HSH Nordbank steers a successful course

  • Operating profit after risk provisions up more than 10%
  • RoE before tax on target at 15.5%

Hamburg/Kiel, August 23, 2007 - In the first half of 2007, HSH Nordbank Group again surpassed the previous year’s strong results. Operating profit after risk provisions grew by more than 10% to EUR 521 million; this impressive performance was attributable to very good net trading income, lower credit risk provisioning and proceeds from the sale of equity holdings.

“The results for the first half of 2007 confirm that we are on track. Our business areas have performed well, thanks not least to innovative new capital market products,” said Hans Berger, Chairman of the Management Board of HSH Nordbank AG, on presenting the interim results in Hamburg.

Operating income influenced by exceptional factors

The HSH Nordbank Group reported a slight fall in operating income to EUR 1,115 million in the first half of 2007 (down 2%). This item was negatively affected by changes to accounting standards: unlike in the previous year, income that has already been economically earned but will only be received in the second half of the year has not been included in the financial statements for the first six months.

Net interest income declined by 11% year-on-year to EUR 720 million. This was primarily due to accounting changes, although these effects will gradually ease as the year progresses. In preparation for IFRS, income from the sale of holdings is no longer reported under net interest income, but under income from equity holdings (under risk provisions/valuation). Income from early repayment penalties was also lower as at the reporting date. New business increased. At EUR 226 million, net commission income failed to quite match the previous year’s good level (down 5.5%). There were marked rises in securities business, but commission income from the HGA Capital fund subsidiary decreased because of the difficult market environment in the first half. Net trading income more than doubled to EUR 140 million (up 109%), partly as a result of valuation adjustments in preparation for IFRS.

Administrative expenses moderately higher

Administrative expenses totaled EUR 457 million, a moderate 3% or so higher than the year-earlier figure.

Personnel expenses rose by nearly 7% year-on-year to EUR 233 million. In particular, HSH Nordbank appointed a number of staff in London and New York to strengthen its international special financing and capital markets business, with the new business model in mind. Other operating expenses, at EUR 224 million, were unchanged versus the previous year, although a small increase is expected for the second half of 2007.

Risk provisions reduced further

The item risk provisions/valuation was EUR 137 million – a gratifying 40% lower than in the previous year.

At EUR 47 million, loan loss provisions in lending business were down by EUR 22 million or nearly a third on the same period in 2006, largely because of the strength of the economy, combined with fewer corporate insolvencies. In securities business, the Bank posted a positive result of EUR 68 million (previous year: EUR -4 million). Income from the sale of shares and price gains substantially exceeded write-downs and value adjustments in the first half of 2007.

However, large write-downs were also required, in the second quarter in particular. Overall, though, within our widely diversified securities portfolio, these were considerably less significant than the positive effects. Some of the value adjustments that were carried out were directly or indirectly related to the crisis on the international financial markets.

Income from equity holdings came in at EUR 11 million; write-downs of EUR 20 million had been required in the same period in 2006. The low risk provisioning requirement in the first half of 2007 enabled HSH Nordbank to increase its reserves in accordance with Article 340 f and g of the German Commercial Code by a further EUR 170 million (previous year: EUR 135 million).

Increased operating profit

Operating profit after risk provisions grew by more than 10% to EUR 521 million, thanks to the further reduction in the risk provisions item.

Net income increased by 8% to EUR 271 million, after taking into account significantly higher income taxes (up 27%) and a 4% rise in payouts on silent participations.

Pre-tax return on equity on course for 2007 target

HSH Nordbank recorded a 15.5% pre-tax return on equity, which is in line with the target for 2007. This marks a 0.5 percentage point improvement over June 30, 2006, and also over December 31, 2006.

The cost/income ratio rose by 2.3 percentage points versus June 30, 2006, to 41.0%, while an improvement of 1.3 percentage points was posted versus December 31, 2006. The ratio of costs to earnings therefore remains good relative to those of other banks.

The tier 1 capital ratio pursuant to the German Banking Act (KWG) improved marginally to 7.0% (previous year: 6.9%).

Segment report for the 1st half of 2007

The segment structure was adapted to HSH Nordbank’s new business model with effect from January 1, 2007. The Global Transportation Markets and Global Real Estate Markets segments position the Bank as an international sector specialist. HSH Nordbank’s positioning as a leading commercial bank in northern Europe is underlined by the Corporates and Institutions & Private Banking segments, while the Financial Markets segment highlights the Bank’s role as an international capital markets expert and risk manager.

Global Transportation Markets

Global Transportation Markets recorded operating profit after risk provisions of EUR 228 million – up 37%. Its return on equity improved from 18.8% to 22.1%.

The Shipping division enjoyed a successful first half to the year. New business surged from EUR 4.6 billion to around EUR 6.7 billion on the back of brisk demand for ship financing. The growing number of arranger mandates and focus on sophisticated transactions boosted business in this area. Following on from the previous year’s good results, Transportation continued to benefit from the global growth in transportation markets in the first half of 2007. Despite competitive pressure remaining strong, the volume of new business climbed from EUR 1.4 billion to EUR 2.2 billion.

Global Real Estate Markets

The financing business experienced a significant upturn in the second quarter on the back of the sustained investment market boom; pressure on margins persisted, however, as a result of stiff competition. Overall, operating profit after risk provisions jumped to EUR 145 million (previous year: EUR 114 million). Return on equity climbed from 18.2% to 22.3%. The quality of the results has further improved. This is mainly attributable to the close cooperation with the relationship managers in the other business units.Thanks to its structuring expertise, HSH Nordbank again managed several complex, cross-border financing transactions for important real estate investors. Once again, the lion’s share of the EUR 7.1 billion of new business (previous year: EUR 6.5 billion) originated from outside Germany.


In the Corporates segment, operating profit after risk provisions rose to EUR 252 million (previous year: EUR 187 million). This includes income from sales of shares in the amount of EUR 64 million. However, profit rose even without this one-off effect, thanks to successful credit and services business with medium-sized companies. The Bank once again enjoyed particular success in the area of structured finance. As a consequence, return on equity improved significantly, from 31.7% to 37.6%.

Institutions & Private Banking

The segment’s operating profit after risk provisions came in at just under EUR 75 million (previous year: EUR 77 million), and return on equity was 25.4% (previous year: 24.8%). The Private Banking division significantly increased its focus on high net worth private clients, while in savings banks business the aim is to significantly expand the provision of tailored services for these banks and their customers throughout Germany. Leasing clients are increasingly being offered a comprehensive product range spanning the entire leasing company value chain.

Financial Markets

With operating profit after risk provisions of EUR 196 million (previous year: EUR 200 million), the Financial Markets segment fared well in what was, overall, a tight market environment. Return on equity was 19.8% (previous year: 19.5%). The quality of the results has further improved. This is mainly attributable to the close cooperation with the relationship managers in the other business units. As part of its internationally oriented refinancing strategy, HSH Nordbank successfully placed several major issues on the capital market in the first six months of the year. In June, the Bank placed its first unsecured euro benchmark issue (with a volume of EUR 1.5 billion) since the abolition of state guarantees.

HSH Nordbank Group
(EUR millions)
1.1. to 6.30.2007 1.1. to 6.30.2006 Change in %
Operating income 1,115.2 1,142.5 -2.4
Net interest income 720.0 811.8 -11.3
Net commission income 225.9 239.1 -5.5
Net trading income 139.9 66.8 +109.4
Other operating income 29.4 24.8 +18.5
Administrative expenses 457.1 442.5 +3.3
Personnel expenses 233.2 219.0 +6.5
Other operating expenses 223.9 223.5 +0.2
Operating profit 658.1 700.0 -6.0
Risk provisions 137.1 228.1 -39.9
Operating profit after risk provisions 521.0 471.9 +10.4
Taxes on income 111.7 88.2 +26.6
Payouts on silent participations 138.4 133.5 +3.7
Net income 270.9 250.2 +8.3
HSH Nordbank Group
(EUR millions)
2nd quarter 2007 2nd quarter 2006 Change in %
Operating income 604.6 582.7 +3.8
Net interest income 411.5 421.8 -2.5
Net commission income 109.2 118.2 -7.6
Net trading income 62.1 31.9 +94.7
Other operating income 21.8 10.8 +101.9
Administrative expenses 220.0 221.8 -0.8
Personnel expenses 114.6 112.0 +2.3
Other operating expenses 105.4 109.8 -4.0
Operating profit 384.5 360.9 +6.5
Risk provisions 123.9 130.8 -5.3
Operating profit after risk provisions 260.6 230.1 +13.3
Taxes on income 55.6 44.9 +23.8
Payouts on silent participations 70.1 66.9 +4.8
Net income 134.9 118.3 +14.0
HSH Nordbank Group 1.1. to 6.30.2007 1.1. to 6.30.2006
Total assets (EUR billion) 205.2 190.0
Business volume (EUR billion) 263.2 238.2
Employees (number) 4,577 4,381
Cost/income ratio (%) 41.0 38.7
Return on equity (%) 15.5 15.0
Tier 1 capital ratio (%),
German Banking Act
7.0 6.9

The information contained in this press release does not constitute an offer for the sale of any type of Hamburg Commercial Bank AG securities. Securities of Hamburg Commercial Bank AG may not be sold in the United States without registration pursuant to US securities legislation, unless such a sale takes place on the basis of relevant exceptional provisions.

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