Commerzbank bolstered its capacity to repay government financial aid with operating profit in the first quarter that was one-fourth above expected.

Germany's second-biggest lender, in which Berlin owns a 25 percent stake, posted quarterly operating profit of 1.1 billion euros ($1.63 billion), compared with an average expectation of 890 million euros, according to Thomson Reuters I/B/E/S.

Commerzbank's share rose 2.6 percent by 0940 GMT, outpacing a flat Stoxx Europe 600 bank index <.SX7P>.

Commerzbank, which unveiled headline results ahead of their official release data on May 6, said all business segments reported positive results.

The lender specializes in financing Germany's legions of medium-sized companies, which have enjoyed booming demand as the global economy recovers from the financial crisis.

LBBW banking analyst Olaf Kayer said the first-quarter figures were better than expected.

The sharp decline in loan loss provisions is convincing. It shows the bank is benefiting from the economic rebound, Kayser said.

Loan loss provisions fell to 320 million euros, Commerzbank said, though it did not provide year-earlier figures on Monday. They stood at 644 million in Commerzbank's first-quarter 2010 financial report.

The results give Commerzbank a good start into discussions with shareholders at the annual general meeting on Friday, where investors are likely to criticize the lender for the dilution they will face when the bank starts repaying bailout money.

Last month, Commerzbank said it planned to raise 8.25 billion euros as part of a two-step process to repay the lions share of 16.2 billion euros in state aid by June.

According to sources close to the bank, Commerzbank may have to sell new shares at little over half of their current market value, which would result in more than tripling the number of shares outstanding.

GERMAN UPSWING

Export-oriented Germany has been a major beneficiary of the reviving global economy.

German government data last month showed unemployment falling more than expected in April to a near two-decade low, adding to signs of strength that contrasted with worsening data from other euro zone countries.

Last week Deutsche Bank , the country's biggest lender, posted near record first-quarter profit, driven by investment banking market share gains and acquisitions in retail banking and wealth management.

Other big bank earnings due this week include Lloyds , Standard Chartered , RBS , BNP Paribas , Societe Generale , BBVA and SEB .

Operating profit at Commerzbank's core bank, which excludes asset-backed financing and a portfolio restructuring unit, was 1.2 billion euros, Commerzbank said.

Commerzbank said it had earned net profit of 1.0 billion euros in the first three months of the year.

It's regulatory core Tier 1 ratio was about 11.0 percent, it added. (Reporting by Jonathan Gould, Arno Schuetze and Edward Taylor; Editing by Hans Peters) ($1=.6753 Euro)

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