NORD/LB with challenging first half-year
- Extensive initiative to reduce ship portfolio initiated
- Shipping portfolio already reduced by € 1.1 billion since start of year
- Capital ratios remain high
NORD/LB Norddeutsche Landesbank closed the first half of 2016 with earnings before taxes of minus € 364 million. The consolidated loss after taxes totalled € 406 million. In the midst of a challenging environment, the Bank was able to maintain its good earnings position in practically all of its business segments. At the same time, due to the severe deterioration in the situation on the shipping markets, the Bank increased its risk provisioning from ship financing significantly. The increase in the risk provisioning is also partly due to the previously announced reduction in NORD/LB’s shipping portfolio, in which the Bank already has a number of initial successes to report. Since the end of 2015, the value of the shipping portfolio has been reduced from € 19.0 billion to € 17.9 billion.
“The shipping crisis, which further intensified in the first half of the year, has necessitated impairments that were higher than planned,” said NORD/LB CEO Dr Gunter Dunkel. “Thanks to the good performance of business outside of ship financing and the consistent capital increases of recent years, we have been able to withstand this negative result entirely on our own steam. With the changes made to our ship financing, we have improved the quality of our portfolio and are equipping the Bank for the future.”
The half-yearly figures include in full (as in previous years) the results of all Group subsidiaries, including Bremer Landesbank.
Income statement for the first half of 2016
Net interest income across the Group totalled € 929 million in the first half-year (first half of 2015: € 1,000 million). The decline is in part due to the persistently low interest level on the money and capital markets. The result in the first half of the previous year was also dominated by non-recurring income from early repayment compensation fees in the real estate business. Net allocations to loan loss provisions rose significantly to € 1,003 million (€ 210 million) and remained predominantly attributable to specific valuation allowances in the shipping portfolio.
Net commission income rose to € 117 million (€ 111 million). The fair value result (including hedge accounting) rose to € 277 million (€ 95 million), while the profit from financial assets rose significantly to € 71 million (€ 26 million). The loss from investments accounted for using the equity method rose from minus € 59 million to minus € 7 million.
Administrative expenses in the first half of the year totalled € 572 million (€ 562 million), with staff expenses reduced by € 10 million as a result of an Efficiency Improvement Programme and despite pay rises. At the same time, expenses for the IT infrastructure rose by € 23 million. The other operating loss totalled € 168 million (€ 80 million). This includes € 55 million for the EU bank levy. Income taxes under IFRS came to € 42 million in the first half of the year (€ 24 million).
The cost-income ratio was 52.7 per cent (49.8 per cent) in the first half of 2016, while the return on equity was minus 8.9 per cent (8.7 per cent).
With the exception of Ship Customers, all of NORD/LB’s business segments remained profitable in the first half of 2016, with some managing to improve their results. Further successes were also achieved in terms of NORD/LB's strategic development towards establishing itself as credit asset manager. This was reflected above all in the sphere of aircraft financing, with the successful launch of activities involving the structuring and marketing of financing operations for institutional investors. In spite of increased competition, the operating result in the energy and infrastructure segment stands at around the previous year's level, with a particular success being the financing of a solar park in Brandenburg in cooperation with an institutional investor. Revenues in the Corporate Customers segment rose despite growing pressure on margins, and both the new-business volume and operating result in the Real Estate Banking Customers segment registered growth. The first six months of 2016 also saw growth in the Bank's capital market business, with revenues up in year-on-year comparison. The focus in the Private and Commercial Customers segment was on the development of the business model in the direction of digitalisation.
Total assets were reduced further still, totalling € 179.2 billion at the end of the first half-year (end of 2015: € 181.0 billion). The total risk exposureamount (formerly risk-weighted assets) fell slightly to € 64.2 billion (€ 63.7 billion).
The Common Equity Tier 1 capital ratio was 12.0 per cent (13.1 per cent) as of 30 June, while the total capital ratio was 16.1 per cent (16.7 per cent). The leverage ratio fell slightly to 4.1 per cent (4.3 per cent).
Looking towards the Bank’s future performance, Dunkel noted that NORD/LB will be reducing its ship financing portfolio as announced to around € 12-14 billion. “We recently made an agreement with internationally renowned investors for a transaction that will provide a further substantial reduction in our ship financing exposure. KKR Credit will acquire a ship financing portfolio from NORD/LB’s books jointly with a sovereign wealth fund,” said Dunkel. “The total volume of the transaction will be around € 1.3 billion and concern around 100 ships. Furthermore, we have also created an internal unit in which a team of experts will handle the global marketing and sale of individual ships and ship financing.”
“While the respective measures will result in short-term strains on net profit, we will be strengthening the substance of the Bank in the medium term. Consequently, we expect a significant loss for 2016 as a whole, but NORD/LB is capable of absorbing this loss in full.” All regulatory requirements will still also be satisfied by a clear margin. “Our ongoing efforts to increase the Bank’s capital ratios in recent years are now paying off, something that the last stress test confirmed. The continued positive performance in our other business segments also demonstrates that the Bank is well-positioned and that its broadly diversified business model works.”
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Dr. Thomas Klodt
Phone: +49 (0) 511 361-2758
With total assets of € 179 billion, NORD/LB Norddeutsche Landesbank is a leading German business bank. Its core business segments include structured financing in the energy and infrastructure sector, ship and aircraft financing, corporate customers business, commercial real estate financing, capital market business and private and commercial customers. The Bank has headquarters in Hanover, Braunschweig and Magdeburg, as well as branches in Düsseldorf, Hamburg, Munich, Schwerin and Stuttgart. NORD/LB is represented outside of Germany by a Pfandbrief bank (NORD/LB Covered Bond Bank) in Luxembourg and by branches in London, New York, Singapore and Shanghai.
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