NORD/LB with significant profit growth in 2011
- Consolidated profit climbs to EUR 536 million
- Capital-boosting in progress
NORD/LB Norddeutsche Landesbank has registered significant profit growth in fiscal 2011, with a consolidated after-tax figure of EUR 536 million as against the previous year's level of EUR 314 million. The Bank's earnings before taxes rose to EUR 730 (2010: 319) million.
"Last year we achieved a highly respectable performance, perceptibly enhancing our earnings in virtually all of the Group's business segments, with our business model as a firm basis", commented Dr. Gunter Dunkel, Chairman of the NORD/LB Managing Board. "However, it should be said that 2011 was also marked by one-off effects, for example the sale of our DekaBank share and a relatively low level of loan loss provisions in year-on-year comparison. We are now reaping the benefits of the extremely conservative risk policy we applied in 2009 and 2010, in which we set up loan loss provisions totalling EUR 1.7 billion. The economic upturn has now made it possible to write back a large number of risk buffers."
"The figures show that we are a soundly positioned bank", Dr. Dunkel continued. "Even in the current crisis, the results in our traditionally strong spheres of business such as ship financing are in the positive zone. We have considerably expanded our business with corporate customers and institutional investors. Braunschweigische Landessparkasse has boosted its market shares. Our activities in the areas of renewable energies, real estate and aircraft too have seen us financing a number of interesting projects. These segments are opening up highly promising prospects for NORD/LB's future."
However, the signs are that the current year will be a lot more difficult, added Dr. Dunkel. Depending on economic developments, there is a strong likelihood of risk costs rising again. Given this background, it is not likely to repeat the exceptional result achieved in 2011.
Loan loss provisions perceptibly reduced as result of enhanced portfolio quality
Interest income rose by 6 percent to EUR 1,763 million from the previous year's figure of EUR 1,662 million. This includes a special effect generated by the sale of NORD/LB's direct share in the DekaBank amounting to EUR 64 million.
The Bank's loan loss provisions dropped by EUR 437 million to 205 million, not as consequence of a decline in the newly set-up provisions but rather as result of it being possible to write back part of the risk buffer set up in the two preceding years. "We are remaining true to our traditionally conservative risk strategy, but the economic upturn among our customers and the high quality of our portfolio are leading to a release of risk buffers on the basis of the IFRS mechanisms", said Dr. Dunkel. "We intend to remain vigilant and cautious, especially in terms of our ship portfolio."
Net commission income dropped to EUR 166 million, though account should be taken that the previous year's figure of EUR 197 million benefited from increased revenues arising from loan restructuring. Trading income (profit/loss from financial instruments at fair value through profit and loss, including hedge accounting) stabilized at EUR 69 (2010: 115) million. The trend among the individual earnings components was above all shaped by market movements in a continuingly difficult environment.
Profit/loss from financial assets dropped to EUR -41 (2010: 82) million, first and foremost due to valuation allowances on Greek government bonds to an amount of EUR 91 million. This was offset with a positive impact of EUR 32 million by the sale of NORD/LB's direct share in DekaBank.
Having still been severely impacted on the downside in 2010 (EUR -73 million) by the DnB NORD joint venture, profit/loss from investments accounted for using the equity method registered a balanced result in 2011. At EUR 1,091 million as against EUR 1,070 million in 2010, administrative expenses were kept at a virtually consistent level in spite of high volumes of investment in the IT infrastructure and bank processes. Other operating profit/loss amounted to EUR 69 (2010: 48) million, decisively shaped by the payment for the first time of the bank levy to an amount of EUR 43 million.
At EUR 227.6 billion, total assets were around EUR 900 million down on the previous year's figure. At the same time, customer loans business grew by EUR 2.8 billion to EUR 116.4 billion. The Bank's return on equity (RoE) rose from 5.6 to 10.6 percent, while the cost-income ratio contracted from 54.9 to 52.8 percent.
Step-by-step implementation of capital measures
The NORD/LB Group's core capital ratio rose to 9.4 percent as at year-end (31.12.2010: 7.9 percent), while the regulatory equity ratio rose from 11.1 to 12.6 percent. Thanks to the successful capital-boosting package 1, NORD/LB had increased its equity capital by around EUR 1.7 billion as at 31.12.2011, thus already covering the great majority of the capital requirements announced by the European Banking Authority (EBA) in early December. "The upward movement of the capital ratios shows that we are on the right track with the capital-boosting programme we set ourselves at an early stage, and the measures it entailed were implemented on schedule last year. As of now we shall also be realizing the measures necessary towards fully attaining the EBA’s core tier 1 ratio of over 9 percent resolved at the EU summit last autumn, doing so step by step and on time", said Dr. Dunkel.
He added that the capital-boosting package 2 adopted by NORD/LB for the purpose will achieve this objective through a mix of various different measures, the key elements of which included capital conversions and the retention of earnings. The forgoing of dividends on the part of the Bank's owners helped reinforce the NORD/LB Group's HGB (German Commercial Code)-compliant retained earnings by around EUR 320 million. "This shows that the owners are in full support of their bank", emphasized Dr. Dunkel. The conversion of existing silent capital contributions and similar financial instruments is aimed at raising the Group's hard core capital by a further amount of at least EUR 900 million. Besides this, he added, the federal states of Lower Saxony and Saxony-Anhalt have created the legal basis for a guarantee framework with which the pressure could be taken off the Bank's equity capital in the event of unforeseen market turbulences and distortions. "This means that we are well prepared for coming challenges", said Dr. Dunkel.
Cautious outlook for 2012
The NORD/LB Group has got off to a positive start into fiscal 2012, with the first quarter generating income from interest and commission slightly above the previous year's levels and the risk situation remaining relaxed for the time being. Dr. Dunkel: "We are optimistic about the further course of the year. We shall achieve a sound result in 2012 as well, though in spite of operational improvements we do not anticipate repeating the exceptional performance registered in 2011. The macroeconomic imponderables call for caution in the future as well. However, our business model will continue proving its worth in an ongoingly difficult market environment. We shall be further strengthening our position in core growth segments."
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