HSH Nordbank still on target

• Total earnings doubled year on year
• Earnings situation bears out increase in risk provisioning
• Costs continue to decline
• Tier 1 capital ratio above 10 percent
• Total assets further reduced

Hamburg/Kiel, November 19, 2009 - In spite of substantially reduced total assets and an economic performance that was worse than projected, HSH Nordbank remained on target in the first nine months of 2009.

Total earnings doubled to EUR 1,919 million (previous year: EUR 757 million). Once again this success can be attributed to the steady business performance in the client units together with a gratifying trend in capital-market business and reversals of write-downs. The consolidated net loss came to EUR 821 million (previous year: EUR -466 million). This includes payments to the federal states of Hamburg und Schleswig-Holstein amounting to EUR 203 million for providing guarantees, payments to the Sonderfonds Finanzmarktstabilisierung (SoFFin) amounting to EUR 83 million and EUR 79 million in restructuring expenditure.

This means that the Bank completed the first nine months of 2009 with a slightly better result than budgeted in the recapitalization plan at the beginning of the year. For the first three quarters of 2009 the Bank had projected a consolidated net loss of around EUR 750 million – excluding the costs for the federal states’ guarantees. In the third quarter risk provisioning was increased once again to EUR -1.841 million (previous year: EUR -509 million), thereby taking account of the very difficult situation in some of the relevant sectors and companies. This increase was offset by the Bank’s earnings.

"In spite of the high risk provisioning thanks to its good earnings the Bank is still on budget. This shows that the Bank’s restructuring measures are taking effect", says CEO Dirk Jens Nonnenmacher. "Overall, the situation of the Bank has further stabilized. We remain convinced that we will be able to show positive results again as of 2011."

Total earnings more than doubled

In the wake of its strategic realignment the Bank is once again increasingly focusing on its core areas of business. The available liquidity is being used primarily for existing clients to enable them to overcome the after-effects of the crisis. By contrast, the Bank is continuing to take a selective approach to new clients. At the same time the reduction of non-strategic portfolios is continuing on schedule. Against this backdrop, combined net interest income and net commission income proved gratifyingly stable at EUR 1,439 million (previous year EUR 1,477 million). Once again the current trend of interest rates and improved margins in the client units had a positive effect.

The international financial markets recovered over the course of the year, resulting in a marked improvement in trading and investment results. In total these earnings items come to EUR 374 million after nine months (previous year: EUR -720 million). Here profits from securities sales, reversals of impairment losses and the continuing reduction of the Credit Investment Portfolio (CIP) to its present level of around EUR 18 billion had a positive impact. The Credit Investment Portfolio showed a net income for the quarter for the second time in succession since the beginning of the financial crisis.

Costs continue to decline

HSH Nordbank’s administrative expenses declined as planned in the year under report and now amount to EUR 649 million (previous year: EUR 730 million) – a decrease of some 11 percent. This decrease breaks down into EUR 47 million for operating expenses and EUR 34 million for personnel expenses. While in the area of operating expenses this reduction is mainly the effect of lower advertising and marketing costs as well as travel expenses, job cuts are principally responsible for the lower personnel expenditure. By September 30, 2009 the Bank reduced 669 full-time jobs for 2009 whilst minimizing the social hardship involved. These cuts relate to 414 positions in Germany and 255 abroad and in subsidiaries.

Total assets reduced - Tier 1 capital ratio at over 10 percent

Since the beginning of the year HSH Nordbank’s total assets have decreased by more than EUR 20 billion, amounting to around EUR 186.0 billion on September 30, 2009 (December 31, 2008: EUR 208.3 billion). On the asset side this is especially attributable to the reduction of trading assets and the Credit Investment Portfolio, the USD exchange rate as well as a decline in new business. On the liabilities side, amounts due to banks decreased while client deposits were up slightly. In the first nine months of 2009 the Bank’s Tier 1 capital ratio improved considerably, to 10.2 percent, producing a double-digit figure for the first time at the end of September 2009 (December 31, 2008: 7.5 percent).

"Our Tier 1 capital ratio is at an internationally competitive level and is developing in line with our recapitalization plan launched at the beginning of the year", said Nonnenmacher.

Outlook

Over the past months HSH Nordbank has made major advances on the road to sustained stability and a viable structure for the future.

The restructuring of the Bank will be systematically continued in the months to come. At the beginning of December 2009 the portfolios earmarked for further reduction will be pooled in the new Restructuring Unit, which will then be managed as an independent segment in the Bank with a dedicated Management Board member assuming responsibility for it.

Within the framework of the ongoing EU state aid proceedings, the Commission, the German government, the federal states involved and HSH Nordbank have agreed on an ambitious timetable at working level. Given the constructive talks so far held and the current state of discussions, all parties involved are confident that a comprehensive agreement can soon be reached. Since the restructuring plan was presented on September 1, 2009 some key questions on the anti-subsidy proceedings have been clarified in the talks.


Net interest income in client units slightly improved in spite of the crisis

In the first nine months of this year HSH Nordbank’s client units succeeded in generating earnings at last year’s level in spite of the perceptible impact of the economic and financial crisis. The Financial Markets and Institutions segment also put in a gratifying performance. The good earnings are offset by considerable loan loss provisions, more than half of which is accounted for by the Shipping unit.

Shipping

In the third quarter of 2009, for the first time since the outbreak of the crisis demand did not decline on the international shipping markets. In some cases there were the first signs of a recovery. In particular dry-cargo vessels and tankers have so far maintained a reasonable level. By contrast, container shipping, which is dependent on consumer spending, remained volatile. Here the stabilized demand has not yet led to a noticeable upturn in charter rates and ship values as fleets have continued to grow at the same time.

In spite of this difficult sector setting, in the first nine months of 2009 Shipping raised earnings year-on-year to EUR 327 million (previous year: EUR 276 million). This performance was underpinned by a marked increase in interest income and the net trading income while net commission income declined. In spite of signs of bottoming out in maritime trade, the Bank substantially increased loan loss provisions in Shipping against the backdrop of good overall earnings in the Group. At EUR -959 million (previous year: EUR -22 million), as at September 30, 2009 this was almost doubled compared to the half-year result. Accordingly, the net income before taxes fell to EUR -716 million (previous year: EUR 183 million). "In spite of the increased loan loss provisions caused by the market, in 2009 we will only experience marginal loan defaults. Our decades of experience help us to manage our risks and steer our way through this business cycle in the sector", said Harald Kuznik, Head of Shipping.

Transportation and Energy

The units Transportation and Energy generated earnings of EUR 238 million as at September 30, 2009 (previous year: EUR 272 million). This too mainly reflected successes in interest income, based on business with existing clients. By contrast, net commission and trading income was lower due to the limited amount of new business and syndications. In spite of loan loss provisions being increased by EUR -129 million (previous year: EUR +15 million), together these units generated net income before taxes of EUR 28 million (previous year: EUR 196 million).

Real Estate

Real Estate comprises HSH Nordbank’s finance business in the real estate sector and the activities of its subsidiary HSH Real Estate AG. In the first three quarters of 2009 the Bank generated earnings of EUR 298 million in this segment (previous year: EUR 332 million). Negative effects came from writedowns and provisions by HSH Real Estate AG, especially in business with closed-end funds, and increased loan loss provisions principally for foreign real estate finance, which will in future be allocated to the Restructuring Unit. Overall, the business unit booked loan loss provisions amounting to EUR -247 million (previous year: EUR -7 million). In the period under report the net income before taxes came to EUR -53 million following EUR 174 million in the same period of the previous year.

Corporate and Private Banking

Earnings in Corporate and Private Banking stood at the high level in terms of the market situation of EUR 380 million at the end of September 2009 (previous year: EUR 459 million). Whereas Corporates profited from improved margins, adjusted in line with the risk situation, Private Banking benefited from the relaxation of the financial markets, which boosted demand from clients for attractive forms of investment. In spite of the good overall earnings situation, this segment posted a net income before taxes of EUR -143 million (previous year EUR 139 million). This is attributable to an increase in loan loss provisions to EUR -382 million (previous year: EUR -153 million) in Corporates, most of which was formed on the leveraged-buy-out business, which will in future belong to the Restructuring Unit.

Financial Markets and Institutions

Financial Markets and Institutions of HSH Nordbank generated net income before taxes of EUR 578 million in the first nine months of 2009. This is a gratifying improvement on the previous year’s result (previous year: EUR -1073 million). This performance was the result of the continuing recovery on the financial markets combined with a low interest level. Moreover, trading operations for clients and the successful reduction of securities holdings also made a positive contribution to earnings. Loan loss provisions in Financial Markets and Institutions came to EUR -56 million (previous year: EUR -302 million), significantly below the previous year’s level.