Annual press briefing. 10 March EMBARGO: Monday 10 March 2014, 10:00 CET. Manuela Better CEO. Alexander von Uslar CFO

Transcription

1 EMBARGO: Mnday 10 March 2014, 10:00 CET Annual press briefing 10 March 2014 Manuela Better CEO Alexander vn Uslar CFO Deutsche Pfandbriefbank AG, Munich Manuscript please check against delivery.

2 Annual press cnference 10 March Intrductin (Manuela Better) Gd mrning, ladies and gentlemen Welcme t the annual press briefing f pbb Deutsche Pfandbriefbank. We are pleased that yu have been able t attend tday. During the 2013 financial year pbb Deutsche Pfandbriefbank maintained its successful business perfrmance f the recent years, clearly exceeding its targets fr prfit and new business in its perating business (slide 1): At 8.2 billin, new business vlume reached a recrd, exceeding the previus year's level by almst 50 per cent. We thus demnstrated ur riginatin strength, with a risk/return prfile that cntinues t be attractive. Based n preliminary figures, pre-tax prfit rse t 165 millin, up apprximately tw-thirds n ur riginal prjectins. We als further ptimised ur strategic psitin: We terminated the prtfli servicing fr FMS Wertmanagement, as planned; these activities were nn-strategic. This allwed us t reduce cmplexity and t fcus mre clsely n the cre business. In this way we built the fundatins fr implementing new structures within pbb, and t ptimise prcesses which are nw fully in line with ur requirements fr a specialist Pfandbriefbank that is cnsistently geared twards its clients. In ther wrds: pbb is ready fr the future. Based n this market psitin, the Grup lks ahead t 2014, and t the planned privatisatin in In 2014, we will cntinue t demnstrate the skills that will be decisive fr privatisatin. We will demnstrate pbb's riginatin strength and funding pwer, and we will shwcase ur risk management skills. I will cver these aspects in mre detail later. First, my clleague Alexander vn Uslar will nw present and discuss the preliminary results fr the 2013 financial year in detail. Page 2 f 14

3 Annual press cnference 10 March Results 2013 (Alexander vn Uslar) Gd mrning, ladies and gentlemen. Allw me t make a few intrductry bservatins befre cmmenting n the preliminary results: pbb generated a pre-tax prfit f 165 millin, in accrdance with IFRS, during 2013 a result that was very significantly higher than ur guidance f at least 100 millin as cmmunicated at the beginning f In fact it als exceeds the raised frecast, as given in Octber 2013, by anther 10%. pbb's prfitability has imprved: the return n equity befre taxes rse t 5.0% (2012: 3.8%), and t 4.9% after taxes (2012: 2.1%). There were tw ppsite ne-ff effects, which tgether had a psitive impact n results f apprximately 37 millin. Effects frm the valuatin f derivatives led t a nn-recurring expense f 55 millin. T date we were using three-mnth interest rates fr valuatin purpses; nw we are using vernight rates. This is the new standard, and we are ne f the first institutins t have fully implemented this new market cnventin. The 55 millin expense als includes csts incurred fr the ptimising ur derivatives prtfli. This effect was mre than ffset by the sale f an ffice prperty in Lndn, which we had acquired years ag frm a brrwer in the curse f a lan restructuring. We realised 92 millin incme upn the sale. N dubt we benefited frm the current favurable market envirnment. But this required the successful repsitining f the prperty, by which we significantly enhanced tenancy rate. pbb thus prved that banks are indeed able t restructure a skill that is ften denied. Fllwing the ptimisatin f ur market presence and the terminatin f the servicing functin fr FMS Wertmanagement at the end f September last year bth pints which Manuela Better already mentined we have lwered general administrative expenses as planned, thanks t cst savings. This effect will be clearly visible during 2014 in the year under review it nly impacted n the furth quarter. The cst/incme rati imprved frm 73.0% t 64.7% als reflecting the ne-ff effects n incme. The rati will fall further during 2014; n a medium-term hrizn, we want t achieve a figure belw 40%. Page 3 f 14

4 Annual press cnference 10 March Cnslidated results f Deutsche Pfandbriefbank I will nw present the details f pbb's preliminary cnslidated financial statements in accrdance with IFRS. As in the previus years, I will structure my presentatin f the varius line items in line with ur business lgic. All figures f the 2013 financial statements are preliminary and unaudited. We will publish the audited financial statements and the annual reprt n 3 April Results frm the lending business Incme frm ur cre lending business is recgnised in tw items: net interest incme and net cmmissin incme (slide 2). At 319 millin, net interest incme exceeded the previus year's figure f 296 millin and remained the key surce f incme. New business was a key driver f this increase: the nminal vlume f new business riginated in the strategic business segments f Real Estate Finance and Public Investment Finance ffset repayments, and the average margin earned n newlyriginated expsures exceeded the figure fr the existing prtfli. Early repayments f receivables and early redemptins f liabilities had a psitive effect ttalling 27 millin during the year under review (2012: 17 millin). The lw interest rate levels which nce again drpped during 2013 resulted in lwer interest incme frm wn funds and liquidity reserves. Net cmmissin incme ttalled 9 millin (2012: 23 millin). We generate cmmissins, fr example, in the frm f syndicatin and ther fees. This incme frm the bank's business activities is ffset by prvisins fr lsses n lans and advances, which we recgnised in a net amunt f 8 millin in Whilst this was higher than in the previus year (when we were able t release a net 4 millin), it remained n a lw level. This lw level is a reflectin f the gd verall situatin n the markets, but als f the high quality f ur prtfli. Page 4 f 14

5 Annual press cnference 10 March Other results related t ur business activities We reduced general administrative expenses by almst 10%, t 312 millin (2012: 341 millin) (slide 3). This shws that the restructuring measures f the past few years have cme t fruitin. We reduced persnnel expenses by 10 millin, t 121 millin during the perid under review (2012: 131 millin). This decline already reflected the transfer f pbb staff t FMS Wertmanagement's service cmpany which tk place at the beginning f the furth quarter, in line with the transfer f the servicing functin. We expect anther marked decline in persnnel expenses in the current financial year. Nn-persnnel expenses were dwn t 191 millin (2012: 210 millin), mainly due t lwer advisry and IT expenses. The balance f perating incme and expenses decreased t 100 millin during the 2013 financial year (2012: 131 millin), mainly due t the terminatin f servicing fr FMS Wertmanagement at the end f September. The bank generated incme f 60 millin frm these services in 2013 the year befre, the figure was 106 millin. As yu knw, this incme item was ffset by administrative expenses f virtually the same amunt. This is due t the fact that we inviced these services using a 'cst-plus' methd, with nly a small mark-up. We generated 36 millin (2012: 40 millin) in net incme frm IT services prvided t ur affiliate, DEPFA Grup. The bank levy weighed n the balance f ther perating incme and expenses in an amunt f 11 millin; the 24 millin figure fr the previus year included back payments frm the preceding year. The balance f ther incme and expenses f 3 millin (2012: - 6 millin) mainly reflected changes t restructuring prvisins required fr pbb's realignment. Updated calculatin parameters had an impact here. Page 5 f 14

6 Annual press cnference 10 March Effects frm the valuatin f financial instruments Let me nw turn t the effects resulting frm the valuatin f financial instruments (slide 4). We already anticipated negative effects at the beginning f 2013 an assessment which turned ut t be accurate. These effects were clearly psitive in The fluctuatins shw that ur influence n such effects is very limited indeed, since they are driven by changes in market value. One exceptin during the perid under review was the net incme frm financial investments. Net trading incme, which in 2012 still shwed incme f 10 millin fell t a deficit f 51 millin in This shwed the impact f the switch t vernight yield curves, as I described earlier, and f ptimising ur derivatives prtfli. We d nt have any prfits r lsses frm trading activities in fact, we d nt have a trading bk at all. At 92 millin, incme frm the decnslidatin f Little Britain Hldings (Jersey) Ltd accunted fr the lin's share f net incme frm financial investments, which amunted t 96 millin (2012: 13 millin). In additin t this item, which I already explained earlier, there were several further minr effects. Net incme frm hedge relatinships better knwn under the cncept f 'hedge accunting' imprved t 9 millin in the year under review (2012: -6 millin). The net figure was largely due t hedge inefficiencies. The Grup n lnger hlds any financial instruments designated at fair value thrugh prfit r lss. Page 6 f 14

7 Annual press cnference 10 March Ttal assets Cnslidated ttal assets f the pbb Grup amunted t 74 billin n the reprting date, dwn 23% frm the previus year's level (31 December 2012: 97 billin) (slide 5). The reductin in ttal assets was attributable t the fllwing factrs in particular: pbb participated in three-year LTRO ffered by the ECB in December 2011 and February 2012, in an aggregate vlume f 4 billin. The bank repaid these funds at the earliest pssible date, in January and February 2013, respectively. In the curse f transferring assets t FMS Wertmanagement in 2010, sme mrtgage lans were transferred synthetically. This means that whilst the ecnmic risk was transferred t FMS Wertmanagement at the time, the lans remained within pbb's cver pl, and thus n pbb's balance sheet. These lans were transferred 'physically' t FMS Wertmanagement in August 2013, at which pint they had a carrying amunt f 6.4 billin. The remaining effects arising frm the transfer f assets t FMS Wertmanagement were reduced further during the 2013 financial year and are nly f minr imprtance nw. Fr instance, the balance f psitive market values f back-t-back derivatives was reduced t virtually zer, thrugh nvatins (2012: 1.0 billin). Fllwing maturities, the pbb Grup n lnger hlds any securities issued by FMS Wertmanagement. This reduced ttal assets by 2.2 billin cmpared with 31 December pbb cntinues t carry nn-strategic prtflis in public-sectr budget finance. The nminal value f these prtflis, which will run ff n pbb's bks as planned, was reduced by a further 4.9 billin, t 22.8 billin (2012: 27.7 billin). 2.3 Regulatry capital ratis pursuant t Basel III Since we calculate the capital ratis at the level f the HRE Grup, all ratis fr the pbb sub-grup are n a pr-frma basis. Deutsche Pfandbriefbank remains wellcapitalised in fact, the bank scapital ratis even imprved during the year under review. The tier 1 rati was 20.3% (31 December 2012: 18.9%), and the cre tier 1 rati was 17.8% (31 December 2012: 16.6%), particularly as a cnsequence f the reductin in risk-weighted assets, frm 15.3 billin t 14.2 billin. The bank's capitalisatin excluding net incme fr 2013 remained stable, at 2.9 billin. Even when applying all effects knwn under Basel III tday, capital ratis in accrdance with Basel III (fully phased in) wuld remain at these sund levels: the tier 1 rati wuld be 17.6% and the cre tier 1 rati 11.6%. Page 7 f 14

8 Annual press cnference 10 March Review f the year 2013 (Manuela Better) Ladies and Gentlemen, pbb lks back n a successful year bth in ur perating business and in terms f ur strategic psitin. I wuld like t cver bth aspects befre I give yu an utlk fr Markets New business Let me start with ur new business (slide 6), which develped very favurably indeed in pbb riginated new business in an aggregate vlume f 8.2 billin during The year-n-year increase f 46% is clear evidence f the riginatin strength we have reached by nw. As in the past, the furth quarter was the strngest, with a vlume f 2.7 billin. As expected, the bulk f new business was in Real Estate Finance, which accunted fr 7.0 billin r apprximately 85% f the ttal figure. As in the previus year, we riginated the majrity f real estate lans in Germany. The share f business in Germany rse frm 32% t 53%, which is in line with the share f German expsure in the ttal prtfli. With an unchanged share f apprximately 17%, the United Kingdm was the secnd mst imprtant market fr us, fllwed by Central and Eastern Eurpe (14 %) and France (9%). The average lan-t-value rati fr new expsures rse slightly, frm 56% in 2012 t 61% in Still, we cntinue t riginate new business with an attractive risk/return prfile even mre s given the average grss margin, which remained abve 225 basis pints. At arund 4.4 years, the average maturity was virtually unchanged frm 2012, when it was 4.5 years. Whilst Real Estate Finance is set t remain the mre imprtant f ur tw business divisins, we anticipate a higher relative share f Public Investment Finance business. Page 8 f 14

9 Annual press cnference 10 March 2014 In the Public Investment Finance business, we bsted ur new business vlume disprprtinately, t 1.2 billin up by mre than 70% year-n-year, albeit cmpared with a cmparatively lw vlume in the previus year. France and Germany remained ur mst imprtant target markets in this segment. The Nrdic cuntries, where we started ffering financings t ur public-sectr clients in 2013, accunted fr a cmbined share f 10%. This is a respectable result, and a very sensible expansin f ur activities in this business. We have further expanded ur activities in guaranteed exprt financing schemes. Grss margins came under slight pressure; n average, they were abve 100 basis pints (2012: > 140 basis pints). In this cntext, it is wrth nting that the previus year's result was shaped by high-margin business in France, which makes cmparisns less meaningful. At arund 8 years, the average maturity was lwer than in the previus year (2012: 7 years), Mmentum in new business has remained intact; we anticipate first-quarter business vlume t exceed the figure fr the same quarter f the previus year. Page 9 f 14

10 Annual press cnference 10 March Prtfli During the perid under review, pbb Deutsche Pfandbriefbank's verall prtfli declined by 8.4 billin, t 66.9 billin (shwn as Expsure at Default r EAD, in line with Basel II). As in the previus year, the decline was due in particular t maturities in the run-ff prtfli, which decreased mre than expected, by 5.1 billin t 23.5 billin. Frm 2014 nwards, we will present the run-ff budget finance prtfli separately frm the strategic prtfli in Public Investment Finance. Our expsure t brrwers in Eurpean cuntries in fcus was virtually unchanged during the perid under review. What is imprtant in this cntext is that the situatin in these cuntries has eased significantly as can be seen in the hidden encumbrances n this prtfli. These are dwn by a significant margin since the end f the previus year. As yu are all aware, the ECB's Asset Quality Review is currently in prgress, in preparatin fr ECB's takever f supervisry authrity ver the 138 largest banks in Eurpe. In ur case, this review encmpasses the entire HRE Grup. Hwever, pbb wuld als fall under ECB's supervisin in its wn right. The audit began in mid-february. Of curse we d nt want t pre-empt the results. But based n the results f audits carried ut ver recent years, we cnsider the quality f ur prtfli t be gd. We are, hwever, nt in a psitin t estimate the csts that pbb r mre precisely, HRE Grup, which is being audited will incur in cnnectin with the Asset Quality Review. Overall, we bserve a cst increase as a cnsequence f regulatin; this will have an effect n prfitability. Page 10 f 14

11 Annual press cnference 10 March Capital markets funding The prerequisite fr the success in riginating new business was a further increase in ur funding vlume, whist simultaneusly diversifying the funding instruments used. During 2013, pbb raised lng-term funding in an aggregate amunt f sme 7.7 billin n the capital markets, thus increasing its funding vlume by arund 20 per cent year-n-year (slide 7). The share f public placements rse t abve 50%, cmpared t arund 46% in The lin's share f the increase was attributable t unsecured funding, where we saw an increase f almst ne billin eurs, t 3.2 billin (2012: 2.3 billin). At the same time, we raised funding with lnger maturities f 5.2 years n average (2012: 4.5 years) which g far beynd the planned timing f pbb's re-privatisatin. The vlume f ur Pfandbrief issues increased slightly, t 4.5 billin (2012: 4.2 billin), with a slightly shrter average maturity f 6.9 years (2012: 7.5 years) a maturity range that perfectly cmplements the terms f ur new business. pbb's funding pwer was als evident in the fllwing placements: firstly, a 15-year Public Sectr Pfandbrief a maturity which n ther bank has issued fr a decade; secndly, nn-eur denminated Mrtgage Pfandbriefe issued in pund sterling and Swedish krna. Nn-eur denminated Pfandbrief issuance is relevant fr pbb with respect t the cuntries in which we are active. This allws us t eliminate currency risks which we wuld therwise have t hedge using derivatives, with additinal csts. At the same time, we thus explre new investr grups. Last year, we launched pbbdirekt.cm, ffering vernight and term depsits t private investrs with the strategic bjective t braden ur funding base. This business has met with a very gd respnse frm custmers: since the launch ne year ag, they have depsited mre than 1 billin with pbbdirekt.cm. We have thus made gd prgress in ur endeavurs t match medium- t lng-term target vlumes in the lw-single-digit billin eur range. Depsit-taking has pened a surce f funding fr us beynd the capital markets, raising pbb's attractiveness fr equity investrs. Our balance sheet structure cntinues t be characterised by matched-maturity funding t the largest extent. In ther wrds: We have financed ur prtfli right thrugh t the repayment f the lans funded. Whilst this means that we freg sme incme that wuld be available with certain maturity mismatches, it makes pbb attractive fr ptential investrs. Page 11 f 14

12 Annual press cnference 10 March Strategic psitining We nt nly develped ur business thrughut 2013, but als further ptimised pbb's strategic psitining. Specifically, this meant terminating the servicing functin fr FMS Wertmanagement and revising pbb's structures and prcesses. Our key bjective in this cntext was t strengthen ur riginatin, with new sales ffices in Germany and abrad, tgether with additinal staff. In particular, we ptimised the primary business prcess frm custmer acquisitin right thrugh t lan disbursement. In ur view, bth steps were majr milestnes n the rute t making pbb eligible fr re-privatisatin. pbb's situatin has cntinuusly and very clearly imprved ver the last few years. We have cnsistently explited the pprtunities presented by ur mandatry fresh start (slide 8). Tday pbb can rely upn an efficient banking rganisatin, with a lean structure, a state-f-the-art IT envirnment, and a strng, highly mtivated team. pbb has a sustainable business mdel with the tw divisins Real Estate Finance and Public Investment Finance which prvide a sensible level f diversificatin but nnetheless ffer significant synergies. Our prtfli reflects the bank's strategic refcusing. We have built a very gd market psitin: pbb ranks amngst the tp three cmmercial real estate lenders in Eurpe. In terms f utstanding issue vlumes, pbb is number tw amngst all Pfandbrief issuers. We have an apprximate 10% share in aggregate new issues placed in N bank placed mre benchmark Pfandbrief issues during Thanks t ur skills in structuring financings, we create real value fr ur clients. This is based n the fllwing factrs: The first factr is ur presence in the relevant Eurpean markets, nt just with sales teams but als with underwriting and prperty valuatin functins that are crucial fr success in the primary financing markets. We als leverage ur in-huse netwrk, which is why all f ur clients benefit frm ur pan-eurpean cmpetence. The secnd key factr in this cntext is ur cmpetence as arrangers fr all financing requirements: in additin t ur wn experience gained ver many years, we have access t a netwrk f financing partners with different business fcuses. Page 12 f 14

13 Annual press cnference 10 March 2014 As a result, we are nt restricted t lcal business; instead, we als supprt ur clients fr crss-brder investments r prvide finance fr transactins cvering assets in several cuntries. In fact, we are ne f the few lenders in Eurpe with a cmprehensive netwrk a pan-eurpean 'ftprint'. In cntrast, ur cmpetitrs are usually nly active in their respective hme market, r nly transact business utside their hme market n a selective basis. We either take lans n ur wn bks r prvide finance within the scpe f syndicates we arrange in cperatin with banks r ther market participants. Syndicated lending is an ptin if this facilitates the transactin, r if subrdinated tranches are required ver and abve the senir tranche. On the basis f this market psitin and business prfile, we lk ahead t 2014, and t ur planned privatisatin in We will demnstrate ur riginatin strength and funding pwer, as well as ur risk management skills. We are determined t cnvince clients with ur structuring skills, ur pan-eurpean reach, as well as with ur reliability in lending and in dealing with an expsure. In essence, what we cntinue t d is t riginate mre new business, at reasnable margins thus enhancing pbb's prfitability. Every eur f new business we riginate tday will bst prfitability, thanks t the higher margins cmpared t existing expsures. We will duble this effect if ur prtfli grwth utpaces maturing expsures. Page 13 f 14

14 Annual press cnference 10 March Outlk This brings me back t the utlk. Our fcus will be n further enhancing medium- and lng-term prfitability, driven by new business and asset quality. What are ur cncrete expectatins fr the year 2014? Three aspects are imprtant t us (slide 9): Firstly: we expect an increase in the results frm ur lending business. This will be driven by higher net interest incme cmpared t 2013 which we want t achieve thrugh a marked increase in new business vlume cmpared t We have assumed prvisins fr lsses n lans and advances t be at nrmalised levels. Results wuld be strengthened if n significant prvisin fr lsses n lans and advances were necessary as was the case fr Secndly: we anticipate a pre-tax prfit f at least 140 millin, which wuld exceed 2013 pre-tax prfit, adjusted fr ne-ff effects. Return n equity after taxes is targeted at a minimum level f 3.7%. Thirdly: the cst/incme rati, which we emply as a key perfrmance indicatr, will imprve cmpared t the year 2013, especially due t further IT cst savings during the furth quarter. *** Ladies and Gentlemen, This brings me t the cnclusin f my cmments. I wuld like t thank yu all fr yur interest and attentin. We wuld nw be pleased t answer yur questins. Page 14 f 14