BayernLB posts good operating income of EUR 597 million for the first half of 2009 Operating earnings rise to EUR 2,077 million Consolidated net income after taxes reaches EUR 359 million Return on equity is 9.3 percent Core capital ratio improves to 10.4 percent Risk positions fall by 11.2 percent to EUR 175.5 billion Administrative expenses cut by 8.9 percent to EUR 1,030 million Cost-income ratio down to 49.6 percent Restructuring expenses of EUR 246 million already accounted for Loans to customers in Germany grow 4.4 percent to EUR 111.1 billion Credit risk provisions raised significantly, particularly for Eastern and South Eastern Europe Munich BayernLB has once again posted a profit for the first half of 2009, despite the global recession. The Group s net operating income for the first six months of the year swung to a plus figure of EUR 597 million, up from a negative EUR -595 million in the same period last year. Operating earnings were EUR 2,077 million and thus exceeded the previous year s period figure of about EUR 447 million. Improved customer business, higher net trading income, effective measures to boost efficiency and the guarantee agreement for the ABS portfolio contributed to the Bank s positive performance. Consolidated earnings after taxes of EUR 359 million compared to EUR -722 million the year before. Return on equity was 9.3 percent. The Bank s figures for the second quarter also show an increase in operating earnings which generated
a surplus. This was, however, offset by significantly augmented credit risk provisions, particularly for Eastern and South Eastern Europe. page 2 of 9 In the first half of 2009, BayernLB has performed successfully, despite very difficult economic conditions. This is even more positive, as the Bank was also able to forge ahead with its extensive restructuring plans, alongside its operating business, commented the head of BayernLB s Board of Management, Dr. Michael Kemmer. Performance in the customer business is very satisfactory. This shows how much trust the market places in the Bank. At the same time, the risk protection plan put in place by the Free State of Bavaria had a stabilising effect. Together with our progress in cutting administrative costs, this makes it clear that BayernLB is on the right track. Kemmer continued: In the next few months we will focus all our efforts on implementing our streamlined business model, in order to push ahead with BayernLB s profitable realignment. Positive customer business Net interest income for the first six months of 2009 was EUR 1,269 million. Interest income grew encouragingly in all of the core Bank s customer-related Business Areas and at all the Group s strategic subsidiaries. This was offset by higher expenses for ensuring liquidity. Net income thus contracted by 1.5 percent compared to the first half of 2008. Net commission income in the reporting period amounted to EUR 228 million. Its contribution to earnings was down on the H1 2008 figure of EUR 287 million, in part due to fees paid to the Financial Market Stabilisation Fund (SoF- Fin). Gains or losses on fair value measurement was a positive EUR 391 million for the first half of 2009 (H1 2008: EUR -145 million). Net trading income of EUR
279 million (H1 2008: EUR -124 million) and gains on the fair value option totalling EUR 112 million (H1 2008: EUR -21 million) played an important role here. Net trading income includes earnings of EUR 162 million coming mainly from trading positions in customer-related interest rate derivatives and foreign exchange transactions. In addition, write-ups on credit portfolios affected by the financial crisis also contributed EUR 117 million. page 3 of 9 Gains or losses on investments climbed to EUR 265 million compared to EUR -920 million in the same period last year. Assets held for sale recorded gains generated by the general narrowing of credit spreads. In addition, gains or losses on investments was positively impacted by the guarantee agreement. As a result, less pressure on earnings came from the ABS investment portfolio. Effective efficiency measures BayernLB made progress with its efficiency improvement drive known as Project Hercules. Administrative expenses fell 8.9 percent to EUR 1,030 million in the first half. The majority of the savings were made by the core Bank. BayernLB is well on schedule with the necessary personnel measures. Groupwide, the number of staff declined by around 600 in the first half of the year, while personnel expenses dropped by 17.0 percent to EUR 464 million. The reduction in operating expenses to EUR 457 million is largely due to a just under 13 percent cut in IT costs. In its income statement for the first half of the year, BayernLB has already recognised around 90 percent (EUR 246 million) and therefore the vast majority of the restructuring expenses expected in the current year for reorganising the Bank. Non-core activities are being cut back and the Bank s streamlined business model is being implemented on a tight schedule. As at 30 June 2009, the planning phase was complete and the measures had begun to be put into
practice. At the same time, the Bank continues to hold constructive talks with the EU Commission. It is still expected to complete its examination of state aid in the autumn. page 4 of 9 As a result of the poorer economic situation, risks in the credit business soared worldwide. BayernLB was not able to escape these events unscathed: Credit risk provisions for the Group rose to EUR 704 million in the first half of 2009, up EUR 525 million on the same period last year. In particular provision requirements for the Group s strategic subsidiaries in Eastern Europe increased, as economic output in these markets slumped heavily. Hardest hit were the MKB Group and first and foremost Hypo Group Alpe Adria (HGAA). In addition to HGAA s conventional credit business, there have been sizeable writedowns for its leasing activities notably in Croatia, Bulgaria and Ukraine. With the exception of DKB, the Bank s other subsidiaries also stocked up their risk provisions. Growing credit volumes in Germany The scaling down of non-core activities as part of BayernLB s reorganisation is progressing on schedule. As per 30 June 2009 total assets fell by 4.1 percent to EUR 404.6 billion. On a positive note, higher customer deposits have improved the quality of the balance sheet structure. Among the transactions impacted by moves to reduce total assets were foreign business and transactions with financial institutions, which are no longer part of BayernLB s core business. Risk positions diminished by 11.2 percent to EUR 175.5 billion. As at 30 June 2009, the Group reported a credit volume of EUR 305.9 billion. In Germany the number of loans granted surged 4.4 percent to EUR 111.1 billion, which emphasises the fact that BayernLB supports the economy in its core markets by providing financial services, even in difficult times. At Group level,
BayernLB reduced credit volume by 2.8 percent, mainly due to eliminating non-core activities. page 5 of 9 Solid capital base BayernLB had a solid capital base at the end of the first half of 2009. As per 30 June 2009, equity rose by EUR 7.5 billion to EUR 18.8 billion, thanks to the measures undertaken by the Free State of Bavaria. The core capital ratio swelled from 8.0 percent to 10.4 percent, whereby the reduction in risk positions had a noticeable impact. BayernLB is thus suitably equipped to deal with whatever may transpire from the still tough economic situation. Progress in all segments Almost all the Business Areas at BayernLB played a part in the Bank s positive consolidated results. The Corporates segment posted a particularly encouraging performance, with operating profit of EUR 285 million (H1 2008: EUR 219 million). Taking customer-related capital market transactions into account, there was a large increase in the capital and liquidity furnished to our national and international core customers. Earnings in the Real Estate segment remained steady despite shrinking markets while administrative costs fell. The relatively low operating profit of EUR 49 million in the first half of 2009 (H1 2008: EUR 103 million) was due in large part to risk provisions, which had previously contributed a positive EUR 43 million in H1 2008. The restructured Savings Banks segment posted a surplus of EUR 11 million (H1 2008: EUR -26 million) and thus performed much better than expected.
The earnings target for the full year was exceeded in the first six months of 2009. page 6 of 9 The newly created Mittelstand segment achieved its first success in the first half of 2009. In order to reach its assigned growth targets, the sales network in Bavaria was expanded by about 50 percent compared to the first half of 2008. At the same time, the volume of credit to corporate customers grew by a good 5 percent compared to the same period in the year before. The segment was able to significantly exceed its target for earnings after risk provisions. The operating start-up losses amounted to EUR 9 million, which was within expectations. Earnings at the Group strategic subsidiaries were also up. The segment s net interest income in the first half rose by around 20 percent over H1 2008 to EUR 879 million. Administrative expenses fell by EUR 15 million to EUR -624 million. While DKB, LBLux, MKB and SaarLB beat their operating profit targets, significantly in some cases, HGAA was far below its target, resulting in a negative contribution of EUR -162 million to the Group s net income. Under the leadership of Franz Pinkl, who took over as Chairman of the Board of Management in June, HGAA is currently implementing an extensive restructuring programme to cut costs, streamline portfolios and focus on target markets. Outlook Despite the positive results in the first half of 2009, the BayernLB Board of Management remains cautious with regard to the full year. It is not possible to make serious forecasts up to the end of the year due to the continuing uncertainty about the economic and market situation. A loss for the year still cannot be ruled out, commented Dr. Michael Kemmer. In light of the fraught
economic situation, BayernLB expects further additions to credit risk provisions in the next six months, particularly for business in Eastern and South Eastern Europe, and potential writedowns on its participations portfolio due to lower growth forecasts. Kemmer: The second half of the year will not be easy. However, BayernLB has a solid capital base and therefore, as it stands at the moment, has a sufficient buffer against any further downturns in the market environment which may occur. page 7 of 9 The Interim Report can be downloaded from www.bayernlb.de from 25 August 2009.
Income statement page 8 of 9 1 Jan 30 Jun 2009 EUR million 1 Jan 30 Jun 2008 EUR million Change in % Net interest income 1,269 1,288-1.5 Risk provisions for the credit business -704-179 >100.0 Net commission income 228 287-20.4 Gains or losses on fair value measurement Gains or losses on hedge accounting 391-145 - 31 29 7.0 Gains or losses on investments 265-920 - Income from interests in companies measured at equity -10 5 - Administrative expenses -1,030-1,131-8.9 Other income 158 171-7.6 Operating profit/loss 597-595 - Restructuring expenses -246-35 >100.0 Income taxes -24-101 -76.2 Minority interests 32 9 >100.0 Consolidated net income/loss 359-722 -
Additional key figures page 9 of 9 1 Jan 30 Jun 2009 1 Jan 30 Jun 2008 Change in % Total assets in EUR million 404,559 421,666-4.1 Equity in EUR million 18,765 11,265 66.6 Risk positions in EUR million 175,500 197,663-11.2 Core capital ratio in percent 10.4 8.0 2.4 Pp Number of employees 19,465 20,072-3.0