- Profit before tax of €296 million
- Consolidated profit after tax of €191 million
- Subdued start to the year, market environment mainly affects Corporate & Investment Banking
- All business segments contribute to the profit, Commercial Banking at year-ago level
- At 21%, Common Equity Tier 1 ratio still at very high level even under Basel III
In the first quarter of 2014, HVB Group (also referred to as HypoVereinsbank) generated a profit before tax of €296 million in a persistently challenging economic and financial environment. Adjusted for non-recurring effects, this represents a decline of €111 million on the equivalent period last year. The lower profit is mainly due to the difficult market environment which particularly affected interest income in the Corporate & Investment Banking (CIB) business segment and was only partially offset by higher net trading income in that business segment. The non-recurring effects, which amounted to €206 million, can be attributed in part to one-time income from buy-backs of hybrid instruments and a gain on the disposal of property.
"As expected, the first quarter of 2014 was characterised by economic uncertainties, volatile financial and capital markets, and persistently low interest rates,” explains Dr Theodor Weimer, Board Spokesman of HypoVereinsbank. "This also left its mark on us – particularly in Corporate & Investment Banking where restrained demand was recorded in the large-exposure business and structured loans. Despite this, we again succeeded in generating a respectable profit at the average level of the last four quarters, with all the business segments contributing to the profit of the Bank as a whole."
The persistently ultra-low interest rates in particular depressed net interest in the first quarter of 2014. This was down by €104 million, or 13.5%, to €669 million, primarily as a result of the €95 million decrease in net interest to €232 million in the CIB business segment. At the same time, there was a €108 million decline in net trading income to €267 million. However, this decrease was caused by the gains on the buy-back of hybrid capital instruments contained last year which did not recur in the reporting period. With earnings of €277 million, net fees and commissions were €35 million lower than the year-ago total, while net other expenses/income decreased only a slight €5 million to €44 million.
Operating costs rose by €52 million, or 5.9%, to €935 million compared with the same period last year. This rise is primarily due to the initial consolidation of the BARD Group, higher expenses in the IT function, the implementation of stricter regulatory requirements and higher marketing expenses. By contrast, there was a slight decline in payroll costs. The cost-income ratio of 74.0% in the reporting period remained at a satisfactory level for a universal bank. At €78 million, net write-downs of loans and provisions for guarantees and commitments are at a very low level, €11 million lower than the figure recorded last year (first quarter of 2013: €89 million).
Capital and liquidity base at very high level
HVB Group has had an excellent capital base for years. The new Common Equity Tier 1 (CET1) capital ratio determined in accordance with Basel III (CET1 capital ratio: ratio of Common Equity Tier 1 capital to the total amount of credit risk-weighted assets and risk-weighted asset equivalents for market risk and operational risk) fell to 21.0% at 31 March 2014 compared with the ratio determined on the basis of the German Commercial Code in accordance with Basel II (core Tier 1 ratio) of 21.5% at year-end 2013. It is thus at an excellent level by both national and international standards.
The shareholders’ equity shown in the balance sheet increased by €0.2 billion compared with year-end 2013 to €21.2 billion due to the consolidated profit generated in the first quarter of 2014. With total assets up by 2.7% to €297.7 billion over year-end 2013, the leverage ratio (defined as the ratio of shareholders’ equity shown in the balance sheet less intangible assets to total assets less intangible assets) amounted to 7.0% at 31 March 2014 after 7.1% at year-end 2013.
HVB Group enjoyed a very comfortable liquidity base and a solid financing structure at all times in the reporting period. In this context, it is worth mentioning that HVB Group has placed a large part of its excess liquidity with Deutsche Bundesbank. The funding risk remained low on account of the diversification in our products, markets and investor groups. Our Pfandbriefs continued to represent an important source of funding thanks to their very good credit rating and liquidity.
All business segments post a profit
All the business segments contributed to the profit before tax of €296 million in the first quarter of 2014.
The Commercial Banking business segment - consisting of the Unternehmer Bank and Private Clients Bank business units - recorded a profit before tax of €110 million, thus slightly surpassing the figure reported for the same quarter last year by €1 million (first quarter of 2013: €109 million). The slight decline of 1.1%, or €7 million, in operating income to €631 million (first quarter of 2013: €638 million) was largely offset by a decline of €4 million in operating costs to €494 million (first quarter of 2013: €498 million). The slight decrease in operating income was mainly due to a €11 million decline in net trading income which had benefited from the reversal of credit value adjustments in the equivalent period last year. In this context, it is also pleasing that net interest was maintained at the same level as last year despite the difficult situation caused by low interest rates.
The Corporate & Investment Banking (CIB) business segment - with the Markets, Financing & Advisory and Global Transaction Banking product factories - generated a profit before tax of €150 million in the first quarter of 2014 (2013: €292 million). The decrease in operating income to €544 million (first quarter of 2013: €667 million) is primarily due to a fall of €95 million in net interest to €232 million, which is mostly attributable to the decrease of €44 million in trading-induced interest income and lower income from lending operations caused particularly by contracting credit volumes. In addition, net fees and commissions fell by €28 million to €33 million as a result of lower income from credit-related business. By contrast, slight growth of €8 million was recorded in commercial transactions, which amounted to €258 million compared with €250 million in the first quarter of 2013. Operating costs increased by €52 million, partly on account of initial consolidations.
The Asset Gathering business segment, which reflects the activities of our DAB Bank subsidiary, recorded a profit before tax of €7 million after €5 million in the first quarter of 2013. The slight increase can be attributed particularly to operating income which was up €6 million on the back of a €3 million rise in net interest and higher net fees and commissions.
To download the complete Interim Report at 31 March 2014, please visit HVB's Investor Relations website at www.hvb.de/ir .