- Pre-tax profit of €728 million
- Consolidated profit after tax of €448 million
- Stable performance across all three quarters
- All business segments deliver positive results
- Positive trend in net fees and commissions continues
- Bank operating costs at year-ago level
- CET1 ratio of 21.2% in accordance with Basel III still at a very high level
In a persistently challenging economic and financial environment, HVB Group (also referred to as HypoVereinsbank) generated a profit before tax of €728 million in the first three quarters of 2014. This fell short of the very good pre-tax profit of €1,553 million recorded in the equivalent period last year. The year-on-year decline of €825 million can be mainly attributed to lower operating income, which fell by €835 million or 20.0%.
“The performance of the global economy has disappointed in the year to date, with growth in Europe and Germany failing to match expectations either. Extremely low interest rates, low volatility on the capital markets, restrained customer demand and geopolitical risks all pose additional challenges. Despite all this, HVB has achieved a stable result in the third quarter, with all the business segments once again contributing to our earnings. We will retain our focus on profitability and risk management in this setting,” comments Dr Theodor Weimer, Board Spokesman of HypoVereinsbank.
The persistently extremely low interest rates in the first nine months of 2014 adversely affected net interest above all, which was down by €181 million to €1,988 million compared with the equivalent period last year. At the same time, there was a €536 million decrease in net trading income to €366 million (30 September 2013: €902 million), although it should be noted in this context that last year’s figure contained gains on the buy-back of hybrid capital instruments which did not recur in the reporting period and that credit value adjustments negatively impacted net trading income. With earnings of €800 million, net fees and commissions were only a slight €21 million lower than the year-ago total, while net other expenses/income fell by €80 million to €103 million.
Operating costs rose by €126 million, or 4.9%, to €2,701 million compared with the same period last year. This rise is due almost exclusively to the initial consolidation of the BARD Group and the depreciation taken on our offshore wind farm, which is included in full for the first time this year. Without these two effects, operating costs would have actually declined slightly.
Net write-downs of loans and provisions for guarantees and commitments show a net reversal of €5 million and are thus significantly below even the very low figure recorded last year (net addition in 2013: €140 million).
Capital and liquidity base still at a high level
HVB Group has had an excellent capital base for years. The new, Common Equity Tier 1 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 slightly to 21.2% at 30 September 2014 compared with 21.5% determined under Basel II (core Tier 1 ratio) at year-end 2013. It is thus still at an excellent level by both national and international standards. The equity capital amounted to €19.5 billion at 30 September 2014 (31 December 2013: €20.0 billion); the equity funds ratio was 22.0% at the end of September 2014 (31 December 2013: 23.4%).
The shareholders’ equity shown in the balance sheet fell by €0.4 billion compared with the end of last year to €20.6 billion due to the dividend payout totalling €756 million resolved by the Shareholders’ Meeting in the second quarter of 2014. This was only partially offset by the consolidated profit of €442 million (attributable to the shareholder of HVB) generated in the first three quarters of 2014. With total assets up by 8.9% to €316.0 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 6.4% at 30 September 2014 after 7.1% at year-end 2013 and is thus still at an excellent level.
HVB Group enjoyed a very comfortable liquidity base and a solid refinancing structure at all times in the reporting period. 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 deliver positive results
All business segments contributed earnings to the profit before tax of €728 million in the first nine months of 2014:
The Commercial Banking business segment recorded a pleasing profit before tax of €292 million, thus slightly surpassing the figure reported for the same period last year by €26 million. This profit was generated by an increase of €18 million in operating income to €1,847 million together with a €12 million decrease in operating costs to €1,499 million and a decrease of €17 million in net write-downs of loans and provisions for guarantees and commitments to €47 million while the net addition to provisions was up by €27 million (30 September 2013: net reversal of €13 million). In this context, it is pleasing to note the slight increase of €6 million in net interest despite the difficult situation caused by low interest rates.
The Corporate & Investment Banking (CIB) business segment generated operative income of €1,364 million (30 September 2013: €1,984 million). The decrease of €620 million results primarily from a fall of €396 million in net trading income due in part to the credit value adjustments recognised in the first nine months of 2014. Furthermore, net interest was down a substantial €119 million, mainly as a result of lower trading-induced interest and contracting credit volumes. Operating costs increased by a total of €140 million, primarily on account of the initial consolidation of the BARD Group and the depreciation taken on our offshore wind farm that are to be recognised in full for the first time. By contrast, net write-downs of loans and provisions for guarantees and commitments improved by €212 million to a net reversal of €19 million. The profit before tax fell by an appreciable €492 million to €366 million.
To download the complete Interim Report at 30 September 2014, please visit HVB’s Investor Relations website at www.hvb.de/ir .