Helaba Landesbank Hessen-Thüringen has considerably improved its IFRS Group result in the first nine months of 2009. Group pre-tax profit amounted to EUR 352 million, compared with EUR 64 million in the same period of the previous year. After-tax profit rose to EUR 237 million, as against EUR 41 million in the year before. The result is strongly influenced by a positive development of operating income, a sharp rise of loan loss provisions due to cyclical developments and strong write-ups of securities and derivatives due to the situation in the market.
Hans-Dieter Brenner, Chairman of the Board of Managing Directors, is satisfied with the development. “With the third distinctly positive quarterly results in a row, we are back on our success track, despite the difficult market environment. This year we have managed our new business well, in the triad of risk, refinancing and capital and continue to be actively available for our customers. For 2009 as a whole, we anticipate a further rise in our risk provisions. Nevertheless, we expect that we will achieve a satisfactory IFRS group result.”
Rising risk provisions and write-ups characterize the profit and loss
Net interest income of EUR 733 million was just below the previous year’s figure of EUR 748 million. The positive earnings contributions from operating activities in customer business were offset by the low interest level and the depreciation of the US-dollar.
Net commission income at EUR 157 million was about 8 percent below the figure of the previous year.
Net trading income enjoyed a strong positive swing, by EUR 429 million to EUR 255 million. The result from hedging activities/derivatives, including the result from financial assets (incl. assets valued using the equity method) rose from - EUR 215 million to EUR 87 million. Both positions benefited from the reversal in sentiment on the capital markets that had already started in the second quarter, accompanied by marked falls in risk add-ons and corresponding write-ups of securities and derivatives.
The Other operating result fell by EUR 28 million to 237 million. This reflects the focused reduction of leasing activities. Administrative expenses decreased by EUR 14 million to EUR 742 million.
Group profit before risk provisioning rose by EUR 688 million to EUR 727 million. Loan loss provisions were increased to EUR 375 million. In the previous year, reversals of risk provisions in an amount of EUR 25 million had been posted. Applying conservative risk standards, around EUR 200 million in net terms were newly allocated to the provisions in the third quarter. The total sum of EUR 375 million includes, in addition to specific loan loss allowances, portfolio value adjustments of EUR 110 million – of which EUR 59 million were set up in the third quarter. This amount was not set up for exposures potentially subject to default, but is attributable to the deterioration of the internal ratings (so-called rating migration). Brenner warns: “As we all know, corporate insolvencies initially increase only with a certain time-lag during an economic crisis. And the real estate markets, too, react with a corresponding time-lag. It is too early to say that the crisis is over.”
Balance sheet total declines – loans and advances to customers remain stable
The Group balance sheet total at 30/09/2009 amounted to EUR 176.9 bn, compared with EUR 184.6 bn at 31/12/2008. Loans and advances to banks were reduced by EUR 11 percent to EUR 15.9 bn and the trading assets were likewise reduced, as planned, by 10 percent to EUR 46.3 bn. Loans and advances to customers at EUR 90.3 bn, taking into account currency effects, remained stable at a high level and constitute more than 50 percent of the balance sheet total.
This shows that Helaba continues to operate actively, but also conscious of risk , in customer business. Group-wide, mid- and long-term new business in the first nine months amounted to EUR 8.6 bn. Of this total, Real Estate Lending accounted for EUR 4.2 bn, Corporate Finance for EUR 3 bn, and business with retail customers and SMEs for EUR 0.5 bn. In addition, placements of Schuldschein (promissory note) loans on behalf of corporate customers and public authorities amounted to EUR 6.4 bn, and bonds in a total volume of EUR 6.5 bn were placed on behalf of various German federal states.
On the liabilities side of the balance sheet, liabilities due to customers rose slightly by 1.7 percent to EUR 42.6 bn. Securitized liabilities fell by 2.5 percent to EUR 39.6 bn. Liabilities held for trading and liabilities due to banks were reduced by EUR 7 bn.
By 30/09/2009, Helaba had raised a mid- and long-term refinancing volume of EUR 10 bn on the capital market. Unsecured issues accounted for EUR 5.7 bn and Pfandbriefe (German mortgage bonds) for EUR 4.1 bn. This is evidence of the Group’s good standing as an issuer. In October 2009, the rating agency Fitch confirmed the ratings for short- and long-term liabilities of “F1+” and “A+” (stable outlook) for the Sparkassen Finanzgruppe Hessen-Thüringen and thus for Helaba, too. With its ratings (see table) Helaba is among the top group of German banks. With a Tier I-ratio of 8.5 percent (8 percent at the previous year’s accounting date) and total ratio of 13.2 (13.9) percent, the Bank has a sound base of liable funds. The pre-tax return on equity amounts to 9.8 (previous year 1.8) percent. The cost/income ratio amounts to 67.8 (previous year 92.2) percent.
Outlook
For the fourth quarter of 2009, Helaba expects a continuation of its solid customer business and, accordingly, stable contributions to operating income. Mid- and long-term new business of around EUR 11 bn is expected, which approximately corresponds to the average over many years. Depending on the development of the business cycle, a further allocation to loan loss provisions could be necessary. Brenner: “All the same, we will close fiscal 2009 with a satisfactory Group result.”
Helaba’s CEO sees his bank well positioned for the future: “The further development of the business model has absolute priority. For the future, too, the basis is the model of a Group-wide universal bank. In wholesale business, our core business, as we define it, we will be active in selected markets both nationally and internationally. Should opportunities arise here due to the restructuring of other banks, we will examine these very closely.”
The principle that Helaba is a partner and not a competitor of the savings banks is central to our business model. This applies not only to the region of Hesse and Thuringia, but also nationwide. The Bank seeks to further intensify cooperation with the savings banks. A step in this direction is the integration and reorientation of LB(Swiss) Privatbank AG, which formerly was managed as a joint subsidiary of Helaba and Bayern LB. Through this new development, Helaba is strengthening its core competence in asset management. LB(Swiss) Privatbank AG has positioned itself in recent years as an International Private Banking and Wealth Division, incl. Family Office. With the full takeover of LB(Swiss), Helaba is enlarging its range of products for the S-Group in this business segment. The German savings banks thus have an adequate alternative to the offers of the private and commercial banks.
Public development and infrastructure business as the third pillar of the business model has been strengthened. From the merger of the hitherto independent IBH Investitionsbank Hessen with LTH-Bank für Infrastruktur at the end of August 2009, the WI Bank has arisen. In future it will be the central Public Development Bank of the Federal State of Hesse. Through this merger, Helaba is the only Landesbank in Germany which is active in the promotion of economic, residential and general infrastructure development.
Difficulties looming for the equity capital of German banks
Brenner calls into question some aspects of the new international regulatory framework that is emerging, in which he also foresees risks for the German banks: “Certainly, I understand that for regulatory purposes capital adequacy requirements may well have to be tightened. Following the G 20 resolutions in Pittsburgh, however, I fear that in Germany the discussion on the “tight credit situation for businesses” is being replaced by a discussion on the “credit crunch” for banks. The combination of a doubling of capital adequacy requirements, the abolition of capital contributions by dormant partners as core capital, and the introduction of an undifferentiated Leverage Ratio, threatens to demand too much even of those banks that so far have come through the financial market crisis and the recession of the real economy relatively well. In particular, silent participations – where coupled with the unlimited absorption of loss – fulfil all the quality criteria that are also required internationally of ‘hard’ Tier I capital. I believe Germany policy-makers have the duty to ensure a Common Level Playing Field.”
» Balance sheet development and P&L figures
Wolfgang Kuss
Press OfficerUrsula-Brita Krueck
Deputy Press Officer
