NORD/LB increases risk provisioning for ship finance significantly
- Loss of EUR 624 million in the first nine months
- Bank reacts to further intensification of shipping crisis and increases coverage for risks in ship finance
- All other business segments profitable
- Capital ratios remain at high level
- NORD/LB again targets significant profit for 2017
NORD/LB Norddeutsche Landesbank concluded the first nine months of financial year 2016 with a consolidated loss before taxes of EUR 624 million. After taxes, the consolidated loss stood at EUR 736 million. This was mainly due to a further increase in risk provisioning for ship finance. With this, the bank is reacting to the further intensification of the global shipping crisis over the course of this year and responding to the lower forecasts from all relevant institutions. A disproportionately high share of the risk provisioning is due to ship finance provided by Bremer Landesbank (BLB). BLB will become a 100% subsidiary of NORD/LB at the turn of the year, though its results are already fully incorporated in the Group figures (as in previous years).
NORD/LB also expects risk provisioning to be above average in the fourth quarter. From today's perspective, risk provisioning is likely to come in considerably above EUR 2 billion for 2016 as a whole. In accordance with current estimates, the annual loss is expected to be over EUR 1 billion. With the risk provisioning measures, NORD/LB is once again implementing a substantial increase in coverage for risks from ship finance. This lays the foundations for the further reduction of its ship finance portfolio as well as for a positive earnings performance in 2017 and onwards.
In spring 2016, NORD/LB had already made the strategic decision to considerably reduce its ship finance portfolio from EUR 19 billion at the time. The bank aims to reduce the size of its portfolio to between EUR 12 and 14 billion by the end of 2018. Particular focus here is on increasing the quality of the portfolio. Over the first three quarters of 2016, the portfolio had already been scaled back by almost two billion euros. Further measures for scaling back the portfolio are in preparation. This includes a major transaction with the investment company KKR and with a foreign sovereign wealth fund. All in all, NORD/LB expects its ship finance portfolio to stand at around EUR 16 billion by the end of 2016.
"NORD/LB can meet the challenges on its own steam," says Dr Gunter Dunkel, CEO of NORD/LB. "Over previous years, we have established substantial capital buffers, reinforced the earnings power of the bank and introduced strict cost management measures. All this ensures that the bank has the strength to absorb this result. Our capital ratios remain at a high level and have sufficient buffer to be able to comply with all regulatory requirements. This also applies after the absorption of the loss for 2016 as a whole and after the complete acquisition of Bremer Landesbank. This year's EBA Stress Test also showed that NORD/LB is sufficiently well capitalised even in an extreme crisis scenario.”
With the exception of ship finance, all of NORD/LB's business segments remained very profitable in the first three quarters of 2016. The risk situation in business segments outside ship finance remains relaxed. "The broad diversification of our business model remains one of the strengths of NORD/LB," Dunkel stated.
Income statement for the first nine months of 2016
Across the group, net interest income in the first three quarters was EUR 1,357 million. In the corresponding period of the previous year, this figure was EUR 1,494 million. The decrease is firstly due to the persistently low interest rates on money and capital markets. And secondly, the prior-year result was characterised by one-time earnings from prepayment penalties in real estate business; these were not generated in the current year. Net allocations to risk provisioning in credit business increased considerably to EUR 1,651 million (EUR 367 million), still largely in relation to specific valuation allowances in the ship portfolio.
Net commission income edged up slightly to EUR 164 million (EUR 163 million). The fair value result (including hedge accounting) increased to EUR 354 million (EUR 175 million), the profit/loss from financial investment rose to EUR 61 million (EUR 56 million). The profit/loss from companies accounted for using the equity method was minus EUR 18 million (EUR 6 million).
Administrative expenses amounted to EUR 835 million (EUR 815 million) in the first nine months of the year. Here, it was possible to reduce personnel costs by EUR 18 million in spite of tariff increases. This was thanks to an efficiency improvement programme. At the same time, expenses for IT infrastructure increased by EUR 32 million. The other operating result stood at minus EUR 47 million (minus EUR 77 million). This includes EUR 55 million for the EU banking levy. Income taxes pursuant to IFRS amounted to EUR 112 million (EUR 91 million) in the first nine months of the year.
In the first three quarters of 2016, the cost-income ratio was 46.1 percent (46.3 percent), the return-on-equity was minus 10.4 percent (11.5 percent).
NORD/LB was able to further expand its strong market position in the individual business segments over the first nine months of the year. In the corporate clients segment, it was able to generate high earnings in spite of increasing pressure on profit margins. Its great expertise in aircraft finance made it possible for NORD/LB to finance more complex structures for its long-standing clients. In the real estate clients segment, both the result and new business volume for the first nine months were in line with their respective levels from the previous year. Operating earnings in the energy and infrastructure segment came in above the level from the previous year. A finance arrangement for a solar park in Brandenburg provided in collaboration with an institutional investor is particularly worthy of note in here. In capital market business, NORD/LB was able to further expand its position as an arranger in the covered bond sector. In the private and commercial client segment, the evolution of the business model with regard to digitalisation was the main focus.
Total assets as per 30 September 2016 amounted to EUR 177.7 billion and could therefore be reduced further (year-end 2015: EUR 181.0 billion). Total risk exposure (previously: risk-weighted assets) totaled EUR 63.9 billion (EUR 63.7 billion).
As at 30 September 2016, the common equity tier-1 capital ratio of NORD/LB Group amounted to 12.2 percent (13.1 percent). The total capital ratio amounted to 16.6 percent (16.7 percent). The leverage ratio contracted slightly to 4.2 percent (4.3 percent).
"For reasons of caution, we also plan increased risk provisioning for ship finance for subsequent years," Dunkel stated. "Our aim again here is to generate significant profit in 2017 and in subsequent years. This target is based on the bank's strong market position in its main business segments. The capital ratios will also remain at a high level."
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Dr. Thomas Klodt
Phone: +49 (0) 511 361-2758
With total assets of EUR 178 billion, NORD/LB Norddeutsche Landesbank is one of Germany's leading merchant banks. Its core business segments include structured finance in the energy and infrastructure sector, ship and aircraft finance, corporate client business, commercial real estate finance, capital market business and private and commercial client business. The bank has headquarters in Hanover, Braunschweig and Magdeburg as well as offices in Düsseldorf, Hamburg, Munich, Schwerin and Stuttgart. Outside Germany, NORD/LB is active in Luxembourg with a covered bond bank (NORD/LB Covered Bond Bank) and also has offices in London, New York, Singapore and Shanghai.
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