WGZ BANK copes with fallout from sovereign debt crisis

Transcription

1 Press release WGZ BANK copes with fallout from sovereign debt crisis WGZ BANK's 2011 operating profit is second highest in its history Negative impact of European sovereign debt crisis is completely absorbed by operating profit Tier 1 capital ratio of WGZ BANK Group rises to 10.4% Reserves increase again; dividend remains at a high level Positive start to 2012: stable revenue and significant reversals of impairment losses in government bond portfolio Düsseldorf, March 27, Despite the challenging and highly competitive conditions, WGZ BANK proved its capability and resilience in The bank achieved the second highest operating profit in its history, building on the strong figure it had reported in the previous year. WGZ BANK has boosted its reserves every single year since 1998 and it is again proposing to pay shareholders a high dividend this year. In its annual financial statements prepared in accordance with regulatory requirements and the German Commercial Code (HGB), WGZ BANK generated an operating profit of million before the second-best operating profit in the company's history. WGZ BANK Dr. Frank Schweizer-Nürnberg Press spokesperson Tel.: +49 (0) Ludwig-Erhard-Allee 20 Cell: +49 (0) Düsseldorf, Germany Fax: +49 (0)

2 Net income declined to 50.1 million owing to the negative impact of the European sovereign debt crisis. Based on International Financial Reporting Standards (IFRS), the WGZ BANK Group reported a net loss of million due to the strict marking to market of WL BANK's portfolio of government bonds classified at fair value. If the bank had selected a different measurement category, as many other banks had done, the WGZ BANK Group would have reported a net profit under IFRS too. "WGZ BANK remains in a strong position", said Werner Böhnke, Chief Executive Officer of WGZ BANK. "All the key parameters are within the positive to very positive range. The indicators continue to point upward in every area of our business that we have been and are able to influence. Our costs remain under control, as evidenced by the cost/income ratio of 43 percent. Our customers are satisfied with us and our business is performing well. We are a byword for continuity and reliability. Last year, we generated the second highest operating profit in our history. That is an exceptional achievement considering the year was dominated by the fiasco in Greece, a high degree of mistrust in banks, and the spiraling sovereign debt crisis. We are more than satisfied with the financial results for our core business." The total equity reported by the WGZ BANK Group decreased from 3.1 billion to 2.7 billion largely owing to the deconsolidation of WGZ BANK Luxembourg. Nevertheless, the relevant key figures remain sound. The total capital ratio as defined by the Solvency Regulation (SolvV) came to 12.4 percent, while the Tier 1 capital ratio increased to 10.4 percent. This Tier 1 capital consists solely of core Tier 1 capital: share capital, reserves, and the fund for general banking risks. It does not contain any hybrid capital instruments, such as dormant capital contributions or Tier 1 bonds that are no longer recognized as Tier 1 capital under Basel III. With this quantity and quality of Tier 1 capital, the bank believes it is well equipped for the future even under Basel III. WGZ BANK Page 2 of 10

3 "WGZ BANK achieved impressive financial results across all its business lines in the first two months of 2012", said Böhnke, talking about the year so far. "Our collaboration, both with our member banks and our small and medium-sized corporate customers, continues to show encouraging signs of growth. We are also seeing positive results in the WGZ BANK Group, not least because there have now been significant write-ups in WL BANK's portfolio of government bonds. Although the first quarter results are not yet available, we already know that the WGZ BANK Group will be able to report very pleasing figures. We have significantly improved on the results achieved in the first quarter of last year." These developments enable the bank to look ahead to the rest of 2012 with optimism. "The state of the German economy makes us confident about the year as a whole. We believe that, thanks to our strong position with our customers and in our markets, we will be able to continue on the same excellent trajectory of 2009 and 2010", continued Böhnke. He emphasized, however, that the high levels of government debt in many western industrialized nations continue to pose a significant challenge for the individual national economies, the single European currency, and the entire financial services sector. Doubts about the reliability of political decisions and, consequently, about the stability of key market parameters demand even greater vigilance and caution across large swathes of the business. WGZ BANK Page 3 of 10

4 WGZ BANK's results of operations for 2011 under HGB Net interest income rose. Whereas the profit contribution made by maturity transformation decreased in line with expectations owing to the market situation, there were increases in the net interest margin contributions from the various business segments especially corporate banking, which is continuing to expand. Current income went up, too. Net fee and commission income also continued to rise. This was attributable to equally strong growth in revenues from derivatives transactions, payments processing and lending operations on the back of a significant expansion in business volumes. This trend is further proof of the continuous improvement in WGZ BANK's operational strength. The fall in net trading income needs to be seen in the context of the tough capital market conditions and the exceptionally high figure reported for When viewed in the round, the performance of net trading income is encouraging. Administrative expenses increased only slightly in This was the first time that they included the cost of the bank levy ( 9.1 million). In addition, staff expenses rose by 4.5 percent owing to normal salary increases and an expansion in the workforce. Excluding the cost of the bank levy, administrative expenses would have fallen year on year. Operating profit before allowances for losses on loans and advances declined by 12.2 percent compared with the record year of 2010 to million. This was the second highest operating profit in the company's entire history. A positive figure was reported for allowances for losses on loans and advances in 2011, which was attributable to a one-off item. As part of the stress test conducted by the European Banking Authority (EBA) in the spring of 2011, million was reclassified from the reserves set aside pursuant to section 340f HGB and transferred to the fund for general banking risks in accordance with section 340g HGB. This ensured that the un- WGZ BANK Page 4 of 10

5 limited option available under German law to use the section 340f HGB reserves to offset potential losses was also recognized in the EBA stress test. This reclassification of reserves must be shown on the face of the income statement under HGB and is therefore recognized as a reversal of allowances for losses on loans and advances. As an addition to the fund for general banking risks, however, it also has an adverse impact on the net income earned from other business. Overall the reclassification did not have any net impact on income. Excluding this one-off item, the 'real' figure for allowances for losses on loans and advances came to 51.7 million. The good quality of customers in the corporate customer portfolio meant that only comparatively small impairment losses had to be recognized on loans and advances. Price corrections on securities portfolios had the greatest impact on allowances for losses on loans and advances. Operating profit after allowances for losses on loans and advances rose to million as a result of the one-off item described above. Excluding this effect, it amounted to million. Various one-off factors impacted on the net income earned from other business. While extraordinary income of million was received from the merger between WGZ BANK Luxembourg and DZ PRIVATBANK, losses of 280 million were transferred to WGZ BANK under the control and profit transfer agreement signed with WL BANK in These losses at WL BANK related to impairment losses amounting to 75 percent of the par value of Greek government bonds held. This line item also included an impairment loss on the long-term equity investment in Volksbank International (VBI), which is a subsidiary of Österreichische Volksbanken-AG (ÖVAG). This equity investment has now been partly sold. Furthermore, this item included the aforementioned transfer of million in reclassified reserves to the fund for general banking risks. WGZ BANK Page 5 of 10

6 Another highly attractive dividend The Advisory Council, Supervisory Board, and Board of Managing Directors of WGZ BANK will propose to the Annual General Meeting on June 19, 2012 that a dividend of 5.75 per share with a par value of 100 be paid. This would constitute a total dividend payout of 37.4 million. It would also enable WGZ BANK to transfer 12.7 million to its revenue reserves. Tier 1 capital in the 2011 annual financial statements would then be strengthened by more than 150 million in total. WGZ BANK Group's financial performance in 2011 under IFRS As was the case with WGZ BANK's separate financial statements, the rise in net interest income was attributable to higher net interest margin contributions and current income, whereas the maturity structure contributions declined owing to lower interest rates and the flat yield curve. Allowances for losses on loans and advances fell significantly in the WGZ BANK Group as well. The main reasons for this trend were the economic recovery and the accompanying improvement in the situation of small and medium-sized corporate customers. The net fee and commission income earned by the WGZ BANK Group fell. This was largely attributable to WGZ BANK Luxembourg, whose financial results have no longer been consolidated as part of the WGZ BANK Group's income statement since the middle of 2011 because it merged with DZ PRIVATBANK. Moreover, WL BANK always reports negative net fee and commission income from its agency and brokerage business with the member banks. Fee and commission expense rose in this business because the partner banks stepped up the agency and brokerage activities that they perform for WL BANK. The increase in losses on trading activities mainly related to WL BANK. As the WGZ BANK Group's mortgage bank that specializes in covered WGZ BANK Page 6 of 10

7 bonds, it also holds European government bonds. These securities are almost exclusively classified and measured at fair value, which has resulted in huge temporary impairment losses owing to the severe escalation of the European sovereign debt crisis. The impairment losses recognized on Greek government bonds as part of the agreed 'haircut' and the accompanying final losses are also predominantly included under this item. The WGZ BANK Group's administrative expenses remained virtually unchanged. Excluding the cost of the bank levy, which was incurred for the first time and amounted to 11.3 million for the group, administrative expenses would have fallen year on year. WGZ BANK in demand as a business partner and employer The trend is encouraging across all of WGZ BANK's business lines. The cooperative financial network defended its position as market leader in SME development lending in the North Rhine-Westphalia region. In the two high-volume development programs, entrepreneur loans and renewable energies, the group secured a market share of 48 percent and 50 percent respectively. WGZ BANK further strengthened its close partnership with small and medium-sized enterprises. In 2011, it extended new loans with a volume of around 3 billion, of which 900 million was accounted for by real-estate loans. The volume of the loan portfolio grew by 10 percent to 7.4 billion. A new record was set of almost 300 new corporate customers. Business with the local cooperative banks was also stepped up significantly. Loans to member banks advanced by 5.3 percent to 15.5 billion. The deposits of member banks grew by an even more impressive 8.3 percent to 12.8 billion. Böhnke believes that WGZ BANK and the cooperative financial network as a whole are well placed: "We managed to consolidate and improve our position in the markets and with our customers despite the difficult environ- WGZ BANK Page 7 of 10

8 ment. We acquired numerous new customers in 2011 and are more popular than ever as a partner in the capital markets." WGZ BANK is also an attractive and respected employer, receiving more than 6,000 applications from potential candidates in 2011 alone. "We offer job security and good prospects for the future. That is not always the case nowadays, especially in Düsseldorf's financial sector", stated Böhnke. WGZ BANK Page 8 of 10

9 WGZ BANK's results of operations under HGB 2010 million 2011 million Change (%) Net interest income Net fee and commission income Net trading income Other net operating income Administrative expenses Operating profit before allowances for losses on loans and advances Allowances for losses on loans and advances >+100 Operating profit after allowances for losses on loans and advances >+100 Net income from other business <-100 Taxes Net income Cost/income ratio (%) WGZ BANK Group's financial performance under IFRS 2010 million 2011 million Change (%) Net interest income Allowances for losses on loans and advances Net fee and commission income Gains and losses on trading activities >+100 Gains and losses on investments <-100 Share of profit (loss) of equity-accounted investments Gains and losses arising on hedging transactions Administrative expenses Other net operating income >+100 Profit/loss before taxes <-100 Taxes <-100 Net profit/loss <-100 WGZ BANK Page 9 of 10

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