Aug 13, 2009 | Helaba with a marked profit rise in the first half of 2009  

Group profit before tax rises to EUR 273 million

Risk provisions considerably increased – no short-term easing expected

Loans and advances to customers constant at around EUR 90 bn – volume of new lending of EUR 5.3 bn

Tier I ratio at 8.7 percent

Positive group result for 2009 expected

Helaba Landesbank Hessen-Thüringen ended the first six months of fiscal 2009 on the basis of the semi-annual accounts with an IFRS group pre-tax profit of EUR 273 million. This represents an increase of EUR 153 million compared with the same period of the year before. In the first quarter of 2009, the pre-tax profit was EUR 86 million. The result after tax is EUR 185 million, compared with EUR 76 million in the year before. Both Helaba as a single entity and the most important subsidiaries contributed to this result. The complete semi-annual financial statement will be published on August 31st. Hans-Dieter Brenner, Chairman of the Board of Managing Directors assessed the result positively: “Despite the recession and continuing turmoil on the financial markets, Helaba was able to strengthen its earning power and its market position, both in wholesale business and in private customers and SME business.” At the same time, Brenner warned about persisting risks resulting from the economic recession. These were expressed in the significant rise of credit risk provisions to EUR 173 million. “Our business model and the favourable development of business in recent years is to a great extent based on Helaba’s close interdependence with the real economy, which is reflected in the high share of loans and advances to customers in the balance sheet total. In times of crisis, therefore, we cannot fully escape the effects of the recession on the creditworthiness of our customers. I do not expect this to ease in the short-term; on the contrary: we are likely to be confronted with further burdens.

P&L marked both by write-ups and rising risk provisions

Net interest income amounts to EUR 493 million, after EUR 523 million in the previous year. The expansion of the volume of customer loan portfolios by the end of 2008 was more than offset by the reduced interest-rate level experienced since autumn of last year and also by the appreciation of the euro.

As the recession deepened, risk provisions had to be increased considerably, especially in corporate financings. In all, allocations to loan loss provisions amount to EUR 173 million, whereas in the comparable period of the previous year, it was still possible to write back EUR 46 million of risk provisions that had been made. This includes portfolio adjustments of EUR 50 million for performing loans. Net commission income fell slightly by EUR 11 million to EUR 106 million.

After a trading result in the first half of 2008 of EUR -155 million and further charges that had to be absorbed in the second half of 2008, the capital market environment improved considerably in the second quarter of 2009. As expected, negative values quoted, which were based on exaggerated markdowns in the market, retreated from these levels in the first half of 2009. In addition, there were the first earnings from the redemption of securities that matured. Thus, all in all, there was a net trading income of EUR 120 million.

Furthermore, the result of hedges and derivatives was EUR 67 million, after EUR -72 million in the year before, due to the effects of declining valuations in the market. Net income from non-current financial assets incl. assets valued using the equity method fell by EUR 8 million to EUR -15 million.

Other operating income has risen by EUR 15 million to EUR 172 million. It includes the profit from real estate held by the GWH Group (Housing Corporation) as investment property.

The reduction of administrative expenses by EUR 7 million to EUR 497 million is due to the lower depreciation on leased assets that was made in the course of reducing the inventory. The other administrative expenses were held constant at EUR 192 million. Personnel expense rose slightly by EUR 6 million to EUR 244 million, influenced by the increase in salary, due to the collective pay agreement which took effect only from the second half of 2008.

Share of loans and advances to customers in balance sheet total remains constant

The Group’s balance sheet total fell by 2.3 percent to EUR 180.4 bn, as a result of the reduction of interbank business and of trading assets. Taking into account currency effects, loans and advances to customers remained stable. They amount to EUR 92 bn and constitute a roughly unchanged 50 percent of the balance sheet total. In new business, Helaba continues to act in a risk-sensitive manner. Nevertheless, the Bank remains available for its customers as an active lender and service provider. The mid- and long-term new business in the first half of this year amounted to EUR 5.3 bn. Brenner: “Credit business continues to constitute the core competence of Helaba. We are not scaling back our business activities, rather, we are keeping our new business at the average level seen in the last few years.”

In real estate financing, the business volume – at EUR 40.8 bn – was held at almost the same level as year’s end 2008. A large part of the new loans was with domestic customers. Real estate business has begun positively at the Paris branch which was newly established at the beginning of the year. In asset management, Helaba Invest again developed very positively, with a rise in the volume under management in special funds of 17.5 percent to EUR 50 bn. Measured in terms of inflow of funds, the company now ranks as No. 2 in the German special funds market. Its market share at mid-year increased from 6.4 to 7.4 percent.

In capital market business, Helaba is among the leading houses for Schuldschein loans (promissory note loans) to corporate customers with high credit ratings. In the first half of 2009, it acted as arranger/co-arranger in 15 transactions with a total volume of EUR 4 bn. In the same time period, bonds in a total volume of EUR 6 bn were placed on the capital market, for various federal states of Germany.

In the first half-year, Helaba raised a mid- and long-term refinancing volume of EUR 8.1 bn on the capital market. Pfandbriefe and unsecured issues accounted for half of this sum each. Brenner: “This underscores our standing as an issuer and shows that, even in times of financial market turbulence, the Bank has access at all times to unsecured refinancing funds.” For the refinancing basis of the Group, the customer deposits in retail business constitute an additional diversification of funding sources. The ratings of Helaba for long-term unsecured liabilities of A, Aa2 and A+, and for short-term liabilities of A-1, P-1, and F-1+, awarded by the rating agencies Standard&Poor’s Corp., Moody’s Investor Service and Fitch, remained the same in the first half of 2009. Thus, since the abolition of the public sector maintenance obligation and the guaranty obligation in mid-2005, Helaba has received unchanged ratings from the leading rating agencies. With a core capital ratio of 8.7 percent (previous year 8.3 percent) and a Tier I-ratio of 13.6 (14.1) percent, and despite the perceptible effects of the migration of internal ratings, Helaba' capital base is sound. The cost-income ratio amounts to 64.6 percent (previous year 81.1 percent).

Positive outlook for 2009

For the second half-year, Helaba expects the positive development of operating income to continue. As a consequence of the economic recession with its impact on customer creditworthiness, the Bank anticipate a further increase in the risk provisions required in credit business. Nevertheless the Bank expects a positive Group result for the whole year 2009. The write-ups on security holdings in both the trading and the banking book, from today’s point of view will continue further. In mid- and long-term new business, the Bank plans to conclude a total of EUR 11-12 bn. Brenner: “We will not withdraw as lender from the market. To safeguard our risk-taking capability at any time, even in periods of economic recession, we are aiming at a Group-wide Tier I ratio of 7.5 to 8 percent.” Individual measures to reduce marginal business activities that are not part of the core business will be pursued resolutely.

On the basis of a law passed by the state parliament of Hesse on July 9, 2009, Investitionsbank Hessen is to be merged with LTH – Bank für Infrastruktur, with retroactive effect from January 1, 2009. The new institution will operate under the name of Wirtschafts- und Infrastrukturbank Hessen and will be organized as a competition-neutral public development bank and an economically independent institution within Landesbank Hessen-Thüringen. The guaranty obligation of the federal state of Hesse remains intact. Wirtschafts- und Infrastrukturbank Hessen thus becomes the central public development institution of the federal state of Hesse.

On the basis of its successful business model as an integrated universal bank with public development and infrastructure business, Helaba will remain open to consideration of future-oriented steps towards consolidation in the Landesbanks and savings banks sectors. Brenner: “We see no economically successful business basis, in the long run, for credit institutions that are engaged exclusively in wholesale business, even in the framework of holding structures. In close cooperation with its three owners, Helaba is therefore open, in principle, to strategic approaches which serve to further strengthen its market positions in its core business segments, as well as its future expansion as a universal bank. On a stand alone basis, the Bank will examine to what extent future structural changes in the German banking market will open up opportunities to strengthen its competitive position in selected market segments.”

» Balance sheet development and earnings figures