HSH Nordbank on Target in First Quarter of 2007
- Operating profit after risk provisions up 8% to
- EUR 260 million
- Credit risk provision reduced by 31% to EUR 23 million
- RoE before tax on target at 15.5%
- Change in reporting reduces net interest income
Hamburg/Kiel, May 23, 2007 - In the first quarter of 2007 HSH Nordbank Group surpassed the previous year’s strong results. This was primarily due to an excellent performance in trading activities and high income from securities transactions. Thanks to a conservative risk policy and the good economic environment, provisions for non-performing loans reached an all-time low. Operating profit after risk provisions is ahead of the prorated target for 2007.
“HSH Nordbank is continuing its successful journey towards IPO readiness by the end of 2007. This is confirmed not least by performance in the first quarter of 2007. At 15.5%, our return on equity has even improved slightly on the strong result of the previous year,” says Hans Berger, CEO of HSH Nordbank AG.
Operating income influenced by one-time effects
Operating income was influenced by a change in reporting. As of March 31, 2007, it declined by just under 9% year-on-year, to EUR 511 million. This reduction was chiefly because, although current income from equity holdings had already been generated pro rata temporis, the reporting provisions of the German Transparency Directive Implementation Act (TUG) mean that this year it will only be recognized in the income statement during the course of the year. In the prior-year quarter, an appreciable amount of such income was already included in interest income.
- Due to a change in reporting (TUG), as well as lower penalties for early repayment and persistent margin pressure, net interest income declined by about a fifth to EUR 309 million.
- At EUR 117 million, net commission income was almost at the previous year’s level (down 3.5%). The majority of income resulted from national and international lending business.
- Net trading income surged 123% to EUR 78 million. While the result from trading activities was very pleasing in the first quarter of 2007, part of the increase was due to the switch to the mark-to-market valuation method for calculating the trading result as part of the preparations for IFRS.
Administrative expenses and risks under control
At EUR 237 million, administrative expenses were on course at more than 7% above the previous year’s level. Focusing on our new business model, we are strengthening the company in a targeted manner, and particularly in the case of individual market areas.
- Personnel expenses rose 11% on the prior year to EUR 119 million.
- Other operating expenses increased slightly by 4.2% to EUR 119 million.
The item risk provisions/evaluation was some 86% below the prior year at a gratifyingly low EUR 13 million.
- At EUR 23 million, loan loss provisions in lending business were EUR 10 million or 31% down on the prior-year quarter. Accordingly, in the past few years HSH Nordbank has continuously been able to reduce its risk provisions thanks to better market conditions with fewer corporate insolvencies, and further improvements to its risk management.
- In securities business we posted a positive result of EUR 159 million (previous year: EUR 11 million). This encouraging performance was due to price gains, lower write-downs, and income from the sale of shares.
- Among the affiliates there was no need for any write-downs (previous year: EUR 11 million).
- The low risk provision requirements in the first quarter of 2007 enabled HSH Nordbank, as in the previous year, to significantly bolster its reserves in accordance with Section 340 g of the German Commercial Code, this time by EUR 50 million. In addition, EUR 100 million was set aside in accordance with Section 340 f (previous year: EUR 15 million). This means the Bank is continuing its conservative risk policy.
Operating profit increases
HSH Nordbank increased its operating profit after risk provisions by 8% to EUR 260 million on the back of the continued reduction in risk provisions.
The profit after tax increased by 3% to EUR 136 million after taking into account significantly higher income taxes (up 30%) and a rise of 3% in payouts on silent participations.
Pre-tax return on equity continues to improve
After the first quarter of 2007, the pre-tax return on equity was 15.5% – an improvement of another 0.5 percentage points from December 31, 2006 (up 0.1 percentage points from March 31, 2006). This means HSH Nordbank is at its target level for 2007 as a whole.
Due to the one-time effect of the TUG, the cost/income ratio temporarily worsened from the previous year by a significantly visible 7 percentage points, to 46.4%.
Tier 1 capital amounted to EUR 7.4 billion, a EUR 0.6 billion increase from the prior year. The Tier 1 capital ratio as prescribed by the German Banking Act (KWG) improved to 6.9% (previous year: 6.5%).
Segment reporting for the first quarter of 2007
Effective January 1, 2007, the segment structure was adapted to HSH Nordbank’s business model. The segments Global Transportation Markets and Global Real Estate Markets reflect the Bank’s position as an international sector specialist. HSH Nordbank’s focus as a leading commercial bank in Northern Europe with firm roots in the region is underscored by the segments Corporates and Institutions & Private Banking, while the Financial Markets segment demonstrates the Bank’s focus as an international capital market expert and risk manager.
Global Transportation Markets
The Global Transportation Markets segment, encompassing the Transport and Shipping divisions, achieved an operating profit after risk provisions of EUR 113 million (previous year: EUR 78 million). The pre-tax return on equity improved from 17.2% to 22.1%. The Shipping division recorded brisk new business and a growing number of arranger mandates. The Transport division took advantage of the dynamic trend in global transportation markets.
Global Real Estate Markets
The real estate business achieved an operating profit after risk provisions of EUR 47 million in the first quarter of 2007 (previous year: EUR 63 million). The pre-tax return on equity declined from 20.1% to 14.3%. The sale of investment funds by HSH Real Estate in the first quarter got off to a slower start than in the year-earlier period. Business is expected to pick up again in the course of the year.
In the Corporates segment, operating profit after risk provisions rose to EUR 163 million (previous year: EUR 94 million) and return on equity rose to 47.9% (previous year: 32.0%). The operating profit after risk provisions includes income from the sale of stock in IVG Immobilien AG. Even excluding this one-time effect, earnings increased – in particular due to strong lending and services business with SMEs.
Institutions & Private Banking
Operating profit after risk provisions in the Institutions & Private Banking segment reached EUR 33 million (previous year: EUR 42 million) and the return on equity was 15.9% (previous year: 19.1%).
In the Financial Markets segment, operating profit after risk provisions increased to EUR 161 million (previous year: EUR 149 million), while return on equity was 36.9% (previous year: 32.4%). The excellent performance in trading activities and earnings from private equity fund investments made major contributions to this significant increase. A further positive impact came from lower overall impairment charges on the securities portfolio.
|HSH Nordbank Group (EUR millions)||1/1 to 3/31/2007||1/1 to 3/31/2006||Change %|
|Net interest income||308.5||390.0||-20.9|
|Net commission income||116.7||120.9||-3.5|
|Net trading income||77.8||34.9||+122.9|
|Other operating income||7.6||14.0||-45.7|
|Other operating expenses||-118.5||-113.7||+4.2|
|Operating profit after risk provisions||260.3||241.8||+7.7|
|Taxes on income||-56.1||-43.3||+29.6|
|Payouts on silent participations||-68.3||-66.6||+2.6|
|Profit after tax||136.0||131.9||+3.1|
|Cost/income ratio (%)||46.4||39.4|
|Return on equity (%)||15.5||15.4|
|Tier 1 capital (EUR billions)||7.4||6.8|
|Tier 1 capital ratio (%), German Banking Act||6.9||6.5|
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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