HSH Nordbank increases 2015 profit – Figures marked by EU decision

  • Consolidated pre-tax profit: € 450 (previous year 278) million, of which 90% in the Core Bank
  • New business down slightly at a high level of € 8.8 (9.5) billion - focus on balanced risk-reward profile
  • Common Equity Tier 1 ratio up to a solid 12.3%
  • Structural measures exerting a positive overall effect
  • Remaining legacy portfolio continues to weigh on results

Hamburg/Kiel, June 9, 2016 - HSH Nordbank maintained its uptrend of the previous year and, during a year of upheaval, again made evident progress in 2015 on its way to more stability and sustained profitability.

At the same time, the favourable decision in the EU state-aid proceedings and the change of ownership consequently coming up in 2018 marked the annual and consolidated financial statements to a considerable extent. Notwithstanding various exceptional factors in its complex set of figures, HSH Nordbank is showing operational strength especially in financing real estate and renewable energies: The Core Bank earned nearly € 400 million before taxes in 2015. Following a satisfactory first quarter, which still involved a preliminary loss of € -36 million (2014: profit of € 234 million) before taxes because of the large bank levy, HSH Nordbank projects a profit for 2016 as well. The Bank furthermore anticipates increasing normalisation with significantly fewer exceptional factors in the current financial year than in the preceding ones.

The strong, forward looking Core Bank contributed as much as about 90% of consolidated earnings of € 450 (278) million before taxes, with the Restructuring Unit accounting for the other ten percent. Overall, the EU decision made a clear mark on the annual financial statements because it resulted in reversal of major parts of future guarantee premiums. The still tough situation on the shipping markets and further write-downs on the held-for-sale legacy portfolios of up to € 8.2 billion simultaneously presented a burden and led to substantially increased loan loss provisioning. Due to a major tax expense item of € -352 million resulting mainly from the EU decision and connected with reversal of deferred taxes, the bottom line was consolidated net income of € 98 (160) million.

“The 2015 balance sheet clearly shows that we are making gradual progress. We are focussing on what matters: the business model is becoming appreciably more balanced and our figures will in the future be less complex. After a clearly profitable financial year we have a good basis ahead of the change of ownership with all its challenges,” Constantin von Oesterreich, Chairman of the Management Board of HSH Nordbank AG, said.

Operationally strong Core Bank – solid margins and a large disbursement ratio

The Core Bank generated a pre-tax profit of € 397 million in the past fiscal year (up from a loss of € 120 million). Although the new business amounting to € 8.8 (9.5) billion was down slightly, it on the whole remained at a high level. In the Core Bank, solid margins and a better disbursement ratio led to an increase in net operating interest income to € 634 (588) million. The palpable restraint among clients in the first nine months of the past financial year only eased after the informal understanding was reached in October 2015; new business thereafter picked up considerably. The fourth quarter was consequently by far the strongest.

The trend of new business also reflects an intentionally smaller amount of ship finance as well as the subdued demand for loans among highly solvent corporate clients. The Real Estate Clients business again provided positive impetus, even though here, too, the focus on an appropriate risk-reward profile resulted in only moderate growth. The trend in finance for renewable energies was also encouraging, this being a market in which HSH Nordbank is among the leaders in Germany and Europe. Overall, the Bank’s business is increasingly evenly distributed between the three pillars of Corporate Clients and Real Estate Clients as well as Shipping, with each accounting for about one third of the loan portfolio at year end.

The Core Bank’s total assets decreased to € 70 (76) billion. Both on-schedule and extraordinary loan repayments as well as the reduction of surplus liquidity, which was accumulated in advance of bonds backed by guarantor’s liability maturing, more than offset the portfolio-increasing effect of the new business. The figures for the Group also reflected the wind-down of legacy assets in the Restructuring Unit, which took total assets down to € 97 (110) billion.

Total income up – costs down more than planned

HSH Nordbank's total income rose to € 1,296 (908) million during the year under report. The driving force with a strongly increased amount of € 1,032 (586) million was net interest income, which benefited, among other factors, from the increasing income on the Core Bank’s new business. On the other hand, adverse effects stemmed from the increased wind-down of risk-exposed legacy assets and loan repayments by clients.

Net commission income totalled € 114 (130) million at the end of 2015. This planned de-crease is due in particular to less commission for restructuring in the Restructuring Unit following the significant portfolio wind-down. Cross-selling of services beyond loan finance and related to the new business exerted a beneficial effect. Net trading income rose to € 84 (61) million, driven particularly by the operating profit in the client business as well as appreciation of financial instruments. As expected, the net income from financial investments of € 54 (169) million was down substantially from the previous year’s result, which benefited more from reversals of impairment losses and gains on disposals.

HSH Nordbank continued to apply its cost reduction programme, which was launched in 2014 for the years from 2015 to 2017. The reduction of operating expenses and the job-shedding related to the restructuring contributed to a further, substantial drop in administrative expenses to € -634 (-724) million. The number of full-time employees was down as planned to 2,384 (from 2,579) at the end of 2015. The Bank further downsized its branch in New York during the year and transformed it into a representative office at the end of 2015.

Loan loss provisioning for legacy portfolio up – adverse effect from revaluation of transaction portfolios – Common Equity Tier 1 ratio at a solid 12.3%

Given the still deteriorating shipping markets and the effects already taken into account from the impending transfer of non-performing loans to the federal state owners, the Bank made substantial loan loss provision of € -3,020 (-486) million, much of which was offset by the guarantee. The amount of provisioning was the result of measuring the portfolios to be transferred at the prices set by the EU Commission (loan loss provisioning of € -1,584 million) as well as increased provision for the bad ship loans remaining in the Bank (€ -1,155 million). Impairment charges beyond that amounted to € -281 million.

After the effects of the guarantee and the restructuring measures, there was a positive balance of loan loss provisioning of € 304 (577) million. The guarantee provided by the federal state owners of Hamburg and Schleswig-Holstein compensated for about € 2 billion of the total loan loss provisioning of roughly € 3 billion. Factors related to the EU decision also very much made their mark on loan loss provisioning: the reversal of future obligations arising from guarantee premiums exerted a positive effect. On the other hand, there was the reversal with effect on profit and loss of the waiver of receivables dropped following the EU decision as well as a one-off payment of € 260 million, which, under the Bank’s future structure, will be made by the operating subsidiary to the holding company in which the owners’ shares are pooled.

The Common Equity Tier 1 ratio (CET1 ratio, phased-in according to Basel III transition rules) improved to 12.3% (10.0%) as of 31 December 2015 and therefore stood at a good level despite increasing regulatory requirements. The trend versus the previous year is attributable to fewer risk assets thanks to the progressing portfolio wind-down as well as a boost from conversion of the previous buffer from the additional premium. Also on the assumption of complete implementation of the Basel III rules (fully loaded) HSH Nordbank's CET1 ratio came to a solid 11.6% (10.0%).

Portfolio transfer well on its way – market portfolio identified

HSH Nordbank is making good progress in transferring non-performing ship loans of initially € 5.0 billion to the federal state owners Hamburg and Schleswig-Holstein, which recently established the ‘hsh portfoliomanagement AöR’ company for this purpose and set the course in terms of staffing for its management. The plan is to transfer the state portfolio by 30 June 2016. The Bank has also already identified the exposures of up to € 3.2 billion that are to be sold on the market by mid 2017. Unlike the portfolio to be sold to the federal states, the market portfolio also comprises real estate, energy and aviation sector loans alongside ship loans.

Bank expects to be in the black in 2016

Following conclusion of the EU proceedings and the impending transfer of the portfolio of non-performing loans, HSH Nordbank has clearly set its sights on the change of ownership. Again in 2016 the Bank is therefore focused on raising its operating profitability, improving its cost structures and enhancing its market position in keeping with its expertise profile. HSH Nordbank projects a profit for 2016, although this is unlikely to match previous year’s high figure because the Bank anticipates further normalisation this year with significantly fewer exceptional factors than in the preceding years.

Income Statement (EUR m) 2015 2014 Change in

Interest income 4,397 5,138 -14
Interest expense for investments and derivatives -55 -19 >100
Interest expenses -3,443 -4,332 -21
Interest income from investments and derivatives 29 6 >100
Net income from hybrid financial instruments 104 -207 >100
Net interest income
Net commission income 114 130 -12
Result from hedging 12 -40 >100
Net trading income 84 61 38
Net income from financial investments 54 169 -68
Net income from investments accounted for using the equity method - 2 -100
Total income
Loan loss provisions1) 304 577 -47
Administrative expenses -634 -724 -12
Other operating income 38 123 -69
Expense for bank levy and deposit guarantee fund -50 -1 >100
Net income before restructuring
Result from restructuring -31 -84 63
Expenses for government guarantees -473 -521 -9
Net income before taxes
Income tax expenses -352 -118 >100
Group net result
Group net income attributable to non-controlling interests
-1 1 >-100
Group net results attributable to HSH Nordbank shareholders 99 159 -38

1) incl. Hedging effect of credit derivative second loss guarantee

Additional key figures of HSH Nordbank Group 31.12.2015 31.12.2014
Total assets (in € bn) 97 110
Risk assets (RWA; in € bn) 37,4 39,5
Common Equity Tier 1 ratio (CET1 ratio, phased in) (%)2) 12,3 10,0
Core capital ratio (%)2) 16,4 14.4
Regulatory capital ratio (%)2) 20,6 18.7
Full-time staff (FTEs) 2,384 2,579

2) Pursuant to same period calculation under the rules of the Capital Requirements Regulation (CRR).

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