Turnaround at HSH Nordbank

Group Reporting

  • Entry into profit zone one year earlier than planned
  • Sound Capitalisation sets basis for reduction in guarantee
  • Core Bank well positioned for the future

Hamburg/Kiel, March 31, 2011 - One year earlier than planned, 2010 saw HSH Nordbank achieving a profit. The Bank's results therefore also reflect the success of its strategic reorientation.

Despite high expenditure of EUR -519 million on public guarantees (previous year: EUR -483 million) – including payments in an amount of EUR -405 million (previous year: EUR -365 million) to the Federal States of Hamburg and Schleswig-Holstein – the Bank made a Group net income of EUR 48 million after a Group net loss of EUR -743 million in the previous year. The result before restructuring 2010 was EUR 545 million (previous year: EUR -718 million).

During the fourth quarter alone, the Bank recorded a result before restructuring of EUR 444 million (previous year: EUR -143 million). After three consecutive quarters with a positive result before restructuring, the Bank recorded EUR 318 million during the fourth quarter of 2010 (previous year: EUR -385 million), making it the second consecutive quarter with a profit once more.

The major drivers of the positive trend in the result were stable profit contributions in the Bank's future-oriented business areas, consistent adjusting of the portfolio and a reduction in the requirement for loan loss provisions due to the economic recovery.

Reduction in total assets and sound capital resources are further major factors in successful reorientation

The Bank has also made progress on reducing its total assets, which have fallen year-on-year by around EUR 23 billion, or 13%, to EUR 151 billion (previous year: EUR 174 billion). This breaks down into EUR 88 billion for the Core Bank and EUR 63 billion for the Restructuring Unit. The Bank's successful downsizing measures and the improvement in the quality of its portfolios are reflected in an obvious rise of the Tier 1 capital ratio. With the inclusion of the market risk positions the Bank has a Tier 1 capital ratio of 15.4% (previous year: 9.5%).

An obvious decline in the requirement for loan loss provisions

The progress on cutting total assets, the systematic portfolio adjustment and the obvious brightening of the economic environment resulted in a clear reduction in the requirement for loan loss provisions during 2010. With a total EUR -129 million (previous year: EUR -2,794 million), the loan loss provision in the lending business was well below that of the previous year.

Stable customer earnings despite decrease in total assets

The Bank's net interest income fell to EUR 1,502 million during financial year 2010 (previous year: EUR 2,121 million). Adjusted to allow for the impact of the EUR -163 million valuation of hybrid financial instruments (previous year: EUR 375 million), net interest income decreased by around 5% which was less than the fall in the total assets. Net commission income improved slightly to EUR 218 million (previous year: EUR 211 million).

The decrease in risk positions and reversal of write-downs in the Credit Investment Portfolio (CIP) brought about clear improvement in the net income from financial investments. The burdens on the trading result due to the European debt crisis and the associated widening of the spreads of relevant government securities and of individual positions in the CIP were not entirely balanced out by the net income from financial investments. The net income from financial investments and net trading income decreased in total to EUR -129 million (previous year: EUR 398 million).

Core Bank well positioned for the future

With the recovery of the economy, the financial situation of many customers of the Core Bank is again much improved. In addition, the real estate markets and those for shipping, transport and renewable energies have in part recovered well from the dramatic market slumps of the previous year. This is also reflected in the Core Bank results.

With a result before restructuring of EUR 574 million (previous year: EUR 354 million), the Core Bank did better than the Group. This was due to the strong earnings in the customer divisions compared with the reduction of total assets, higher portfolio margins and releases of previously formed loan loss provisions amounting to EUR 94 million (previous year: EUR -853 million).

In addition to the fulfillment of approved credit agreements, business activities continued to focus on the conscious management of risk. In this connection, the Bank supported its Core Bank customers with loan prolongations and moratoria in particular. At EUR 18.3 billion, the new disbursements by the Core Bank were higher than planned.

The low interest rates during 2010 led to high demand by our customers for alternative interest hedging vehicles as well as the adjustment of existing interest rate hedges to fit the current market circumstances. Commodity price hedging became increasingly established alongside currency hedging and also witnessed growing levels of interest. As a result, sales of the corresponding financial market products lagged behind the previous year's level due to reduced total assets.

Portfolio downsizing in the Restructuring Unit ahead of plan

The Restructuring Unit, which incorporates the credit and capital market business no longer in the Core Bank, surpassed its downsizing targets for 2010 and recorded a clear improvement over the result of the previous year. Overall, the Restructuring Unit reduced its portfolios by around EUR 14 billion to EUR 63 billion (previous year: EUR 77 billion). The result before restructuring in 2010 was EUR -29 million (previous year: EUR -1,072 million) – this included the effects of consolidation. A positive impact resulted from reversals of write-downs on investment portfolios and the progress in downsizing risk positions, all of which was reflected in the net income from financial investments, as well as significantly reduced expenses for loan loss provisions as a result of the market recovery and advances in portfolio adjustment.

The Bank's Credit Investment Portfolio incorporated into the Restructuring Unit was reduced still further during the year and finally recorded a volume of around EUR 12 billion (previous year: EUR 17 billion).

Planned expansion of new business

The noticeable success in implementing the strategic reorientation and the results during 2010 show that the Bank is well on the way to a secure future. By concentrating on regional activities and sector markets which promise future potential, the Core Bank now holds a clear positioning with prospects of long-term growth. With the welcome higher than budgeted business performance of the past year, the Bank's planning assumptions have also proved robust and sufficiently conservative.

The Bank's new business activities are to be expanded considerably during 2011, although still retaining awareness of risk. After two weak years of business the basis has been established for entering into new business once again. In view of the EU requirements, the current total assets of around EUR 88 billion in the Core Bank offer sufficient scope which will be exploited during coming years. In addition to dealing with existing commitments the Bank has already started approaching new customers in its future-oriented business areas.

Substantial repayment of public guarantees

The solid capital resources also mean that the Bank is able to further reduce state guarantees. Currently, the Bank is considering a further reduction in the second loss guarantee from the Federal States of Hamburg and Schleswig-Holstein this year. In a first stage, the guarantee was already reduced by EUR 1 billion to a total of EUR 9 billion in early March 2011.

The Bank will also further reduce the guarantees provided by the Financial Market Stabilisation Fund SoFFin. During the past year the Bank has already returned EUR 8 billion of SoFFin-guaranteed bonds. By mid-2012 the at present still remaining SoFFin guarantee facility of EUR 9 billion will be fully returned.

With the reduced guarantee levels, the fees payable by the Bank will also decrease markedly. The earnings power is therefore increased and refinancing is increasingly independent. The Bank is thus setting an important mark, also considering the awaited decision on EU subsidies.

Income statement (EUR mn) 2010 2009 Change
Net interest income 1,502 2,121 -29
Loan loss provisions -129 -2,794 -95
Net interest income after loan loss provisions 1,373 -673 >100
Net commission income 218 211 3
Result from hedging 8 146 -95
Net trading income -359 568 >-100
Net income from financial investments 230 -170 >100
Net income from financial investments accounted at equity 4 - -
Administrative expenses -867 -830 4
Other operating income -62 30 >-100
Net income before restructuring 545 -718 >100
Result from restructuring -9 -124 93
Expenses for government guarantees -519 -483 7
Income taxes 31 423 93
Net income after taxes 48 -902 >100
Income from the assumption of losses 0 159 -100
Group net income/loss 48 -743 >100
Other balance sheet data for the HSH Nordbank Group 31.12.2010 31.12.2009
Total assets (EUR bn) 151 174
Tier 1 capital ratio* (%) 15.4 9.5
Regulatory capital ratio* (%) 22.4 14.5
Employees** 3,388 3,610

* including the market risk positions

** full-time employees

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