metronuclear LLC is a deep value social impact principal investment partnership that awaits then exploits market dislocations, uses algorithms to make investment decisions, and engages management teams to reduce price-value gaps and to improve social impact and diversity, equity, and inclusion. Originally established to supply physical uranium concentrates to US nuclear plants receiving state-level subsidies, metronuclear invests in systemically important public companies that are overlooked and undervalued.
Our founder pioneered uranium trading at two global investment banks and later launched metronuclear when New York and Illinois approved annual ratepayer subsidies for nuclear power plants. We have engaged practically every corporate owner of a nuclear power plant fleet in America. In each case, metronuclear was singularly responsible for the owner’s nuclear fuel team meeting its diversity team for the first time ever. While waiting for these corporate owners to make their nuclear fuel supply chains more diverse, inclusive, and thus more resilient, we pivoted to deep value investments, and specifically European bank shares (and/or proxies thereof) that traded at historically large discounts to their tangible net asset value.
metronuclear’s main investment is in Commerzbank Aktiengesellschaft, Germany’s second-largest private bank. Commerzbank is the market leader in Mittelstand lending, a pioneer in the field of sustainable finance, and the parent of leading digital bank-broker comdirect. Its mBank subsidiary is Poland’s fourth-largest bank. And its CommerzVentures venture capital platform has invested successfully at an early stage in fintech unicorns such as Marqeta, eToro, Mambu, and Bought By Many.
We have initiated a constructive dialogue with Commerzbank and are fully supportive of its management team and corporate strategy. metronuclear introduced the #BetOnBettina hashtag to #Commerzbank Twitter/X in support of Commerzbank’s Chief Financial Officer. The bank has achieved accelerated transformation progress under the stewardship of its results-oriented Chief Executive Officer and in turn has announced a new Capital Return Policy and the potential to return up to five billion euros of capital to shareholders by 2024. metronuclear correctly anticipated Commerzbank’s reascension to Germany’s DAX 40 blue-chip index.
In our view, positive operating leverage from significantly higher net interest income and lower inflation-adjusted post-transformation costs could boost Commerzbank’s earnings and capital return potential. In the first half of 2023, Commerzbank achieved a return on tangible equity of over eight percent, booked a capital return accrual in line with a 50 percent payout ratio, and raised its full year 2023 net interest income guidance, which assumes a European Central Bank deposit facility rate of 3.75 percent, in line with the published forecast of Commerzbank Research, which is 25 basis points below the current rate of 4 percent, an all-time high. The potential positive net interest income impact of 450 basis points of cumulative frontloaded increases in the European Central Bank deposit facility rate may according to Commerzbank last well into 2024, 2025, and 2026 owing to additional Year 2-4 effects driven by higher reinvestment yield of modeled deposits used to refinance longer term loans.
metronuclear believes Commerzbank management’s conservatism is strategic and that its purpose may only be revealed over time through capital returns. Whether or not intended, this conservatism has had the effect of suppressing the bank’s share price trajectory. We believe it is in the best strategic interests of Commerzbank, management, and shareholders to pursue a so-called direct buyback of the German government’s entire 15.6 percent stake in the bank at still-depressed share prices (around 10 euros) relative to underlying tangible net asset value (around 23 euros). A buyback at prices substantially below underlying tangible net asset value could unlock significant shareholder value. At 10 euros per share, the German government’s stake has a market value of two billion euros but has a balance sheet value of between four and five billion euros. By pursuing a direct buyback, Commerzbank would follow the path of another European bank that has successfully repurchased its shares from its government.
We believe the German government under the guise of advocacy for Commerzbank’s independence seeks to ensure the bank remains under German control and ownership. Four of the ten duly elected shareholder representatives on Commerzbank’s Supervisory Board have direct or indirect ties to the German government. The level of German government representation on the shareholder side of the Supervisory Board (40 percent) is therefore disproportionate to the level of German government ownership (under 16 percent). Having secured negative control through governance, the German government in our view is much more likely to be willing to part with its Commerzbank stake, its public statements notwithstanding. Selling its stake back to the bank itself instead of a non-German buyer is one way the German government can ensure the bank remains independent, returns to full private ownership, and appeases internal stakeholders who are openly hostile to potential non-German buyers.
And just as we do not believe the German government is a long-term shareholder of Commerzbank, we do not believe Commerzbank is a long-term shareholder of mBank, the sale of which in our view has the potential to unlock an additional two billion euros in share buybacks that could push the bank’s return on tangible equity toward and over its cost of capital.
- Founder and Chief Investment Officer of metronuclear
- Originates, executes, and manages partnership’s deep value investments
- Performs research function for geopolitics, macroeconomics, equities, and commodities
- Engages management teams of target companies to measurably improve diversity and social impact
- Scaled partnership’s investment in Commerzbank shares during extreme volatility events
- Developed partnership’s deep value algorithms and uranium term and option pricing models
- Pioneered uranium trading at Deutsche Bank and Lehman Brothers in UK and US with customers spanning 5 continents
- Financial Times: Adams left Deutsche Bank to work with two non-profits and later to invest privately in uranium-linked and European bank shares
- Reuters: Deutsche Bank’s global uranium trading business was long-term supplier of uranium to utilities, profitable each year of its existence, and later sold to Australian bank Macquarie
- Originated and executed first-ever long-term physical uranium supply contract between a bank and a nuclear utility
- Traded first-ever financially-settled uranium swap with institutional investors
- Arranged first-ever financially-settled uranium swap with a nuclear utility, covering a quarter of its annual fuel requirements
- Graduate of NYC public schools, Mathematics and Science for Minority Students Program at Phillips Academy Andover, Yale College, and Tuck School of Business (Edward Tuck Scholar)