HSH Nordbank strengthens its financial clout

Press Conference September 8, 2008

  • Profit of EUR 129 million posted in the first half
  • Comprehensive bundle of measures decided

Hamburg/Kiel, September 8, 2008 - HSH Nordbank AG closed out the first half of 2008 with a profit. Group net income came to EUR 129 million (2007: EUR 727 million). Net income before tax came to EUR 99 million (2007: EUR 871 million). This figure includes EUR 511 million in writedowns on the credit investment portfolio. All in all, therefore, HSH Nordbank has proved robust in the second half-year of the crisis.

Nevertheless, the Management Board has decided on an extensive bundle of measures designed to increase the Bank’s financial clout, profitability and efficiency to a significant extent. “We expect the crisis on the financial markets to be protracted. Our program will improve our competitive position and make the Bank weatherproof,” said Hans Berger, CEO of HSH Nordbank, on the presentation of the half-year figures.

The program has two main thrusts: to further hone its business model and to lower the cost base perceptibly.

Consequently, HSH Nordbank will dispose of some operations and non-strategic equity holdings, in addition to reducing its credit investment portfolio in a way that avoids pressure on the market. This will affect, in particular, the leasing business and leveraged buy-out operations outside Germany, the real estate business in New York and the Bank’s corporate client activities in Asia. The network of branches will be streamlined and the operations in the core business areas and in the executive and service units will be reviewed to establish the value they contribute to the Bank.

Administrative expenses this year is to be limited to last year’s level (EUR 984 million) through stringent cost management. The Bank plans to reduce the cost base further to EUR 900 million by 2010.

The implementation of this program will also involve shedding jobs within the Bank. The Management Board announced that around 200 “full-time jobs” will disappear outside Germany and about 400 in Germany until 2010. Layoffs for operational reasons are to be avoided.

Results in the 1st half of 2008

Net interest income before risk provisioning rose in the first half of 2008; at EUR 799 million it was up by approximately 11 percent on the same figure for the previous year. Net interest income after loan loss provisions was down by approximately 19 percent to EUR 668 million. The decline was due to scheduled higher loan loss provisions this year. Whereas portfolio impairments were written back in 2007.

Net commission income fell to EUR 100 million in the first half of 2008 (2007: EUR 179 million). This drop was due to a declining economy and investor restraint on account of a weak stock market performance. Moreover, measures dating from 2007 aimed at risk reduction weighed on net commission income.

Developments on the securities markets prompted writedowns in the Bank’s credit investment portfolio totaling EUR 511 million in the first half of 2008 as well. This fact is reflected, in particular, in the net trading income, which was a negative figure of EUR 64 million (2007: net income of EUR 115 million) and the net income from investments with a negative figure of EUR 164 million (2007: EUR 178 million).

Administrative expenses in the first six months of 2008 was up 12.6 percent to EUR 490 million year on year, while personnel expenses rose by 9.5 percent. This increase is essentially due to the fact that the number of employees during the period under review was on average 270 higher than in 2007. Operating expenses increased to EUR 248 million (2007: EUR 214 million). This is attributable principally to increased spending on IT infrastructure.

Total assets came to EUR 204.4 billion at June 30, 2008 and thus remained virtually unchanged (12/31/2007: EUR 204.9 billion). The Tier 1 capital ratio improved by 0.3 of a percentage point to 6.5 percent.

Income statement in EUR mn H1/2008 H1/2007 Change in %
Operating income* 657 1,175 -44.1
Net interest income 799 723 10.5
Loan loss provisions -131 102 >-100
Net interest income
after loan loss provisions
668 825 -19.0
Net commission income 100 179 -44.1
Result from hedging -14 -20 -30.0
Net trading income -64 115 >-100
Net income from investments -164 178 >-100
Administrative expenses -490 -435 12.6
Other operating income 63 29 >100
Net income before tax 99 871 -88.6
Income taxes 22 -128 >-100
Profit/loss attributable to minority interests 8 -16 >-100
Group net income 129 727 -82.3
Key balance-sheet ratios of HSH Nordbank Group 6/30/2008 12/31/2007
Total assets (in EUR bn) 204.4 204.9
Business volume (in EUR bn) 237.3 241.9
Tier 1 capital ratio** (%) 6.5 6.2
Equity funds ratio** (%) 10.3 10.4
Employees** 4,318 4,166 4,318 4,166

* Operating income = earnings before tax excluding loan-loss risk provisions, administrative expenditure and other operating profit

** including the market price positions; since January 1, 2008 HSH Nordbank has been calculating the ratios pursuant to Basle II requirements. For 12/31/2007, the ratios pursuant to Basle I are shown.

*** Full-time employees incl. trainees (FTE)

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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