- Consolidated profit up by 33% to €1.3 billion
- Proposal to Shareholders’ Meeting: record dividend payout of just under €2.5 billion
- At 17.4%, highest Core Tier 1 ratio in the history of the Bank, even after the dividend
- Cost discipline helps drive down operating costs by 2.6% year-on-year
- Net write-downs of loans at pleasing low level
- HVB well positioned for the challenging environment
Today, UniCredit Bank AG (also referred to as HypoVereinsbank) presents its figures for 2012. To download the complete Annual Report as of 31 December 2012, please visit HVB's Investor Relations website at
Performance in 2012
Results of HVB Group
In a persistently difficult capital market environment, HVB Group generated a very good profit before tax of €2,058 million in the 2012 financial year and thus significantly surpassed the year-ago figure of €1,615 million by 27.4% or €443 million. At €1,287 million, consolidated profit after deducting income tax was 32.5%, or €316 million, higher than in 2011. Higher operating income and a decline in operating costs also contributed to this increase in earnings. The economic net write-downs of loans and provisions for guarantees and commitments continued to remain at a pleasing low level.
The significant rise in net trading income within operating income is strongly distorted on account of material one-off effects from credit value adjustments and must be seen in perspective. Without these one-off effects there would be a much lower increase in net trading income of €208 million.
At €3,516 million, operating costs were a very pleasing 2.6% below last year’s figure thanks to our consistent cost management. The cost-income ratio improved by 4.0 percentage points to 58.1% for the full year of 2012 (2011: 62.1%) and thus remained at a very good level by both national and international standards.
Net write-downs of loans and provisions for guarantees and commitments rose by €461 million to €727 million compared with the exceptionally low year-ago figure. This high increase is largely due to technical effects and must be seen in connection with corresponding reversals of provisions. After adjustment, an “economic” net write-downs of loans amounts to €440 million which, at a cost of risk of 33 basis points, is at a satisfactory low level.
Dr Theodor Weimer, Board Spokesman of HypoVereinsbank:
"The market environment in 2012 was just as challenging and marked by factors of uncertainty as in the previous year. These factors included the persistent sovereign debt crisis in several eurozone countries, the continuing absolute low level of interest rates and the sustained caution on the part of customers. We are thus proud of what we achieved in 2012. Last year, we recorded one of the best results in our Bank’s history, although the underlying conditions for us and the entire sector were once again quite difficult. We have thus again shown that we can make the best out of adverse situations and have a robust and powerful positioning even in the currently volatile capital market environment."
The Corporate & Investment Banking (CIB) division increased its profit before tax by €482 million to €1,574 million, thanks in part to the much higher net trading income as a result of the effect from the credit value adjustments, reversals of provisions and strong net income from investments. The Family & SME (F&SME) and Private Banking (PB) divisions failed to quite match the results recorded in 2011 on account of lower operating income notably due to low interest rates and reticence on the part of investors. In addition, the expenses for restructuring provisions (€78 million) also adversely affected the F&SME division in particular, resulting in the profit before tax falling from €126 million in 2011 to €10 million. Profit before tax in the PB division declined from €74 million in 2011 to €38 million.
Capital and liquidity
HVB Group continues to have an excellent capital base. The Core Tier 1 ratio in accordance with Basel II (ratio of "hard" core capital excluding hybrid capital instruments to the total amount of credit risk-weighted assets and risk-weighted asset equivalents for market risk and operational risk) increased to 17.4% as of 31 December 2012 (year-end 2011: 15.6%) thanks to a reduction in risk-weighted assets. This represents the highest Core Tier 1 ratio in the history of the Bank (related to the year-end figures) and remains at an excellent level by both national and international standards. This figure includes the decline in core capital excluding hybrid capital (Core Tier 1 capital) following the withdrawal from HVB’s other retained earnings (€1 billion). The Core Tier 1 capital at year-end 2012 thus amounted to €19.1 billion (year-end 2011: €19.9 billion).
DThe shareholders’ equity shown in the balance sheet remained practically unchanged (down €49 million or 0.2%) compared with year-end 2011. With total assets down by 6.4% compared with year-end 2011 to €348.3 billion, the leverage ratio (ratio of total assets to shareholders’ equity shown in the balance sheet) amounted to 15.0x at the end of 2012 after 16.0x at year-end 2011.
HVB Group enjoyed a very comfortable liquidity base and a solid financing structure at all times in the reporting period. This is why HypoVereinsbank did not participate in either of the ECB’s three-year refinancing operations (in the fourth quarter of 2011 and in the first quarter of 2012) and has also placed a large part of its excess liquidity with Deutsche Bundesbank. The funding risk remained low on account of the diversification in products, markets and investor groups, meaning that adequate funding of lending operations was ensured at all times. Pfandbriefe continued to represent an important source of funding thanks to their very good credit rating and liquidity.
Dr Theodor Weimer:
"Against the backdrop of our very good results and excellent capital base, we will propose to the Shareholders’ Meeting that a dividend of €2.46 billion be paid. In view of a core capital ratio of 17.4% which, even after a dividend is paid, is the highest figure in our Bank’s history, the dividend is economically the right thing to do. It confirms once again the profitability of HypoVereinsbank and our position as a strong and indispensable pillar of the UniCredit banking group."
Due to the persistently high level of uncertainty entailed in the macropolitical environment in Europe and the resulting high structural volatility of financial and capital markets, forward-looking statements on performance are highly unreliable. Based on the assumption that the political and macroeconomic environment will remain stable, HypoVereinsbank expects a pre-tax result in 2013 that will roughly equal the level of 2012 adjusted for a one-off effect.
Key income statement items
In the 2012 financial year, net interest fell by €664 million, or 16.3%, to €3,409 million, resulting from all the divisions alike. In this context, the low level of absolute interest rates in the year under review resulted in a substantial decline in interest margins particularly in deposit-taking operations compared with the previous year. Lower volumes in lending operations led to a reduction in net interest. Furthermore, net interest fell in part because the income from special effects generated in the Multinational Corporates unit included in the Corporate & Investment Banking division last year did not recur in 2012 to the same extent. The significant year-on-year increase in non-interest-bearing liquidity reserves at central banks also had an adverse effect on net interest.
Net fees and commissions
At €1,163 million, net fees and commissions were €145 million,
or 11.1%, lower than the year-ago figure. This figure contains a decline of €94 million, to €555 million, in fee and commission income from management, brokerage and consultancy services. This trend is mainly due to a weaker securities business and can be attributed particularly to investors’ restraint in connection with the difficult financial market environment and customers turning to products with lower margins, which was compensated only in part by the successful sale of individual innovative investment products. In addition, there was a decrease in fee and commission income from lending operations (down €41 million to €382 million) as a result of customers’ subdued demand for credit, and contributions to earnings from other service operations (down €8 million to €10 million) while the fee and commission income from collection and payment services, at €216 million, remained at last year’s level (€218 million).
Net trading income
HVB Group generated net trading income of €1,190 million in 2012 (2011: €190 million). It should be taken into account that this development benefited primarily from the reversal of €395 million of the credit value adjustments in the first quarter of 2012, although these credit adjustments had adversely affected the fourth quarter of 2011 by €397 million. Adjusted for this effect, net trading income would stand at €795 million in the year under review and at €587 million in 2011, which is equivalent to an adjusted increase of €208 million. Furthermore, valuation effects accrued in 2012 on the financial liabilities held for trading in the portfolio resulting from the inclusion of own credit spread, serving to reduce net trading income by €177 million; in 2011 there was a positive change in the own credit spread of €187 million.
For years, operating costs have been reflecting our very successful cost management. In the reporting year, operating costs, at €3,516 million, are significantly lower than the level at the time of HVB’s integration into UniCredit Group (2005: €3,885 million). Compared to last year, operating costs declined by 2.6%, or €95 million, to €3,516 million.
Although payroll costs rose, partly on account of increases in standard-rate and non-standard-rate wages and salaries by 1.1% overall to €1,839 million, other administrative expenses fell by 5.9% to €1,499 million despite higher expenses for implementing regulatory and legal requirements and an inflation rate of around 2% in Germany. Among other things, this decline is due to lower expenses for marketing and advertising measures and lower costs for foreign bank levies. Amortisation, depreciation and impairment losses on intangible and tangible assets declined by 10.6% to €178 million. Within this figure, the amortisation of software and other intangible assets fell by €9 million to €63 million and the depreciation and impairment losses taken on tangible assets by €12 million to €115 million.
Operating profit rose by a substantial €333 million, or 15.1%, to €2,534 million in the reporting period, mainly on account of the high net trading income. The cost-income ratio (ratio of operating expenses to operating income) improved by four percentage points to 58.1% in the reporting period and is thus still at a very good level for a universal bank (2011: 62.1%).
Net write-downs of loans and provisions for guarantees and commitments
Net write-downs of loans and provisions for guarantees and commitments amounted to €727 million in the reporting year. This figure includes an addition in connection with the construction of an offshore wind farm. A write-down of €240 million was taken for this exposure as part of the credit extended for which adequate provisions for risks and charges had already been set up last year and which is why a corresponding net reversal of other provisions of €240 million was carried out for this exposure in the reporting year. Furthermore, net write-downs of loans and provisions for guarantees and commitments contain a further €47 million in additions for which HypoVereinsbank had also set up a provision in 2011 in order to shield against legal risks from derivatives. Without these two net additions of €240 million and €47 million, “economic net-write downs of loans and provisions for guarantees and commitments” of €440 million are left remaining, which is still at a relatively low level. An exceptionally low level of €266 million was posted in 2011 for net write-downs of loans and provisions for guarantees and commitments.
In the year under review, restructuring costs totalled €102 million (2011: €108 million). These costs in 2012 arose from the set-up of restructuring provisions almost exclusively for measures in connection with the changes in the organisational structure of HVB Group during the introduction of the three business segments Unternehmer Bank, Private Clients Bank and Corporate & Investment Banking and the consistent strengthening of the Bank’s regional presence as well as for measures serving to ensure the competitiveness of its mass-market operations in the years to come. In addition to setting up new distribution channels – heavily in demand by customers – this also represents a streamlining of today’s branch network and an alignment of personnel capacities with the change in customer behaviour. These restructuring provisions mainly include provisions for severance payments but also costs for the closure of individual branch offices.
Net income from investments
In the 2012 financial year, net income from investments amounted to €158 million compared with €39 million in the previous year. In the reporting period, net income from investments chiefly results from gains of €220 million, which were partially offset by expenses of €62 million for write-downs and value adjustments. Of the gains, €134 million relate to available-for-sale financial assets mainly originating from the sale of private equity funds and to the gains on the disposal of land and buildings of €49 million in connection with the sale of properties in central locations at the Bank’s facilities in Munich as part of a programme to optimise office usage and costs in Bank-owned real estate. The write-downs and value adjustments are particularly due to private equity funds. Last year, net income from investments was almost exclusively generated from gains on the disposal of available-for-sale financial assets, which were partially offset by expenses for write-downs and value adjustments on investment properties.
Profit before tax, income tax for the period and consolidated profit
With a very good profit before tax of €2,058 million, HVB Group managed to surpass the year-ago result (€1,615 million) by €443 million, or 27.4%, despite the challenging market conditions. Income tax amounted to €771 million in 2012 partly as a result of the good operating performance, up €131 million on the figure in 2011. Furthermore, provisions were set up for proceedings relating to German tax credits, which are offset by value adjustments on deferred tax assets on tax losses carried forward. After deducting income tax, HVB Group generated a consolidated profit of €1,287 million in the 2012 financial year, which is significantly higher than last year’s consolidated profit (€971 million).
Segment results by division
The segments contributed the following amounts to the profit before tax of €2,058 million of HVB Group:
|Corporate & Investment Banking
|Family & SME
Segment results in detail
Corporate & Investment Banking
The Corporate & Investment Banking division increased its operating income by a healthy 18.2%, or €590 million, to €3,838 million in the difficult market environment of 2012. Taking into account the slight decline in operating costs to €1,565 million (down 1.3% or €20 million on 2011), the operating profit rose by €610 million to €2,273 million (2011: €1,663 million).
The sharp rise in operating income can be primarily attributed to the significant increase in net trading income by €885 million to €1,054 million. In this context, it must be taken into account that this development benefited from the reversal of credit value adjustments of €395 million in the first quarter of 2012, while these credit value adjustments had negatively impacted the fourth quarter of 2011 by €397 million. In contrast, valuation effects on financial liabilities held for trading in the portfolio, incorporating the own credit spread, declined by €159 million compared with 2011.
Compared with last year, the Rates & FX (interest and currency-related products) trading units and trading with structured credit products contributed higher earnings to the division’s net trading income, while the remaining trading units also managed to generate positive results but could not match last year’s figures.
Net interest fell by €235 million year-on-year to €2,200 million. This decline is mainly due to the non-recurrence of one-time income effects recorded by the Multinational Corporates unit in 2011, while the total was also depressed by much lower margins particularly in deposit-taking operations on account of the low interest rates. Dividend income fell by a total of €5 million to €126 million on account of lower dividend payments by private equity funds.
Net fees and commissions declined by €122 million to €475 million due primarily to weaker credit- and trading-related business. Overall, the division generated a good profit before tax of €1,574 million in 2012, up by a strong €482 million on the year-ago total
of €1,092 million.
Family & SME
At €10 million, the profit before tax of the F&SME division at 31 December 2012 was €116 million below the year-ago total. This development can be attributed primarily to a decline of €160 million in operating income to €1,668 million together with higher expenses for restructuring provisions (2012: €78 million).
In the process, net interest fell by €142 million to €1,098 million, chiefly due to margins on account of the sharp drop in interest rates in deposit-taking operations. Lower net interest was generated in lending activities essentially due to declining volumes, although a tangible increase in new business volumes of real estate and development loans was evident in the second half of 2012. At €552 million, net fees and commissions remained at a high level compared with 2011 (€552 million) despite the persistent restraint still exercised by investors, thus reflecting the successful sale of innovative, demand-compliant products.
Operating costs declined by 1.0% to €1,607 million year-on-year thanks to consistent cost management. A decrease in indirect costs also contributed to the fall in operating costs. Payroll costs included in operating costs rose by a total of 2.7% to €637 million in line with standard pay increases and higher pension expenses.
Net write-downs of loans and provisions for guarantees and commitments showed a pleasing trend, declining by a sharp 73.3% to an extremely low level of €8 million. After positive effects from the reversal of provisions and net income from investments are taken into account, the F&SME division generated a profit before tax of €10 million in 2012 overall (2011: €126 million).
The Private Banking division generated a profit before tax of €38 million in 2012, falling short of the good prior-year total of €74 million. The main reason for this is a decline of €31 million in operating income to €234 million. Within operating income, the €128 million recorded for net fees and commissions in particular failed to match the high year-ago total of €150 million on account of persistently weak customer demand.
Net interest fell by €15 million to €94 million, notably on account of deposit-taking operations contracting as a result of low interest rates. The 2.5% increase in operating costs to €165 million can be attributed to payroll costs partly due to the standard pay increases and higher other administrative expenses resulting from higher indirect costs. The cost-income ratio amounted to 70.5% after 60.8% in 2011.
The operating income of this segment fell by €161 million in 2012 to €310 million (2011: €471 million). This decline essentially stems from net interest, which decreased by a total of €272 million to €17 million (2011: €289 million) due among other things to a decline in return on equity in line with interest rates. At the same time, net trading income rose by €107 million to €132 million (2011: €25 million) partly due to the gains generated in connection with the buy-back of hybrid capital instruments and supplementary capital.
Operating costs decreased by €63 million overall largely as a result of the bank levy in Austria that was no longer payable in the reporting period (expenses in bank levy in 2011: €48 million). Operating profit fell by €98 million to €131 million in 2012 (2011: €229 million) on account of the decline in operating income.
In the reporting period, a net reversal of €248 million was recorded in net write-downs of loans and provisions for guarantees and commitments arising notably from the successful reduction of expiring portfolios (net reversal in 2011: €81 million).
With an increase in net income from investments to €58 million on account of gains on the sale of land and buildings coupled with a year-on-year decrease of €21 million in restructuring costs and only a slight change in net reversals of provisions for risks and charges, the profit before tax totalled €436 million, which is €113 million higher than the year-ago total of €323 million.