NORD/LB reports loss of € 1.9 billion for 2016
- Another significant increase in risk coverage for ship financing
- Reduction in the ship financing portfolio
- Bremer Landesbank to be fully merged with NORD/LB
- All other business segments consistently profitable
- Administrative expenses stable
- Good result expected for first quarter of 2017
As announced in autumn 2016, NORD/LB Norddeutsche Landesbank closed the financial year 2016 with a significant loss. The consolidated loss was € 1,865 million before taxes and € 1,959 million after taxes. The loss was the result of a huge increase in the risk provisioning for ship financing, especially at subsidiary Bremer Landesbank (BLB). Overall the Group set aside € 2,940 million for ship financing risks in 2016, after € 840 million in the previous year. This was the Bank's reaction to the dramatic deterioration in the global shipping crisis over the course of 2016.
BLB, which was fully acquired by NORD/LB in the wake of the shipping crisis, will in future concentrate mainly on corporate customers, private banking and energy financing in Germany as a bank focused on small and mid-sized companies situated in north-west Germany. Ship financing, which was previously run as separate business segments in both firms, will be brought together at NORD/LB. The intention is to combine the capital markets business of the two banks as well. In organisational and legal terms, BLB will be fully merged with NORD/LB, but will continue to operate under its own brand. The BLB locations in Bremen and Oldenburg will be retained. As the Free Hanseatic City of Bremen and the Lower Saxony Association of Savings Banks have sold their respective holdings in BLB to NORD/LB, BLB has been a 100 per cent subsidiary of NORD/LB since 1 January 2017. As in previous years, the business results of BLB have been fully incorporated in the consolidated results of NORD/LB. The decision to merge BLB with NORD/LB is still subject to the consent of the relevant bodies of both Banks. Full integration of BLB into NORD/LB is the first step in the new Group-wide “One Bank” transformation programme.
“The loss posted by NORD/LB for 2016 as a result of the huge increase in risk provisioning for ship financing is painful, especially on this scale,” said Thomas Bürkle, who has been Chairman of the Managing Board of NORD/LB since 1 January. “However, we are able to cope with these negative results by ourselves. Apart from ship financing NORD/LB is a profitable bank, as shown by our success in all other business segments. Thanks to the considerable capital-strengthening measures over recent years, NORD/LB remains adequately capitalised.”
Bürkle announced significant cost savings: “The One Bank programme aims to place the Group as a whole on a new footing. Merging Bremer Landesbank with NORD/LB will allow us to obtain the maximum synergies. Our objective is to make the Group as a whole sustainably profitable again. To do this, we want to cut our costs by € 150–200 million by the end of 2020.”
With a view to improving the quality of the portfolio, NORD/LB is focusing on reducing the ship financing portfolio. The shipping loan portfolio was already reduced from € 19.0 billion to € 16.8 billion in 2016. The aim is to reduce the size of the portfolio to between € 12 billion and € 14 billion by the end of 2018.
“We have already achieved notable success in reducing the shipping loan portfolio, although this has been undermined by the appreciation of the dollar against the euro. Without this exchange rate effect we would have reduced our portfolio by almost € 3 billion as planned in 2016. We have set ourselves the objective for 2017 of reducing the shipping loan portfolio by a further € 3 billion.”
Income statement for 2016
Net interest income in 2016 was € 1,735 million, compared to € 1,974 million the previous year. The 2015 figure, however, was boosted by non-recurring income from prepayment penalties in the real estate business, which returned to normal levels again in 2016. The decline in net interest income is also due to the persistently low interest rates on the money and capital markets.
Expenses for loan loss provisions shot up to € 2,956 million (previous year: € 698 million) and mainly comprise net additions to specific valuation allowances in ship financing, particularly at BLB.
Net commission income was € 219 million (€ 234 million). The profit from financial instruments at fair value (including hedge accounting) increased from € 280 million to € 415 million; the profit from financial assets was € 49 million (€ 72 million). The loss from companies accounted for using the equity method stood at minus € 2 million (€ 8 million).
Despite stiffer regulatory requirements and contrary to the trend across the sector, administrative expenses were kept stable at € 1,113 million (€ 1,114 million). A fall of € 50 million in staff expenses as a result of an efficiency programme was offset by a rise of € 43 million in the cost of continuously upgrading IT infrastructure. The other operating loss was € 173 million (€ 97 million), including € 55 million for the EU bank levy. Reorganisation expenses were € 39 million (€ 6 million) and include in particular provisions for staff expenses as part of the full integration of BLB into the NORD/LB Group.
The income statement also incorporates income taxes according to IFRS of € 94 million (€ 135 million). Tax relief for losses was offset by provisions for current income taxes at foreign Group units and tax expenditure for previous years.
The cost-income ratio was 50.7 per cent (46.4 per cent), the return on equity was minus 24.5 per cent (8.7 per cent).
Total assets at the NORD/LB Group amounted to € 174.8 billion at end-2016, a further reduction (year-end 2015: € 181.0 billion). Total risk exposure fell again to € 59,896 million (€ 63,675 million).
The Common Equity Tier 1 ratio of NORD/LB was 11.3 per cent at 31 December 2016, still significantly exceeding regulatory requirements (year-end 2015: 13.1 per cent). Since 1 January 2017 the minimum CET1 ratio NORD/LB must reach under SREP (the Supervisory Review and Evaluation Process) has been 8.33 per cent. The total capital ratio as at 31 December 2016 was 16.3 per cent. The corresponding SREP figure since 1 January 2017 is 11.83 per cent.
Outside Ship Customers, all segments at NORD/LB again demonstrated their profitability. Energy and Infrastructure Financing once again beat the very good results of the previous year. NORD/LB is one of the market leaders in Europe in project financing for renewable energies, by both number of transactions arranged and total volume. Among the most important markets are Germany, France, Ireland, the UK and Italy. Business was also expanded in the USA and Australia in 2016.
In Real Estate Banking Customers business Deutsche Hypo, the competence centre for commercial real estate financing within the NORD/LB Group, can look back on another successful year in 2016. Firstly, it managed to boost new business by around 11 per cent to € 4.5 billion, increasing volumes both in Germany and in target markets abroad. Secondly, Deutsche Hypo once again made a significant contribution to the profit of the NORD/LB Group. The positive trend was driven by a stable income base and positive risk results in commercial real estate financing.
In Corporate Customers, higher operating income was generated in spite of increasing pressure on profit margins. Credit volume also rose in 2016. Outside the core business area of north Germany, the branch offices in Munich and Stuttgart were further expanded. The Singapore branch saw the successful launch of the German Desk, supporting German corporate customers in their Asian activities.
In Aircraft Customers business NORD/LB again managed not only to carry out investment projects for its own book but also to implement numerous projects for investors, who continue to find aircraft an attractive asset class. The local offering for target customers and investors was rounded out by setting up a new specialist team in the Singapore branch in addition to the established teams in Hanover and the New York branch. In Ship Customers the focus was on reducing the loan portfolio. New business was very selective, mainly in niches such as special vessels, cruise ships and ferries.
In Markets the main activities were distributing capital market products to institutional customers. NORD/LB is one of the leading market participants for issuing and trading public-sector bonds, Pfandbriefe and other fixed-income securities in Germany. The Markets segment increased earnings significantly in 2016. The strong position as an arranger in the German Pfandbrief market in particular was further extended.
Private and Commercial Customers business was largely dominated by the performance of Braunschweigischer Landessparkasse (BLSK), which generated a satisfactory business result in 2016. The market environment proved to be tough and was significantly affected by negative interest rates, regulatory requirements and customers’ desire to go digital. In private banking, the strict separation of advice and service proved successful. BLSK.direct (the telephone and online branch) has established itself and went down very well with customers.
“2017 has got off to a very good start in terms of income,” noted Bürkle. “It looks like we will end the first quarter with a good result. However, NORD/LB will continue to have to cope with heavy burdens from the shipping crisis in the coming quarters. Regulatory costs will also rise again this year. And the integration of Bremer Landesbank will initially result in more restructuring expenditure before the synergy effects are felt. Despite these foreseeable burdens, we think it is realistic to expect a profit for 2017.”
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Dr. Thomas Klodt
Fon: +49 (0) 511 361-2758
With total assets of € 175 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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