its front office towards mobile banking.

This return to old strengths in brokerage is why the bank bought online broker and finance portal Onvista from Société Générale subsidiary Boursorama in 2016. It is also behind Comdirect’s launch of a robo-adviser in 2017 – making it the first bank to do so in Germany, according to Walter.

“If rates stay low, we would have an alternative to compensate; and if rates were to rise quicker than expected, it would have a positive side effect,” explains Walter.