Profit for NORD/LB despite shipping crisis
NORD/LB Norddeutsche Landesbank achieved earnings before taxes of EUR 108 million in the first nine months of 2013, while its consolidated profit totalled EUR 112 million. In the first nine months of the previous year earnings before taxes totalled EUR 209 million and consolidated profit EUR 141 million.
- Nine-month profit of EUR 108 million
- Safety buffer in ship financing further increased
- Core capital ratio up to 11.3 per cent
“In view of the difficult environment and the ongoing crisis in the shipping markets, this is a satisfactory result,” stated Dr. Gunter Dunkel, Chairman of the Managing Board of NORD/LB. “Although the signs of a gradual improvement in the situation are slowly starting to appear, we are sticking to our proven conservative risk strategy. We have therefore once again made extensive provisions for potential loan losses in this segment. The nine-month result is further evidence of the robustness of our business model. With very good results in many other business segments, and in particular in Corporate Customers, Renewable Energies and Real Estate Banking Customers, we can more than make up for the effects of the shipping crisis.”
Net interest income, which represents by far the largest item in the NORD/LB Group’s income statement, remained fairly stable at EUR 1,476 million despite the reduction in total assets (same period of the previous year EUR 1,503 million). With interest rates remaining at a low level, interest income and interest expense have fallen compared to the previous year.
Loan loss provisions were increased significantly and rose from EUR 352 million to EUR 642 million. As in the previous quarters, they have again been made primarily to cover ship financing. While specific valuation allowances of EUR 534 million were made, the figure for general loan loss provisions was EUR 71 million. Net commission income totalled EUR 124 million (EUR 125 million). The profit/loss from financial instruments at fair value through profit or loss including hedge accounting totalled EUR 54 million (minus EUR 114 million). The performance of currency derivatives, which were used to hedge currency risks in particular in ship and aircraft finance, had a positive effect.
The profit/loss from financial assets was almost in balance at EUR 2 million (minus EUR 11 million). The profit/loss from investments accounted for using the equity method, which was affected by the write-down of an investment in the same period of the previous year (minus EUR 15 million), was EUR 24 million. Other operating profit/loss, which includes a provision for the bank levy for the whole of 2013, was minus EUR 21 million (minus EUR 68 million).
The slight increase in administrative expenses of 3 per cent to EUR 852 million (EUR 824 million) is primarily attributable to an increase in the cost of materials due to costs incurred in projects to meet new regulatory and accounting requirements and investments in IT infrastructure.
Total assets reduced, capital ratios continue to rise
The NORD/LB Group’s profit/loss before reorganisation expenses and taxes is EUR 165 million (EUR 244 million). The reorganisation expenses in the amount of minus EUR 57 million (minus EUR 35 million) includes expenses for measures relating to the capital-boosting programme agreed with the EU Commission.
The total assets of the NORD/LB Group were reduced further, by 9 per cent to EUR 204.7 billion compared to the end of 2012. The core capital ratio rose to 11.3 per cent (31 December 2012: 10.9 per cent), while the regulatory total capital ratio rose to 14.2 per cent (13.8 per cent).
With the impending comprehensive assessment of the accounts by the European Central Bank in mind, Dunkel explained: “In recent years we have strengthened the bank’s capital base. With the successful implementation of the capital-boosting programme and the level of loan loss provisions made, we believe we are well prepared for the upcoming examination.”
The breakdown by individual business segment shows that the Corporate Customers and Markets, Energy and Infrastructure Customers and Real Estate Banking Customers segments have each contributed over EUR 100 million to the Group’s comprehensive income. In its Corporate Customers business, NORD/LB was able, despite increasingly intense competition, to expand its position not only in its core region of northern Germany.
The positive earnings performance in the Real Estate Banking Customers segment is largely attributable to the successful realignment of the subsidiary Deutsche Hypo in the past year. At the same time, the greater focus on the core market of Germany and selected European real estate market has also paid off.
The Aircraft Customers segment has recorded a very good earnings performance, with the risk situation easing. The bank benefited here from positive developments in some segments of the airfreight market. Numerous transactions were also completed in the Renewable Energies segment in Germany, UK and France, whereby the main focus of finance continues to lie in wind energy. Despite the discussions concerning the long-awaited amendment to the Renewable Energies Act in Germany, business is expected to remain buoyant in the coming year.
Investors interested in long-term assets
“Our customers value NORD/LB’s stability and reliability,” stated Dunkel. “But investors also appreciate the balance of our business model, which is based on portfolios in asset classes with uncorrelated cycles. For example, NORD/LB recently convinced institutional investors in the USA with a further issue of its US dollar public sector Pfandbrief.” The volume of the Pfandbrief issued at the start of November was USD 1 billion; the issue was two and a half times oversubscribed. NORD/LB had already revived this segment with its first issue of an US dollar public-sector Pfandbrief in the same volume in the previous year.
“The interest in our assets among institutional investors is very high. We therefore want to give investors who are looking for long-term loan receivables greater opportunity to benefit from our expertise in the financing of these assets and are currently developing appropriate offers.”
With regard to future business performance, Dunkel expressed cautious optimism: “Despite signs of slight improvement, we will still have to contend with the effects of the shipping crisis until well into the next year. We are able to withstand these difficulties, though, because we are achieving strong results in our other special finance segments as well as in the Corporate Customers and Retail segments. We are therefore sticking to our goal of beating the previous year’s profit in 2013 as a whole,” stated Dunkel.
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