HSH Nordbank above budget in the first quarter

Net interest and commission income increased Savings program showing first effects Financial market crisis still causing strain

Hamburg/Kiel, May 19, 2009 - In spite of the still difficult underlying conditions, HSH Nordbank succeeded in closing out the first quarter of 2009 better than expected.

This is principally due to positive development of net interest and stable commission income. At EUR 188 million, the loss before taxes (following a loss of EUR 91 million in the previous year) were substantial, but some EUR 60 million better than called for in the Bank’s budget. The pre-tax result includes restructuring expenses of EUR 28 million and expenses of EUR 20 million for the utilization and provision of the guarantees by the Sonderfonds Finanzmarktstabilisierung (SoFFin). "The result of the first quarter shows that we have embarked the right path. However, it also shows that we must continue to consistently work flat out, but with due consequence, on the realignment of our Bank", says CEO Dirk Jens Nonnenmacher. "Every day counts. Especially we monitor the development of risks in both our credit investment portfolio and the conventional lending business."

Rise in operating income

At EUR 534 million, net interest and commission income in the first quarter 2009 was considerably up on the previous year’s figure of EUR 435 million. Over the past months the Bank has succeeded in generating adequate risk premiums in line with the overall economic developments. A further reason for the improved net interest and commission income can be found in the higher income from hedging transactions for clients across all Business Units.

On the other hand, loan loss provisions are much higher, as previously reported. While this figure still stood at EUR 61 million last year, in the first quarter of this year the Bank increased it substantially to EUR 424 million. In doing so, HSH Nordbank continues to allow for the strained macroeconomic situation and the prevailing uncertainties in the market. The provisions set up for individual risks went according to schedule.

Net trading income and net income from financial investments improved by some EUR 170 million to EUR -88 million in the period under report. The charges from the credit investment portfolio digested there come to a total of EUR 341 million, which is higher than budgeted.

Savings program starting to take hold

Administrative expenses in the past quarter decreased by roughly 13 percent to EUR 214 million (previous year: EUR 246 million). This indicates that the efficiency-enhancement and cost-cutting program approved by the Management Board of HSH Nordbank in September 2008 is having impact. The decrease of EUR 32 million breaks down into EUR 14 million saved in personnel expenses and EUR 18 million in operating expenses. The decrease in personnel costs results principally from the drop in the number of employees of 440 compared to December 2008. 255 employees belong to the Schleswig-Holstein casino group, which is no longer consolidated by HSH Nordbank in fiscal 2009. "The strict limits set on all types of operating costs and as part of the focusing of the business model will continue to reduce administrative expenses in 2009 and the years thereafter on a sustained basis," says Dr. Nonnenmacher.

Capital ratios down slightly

In the first quarter of 2009 the financial market crisis and weak economy also impacted on the performance of key capital ratios of HSH Nordbank. The Tier 1 capital ratio, including the market price position, reached 6.8 percent (December 31, 2008: 7.5 percent) and the equity funds ratio decreased to 10.1 percent (December 31, 2008: 11.6 percent). The Tier 1 capital ratio and equity funds ratio will rise considerably as a result of the planned capitalization of the Bank by EUR 3 billion and the planned guarantee EUR 10 billion from the federal states.

Stable earnings in the market units

Business operations in the market units of HSH Nordbank performed well in the first quarter of 2009. The aggregate earnings of all market units rose by some 40 percent to EUR 417 million (previous year: EUR 299 million). This sharp increase is due above all to the gratifying business performance in our Shipping, Transportation, Energy, and Real Estate client units, which will also form part of our core bank in the future. HSH Nordbank’s customer related capital market business, which is geared to clients, likewise put in a pleasing performance. Together, these units generated earnings of EUR 294 million (previous year: EUR 241 million). Annualized earnings only fell in the Corporates und Private Banking units in the first quarter. In the Private Banking unit earnings declined by a good third, to EUR 14 million (previous year EUR 20 million), as a result of a decrease in the securities and deposit-taking business. In the corporate banking business the general restraint in capital spending in the corporate sector led to a subdued demand for loans. Nevertheless, total earnings of EUR 108 million in the Corporate Clients unit in the first quarter fell only just short of the previous year’s figure of EUR 116 million. Meanwhile, at EUR 9 million earnings in the Savings Bank unit remained largely steady (previous year: EUR 10 million).

In a persistently difficult setting for international shipping the Shipping Business Unit raised its earnings by around a third to EUR 107 million (previous year: EUR 79 million). The same applies for the Energy Business Unit, which now generated total earnings of EUR 32 million following EUR 24 million in the previous year quarter. Here, as in the other areas it was net interest income, which benefited from income numerous projects realized and started in Germany and abroad in fiscal 2008. The trend in the USD/EUR exchange rate also had a beneficial effect on our international operations. The Transportation Business Unit generated earnings of EUR 44 million in the first three months of 2009 (previous year: EUR 48 million). This slight drop is attributable to lower commission income and smaller additional income from cross-selling business due to less new business in aircraft, infrastructure and rail finance. In the Real Estate segment, which comprises HSH Nordbank’s finance business in the real estate sector and the activities of its subsidiary HSH Real Estate AG, the Bank generated total earnings of EUR 111 million in the first quarter of 2009 (previous year: EUR 90 million).

HSH Nordbank's Financial Markets Devision recorded positive pre-tax earnings of EUR 197 million (previous year: EUR 36 million) in the first three months of 2009, excluding writedowns on the credit investment portfolio. The trend in cross-selling business, i.e. the sale of capital market products to the Bank’s client units, remained stable at EUR 41 million in the first quarter in spite of the limited new lending business (previous year: EUR 42 million). The most sought-after business related to transactions for limiting market price risks, especially for hedging interest, forex and commodities.

Banking sector remains difficult

HSH Nordbank expects the global economy to gradually stabilize in the second half of the year – not least as a result of the far-reaching stabilization measures implemented by central banks and governments. However, in spite of the signs of an upturn toward the end of the quarter, 2009 remains difficult for the entire banking sector. The marked drop in economic activity will continue to have a noticeable effect on the lending business. Against the backdrop of economic risks and difficult funding conditions, HSH Nordbank will continue to proceed selectively and with caution when it comes to new business. However, the large net interest income in the first quarter shows that HSH Nordbank is able to take advantage of the opportunities offered by the current market phase. "Today HSH Nordbank is more solidly positioned in operating terms. Our task is therefore to keep focusing on our core areas of expertise. The first steps toward the strategic realignment of the Bank and slimming down the balance sheet have already been taken. We shall consistently continue along this path and step up the reduction of non-strategic portfolios in the coming months", says Dr. Nonnenmacher.

Income statement (EUR mn) Q1/2009 Q1/2008 Change
Net interest income 483 387 +24,8
Loan loss provisions -424 -61 >-100
Net interest income after loan loss provisions 59 326 -81.9
Net commission income 51 48 +6.3
Result from hedging 44 14 >100
Net trading income 181 -248 >-100
Net income from financial investments -269 -10 >-100
Administrative expenses -214 -246 -13.0
Other operating income 8 25 -68.0
Restructuring expenses -28 - -
Expenses for public-sector guarantees -20 - -
Net income before taxes -188 -91 >100
Income tax expense -72 13 >-100
Consolidated net income -260 -78 >100
Net income attributable to minority interests -21 -1 >100
Key balance-sheet ratios of HSH Nordbank Group 31.03.2009 31.12.2008
Total assets (EUR bn) 206.8 208.4
Business volume (in EUR bn) 232.8 237.8
Tier 1 capital ratio* (%) 6.8 7.5
Regulatory capital ratio* (%) 10.1 11.6
Employees** 4630 5070

* including the market price positions; since January 1, 2008 HSH Nordbank has been calculating the ratios pursuant to Basle II requirements.
** Full-time employees incl. trainees (FTE)

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