Loans and advances to customers increase to 52 percent of total assets
New business with customers amounting to EUR 28 billion
Tier 1 ratio increases to 9.1 percent
S-Group Business to be expanded beyond core region
LB(Swiss) to become the cross-border private bank of the savings banks
Frankfurt am Main/Erfurt - Helaba Landesbank Hessen-Thüringen significantly improved its Group net profit in the business year 2009 on the basis of the audited, but as yet unapproved annual statement of accounts. The positive development seen in operating business was adversely affected by the strong rise of loan loss provisions due to the state of the economy. However, this was compensated by write-ups for securities and derivatives, where valuation adjustments had adversely impacted the previous year's result due to the financial markets crisis. The Group net profit before taxes in accordance with IFRS amounted to EUR 408 million (2008: EUR minus 55 million). After taxes, a Group net profit of EUR 323 million is reported (2008: EUR minus 44 million). All capital contributions by silent partners, participatory rights and subordinated liabilities are serviced. As in the year before, a dividend of 3 percent will be paid on the ordinary capital. Upon the approval of the annual accounts for the year 2009, the Tier 1 ratio increases to 9.1 percent; the total capital ratio rises to 13.8 percent.
CEO Hans-Dieter Brenner is satisfied with this result. "The IFRS-result of Helaba Landesbank Hessen-Thüringen in the business year 2009 is characterised by a positive operating business across all core divisions. This development was accompanied by a recovery of margins and positive trends in interest rate management. Due to the recession, the Bank also had to absorb rising loan loss provisions. This however does not have an adverse effect on my assessment as a whole. We have achieved a significantly better result than in 2008 and, with Group net profit before taxes of EUR 408 million, returned to the target corridor envisaged before the onset of the financial markets crisis."
The increase of the Tier 1 ratio was achieved by the Bank from its own resources, even though the Bank has had to back risk weighted assets of more than EUR 6 billion by additional Tier 1 capital since 2008, due to rating migration caused by the recession. Brenner: "This too underlines the robust condition of Helaba. Our ability to bear risk from our own resources is ensured without restrictions." The quality of the result is also expressed by the fact that all rating agencies confirmed the good ratings of the Bank in 2009. "Helaba is one of the small number of German banks whose creditworthiness ratings have remained constant during the crisis," said Brenner.
Major Elements of the Consolidated Accounts
Balance Sheet
The balance sheet total was down by 7.9 percent to EUR 169 billion. The business volume, which in addition to assets also includes off-balance sheet obligations and trust business, was down by 9.6 percent to EUR 202.3 billion. The decline is essentially due to the focused reduction of trading assets and interbank receivables. Brenner: "This is an intentional redimensioning as a consequence of the financial markets crisis." Loans and advances to customers by comparison declined by only 4 percent to EUR 87.5 billion. Brenner: "In the 4th quarter of 2009, many large corporations took up ample liquidity in the capital markets and substantially reduced short-term credit facilities. Helaba participated in this trend in the capital markets business and placed borrower's note loans and bonds on behalf of Customers in a total volume of EUR 6 billion. Helaba remains a universal bank which is customer-oriented and intensively linked with the real economy and its core region. Loans and advances to customers account for about 52 percent of the balance sheet total."
This was mirrored on the liabilities side by the significant decline of trading liabilities. At roughly EUR 42 billion, liabilities to customers remained constant. Accounting for a share of approximately 25 percent of the balance sheet total, they represent a very stable source of funding. In connection with the issuance of securitised liabilities, which declined from EUR 40.6 billion to EUR 38.5 billion, Helaba benefits from the continuing positive acceptance among its investors. The medium- and long-term new lending business was funded at matching maturities in 2009 again by new borrowings, with Pfandbrief issues (mortgage bonds) accounting for about one third and non-collateralised instruments for about two thirds. "This means that the Bank has maintained its deliberately conservative liquidity position without change in 2009," explains Dr. Detlef Hosemann, Chief Financial Officer, who presented the accounts of the Bank.
Income Statement
Net interest income, amounting to more than EUR 1 billion, moved sideways in comparison with the year before. Even though it was possible to achieve higher margins in new business, these effects were offset by the somewhat lower lending volume. As before, net interest income is essentially generated in the business segments Real Estate, Corporate Finance and Frankfurter Sparkasse.
Loan loss provisions increased strongly, from EUR 66 million to EUR 487 million. Net expense from loan exposures potentially subject to default amounts to approximately EUR 345 million. Another EUR 142 million relate to exposures which as yet do not fulfil a default criterion, but for which potential future defaults have been taken into account within the scope of a portfolio allowance.
Net commission income increased from EUR 216 million to EUR 227 million in 2009. Part of this increase is due to the merger of Investitionsbank Hessen, which is included pro rata temporis, i.e. for 4 months, in the consolidated income statement.
Net trading income has improved significantly and, at EUR 315 million, is above its ordinary level. In the year 2009, the easing of the risk situation led to a narrowing of the spreads and thus to positive valuation effects in the income statement. In addition, net trading income was strengthened by the expansion of the customer-related trading operations and the utilisation of market opportunities.
The result of hedges and derivatives (of the non-trading book) is also strongly characterised by write-ups. In the year before, an amount of EUR minus198 million was recorded for this position, in the year under review, the result is positive, at EUR 92 million. Hosemann: "We are seeing further write-up potential here again in the year 2010."
Net income from non-current financial assets, including companies valued at equity, amounts to EUR minus18 million, after EUR minus24 million in the year before. The effect from deconsolidation in connection with the sale of the shares held in LBLux had a positive impact on this position.
The major constituents of the Other operating result are rental income and operating costs of property not used for owner occupancy, leasing income and additions to other reserves. It declined from EUR 353 million to EUR 275 million. The earnings contributions from real estate business remained stable at approx. EUR 114 million. Earnings from movable equipment leasing declined slightly, as expected. Provisions in an amount of EUR 40 million set up at Frankfurter Sparkasse in connection with the repurchase offer for Lehmann certificates to its customers are adversely affecting this position.
General administrative expenses declined by 2.8 % to just over EUR 1 billion. Of this total, personnel expense accounts for EUR 498 million, a slight rise by EUR 7 million on the year 2008, and other administrative expenses for EUR 527 million, after EUR 564 million in the year before. The Group on average employed 5,890 female and male members of staff. This is an increase by 75. At the end of 2009, the total number of employees was 6,203, which is essentially due to the inclusion of the employees of LB(Swiss) and of the former Investitionsbank Hessen.
Group net profit before taxes amounts to EUR 408 million, an increase by EUR 463 million on the year before.
After taking into account income tax expense of EUR 85 million, Helaba generated a Group net profit for the year of EUR 323 million.
Successes seen in the Business Year 2009
The management and control of the Helaba Group in 2009 was performed within the triangle of risk, equity and funding. By means of on-balance sheet transactions and by placements in the capital market, the Bank realised new business – across all maturities - on behalf of its customers in an amount of about EUR 28 billion. In its core business fields, the Group was able to achieve its targets and to further enhance its market position.
- In the Real Estate business, total assets amounting to EUR 37.6 billion, remained practically at the previous year's level. New business with customers amounted to EUR 10.2 billion. About 60 percent of new business focused on domestic customers. The operating result of the business field Real Estate is clearly positive and achieves EUR 119 million before taxes.
- In the business segment Corporate Finance, the on-balance sheet volume was slightly down, to EUR 26.4 billion. New business amounted to EUR 8.2 billion. The economic result of the business field Corporate Finance has declined on the year before, but remains positive despite all adverse effects from the recession.
- The business segment Financial Markets developed positively. The valuation adjustments seen in the years 2007 and 2008 for securities and derivatives have in part been written back. Except for a residual volume of app. EUR 1 billion, all positions were marked to market. The business segment in addition recorded positive business results with customers in money market, credit and interest rate trading.
- In Asset Management, the Bank expanded its market position further through its subsidiary Helaba Invest. In terms of the domestic inflow of funds Helaba Invest is at the pole position among all special investment fund companies in Germany and with assets under management of EUR 58 billion it ranks at the fourth position in the German market. The business field Asset Management makes a substantial contribution of EUR 54 million to Group net profit.
- In the cooperation with the savings banks in Hesse and Thuringia, the S-Group business ratio stabilised at the high level seen in the year before (78 percent). Outside its core region, Helaba cooperates with more than 200 other savings banks. It is intended to open up the potential for new business that is seen here in a systematic way going forward.
- The balance sheet total of Frankfurter Sparkasse declined – predominantly as a result of the reduction of proprietary investments - to EUR 17.6 billion. The core lending business remained practically unchanged, at EUR 6.1 billion. The earnings contribution before taxes of Frankfurter Sparkasse amounts to EUR 77 million.
- On 31 August 2009, IBH Investitionsbank Hessen was merged with LTH-Bank für Infrastruktur to form the new Wirtschafts- und Infrastrukturbank Hessen (WIBank). The new development bank bundles the entire public development business in Hesse. The business volume of WIBank amounted to EUR 7.6 billion as at 31 December 2009.
"The development of the business segments remained stable, also in the crisis year 2009. The sources of earnings of Helaba are sustainable, balanced and valuable," said Brenner.
Challenges and Opportunities in 2010
Within the framework of the existing business model, Helaba is going to further sharpen its strategic business field portfolio. This includes the reduction of non-core activities and the divestiture of non-strategic participations. Own funds freed up as a result are available for the further strengthening of core business activities.
One opportunity for strategic development is seen in the expansion of the cooperation with the savings banks. Brenner: "Based on our expertise and the experience gained from six years of cooperation on the basis of the New S-Group Concept of Sparkassen Finanzgruppe Hessen-Thüringen we now want to reposition ourselves strategically as the cooperation partner of savings banks, also in other regions." Helaba is already successfully cooperating nation-wide with more than 200 savings banks. The demand for the S-Group services of Helaba has increased significantly during the financial markets crisis.
Considering the market position already attained by Helaba Invest and the importance of the Asset Management business in the Group, the market segment of special institutional funds in particular remains an attractive growth market for Helaba, also in the future. Brenner: "In this field, the Bank is also sounding out possible acquisitions in the form of Asset-Deals."
In recent years LB(Swiss) has successfully established itself as an institution for international Private Banking and Wealth Management. The German savings banks perceive LB(Swiss) as the leading provider in this segment in the savings banks organisation. Brenner: "We shall consolidate the Private Banking activities of the Helaba Group and bundle them into a cross-border private bank." The new private bank will exclusively source and arrange business via the savings banks. Brenner: "This means that also in this business segment we will remain true to our principle, not to act as a competitor, but as a partner of the savings banks."
Outlook: Business Development of the Helaba Group in 2010
The persisting crisis in the financial markets continues to determine fundamental market conditions. All in all, the Bank expects a sideways movement of its operating income at the level of the previous year. The Bank remains confident that the loan loss provisions expected in 2010 can be compensated to a significant extent by write-up potentials that still exist in the securities portfolio. The new supervisory framework that is being discussed represents a particular challenge, not only for the banks, but also for the real economy.
» Balance sheet development and P&L figures
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Effective 30 September 2010, Jürgen Fenk will resign his position as General Manager in the Real Estate Lending Division of Helaba Landesbank Hessen-Thüringen. The 44-year-old manager wants to refocus his professional activities on the basis of his professional expertise and his long years of experience in international real estate lending. The Board of Directors of the Bank regrets Mr. Fenk's personal decision and thanks him for his successful activities.