Helaba Landesbank Hessen-Thüringen s annual accounts for 2007 are its first to be prepared under IFRS. They include all special purpose entities as defined in SIC-12 in addition to the subsidiary companies previously consolidated under the HGB (German GAAP).
The volume of business under IFRS grew from € 203 bn to € 220 bn, a rise of 8.4 %. Total assets increased by 9.3 % to € 174 bn as a result of successful growth in the strategically important Real Estate and Corporate Finance business areas. Loans and advances to customers jumped more than 15 % to € 80 bn. "The course of business in 2007 shows that Helaba remains on a continuous growth path," asserts the Bank s CFO and Vice-Chairman of the Board of Managing Directors Hans-Dieter Brenner.
Short- and medium-term funds were procured to finance the Bank s growth. Increased used was made of Public Pfandbrief issues and securitised liabilities overall rose to € 35 bn. Customer deposits grew by around € 2 bn to € 38 bn and trading liabilities rose by € 6 bn to € 56 bn. "This underlines how successful we have been in diversifying our funding base," Brenner says. "Helaba s liquidity situation, both short-term and structural, has been entirely comfortable at all times and will remain so."
The Bank used its own resources to increase equity again from € 4.6 bn to € 4.9 bn. The equity figure includes silent deposits of € 1.9 bn received from the State of Hesse.
Business progress and results: on course despite crisis in the financial markets
Helaba Landesbank Hessen-Thüringen finished fiscal 2007 with a Group net profit for the year under IFRS of € 353 m (2006: € 367 m). The overall result under IFRS, including the change in the revaluation reserve, rose from € 337 m to € 369 m, an increase of 9.5 %.
Net interest income rose by € 130 m to € 936 m. This figure also includes the interest expenses for those silent deposits that are not considered to constitute equity under IAS 32. The increase stems from the success of customer lending business; the Bank was able both to command higher margins and to increase volume. "We have achieved all of this growth without ever compromising the quality of our lending portfolio," Brenner confirms. "We continue to stand by the proven principle of growing on the basis of our high quality customers and not through unwarranted risks."
Net commission income jumped 12.3 %. Frankfurter Sparkasse s customer securities business, Helaba s lending business and Hannover Leasing all contributed particularly strongly in this area.
Net trading income dropped to minus € 126 m. This, Brenner points out, is attributable not to actual losses realised, but rather to negative valuation effects: "We are very confident that in economic terms these losses on valuation effectively represent reserves in our case. Thus far we have not recorded any actual defaults."
Net income from hedging activities and derivatives fell by € 96 m year on year to minus € 62 m. Valuation results under the fair value option and derivatives from the banking book are shown under this item along with hedge accounting.
Net income from noncurrent financial assets was hit by write-downs on asset-backed securities amounting to approximately € 20 m. Net income from associates was positive, however, contributing € 26 m.
Other operating income, which consists primarily of revenue from the Group s real estate management companies and leasing business, rose from € 185 m to € 220 m.
Personnel costs as a component of administrative expenses rose moderately from € 460 m to € 473 m. The effects of the increase in collectively agreed pay and the strategic recruitment of additional employees were partially offset by lower allocations to pension provisions. The Group s annual average headcount for 2007 amounted to 5,676, which represents an increase of 5 %.
IT costs, operating costs and audit and consulting costs make up the great majority of the other administrative expenses. The rise from € 358 m to € 381 m is largely due to higher IT and consulting costs for strategic projects. These include the carve-out of 1822direkt as a seperate bank, specialised in direct banking, and the completed new corporate structureof the consolidated subsidiary GWH.
These various factors combined to produce a net profit before taxes of € 407 m. This is € 94 m short of the previous year s figure as a result of valuation losses caused by the crisis in the financial markets. The institution s net profit after taxes amounted to € 353 m, which is only € 14 m down on the previous year.
The actual progress made during a particular period is indicated under the IFRS accounting system by the statement of recognised income and expense, which includes changes in value that are recognised directly in equity as well as net income for the year. Taking these components into account, net profit increased from € 337 m to € 369 m, a year-on-year gain of 9.5 %.
Brenner s overall assessment of fiscal 2007 is clearly positive: "We made outstanding progress in fiscal 2007 with our income from operations, which was not affected by valuation issues, and we managed to hold our course even in the face of the crisis in the financial markets. Thanks to the long-term liquidity-building program on which we embarked some years ago, moreover, we now have the ability to increase our volume of business considerably even at short notice. We have sufficient options available to fund our growth both now and in the future."
Fair value applied to ABS portfolio
Helaba s ABS portfolio amounted € 2.4 bn on the reporting dateThis equates to 4 % of the Group s total securities portfolio. The fair value of the entire ABS portfolio was determined for the purposes of the annual accounts. The trading portfolio accounts for € 0.5 bn. The remaining € 1.9 bn of asset-backed securities are held as noncurrent financial assets, € 1.8 bn of which are classed as available for sale and € 0.1 bn of which are assigned to the fair value option. A fundamental analysis of the full portfolio of noncurrent financial assets was also carried out and all risks that could be identified by the end of March 2008 were quantified in the course of an impairment test. The write-downs required as a result amounted to around € 20 m.
In the eyes of Helaba s CFO this does not in any way detract from the usefulness of securitisation and the possibility it creates for passing on credit risks: "Despite some of the overblown reactions in the markets, securitisation is going to remain an essential tool for flexible, risk-oriented portfolio management. The critical factor is that the risks are assessed against appropriate lending criteria prior to purchase and are found to be commensurate with the margins involved."
Outlook
The Vice-Chairman of the Board of Managing Directors believes the Helaba Group has been on a pathway to long-term success ever since the Brussel agreement I on the discontinuation of the maintenance obligation and statutory guarantee for German public banks in 2001. The key earnings and assets indicators strongly support this view: since 2001 Helaba has seen rises of 36 % in its overall volume of business, 45 % in loans and advances to customers, 39 % in balance sheet equity, 342 % in net income for the year and 50 % in its dividend. All of this progress has been made, furthermore, while simultaneously building up reserves and maintaining strict control of costs. Adjusted to remove the effects of changes to the list of consolidated companies, the Group s administrative expenses have risen by just 1 % a year between 2001 and 2007.
"It should not be forgotten when assessing this decidedly positive trend that the German banking sector has been hit by two separate crises over this period - the credit crisis of 2001 to 2003 and the ongoing financial crisis that broke in the middle of last year," Brenner cautions. "Helaba emerged from both of these trials with its strength enhanced and achieved significant lasting structural improvements in its overall market position and earning power in the period between 2001 and 2007. Given our strong starting position and ambitious medium-term plans, therefore, I see a bright future for Helaba as a European regional bank with an international outlook."
The volume of business under IFRS grew from € 203 bn to € 220 bn, a rise of 8.4 %. Total assets increased by 9.3 % to € 174 bn as a result of successful growth in the strategically important Real Estate and Corporate Finance business areas. Loans and advances to customers jumped more than 15 % to € 80 bn. "The course of business in 2007 shows that Helaba remains on a continuous growth path," asserts the Bank s CFO and Vice-Chairman of the Board of Managing Directors Hans-Dieter Brenner.
Short- and medium-term funds were procured to finance the Bank s growth. Increased used was made of Public Pfandbrief issues and securitised liabilities overall rose to € 35 bn. Customer deposits grew by around € 2 bn to € 38 bn and trading liabilities rose by € 6 bn to € 56 bn. "This underlines how successful we have been in diversifying our funding base," Brenner says. "Helaba s liquidity situation, both short-term and structural, has been entirely comfortable at all times and will remain so."
The Bank used its own resources to increase equity again from € 4.6 bn to € 4.9 bn. The equity figure includes silent deposits of € 1.9 bn received from the State of Hesse.
Business progress and results: on course despite crisis in the financial markets
Helaba Landesbank Hessen-Thüringen finished fiscal 2007 with a Group net profit for the year under IFRS of € 353 m (2006: € 367 m). The overall result under IFRS, including the change in the revaluation reserve, rose from € 337 m to € 369 m, an increase of 9.5 %.
Net interest income rose by € 130 m to € 936 m. This figure also includes the interest expenses for those silent deposits that are not considered to constitute equity under IAS 32. The increase stems from the success of customer lending business; the Bank was able both to command higher margins and to increase volume. "We have achieved all of this growth without ever compromising the quality of our lending portfolio," Brenner confirms. "We continue to stand by the proven principle of growing on the basis of our high quality customers and not through unwarranted risks."
Net commission income jumped 12.3 %. Frankfurter Sparkasse s customer securities business, Helaba s lending business and Hannover Leasing all contributed particularly strongly in this area.
Net trading income dropped to minus € 126 m. This, Brenner points out, is attributable not to actual losses realised, but rather to negative valuation effects: "We are very confident that in economic terms these losses on valuation effectively represent reserves in our case. Thus far we have not recorded any actual defaults."
Net income from hedging activities and derivatives fell by € 96 m year on year to minus € 62 m. Valuation results under the fair value option and derivatives from the banking book are shown under this item along with hedge accounting.
Net income from noncurrent financial assets was hit by write-downs on asset-backed securities amounting to approximately € 20 m. Net income from associates was positive, however, contributing € 26 m.
Other operating income, which consists primarily of revenue from the Group s real estate management companies and leasing business, rose from € 185 m to € 220 m.
Personnel costs as a component of administrative expenses rose moderately from € 460 m to € 473 m. The effects of the increase in collectively agreed pay and the strategic recruitment of additional employees were partially offset by lower allocations to pension provisions. The Group s annual average headcount for 2007 amounted to 5,676, which represents an increase of 5 %.
IT costs, operating costs and audit and consulting costs make up the great majority of the other administrative expenses. The rise from € 358 m to € 381 m is largely due to higher IT and consulting costs for strategic projects. These include the carve-out of 1822direkt as a seperate bank, specialised in direct banking, and the completed new corporate structureof the consolidated subsidiary GWH.
These various factors combined to produce a net profit before taxes of € 407 m. This is € 94 m short of the previous year s figure as a result of valuation losses caused by the crisis in the financial markets. The institution s net profit after taxes amounted to € 353 m, which is only € 14 m down on the previous year.
The actual progress made during a particular period is indicated under the IFRS accounting system by the statement of recognised income and expense, which includes changes in value that are recognised directly in equity as well as net income for the year. Taking these components into account, net profit increased from € 337 m to € 369 m, a year-on-year gain of 9.5 %.
Brenner s overall assessment of fiscal 2007 is clearly positive: "We made outstanding progress in fiscal 2007 with our income from operations, which was not affected by valuation issues, and we managed to hold our course even in the face of the crisis in the financial markets. Thanks to the long-term liquidity-building program on which we embarked some years ago, moreover, we now have the ability to increase our volume of business considerably even at short notice. We have sufficient options available to fund our growth both now and in the future."
Fair value applied to ABS portfolio
Helaba s ABS portfolio amounted € 2.4 bn on the reporting dateThis equates to 4 % of the Group s total securities portfolio. The fair value of the entire ABS portfolio was determined for the purposes of the annual accounts. The trading portfolio accounts for € 0.5 bn. The remaining € 1.9 bn of asset-backed securities are held as noncurrent financial assets, € 1.8 bn of which are classed as available for sale and € 0.1 bn of which are assigned to the fair value option. A fundamental analysis of the full portfolio of noncurrent financial assets was also carried out and all risks that could be identified by the end of March 2008 were quantified in the course of an impairment test. The write-downs required as a result amounted to around € 20 m.
In the eyes of Helaba s CFO this does not in any way detract from the usefulness of securitisation and the possibility it creates for passing on credit risks: "Despite some of the overblown reactions in the markets, securitisation is going to remain an essential tool for flexible, risk-oriented portfolio management. The critical factor is that the risks are assessed against appropriate lending criteria prior to purchase and are found to be commensurate with the margins involved."
Outlook
The Vice-Chairman of the Board of Managing Directors believes the Helaba Group has been on a pathway to long-term success ever since the Brussel agreement I on the discontinuation of the maintenance obligation and statutory guarantee for German public banks in 2001. The key earnings and assets indicators strongly support this view: since 2001 Helaba has seen rises of 36 % in its overall volume of business, 45 % in loans and advances to customers, 39 % in balance sheet equity, 342 % in net income for the year and 50 % in its dividend. All of this progress has been made, furthermore, while simultaneously building up reserves and maintaining strict control of costs. Adjusted to remove the effects of changes to the list of consolidated companies, the Group s administrative expenses have risen by just 1 % a year between 2001 and 2007.
"It should not be forgotten when assessing this decidedly positive trend that the German banking sector has been hit by two separate crises over this period - the credit crisis of 2001 to 2003 and the ongoing financial crisis that broke in the middle of last year," Brenner cautions. "Helaba emerged from both of these trials with its strength enhanced and achieved significant lasting structural improvements in its overall market position and earning power in the period between 2001 and 2007. Given our strong starting position and ambitious medium-term plans, therefore, I see a bright future for Helaba as a European regional bank with an international outlook."
