HSH Nordbank achieves targets for 2006
- Pre-tax return on equity reaches 15.0%
- Net income up 15% to EUR 460 million
- Net commission income increased by 35%
Hamburg/Kiel, February 27, 2007 - According to its preliminary figures for 2006, HSH Nordbank has once again exceeded the good result achieved in the previous year. The pre-tax return on equity reached 15.0% – an increase of 0.9 percentage points on the 2005 figure. Operating income improved by 2.5% to just under EUR 2.2 billion, with net commission income increasing by an impressive 35%. In spite of the expansion of business and a deliberately conservative risk provisioning policy, loan loss provisions remained at the previous year’s level. Net income rose 15% to EUR 460 million.
“HSH Nordbank is continuing to make positive headway. This is visible not least in the Group’s good business figures. With a pre-tax return on equity of 15%, we have achieved our ambitious target for 2006“, said Hans Berger, Chairman of the Management Board of HSH Nordbank, at the conference presenting the Group’s figures for 2006 in Hamburg.
Operating income: strong rise in net commission income
In 2006 operating income improved by EUR 53 million, or 2.5% year-on-year to just under EUR 2.2 billion.
Focus on operating expenses
Overall, at EUR 919 million, operating expenses were 5% higher than the year-earlier figure.
In addition, the Bank made targeted investments in the further qualification of its staff. HSH Nordbank also made higher non-recurring payments to employees, based on the good development of business.
Risks under control
At EUR 309 million, the net expense resulting from the item value adjustments/income from equity holdings was down by more than half (-51%) the level of the previous year. This was due largely to gains on disposals realized by group companies. In addition, allocations to reserves in the year under review were lower than in 2005.
Marked increase in operating profit
HSH Nordbank was able to increase its operating profit after risk provisions strongly by 54% to EUR 945 million, thanks to the higher level of operating profit and improved income from equity holdings. Adjusted for the one-time effect of the high allocation to reserves in 2005, the rise in operating profit after risk provisions would have been around 11%.
“We have further improved on the good profit achieved in the previous year and are increasingly able to reap the rewards of our new business model“, Berger commented.
Profit after taxes improved by 15% to EUR 460 million, in spite of an almost threefold increase in tax expense. This also underlines the continued improvement in the quality of the Bank’s figures.
RoE target for 2006 achieved
The pre-tax return on equity reached 15.0% – a further increase by 0.9 percentage points. HSH Nordbank therefore succeeded in achieving its ambitious target. Since the merger in 2003, the Bank has managed to increase its pre-tax RoE continuously, by a total of 4 percentage points.
In spite of higher operating expenses, the cost/income ratio, at 42.3%, was only slightly (1.1 percentage points) above the figure as at December 31, 2005.
Tier 1 capital as prescribed by the German Banking Act amounted to EUR 7.4 billion – up EUR 0.6 billion from the previous year. The Tier 1 capital ratio as prescribed by the German Banking Act improved from 6.7% to 7.0%.
Segmentbericht per 31. Dezember 2006
In the area of shipping finance, HSH Nordbank achieved an operating profit after risk provisions amounting to EUR 248 million (previous year: EUR 261 million). As the need for shipping finance remained high, albeit with fierce competition among the financing banks, we recorded new business of EUR 10 billion (previous year: EUR 7.3 billion). In spite of the continued pressure on margins, net interest income only amounted to EUR 296 million (previous year: EUR 290 million). At EUR 98 million, net commission income matched the previous year’s level, thanks to a large number of transactions. Risk provisions were increased, but nevertheless remained at a low level. The pre-tax return on equity came to 17.5% (previous year: 20.1%).
Real Estate Clients
The Real Estate Clients segment increased its operating profit after risk provisions significantly to EUR 260 million (previous year: EUR 232 million). Net interest income was up slightly from EUR 337 million to EUR 340 million. This was due most notably to an increase in the volume of new financing commitments from EUR 10.1 billion to EUR 16.1 billion. In addition, it was possible to stabilize the margins in new lending business, despite the ongoing stiff competition. Net commission income went up to EUR 138 million (previous year: EUR 133 million). This resulted primarily from the structuring and consultancy work which HSH Nordbank performed on many of the transactions managed. Risk provisioning/evaluation expense was significantly lower, down from EUR 78 million to EUR 38 million, due to income from the disposal of a holding. The pre-tax return on equity reached 19.6% (previous year: 21.3%).
In the Corporate Clients business, operating profit after risk provisions showed a significant improvement to EUR 399 million (previous year: EUR 261 million). Net interest income rose to EUR 365 million (previous year: EUR 357 million) on the back of a sharp rise in the demand for credit. In addition to traditional bank loans, clients were also looking for innovative forms of financing such as mezzanine capital and structured financing. Commission income increased to EUR 181 million (previous year: EUR 127 million). This resulted principally from the Bank’s activities in arranging complex financing transactions, particularly acquisition finance. The sale of a holding led to a positive risk provisioning/evaluation result. The pre-tax return on equity increased from 24.4% to 32.5%.
Special Corporate and Institutional Clients
The Special Corporate and Institutional Clients segment is composed of the Transport, Leasing and Savings Banks/Financial Institutions divisions. Its operating profit after risk provisions came to EUR 234 million (previous year: EUR 237 million). The return on equity came to 22.1% (previous year: 24.5%).
In the Private Clients segment, the operating profit after risk provisions rose to EUR 47 million (previous year: EUR 38 million), with the major contribution to this positive development coming from net commission income, which rose from EUR 30 million to EUR 37 million. The successful placement of new structured investment products and innovative investments accounted for a significant share of this trend. Securities business also benefited from the favorable stock market environment. Net interest income improved from EUR 64 million to EUR 68 million, reflecting a higher volume of deposits in conjunction with higher interest rates. Risk provisioning requirements rose slightly. The pre-tax return on equity improved from 20.3% to 25.5%.
In 2006, the Capital Markets sector reported an operating profit after risk provisions of EUR 296 million (previous year: EUR 457 million). A flat yield curve, low credit spreads and low volatility in some market segments influenced our investment business. However, the deterioration in profit year-on-year resulted also from a valuation effect in the previous year. The refinancing activities in the run-up to the phaseout of state guarantees led to valuation gains in the second half of 2005 which were reflected in the segment‘s interest income. The pre-tax return on equity fell accordingly, from 26.9% to 16.5%.
The reconciliation column shows the difference between the sum of the individual segments’ operating results and the operating result of the HSH Nordbank Group as a whole. It contains consolidation adjustments, unallocable subsidiaries and other items that cannot be allocated to other segments, particularly allocations to reserves in accordance with Section 340g of the German Commercial Code. The Transaction Services unit’s results are also shown in the reconciliation column. In addition, the reconciliation column reconciles management accounting segment earnings to the Statement of Income pursuant to the German Commercial Code. This includes unrealized segment earnings resulting from marking to market, e.g. for trading positions and equity holdings. The reconciliation column also eliminates any differences in allocation to income and expense items between the management accounting treatment applied in segment reporting and the accounting principles applied in the external accounts prepared according to the German Commercial Code.
HSH Nordbank Group: Income statement
| HSH Nordbank Group
|1/1 to 12/31 2006||1/1 to 12/31 2005||Δ %|
|Net interest income||1,535.4||1,608.1||-4.5|
|Net commission income||423.9||314.6||+34.7|
|Net trading income||140.6||135.9||+3.5|
|Other operating income||72.4||60.7||+19.3|
|Other operating expenses||-450.1||-464.9||-3.2|
|Operating profit after risk provisions||944.9||613.1||+54.1|
|Taxes on income||-191.8||-65.6||+192.4|
|Payouts on silent participations||-272.0||-298.6||-8.9|
|Profit after tax||460.0||400.0||+15.0|
| HSH Nordbank Group
|4th quarter of 2006|| 4th quarter
|Net interest income||394.1||424.4||-7.2|
|Net commission income||92.7||95.7||-3.2|
|Net trading income||63.8||39.3||+62.3|
|Other operating income||29.7||3.1||+858.0|
|Other operating expenses||-114.0||-115.7||-1.5|
|Operating profit after risk provisions||265.8||80.8||+228.9|
|Taxes on income||-17.4||61.2|
|Payouts on silent participations||-69.2||-69.8||-0.9|
|Profit after tax||158.1||61.3||+157.9|
| HSH Nordbank Group
|1/1 to 12/31 2006||1/1 to 12/31 2005||Δ %|
|Cost/income ratio (%)||42.3||41.2|
|Return on equity (%)||15.0||14.1|
| Tier 1 capital (EUR billions),
German Banking Act
| Tier 1 capital ratio (%),
German Banking Act
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