HSH Nordbank with Group pre-tax profit of € 128 million in the 1st quarter

  • Core Bank with pre-tax profit of € 262 (previous year: 118) million
  • Increase in group net income to € 104 (-44) million
  • Common Equity Tier 1 ratio improved to 14.9% (14.1%)
  • New business up 25% year-on-year
  • Loan loss provisions for legacy assets still high
  • CEO Ermisch: “Confident about privatisation solution.”

Hamburg/Kiel, June 16, 2017 - HSH Nordbank has had a successful start to the current financial year in operating terms, generating a pre-tax profit of € 128 million in the first quarter of 2017 (previous-year period: € -36 million). This good result is in line with the Bank’s internal planning and is based on an intensive drive for new business, reduced legacy portfolios and successful savings on the cost side.

These achievements represent another milestone on the road to privatisation for the federal state owners Hamburg and Schleswig-Holstein. The change of ownership is targeted for the end of February 2018. For the 2017 business year the Bank is still expecting a positive Group pre-tax result in the region of € 100 million, which would be comparable to the previous year (2016: € 121 million).

The substantially improved net income before taxes of the Core Bank totalling € 262 (118) million demonstrates the earnings strength of the operating business: the Real Estate, Corporate Clients and Treasury & Markets segments all contributed crucial income to the good quarterly results, which were further boosted by the realisation of unrealised gains. Burdens due to write-downs on legacy assets in the Non-Core Bank, guarantee fees and privatisation costs were more than offset by the Core Bank, demonstrating that the Bank’s business orientation is bearing fruit on a sustained basis, even in a challenging environment, and that the Bank continues to gain strength in operating terms. The Bank's already stable capital and liquidity ratios improved further thanks to the satisfactory performance in the first three months of 2017 and reduced risk positions.

"We have made a satisfactory start to the important year of 2017 with these solid quarterly results and positively completed the first phase of the privatisation process at the end of March. Now and in the coming months we must work with our owners to tackle the challenges that naturally accompany such a complex sale process,” said Stefan Ermisch, Chief Executive Officer of HSH Nordbank. “We intend to further strengthen our good operating base. At the same time, we are very much aware that the change of ownership is taking place under tense circumstances: On the one hand, there is our established, forward-looking Core Bank; on the other, there is the Non-Core Bank characterised by serious legacy assets with the complex guarantee provided by the majority shareholders. We are confident that a complete and viable privatisation solution will be reached and we will continue doing everything in our power to support the federal state owners in this regard."

Improved Group net income – Costs reduced

In the first quarter, HSH Nordbank’s Group net income before taxes of € 128 (-36) million far exceeded the previous-year level. This good result was underpinned solely by the Core Bank, while the Non-Core Bank as well as "Others and Consolidation" negatively impacted the result for structural reasons and as budgeted. Total income in the Group rose to € 395 (272) million in a market characterised by fierce competition and persistently low interest rates.

Thanks to strict cost discipline and organisational optimisation, administrative expens-es fell to € -136 (-144) million. A reduction in the number of employees by 81 to 2,083 was reflected in personnel costs trimmed to € -58 (-65) million and in lower building costs of € -65 (-71) million under material expenses. Special depreciation allowances of € -10 million related to portfolio divestments to the market had the opposite effect. Overall the Bank is meeting its planned targets in terms of efficiency improvements.

Group net income was weighed down by the annual contributions to the bank levy and the deposit guarantee fund totalling € -45 (-62) million, restructuring and privatisation costs of € -16 (-14) million and guarantee fees of € -41 (-62) million.

Core Bank shows high profitability ─ New business up by a quarter

The business strategy of HSH Nordbank, which is successfully aligned to its clients, once again demonstrated its beneficial effect in the first three months of 2017: The Core Bank generated a pre-tax profit of € 262 million and thus substantially exceeded the previous-year figure of € 118 million. The good operating performance in the strategic segments of the Core Bank and the realisation of unrealised gains contributed substantially to this strong result.

Total income in the Core Bank improved to € 387 (244) million in the first quarter of 2017. This good result is mainly attributable to net interest income, aided by special income, being almost doubled to € 305 (153) million and to the positive trading result of € 52 (10) million, which includes gains from the client business and measurement effects. Net commission income contributed € 21 (22) million to the Core Bank's total income.

Thanks to HSH Nordbank being well anchored in the market and maintaining popularity among its clients, the Bank signed new business worth € 2.2 billion in the first three months of 2017. New business was thus up by over 25 percent compared to the previous year’s quarterly figure of € 1.7 billion. Cross-selling income also provided positive stimuli with a gain of € 8 million to € 69 (61) million.

In the Corporate Clients segment, the encouraging performance of the last quarter of 2016 continued in a market that remains highly competitive. With a volume of € 0.8 billion, new deals were € 0.2 billion above the previous year's level while the portfolio’s quality remained consistently good. The intensive expansion of market access was evidenced particularly in the increase in new business in the Retail and Nutrition unit, while the Energy & Infrastructure unit made a substantial contribution to the volume of new business with project finance in Germany and abroad. Loan repayments were offset in full, resulting in an increase in the segment's loan portfolio of € 0.1 billion to € 14.3 billion. Corporate Clients increased its earnings contribution to € 25 (15) million.

With a figure of € 34 (27) million, the Real Estate segment made a significant contribution to the Bank's earnings and concluded new business totalling € 1.1 (0.9) billion. The commercial financing business for real estate in the western German metropolitan regions and with international institutional clients who invest in the stable German real estate market performed especially well. Furthermore, the Bank has been very well-established in northern Germany for decades, enabling it to successfully and consistently sign new business in its home market, too. At € 12.5 billion, the real estate loan portfolio was maintained at the previous year's level.

As expected, total income of € 20 (32) million in the Shipping segment reflected a decline in net interest income as a result of a managed reduction in the loan portfolio of € 6.7 (7.1) billion. Against this backdrop, the earnings contribution came to € -8 (2) million. In a market that remains challenging, new business in shipping was selective and flat year-on-year at € 0.2 billion as the Bank is focusing on names that maintain a good credit rating.

At € 241 million, total income in the Treasury & Markets segment substantially exceeded the previous-year figure (107 million). In particular, positive effects came from the realisation of unrealised gains and income from the sale of capital market products and the derivatives business. The segment made a significant contribution of € 211 (74) million to the Group's net income before taxes.

The Core Bank’s total assets increased to € 53 billion as at 31 March 2017 (31 December 2016: € 48 billion) due in particular to increased cash reserves. Among other factors, higher client deposits, payments from maturing securities, portfolio divestments and loss accounting contributed to the increased figure.

Loan loss provisions for legacy assets in the Non-Core Bank still high

The Bank's legacy assets dominated loan loss provisions before the guarantee in the Group, which amounted to € -198 (-62) million and are primarily related to the persistently difficult market situation in shipping. The Non-Core Bank accounted for € -187 (-53) million of these provisions, while the Core Bank accounted for only € -11 (-12) million, owing to its good portfolio quality.

Due to the full utilisation of the second loss guarantee on the balance sheet as at 31 March 2017, loan loss provisions were, for the first time, offset only in part by € 142 million (incl. forex result, hedging effect of the credit derivative and the impact of loss accounting). After the guarantee, loan loss provisions in the lending business of the Group thus came to € -56 (-39) million.

The decline in the volume of receivables was reflected in a substantial fall in net interest income in the Non-Core Bank of € -13 (19) million. By contrast, net trading income of € 27 (-8) million benefited from reversals of write-downs in the Credit Investment Portfolio. As expected, the earnings contribution of the Non-Core Bank was negative in the amount of € -101 (-126) million.

Non-performing exposure reduced ─ Solid coverage ratios

The volume of non-performing loans is almost fully (at 93 percent) pooled in the Non-Core Bank and was reduced to € 14.3 (31 December 2016: 14.6) billion, largely through portfolio divestments. Accordingly, the non-performing exposure ratio (NPE ratio) in the Group fell to 16.5 (31 December 2016: 17.5) percent. This contrasted with extensive loan loss provisions, resulting in an improved coverage ratio (calculated from loan loss provisions in relation to NPE) of 49 (31 December 2016: 48) percent for the non-performing exposure of the Bank as a whole. The risk coverage specifically for non-performing shipping exposure in the Group of € 9.4 (31 December 2016: 9) billion was solid at 58 (31 December 2016: 60) percent.

The Core Bank reported an improved portfolio quality with a reduced non-performing exposure of € 0.9 (31 December 2016: 1.0) billion and a resultant improvement in the NPE ratio to 1.7 (31 December 2016: 1.9) percent. For new business signed since 2011, the ratio of non-performing loans was at a low 0.5 percent.

Capital ratios improved – Outlook: Group profit at previous year’s level

The positive development in the first quarter of the year and further reduction in risk-weighted assets led to an improvement in the Common Equity Tier 1 ratio (CET1 ratio, phase in) to 14.9 (31 Dec. 2016: 14.1) percent. As in the past, the ratio was thus at a good level. The leverage ratio, which shows core capital relative to business volume, was solid at 6.5 percent (31 December 2016: 7 percent) and continued to clearly exceed requirements.

For the 2017 financial year, the Bank continues to expect a positive result before taxes; at around € 100 million, it should come to roughly the previous year’s level (€ 121 million).

Income Statement (EUR m) Jan - Mar 2017 Jan - Mar 2016 Change in (%)
Interest income 954 898 6
Interest expense for investments and derivatives -73 -32 >100
Interest expenses -636 -707 -10
Interest income from investments and derivatives 72 26 >100
Income/loss from hybrid financial instruments -27 -33 18
Net interest income
Net commission income 18 25 -28
Result from hedging -6 1 >-100
Net trading income 87 33 >100
Net income from financial investments 5 61 -92
Income from investments accounted for using the equity method 1 - >100
Total income
Loan loss provisions in the lending business incl. credit derivative -56 -39 44
Administrative expenses -136 -144 -6
Other operating income 27 13 >100
Expense for bank levy and deposit guarantee fund -45 -62 -27
Result before restructuring and privatisation
Result from restructuring and privatisation -16 -14 -14
Expenditure for public-sector guarantees -41 -62 -34
Profit before tax
Income tax expenses -24 -8 >100
Group net income
Group net iresult attributable to non-controlling interests
- - -
Group net results attributable to HSH Nordbank shareholders 104 -44 >100

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Additional key figures of HSH Nordbank Group 31/03/2017 31/12/2016
Total assets (in € bn) 85 84
RWAs post-guarantee (in EUR bn) 27,0 28,6
Common Equity Tier 1 ratio (CET1 ratio, phase in) (%) 14,9 14,1
Tier 1 capital ratio ratio (%) 18,9 18,7
Total capital ratio (%) 26,1 24,8
Full-time staff (FTEs) 2,083 2,164
Cost/income ratio (%) 32 65

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