Helaba Reports Earnings of EUR 512 Million, Exceeding Previous Year's Result
FRANKFURT AM MAIN, Germany, April 11, 2013 /PRNewswire/ --
- Very stable development in customer business
- Distribution to capital providers increases to 11 per cent
- Successful start to S-Group business in North Rhine-Westphalia
With group earnings before taxes of EUR 512 million, Helaba once again surpassed its previous best-ever result of the year before (EUR 492 million). Hans-Dieter Brenner, CEO of Helaba: "This means that we have been on a stable and increasing earnings trajectory for years." Operating business, which is reflected in particular in net interest and net commission income, was stable and on an upward trend. Net trading income increased significantly compared to the previous year.
Brenner is very satisfied with this result in a number of respects:
- For Helaba, the 2012 financial year was an extremely significant one from a strategic perspective and, from an operational standpoint, a very successful one. With a growth in pre-tax earnings of around 5 per cent, the bank has reached new heights.
- On top of servicing all subordinated funds, profit-sharing rights and the silent participation, the good annual result allows us to increase the distribution to capital providers from 8 to almost 11 per cent. This also represents a new record high in the history of our company. On a group-wide basis, last year's result will strengthen core capital by EUR 230 million.
- Helaba has a solid capitalisation structure. Thanks to a cash contribution by the four new owners in an amount of EUR 1 billion, EUR 112 million was added to equity and EUR 888 million to capital reserves in the middle of 2012. Upon approval of the annual financial statements, the Tier-1capital ratio at the end of 2012 was 11.6 per cent and the total capital ratio was 16.3 per cent. On this basis, Helaba also fulfils the new equity requirements according to Basel III and CRD IV.
With the inclusion of the S-Group Bank NRW on 1 July 2012, the earnings, financial and asset situation of Helaba changed. For this reason, the extent to which the figures can be compared to the 2011 financial year is limited. Helaba took over an asset portfolio from the former WestLB in an amount of EUR 43 billion, which decreased to around EUR 38 billion in the course of the second half of the year due to redemptions and final maturities. As a result of this transaction in particular, Helaba's consolidated balance sheet total increased by 21.5 per cent to EUR 199 billion. Business volume grew by 19.2 per cent to EUR 223 billion.
In lending activities with customers, EUR 15 billion of medium and long-term new business was achieved (2011: EUR 14 billion). Loans and advances to customers in the Helaba Group grew by EUR 7 billion, or 8 per cent, to approximately EUR 91 billion, also as a consequence of taking over the S-Group Bank NRW in the middle of the year.
Of the medium and long-term new business volume, EUR 7 billion was allocated to real estate finance. The German market accounted for significantly more than half of this. This reflects the fact that Helaba is one of the leading German real estate banks. The corporate finance business contributed EUR 4 billion to new business. Corporate lending remains one of the bank's core business segments and, in this area, Helaba substantially expanded its good customer base in 2012. EUR 3 billion is attributed to public sector and S-Group business. Business with the public sector was characterised by a strong rise in demand for long-term loans. Helaba remains committed to its role as a public-sector bank and is now the central clearing bank for around 40 per cent of all German savings banks. Customer-related capital market business achieved very good results. The bank arranged and placed Schuldscheine (promissory notes) for domestic and foreign customers in a volume of nearly EUR 4 billion and was able to maintain its position as market leader in this segment. In asset management, the strategic development of Helaba Invest towards being a Full Service KAG led to further growth in assets under management amounting to EUR 112 billion. In cash management, Helaba became the second-largest payments processor in the domestic market, having taken over the S-Group Bank NRW. Parallel to a growth in its customer business of around EUR 1 billion, Frankfurter Sparkasse managed to improve its pre-tax earnings once again and continued the positive trend seen since 2009.
Profit and Loss Statement
Dr Detlef Hosemann, Helaba's CFO, primarily attributes the earnings position, having improved again compared to the previous financial year, to the good earnings situation for operating business and to the stabilisation of financial markets and the associated, substantially higher net trading income.
Net interest income, slightly over EUR 1 billion, was EUR 78 million higher than last year. Profitable new business and lower refinancing costs contributed to this.
Provisions for loans and advances were EUR -238 million (2011: EUR -273 million). Net additions of EUR -241 million (2011: EUR -179 million) were made in relation to individual allowances and global individual allowances.
At the end of the year there was a loan loss provision buffer in the form of a portfolio allowance of EUR 304 million to cover loans not exposed to an acute risk of default. After provision for losses on loans and advances, the net interest income rose from EUR 794 million to EUR 907 million.
Net commission income improved slightly to EUR 263 million (2011: EUR 254 million). Of this increase, approximately EUR 9 million can be attributed to payment transactions and, therefore, principally to an expansion of business of the S-Group Bank NRW. Commission income from Helaba Invest's asset management activities also showed a positive development.
Net trading income amounted to EUR 411 million (2011: EUR -44 million). This very good result mainly resulted from the growth in interest-related business to EUR 375 million (2011: EUR -4 million) thanks to the European sovereign debt crisis having calmed down in the second half of the year.
The result from hedges/derivatives and derivatives not held for trading was EUR -111 million, after having amounted to EUR 292 million in the year before. One major reason for this negative result was the reversal effect of taking the liquidity components of foreign currencies into account in the scope of valuing derivatives (cross currency basis spread).
At EUR -13 million, the result from financial investments (incl. result from companies accounted for using the equity method) showed a marginal improvement compared to the previous year. Write-downs on financial investments mainly relate to shares held by Frankfurter Sparkasse in Landesbank Berlin.
The other operating result improved from EUR 209 million to EUR 236 million. This is predominantly attributable to proceeds from disposal of a property that was used by the bank.
General administration costs rose by EUR 184 million to almost EUR 1.2 billion. The rise in personnel expenses relates in part to costs for staff transferred into the S-Group Bank as well as to the salary adjustments in 2012. An average of 6,075 members of staff were employed over the course of the year in the group company, compared with 5,888 in the previous year. There was a considerable increase in material expenditure, from EUR 449 million in the year before to EUR 531 million. Apart from current and one-off expenses in the S-Group Bank NRW, an increase in the costs for deposit guarantee facilities is particularly noticeable in operational banking activities.
General administration costs compare with operating revenues in an amount of EUR 1,931 million (2011: EUR 1,762 million), which equates to a cost-income ratio of 61.2 per cent (2011: 56.6 %). Return on equity before taxes dropped from 9.2 per cent to 8.4 per cent.
Group earnings after tax, at EUR 318 million, were EUR 79 million lower than the previous year due to a significant increase in the income tax charge. The increased tax burden, also relative to pre-tax earnings, is primarily attributable to lower tax-exempt income and to a special effect in the previous year resulting from the capitalisation of deferred taxes. Full-year earnings after taxes, which include results for the period of EUR 56 million without an effect on income, increased by EUR 16 million to EUR 374 million.
Hosemann is satisfied with the level as well as the quality of the result: "Overall earnings are very much sustainable. Structurally, they are characterised by the result from customer business. Due to the costs of integration, the takeover of WestLB's S-Group Bank is not reflected very positively in these results as yet. However, the structure of our income sources has been further strengthened by its customer and S-Group orientation."
Takeover of S-Group NRW - an essential strategic step
With retroactive effect from 1 July 2012, Helaba took over an S-Group portfolio from the former WestLB with a balance sheet total of around EUR 43 billion, risk-weighted assets (RWA) in an amount of almost EUR 9 billion as well as 415 members of staff. At the same time, the bank was entrusted with assuming the function of central clearing bank for the savings banks in North Rhine-Westphalia and Brandenburg. Since then, it has been supporting approximately 40 per cent of all German savings banks as an S-Group bank.
The transaction was linked to a cash capital increase and the incorporation of new owners into the bank. Since then, a savings bank share of around 88 per cent has characterised the ownership structure of Helaba. Brenner: "This decision is an important step for the further strategic development of Helaba. No other Landesbank can boast similarly close ties to the savings bank organisation. Our mutual challenge is now to continue breathing life into the S-Group cooperation and, as a team, to achieve our ambitious goals. For S-Group political reasons and economic reasons, our aim in the medium term is to achieve a proportion of S-Group business of 60 to 80 per cent."
Together with the savings banks, Helaba's aim is to provide a comprehensive range of products and services on a cross-regional basis in collaboration with savings banks. Aside from performing the function as a central clearing bank for the savings banks, Helaba is also active as a corporate bank in North Rhine-Westphalia.
Regulation with a sense of proportion
With an eye on the numerous regulatory measures, among others the EU-wide implementation of Basel III, the European Banking Authority, restructuring and winding up of banks and draft German legislation to separate commercial and investment banks, Brenner said: "I have a lot of sympathy for the opinion that any future bank bailouts should not occur to the detriment of the taxpayer. The financial industry has to accept this. The banking sector must make its contribution to stabilising financial markets and to winning back trust in our sector. A sensible and, above all, co-ordinated expansion of regulatory requirements for banks is certainly an appropriate instrument in order to achieve this. However, this is on condition that those responsible keep a holistic view of all regulatory measures and their effects in mind. In addition to that, care must be taken to prevent individual countries, in the course of introducing new regulatory measures, from pushing ahead with their own action. At the end of the day this would have a distorting effect on competition. Furthermore, it is also important to ensure that banking groups and organisations of affiliated banks, such as the savings banks and co-operative banks with their associated lead institutions, are treated equally. This is required by the principle of the supervisory authorities guaranteeing a level playing field.
The bank is reacting to growing costs due to increasing regulation - capital and liquidity costs, the bank levy as well as higher structural banking costs - as well as the accelerating pressure of competition with a programme of process and resource optimisation (Helaba PRO). Brenner: "Helaba has a stable and future-oriented business model. At the same time, however, we do not live blissfully on a desert island either. More than ever, we will have to fight to remain a sought-after partner for our customers in the future. The aim of this programme is to make comprehensive improvements to bank-wide business processes and, as a result, we envisage noticeable savings in administration costs for the company as a whole.
From a business perspective, Helaba's CEO sees the emphasis in 2013 very much on renewal. Internally, it will be a year of integration and investment. The expansion of the core region and the tapping of further market potential in customer and S-Group business represent huge opportunities which Helaba will take advantage of. The integration of the S-Group Bank as well as process and cost optimisation measures that have been initiated will, however, require significant capital expenditure.
Brenner: "With a view to new business and the development of earnings, the first quarter of 2013 began successfully. But it would be presumptuous to extrapolate this trend onto the whole year. The economic outlook is too uncertain for that and, more importantly, it is impossible to calculate the precise effects of regulation on the structural costs for banks. Should the current low interest rate phase continue, we anticipate that earnings from operating business will remain on the same level as previous years. Overall, we are thus cautiously optimistic for 2013 as a whole.
Balance Sheet (IFRS) for the Helaba Group as of 31 December 2012* 31.12.2012 31.12.2011 Change in EUR in EUR in EUR million million million in % Loans and advances to banks incl. cash reserve 32,161 15,646 16,515 >100.0 Loans and advances to customers 90,821 84,041 6,780 8.1 Impairments on receivables -1,205 -1,256 51 4.1 Assets held for trading 37,954 37,960 -6 - Positive market value of derivatives not held for trading 6,992 4,285 2,707 63.2 Financial investments, incl. companies accounted for using the equity method 28,003 18,805 9,198 48.9 Other assets 4,575 4,504 71 1.6 Total assets 199,301 163,985 35,316 21.5 Liabilities due to banks 39,275 31,533 7,742 24.6 Liabilities due to customers 47,611 41,907 5,704 13.6 Securitised liabilities 57,168 37,243 19,925 53.5 Liabilities held for trading 36,148 37,198 -1,050 -2.8 Negative market value of derivatives not held for trading 4,982 3,916 1,066 27.2 Reserves/other liabilities 2,937 2,228 709 31.8 Subordinate capital 4,363 4,466 -103 -2.3 Shareholders' equity 6,817 5,494 1,323 24.1 Total liabilities 199,301 163,985 35,316 21.5
Income Statement 2012 2011 Change in EUR in EUR in EUR million million million in % Net interest income 1,145 1,067 78 7.3 Provisions for loans and advances -238 -273 35 12.8 Net interest income after provisions for loans and advances 907 794 113 14.2 Net commission income 263 254 9 3.5 Net trading income 411 -44 455 >100.0 Result of hedges/derivatives -111 292 -403 >-100.0 Result from financial investments (incl. result from companies accounted for using the equity method) -13 -16 3 18.8 Other operating result 236 209 27 12.9 General administrative expenses -1,181 -997 -184 -18.5 Earnings before tax 512 492 20 4.1 Taxes on income -194 -95 -99 >-100.0 Consolidated net income 318 397 -79 -19.9
Ratings of Helaba
Moody's Investors Standard & Poor's Service FitchRatings Corp. Long-term liabilities A2 A+* A* Short-term liabilities P-1 F1+* A-1* Public Pfandbriefe Aaa AAA - Mortgage Pfandbriefe - AAA - Financial strength/ individual rating D+ a+* - * Joint group rating of the Sparkassen-Finanzgruppe Hessen-Thüringen
2012 2011 in per cent in per cent Cost-income ratio* 61.2 56.6 Return on equity (before taxes)* 8.4 9.2 Total capital ratio** 16.3 15.3 Tier-1 capital ratio** 11.6 10.1
* Including bank levy
** After approval of annual financial statements
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SOURCE HELABA Landesbank Hessen-Thueringen