Aareal Bank Group posts markedly higher results for the 2010 financial year
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Wiesbaden (ots)
- Consolidated operating profit up by 54 per cent, to EUR 134
million
- New business generated in the Structured Property Financing
segment grows from EUR 3.8 billion to EUR 6.7 billion
- Performance of the Consulting/Services segment remains on track
- Strong fourth quarter - consolidated operating profit of EUR 40
million
- CEO Dr Wolf Schumacher: "We once again proved our strength
throughout 2010 - building the foundations for further expansion
of our excellent market position in the years to come."Aareal Bank Group posted good results for the 2010 financial year, in a market environment that remained challlenging. According to preliminary, unaudited figures, consolidated operating profit amounted to EUR 134 million, up 54 per cent year-on-year. Aareal Bank Group had in fact already achieved its original target - to beat the previous year's figure of EUR 87 million - after the end of the third quarter 2010. The strong performance was maintained during the fourth quarter, with consolidated operating profit rising to EUR 40 million - a 74 per cent increase compared with the fourth quarter of the previous year. At the same time, 2010's fourth quarter results were the highest quarterly figures that the Group had posted for two and a half years.
Looking at full-year results, Aareal Bank Group not only clearly outperformed its operating profit target, but also exceeded its projections for other key financial indicators. For instance, consolidated net interest income of EUR 509 million - up 11 per cent year-on-year - was markedly higher than the 460-480 million range projected. At the same time, allowance for credit losses of EUR 105 million was below the EUR 117 to 165 million range budgeted for the 2010 financial year. At EUR 6.7 billion, new business originated in the Structured Property Financing segment significantly exceeded the target corridor of EUR 4 billion to EUR 5 billion; compared to 2009, new business was up by 74 per cent. At EUR 26 million, operating profit for the Consulting/Services segment was in line with projections, despite the unfavourable interest rate levels for the deposit-taking business.
Dr Wolf Schumacher, Chairman of Aareal Bank's Management Board, explained: "The results for 2010 show that we once again performed well, in a market environment that continued to be challenging, thereby proving the strength and soundness of our business model. We are thus in a very good position to leverage market opportunities to grow our lending business, in order to further expand our excellent market position to provide for profitable growth in the years to come."
2010 financial year: good results in a difficult environment
This increase in consolidated net interest income, to EUR 509 million (2009: EUR 460 million) was mainly attributable to higher average margins achieved in the lending business, resulting from new exposures originated and renewals agreed upon during 2009 and 2010. Margins from the deposit-taking business with the institutional housing industry declined, due to lower interest rate levels which persisted for longer than anticipated.
At EUR 105 million (2009: EUR 150 million), allowance for credit losses reflected the high quality of Aareal Bank Group's credit portfolio.
Net commission income of EUR 123 million (2009: EUR 133 million) reflected - amongst other things - EUR 30 million (2009: EUR 17 million) in running costs for the guarantee facility extended by SoFFin. Adjusted for these costs, net commission income exceeded the previous year's figure.
Net trading income/expenses of EUR 8 million (2009: EUR 44 million) was largely attributable to the valuation of trading derivatives used to hedge interest rate and currency risk, and to realised and unrealised changes in value from sold hedging instruments on selected EU sovereign countries. Results from non-trading assets of EUR -12 million (2009: EUR -22 million) were mainly attributable to the sale of fixed-income securities.
A non-recurring expense of EUR 20 million was recognised for the realignment of an investment property during the financial year under review. This expense was reflected in the results from investment properties, which amounted to EUR -17 million during the 2010 financial year (2009: EUR nil).
Administrative expenses of EUR 366 million were virtually unchanged year-on-year (2009: EUR 361 million). This reflects the strict cost discipline pursued within the Group.
Net other operating income/expenses of EUR -9 million (2009: EUR -14 million) included project-related costs and provisions recognised for subsidiaries, amongst other factors.
Consolidated operating profit for the 2010 financial year totalled EUR 134 million, up from EUR 87 million in 2009. Taking into consideration taxes of EUR 40 million and EUR 18 million in income attributable to non-controlling interests, net income attributable to shareholders of Aareal Bank AG amounted to EUR 76 million (2009: EUR 49 million). After deduction of the EUR 30 million interest payable on the SoFFin silent participation, consolidated net income stood at EUR 46 million (2009: EUR 23 million).
The positive results mean that Aareal Bank will service all of its subordinated refinancing vehicles for the 2009 financial year. This includes the silent participation by SoFFin and the bank's other hybrid instruments.
Both of the business segments contributed to Aareal Bank Group's good results for 2010, in the face of difficult market conditions.
Aareal Bank adhered to its conservative business policy - strictly focussing on quality - in its Structured Porperty Financing segment. Benefiting from economic recovery, and leveraging growing transaction volumes on the commercial property markets, Aareal Bank increasingly exploited opportunities available to originate attractive new business, which increased to EUR 6.7 billion during the 2010 financial year - up from EUR 3.8 billion the year before.
Net interest income posted by the segment for the financial year under review amounted to EUR 467 million (2009: EUR 410 million). This increase was mainly attributable to higher average margins generated on new exposures and renewals during 2009 and 2010.
At EUR 217 million, administrative expenses in the Structured Property Financing segments exceeded the previous year's figure of EUR 201 million. One of the factors contributing to this increase was higher provisions for share-based remuneration, due to the positive performance of Aareal Bank's share price during the financial year under review.
Taking into account net other operating income and expenses of EUR -9 million (2009: EUR -12 million), operating profit for the Structured Property Financing segment amounted to EUR 108 million (2009: EUR 67 million). After deduction of tax expenses of EUR 32 million and EUR 16 million in non-controlling interests, the segment result was EUR 60 million (2009: EUR 38 million).
The Consulting/Services segment continued to show a stable performance during the 2010 financial year. While Aareon's business continued to develop on schedule, the prevailing low interest rate environment - which persisted for longer than anticipated - burdened profitability in the deposit-taking business.
Sales revenue amounted to EUR 199 million in the 2010 financial year (2009: EUR 209 million). The decline was largely due to the low interest rate environment, which impacted unfavourably on profitability of the deposit-taking business with the institutional housing industry. Nonetheless, the volume of deposits from the institutional housing industry increased slightly, despite continued intense competition, averaging around EUR 4.1 billion during the 2010 financial year. Sales revenue included EUR 5 million of revenue generated by SG|automatisering bv, a Dutch subsidiary acquired by Aareon during the fourth quarter of 2010.
On balance, operating profit for the Consulting / Services segment was EUR 26 million (2009: EUR 20 million). After deduction of EUR 8 million in taxes and EUR 2 million in non-controlling interest income, the segment result stood at EUR 16 million (2009: EUR 11 million).
Successful issuance and solid capitalisation
During the 2010 financial year, Aareal Bank successfully implemented its planned funding activities, in a market environment that continued to be difficult, especially for unsecured issues. Overall, Aareal Bank place EUR 1.5 billion in unsecured issues - a confirmation of the trust that investors continue to place in Aareal Bank and its management. The bank also placed Pfandbrief issues totalling EUR 2.4 billion. Moreover, in June 2010 Aareal Bank exercised the option of drawing on the remaining EUR 2 billion available under the guarantee facility provided by the German Financial Markets Stabilisation Fund (SoFFin). This use of the guarantee facility was purely precautionary in nature; the bank continues to hold the guaranteed bond issued on its own books.
Aareal Bank has a solid capital base. The bank has applied the Advanced Internal Ratings-Based Approach (Advanced IRB Approach, "A-IRBA") to determine its capital requirements for credit risks, with retrospective effect from 31 December 2010, instead of the Credit Risk Standard Approach (CRSA) applied to date. Under the A-IRBA, Aareal Bank's Tier 1 ratio stood at 12.9 per cent as at 31 December 2010. Calculated according to the Credit Risk Standard Approach previously applicable, the bank's Tier 1 ratio would have amounted to 10.5 per cent on the same record date (30 September 2010: 10.4 per cent). The Core Tier 1 ratio according to the A-IRBA, excluding hybrid capital and the remaining SoFFin silent participation (of which Aareal Bank repaid an initial EUR 150 million tranche in July 2010), stood at 8.1 per cent as at the year-end. The capital ratios shown are based on the full reinvestment of profits generated during the 2010 financial year.
Notes on the preliminary Income Statement for the fourth quarter of 2010
At EUR 40 million, Aareal Bank Group's consolidated operating profit was up significantly year-on-year (Q4 2009: EUR 23 million).
According to preliminary figures, net interest income in the final quarter of 2010 stood at EUR 139 million (Q4 2009: EUR 115 million), predominantly on account of the favourable interest rate environment during the fourth quarter.
Only EUR 8 million in allowance for credit losses was recognised during the fourth quarter. Even when taking into consideration the results from investment properties of EUR -17 million, aggregate allowance was at the lower end of the full-year projection. Net interest income after allowance for credit losses amounted to EUR 131 million (Q4 2009: EUR 80 million).
Net commission income for the fourth quarter was EUR 37 million (Q4 2009: EUR 39 million).
Net trading income/expenses for the fourth quarter totalled EUR 13 million (Q4 2009: EUR 3 million). Results from non-trading assets amounted to EUR -23 million (Q4 2009: EUR -3 million). Aareal Bank consistently pursued its de-risking strategy during the fourth quarter. The aggregate of net trading income/expenses and the result from non-trading assets amounted to EUR -10 million during the fourth quarter.
Consolidated administrative expenses amounted to EUR 95 million during the fourth quarter (Q4 2009: EUR 83 million). The increase during the fourth quarter was due in particular to the first-time consolidation of SG|automatisering, as well as to higher provisions for share-based remuneration, due to the positive performance of Aareal Bank's share price during the financial year under review.
Consolidated operating profit for the fourth quarter thus totalled EUR 40 million (Q4 2009: EUR 23 million). Taking into consideration income taxes of EUR 11 million and minority interest income of EUR 4 million, consolidated net income after non-controlling interest income amounted to EUR 25 million. After deduction of the net interest payable on the SoFFin silent participation, consolidated income stood at EUR 19 million (Q4 2009: EUR 5 million).
Outlook: good prospects for maintaining the good performance
For the 2011 financial year, Aareal Bank Group sees good prospects for maintaining its good overall business performance, despite the market environment for commercial property finance - which is set to remain challenging during the current year.
The Management Board anticipates interest rates to increase in a moderate way during 2011: accordingly, net interest income compared with 2010 is expected to be stable or a little higher.
The gradual return of property markets to normality is expected to continue, even though some markets will still face losses during the current year; also, the various uncertainties and challenges involved in commercial property finance are likely to persist. Specifically, these include future developments in certain sub-markets, the situation on the capital markets, and the impact of the various regulatory actions. Against this background, Aareal Bank expects allowance for credit losses to remain within a range of EUR 110 million to EUR 140 million, during the 2011 financial year (the previous year's projection was a range of EUR 117 million to 165 million). As in the financial year under review, the bank cannot rule out additional allowances for unexpected credit losses that may be incurred during 2011.
Net trading income/expenses essentially comprises the results of hedge transactions related to refinancing the bank's core business, predominantly currency and interest rate hedges. Aareal Bank only engages in traditional own-account trading to a very limited extent. In the opinion of the Management Board, the valuation of hedging transactions will remain subject to a similar level of volatility as in the last two years, especially in the current environment. As a result, it is impossible to forecast net trading income/expenses for 2011.
Because of the consistent conservative risk policy pursued during recent years, the bank does not anticipate any material burden on the results from non-trading assets in 2011.
Administrative expenses continue to be defined by the unchanged cost discipline, and the figure for 2011 is expected to be marginally higher than the previous year, including the burden associated with the bank levy.
Overall, Aareal Bank is confident, from today's perspective, that it will increase the good operating profit achieved during the 2010 financial year, in a challenging market environment. Despite the additional burdens facing banks as a result of the bank levy, Aareal Bank considers a return on equity before taxes of at least 12 per cent to be achievable in normal market environment.
Aareal Bank
Aareal Bank AG is one of the leading international specialist property banks. The Aareal Bank share is included in Deutsche Börse's mid-cap MDAX index. Aareal Bank operates on three continents: leveraging its successful European business model, the bank has established similar platforms in North America and in the Asia-Pacific region. It provides property financing solutions in more than 20 countries.
Pressekontakt:
Aareal Bank AG
Corporate Communications
Sven Korndörffer
phone: +49 611 348 2306
sven.korndoerffer@aareal-bank.com
Christian Feldbrügge
phone: +49 611 348 2280
christian.feldbruegge@aareal-bank.com
Investor Relations
Jürgen Junginger
phone: +49 611 348 2636
juergen.junginger@aareal-bank.com
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