Financial Figures in m

Transcription

1 2015 Interim Report

2 Financial Figures in m New commitments Assets Real estate financing Capital markets business 80 0 Liabilities Mortgage Pfandbriefe Public-sector Pfandbriefe 0 0 Other bonds 0 0 Other liabilities Results Result after taxes Portfolio Assets Real estate financing 1,401 1,213 Capital markets business* 6,461 8,445 Liabilities Mortgage Pfandbriefe Public-sector Pfandbriefe 2,719 3,090 Other bonds Other liabilities 1,074 1,089 Total assets 9,446 11,346 Equity capital** Equity base Core tier 1 capital Additional core capital 0 0 Supplementary capital 0 33 Regulatory ratios Core tier 1 capital ratio 11.7% 10.8% Core capital ratio 11.7% 10.8% Total capital ratio 11.7% 12.5% *Nominal value **After consideration of the annual/half-year result 2 Düsseldorfer Hypothekenbank AG Interim Report 2015

3 Content Interim Management Report 4 Current Developments at Düsseldorfer Hypothekenbank AG 5 Market Developments 6 Business Development 9 Risk Report 12 Report on Outlook 13 Interim Financial Statements 15 Balance Sheet 16 Profit and Loss Statement 18 Notes (Condensed) 19 Boards of the Bank 21 Imprint 23 Content 3

4 Interim Management Report

5 Current Developments at Düsseldorfer Hypothekenbank AG For many European and particularly German banks, the first half of 2015 was marked by the developments regarding HETA ASSET RESOLUTION AG (Heta), the wind-down institution for Hypo Alpe-Adria-Bank AG. On 1 March 2015, the Austrian Financial Market Authority (FMA) took the unexpected and unprecedented decision to impose a payment moratorium on Heta, suspending payments of its liabilities until 31 May Under the moratorium, the outstanding liabilities of the wind-up agency will not be serviced for the time being and payments due will not be made. Prior to this, the Austrian Finance Minister had notified the FMA that no further capital and liquidity measures would be applied to Heta in view of a significant capital shortfall. Heta-securities held by Düsseldorfer Hypothekenbank, which are backed by a guarantee from the Austrian State of Carinthia, were also affected by the moratorium. The Bank s Heta exposure, which was built up between 2004 and 2007, was initially neutralized by a guarantee from the German Deposit Protection Fund (Einlagensicherungsfonds, ESF) of the Association of German Banks (Bundesverband deutscher Banken e.v., BdB). Subsequently, with effect as of 24 March 2015, 94.6% of the shares in Düsseldorfer Hypothekenbank were transferred from the previous owner, Lone Star, to a holding company (Resba Beteiligungsgesellschaft mbh, Berlin) owned by the ESF, while 5.4% of the shares were transferred to a subsidiary (Einlagensicherungs- und Treuhandgesellschaft mbh, Cologne) of the Auditing Association of German Banks (Prüfungsverband deutscher Banken e.v.). Prior to this, the buyer consortium associated with Dr. Patrick Bettscheider and Attestor Capital LLP withdrew from the acquisition of Düsseldorfer Hypothekenbank. The BdB is confident that through the takeover the Bank is able to continue its operations in the interests of customers and financial market stability. Also under the new shareholders, the Bank s business will be continued in accordance with the existing business and risk strategy with a focus on commercial real estate financing. Additional measures have been taken successfully to further reduce risks in the Bank s legacy portfolio in the capital market business and to assess potential strategic options for future activities (cf. Risk Report). However, the Heta issues depressed the development of new real estate financing business and the Bank s result as at 30 June The change of ownership also involved a personnel reorganization of the Supervisory Board. With the end of the regular term of the previous members on 28 April 2015, a new Supervisory Board was elected. At the same time, the number of Supervisory Board members was increased from three to six and a Risk and Audit Committee as well as a Remuneration Committee have been formed. In the Bank s Management Board, there were no personnel changes. Therefore, the Management Board and the new Supervisory Board can collaborate to continuously drive forward and shape positively the future development of Düsseldorfer Hypothekenbank. Interim Management Report 5

6 Market Developments Macroeconomic Environment Capital market reporting in the first half of 2015 was dominated by political issues and the program of sovereign bond purchases (quantitative easing, QE) begun by the European Central Bank (ECB) in March There was a marked increase in political risk in Greece following the election of the extreme left-wing Syriza party in January The conflict between the Greek government and the institutions or creditor nations representatives of the European Commission, ECB and the International Monetary Fund (IMF) centered on the design of reforms needed in the country. The acceptance and implementation of specific reform measures by the Greek government were prerequisites for additional aid funds. A completely new package of measures had to be negotiated when the second bailout expired prior to Greece receiving the necessary financial resources. As it seemed to be very difficult to reach an agreement with the new Greek government on the nature of the reform measures, the headlines have been dominated by the possibility of Greece withdrawing from the European monetary union ( Grexit ) in summer After some intense negotiations, Greek Prime Minister Alex Tsipras decided to hold a referendum in July Despite 61.3% voting against the reform requirements claimed by the creditors in this national referendum, Tsipras accepted the terms by the Troika and had to face resistance in his home country as a consequence. With support from the opposition, the Greek Prime Minister, under time pressure, would like to conclude the third bailout package, which will include up to 86.0 bn, in August This would cover Greece s financial needs well into next year. Meanwhile, yield trends reflected the concerns surrounding risk levels in Greece. In August 2014, yields on 10-year Greek sovereign bonds were around 6%, but had climbed to around 11% by the end of June By contrast, yields on sovereign bonds from other peripheral euro zone countries, such as Italy and Spain, continued to decline over the same period. Fears that a renewed crisis in a southern euro zone country would automatically spread to other countries in the region have not yet been realized. Especially the ECB s sovereign bond purchase program, with a planned total purchase volume of around 1.1 trillion for the period to September 2016, combined with an improved economic situation, notably in Spain and Portugal, has probably been a key factor in preventing contagion. Italy also seems to be on the road to economic recovery, with the recession that had been in place since 2012 coming to an end in The IMF predicts positive growth in the country s gross domestic product (GDP) of 0.5% year-onyear in Bond market volatility in total remained high, however. This was demonstrated by a surprise sell-off, followed by a sub sequent hike in 10-year German Bund yields, which rose more than 0.5 percentage points to reach 0.65% in the space of just a few weeks in April and May In addition, parliamentary elections are scheduled for the end of the year in Spain and Portugal, which could increase political risk in both countries. Attention will mainly be focused on Spain, where the left-wing Podemos party gained ground in the recent regional elections, winning votes from the established conservative and socialist parties. The Danish parliamentary elections in June 2015 confirmed that high levels of support for fringe parties are not restricted to the euro zone. The right-wing populist Danish People s party came in second with 22% of the votes. Events in the whole European banking market in the first half of 2015 were, as mentioned, strongly influenced by the Austrian Government s decision to halt all financial assistance to former Hypo Alpe-Adria, now Heta. The decision would have left Heta unable to service its debts for the foreseeable future, which is why the FMA adopted a resolution on 1 March 2015 implementing a moratorium on all Heta liabilities until 31 May 2016, with immediate effect. At the same time, the FMA announced that a debt haircut would be negotiated with investors during the moratorium period. When it emerged that a large number of German banks and investment funds held significant investments in Heta, the issue began to attract growing media, political and legal attention. Several investors have since taken legal action to eliminate the moratorium and obtain full repayment of the Heta liabilities guaranteed by the State of Carinthia. Meanwhile, a legally determined debt cut at Heta-predecessor Hypo Alpe-Adria from the previous year, which affected subordinated creditors as well as BayernLB as the previous owner, has been declared unconstitutional by the Austrian Constitutional Court at the end of July In the reasoning of the Court, this special law was marked as an unacceptable infringement of the investors property rights. Moreover, according to the Court, the existing guarantees of the State of Carinthia cannot be completely devalued by law in retrospective. Consequently, banks and other investors with a Heta-exposure can legitimately hope now that this decision will have a positive effect with regard to the redemption of their claims. As a consequence of the Heta-crisis as well as the generally weaker macroeconomic situation in the domestic market and the Central and Eastern European region, credit ratings of other Austrian banks came under pressure. Following Standard & Poor s (S&P), Fitch also withdrew the Republic of Austria s AAA-rating in January 2015, taking into consideration the country s constantly increasing debt level due to 6 Düsseldorfer Hypothekenbank AG Interim Report 2015

7 budget deficits and higher costs stemming from bank restructurings. In the further course of the first half-year 2015, several credit institutions in Austria were downgraded by S&P, Moody s and Fitch, as well. An important factor in this context was the implementation of the regulatory bank resolution mechanism, which was applied for the first time in Europe in the case of Heta, and the future absence of governmental support for distressed banks, respectively. Relevant Real Estate Markets In the first half of 2015, real estate markets in the Bank s European core target countries generally maintained the positive uptrends of the last one to two years. Investment volumes in the German commercial real estate market in the first six months outperformed the same period in The market posted a transaction volume of 24.3 bn, an increase of almost 41% compared to the halfyear result 2014 and second only to the all-time record from 2007 ( 28.0 bn). Especially, transaction volumes in five of the big six German cities Berlin, Frankfurt, Hamburg, Cologne and Munich increased significantly, with only Düsseldorf lacking behind. Retail properties were the most popular asset class, at 40.6% of total volume, with office real estate in a close second place at 38.1%. Logistics investments accounted for just 6.5% of total volume due to limited supply. Hotel properties made up 6.0% of total volume. After German investors had clearly dominated the market in recent years, foreign investors have meanwhile increased their market share to 55.2% (2014: 48.0%). Steady interest from domestic and foreign investors in German commercial real estate, particularly in large-volume portfolios, will continue to drive transaction volume in the coming quarters. Increased competition has already triggered yield falls in all asset classes. Nevertheless, demand for real estate remains consistently high and the market is not yet saturated. For the total year 2015, a transaction volume of between 45.0 bn and 50.0 bn is anticipated. The German residential real estate market recorded an exceptionally strong start to the year. Transaction volume came in at around 17.1 bn for the first half of 2015, not only outperforming the strong 7.0 bn interim volume in 2014 by around 144% but also exceeding the total transactions of each of the past ten years. However, the record result was mainly driven by one single acquisition in the first quarter of 2015 with a very large transaction volume of just under 8 bn. Further purchases of large residential bundles from listed housing companies also influenced the investment market. In general, large-scale deals involving existing portfolios are becoming more popular with investors, although volumes have increased across nearly all size classes. Given the exceptional result achieved in the first half of 2015, investment volumes in the German residential real estate market are already set to also reach record levels for the total year in 2015, probably outstripping the existing record high posted in The majority of market participants is still not assuming or expecting a partly feared extensive price bubble in the residential real estate market. The favorable economic framework in Germany, with interest rates at a historic low, an economic upturn and a strong labor market, is also boosting real estate investment climate. The long-term outlook as a stable investment environment is excellent. Given the current volatility on the bond market, real estate represents an alternative and secure asset class that offers investors high returns. In the current conditions, interest is therefore expected to remain or become even more buoyant among a range of investor groups, particularly foreign investors. While the general economic recovery in the Netherlands continued in the beginning of 2015 with a solid economic growth especially in the first quarter of 2015 and a significantly dropped unemployment rate, the Dutch commercial real estate market initially posted a fairly weak performance. In the first three months of 2015, investment volume came in at 1.7 bn, which fell short of the record 2.1 bn posted in the first quarter of However, until the end of the first half of 2015, investments in commercial real estate strongly increased and came in at 4.9 bn, a rise of about 22% in comparison to the first half-year 2014 ( 4.0 bn). Overall, Amsterdam remained the most attractive location for investors. Investments in office properties, the most popular asset class so far, slightly decreased in comparison to the first half of the previous year due to a lack of available prime properties, as did investment volumes in the logistics segment. By contrast, especially the retail asset class reported a significantly higher investment turnover ( 1.3 bn) compared with the first half-year The Dutch residential real estate market is currently showing less large-volume portfolio transactions due to a lack of supply and pressure to sell. Therefore, the year-end result in this market segment is expected to be lower than However, existing supply and demand in the office as well as retail segments and the positive developments in the logistics sector (clear demand surplus in the investment market as at the end of the first half of 2015) have prompted an overall optimistic outlook for the commercial real estate market. The interest of Dutch and especially international investors is likely to increase further during the rest of the year. Consequently, forecasts suggest that total investment volumes in 2015 will grow with increasing speed and exceed the good result for 2014 (about 10.0 bn) at year-end. The market entrance of several foreign banks and alternative lenders enhancing financing options for investors is another Interim Management Report 7

8 sign for a progressing internationalization of the commercial real estate market in the Netherlands and an increase in investment volumes. The intensified competition among financing institutions, however, has already led to decreasing margins in the lending business. The French real estate market got off to a good start in the first quarter of 2015, with an investment volume of 4.6 bn (up 7% against Q1 2014), but was unable to maintain momentum in the second quarter. Total investment volume came to 5.4 bn in the first half of the year 2015, down 38% against the same period in Twelve transactions with volumes in excess of 100 m were recorded at the start of the year, but only four deals were concluded in this category in the second quarter. The most attractive location is still Île-de-France (the Greater Paris region), which accounted for around 83% of total transaction volume. The most popular asset class remains office properties with a share of 73% in the first quarter of French investors continued to dominate the commercial real estate market, but international investors are regularly making large acquisitions worth over 100 m. Despite declining investment volumes in the second quarter of 2015, further gains in the second half of the year and a total investment volume of 15 bn can be anticipated, as current uncertainties surrounding the bond market and the crisis in Greece will benefit the French as well as other real estate markets, which will attract new capital as a safe investment. In Q alone, investment turnover reached 5.5 bn, 131% more than in the same quarter of the previous year and considerably higher than the result of the larger real estate market in France for example. Further confirmation of the commercial real estate market recovery was evident in a general fall in vacancy rates and rising property prices across several asset classes in the Bank s target markets, the metropolitan areas of Madrid and Barcelona. The Spanish real estate market is expected to stabilize in 2015 and beyond and investments are set to increase further due to continued high interest of international investors, especially in the office, hotel and retail segments. In Spain, both the general economy and the real estate market have continued their recovery that clearly started in 2014 after several difficult years and showed an overall positive trend at the beginning of GDP growth came in at 2.5% for the first three months of 2015 (Q4 2014: 0.8%) and 3.1% against the previous year in the second quarter Driven by positive macroeconomic developments, great interest by domestic and international investors and high levels of liquidity in the market, the positive trend in the real estate market advanced, which was reflected in increased commercial real estate transaction volumes. The total volume already climbed to 1.8 bn in the first quarter of 2015, and continued to increase significantly in the second quarter. 8 Düsseldorfer Hypothekenbank AG Interim Report 2015

9 Business Development Real Estate Financing Portfolio In the first half of 2015, Düsseldorfer Hypothekenbank not only continued to take on direct credit inquiries from institutional investors active in the real estate market, but also continued to work with German and international market participants, such as syndication desks, originators and partner banks. The Bank s business and risk strategy focuses on large-volume commercial real estate financing in Germany and metropolitan areas of selected European core markets. The emphasis is on markets with a high level of transparency and professionalism but no currency risk. Hence, the strategic focus besides Germany is on the Netherlands and France. In addition, the Bank has also opened itself up to selected financing operations in Spain. New commitments totaled m in the first half of 2015 and consisted primarily of commercial financing in Germany and the Netherlands. The developments linked to Heta depressed new business activity, with new commitment figures falling short of expectations. Prolongations accounted for 16.8 m of new commitments. As at 30 June 2015, the entire real estate loan portfolio stood at 1.4 bn (at exchange rates prevailing on the balance sheet date), which was m higher than at 31 December 2014 ( 1.2 bn) due to loan disbursements. The positive effect generated by new business was partly offset by scheduled principal repayments and redemptions. The entire portfolio of mortgage-backed securities (MBS), comprising an outstanding effective capital of 30.4 m, was sold off in April 2015 as part of active portfolio management in line with the business strategy. As at 30 June 2015, domestic loans made up 51.2% of the portfolio (31 December 2014: 46.8%). Loans to borrowers in other countries accounted for 48.8% (53.2%) accordingly. The composition of the loan book by property use remained fairly constant against year-end 2014, but there was a slight shift in relative proportions. The share of residential real estate fell to 25.5% (29.5%), while commercial real estate rose to 74.5% (70.5%). Capital Markets Portfolio The strategic reduction of the capital markets portfolio continued as planned in the first half of In addition to scheduled maturities, securities no longer qualifying as target business under the business strategy were sold. The sales mainly involved bank exposure in Austria ( m), the USA ( 95.0 m), Italy ( 82.0 m), United Kingdom ( 80.0 m) and Slovenia ( 15.0 m). The Bank also eliminated a Finnish sovereign bond with a nominal volume of 90.0 m. In line with the strategy, new business has only been concluded to a very limited extent in the form of Irish sovereign bonds with a nominal volume of 80.0 m. Overall, the portfolio declined significantly by 2.0 bn (or 23.5%) to 6.4 bn in the period under review due to maturities and active portfolio reductions. The Capital markets business segment of Düsseldorfer Hypothekenbank consists of the sub-portfolios Public-sector lending (ordinary cover), Substitute cover business and business Not eligible as cover. The Public-sector lending sub-portfolio, which declined to 5.1 bn (31 December 2014: 6.7 bn), accounted for 79.4% (79.6%) of the capital markets business. This includes all receivables that qualify as ordinary cover for Public-sector Pfandbriefe under the German Pfandbrief Act (Pfandbriefgesetz, PfandBG). The Substitute cover business sub-portfolio, which consists of all securities claims from financial institutions (bank bonds) that are eligible as further cover under the PfandBG, remained at 0.4 bn ( 0.5 bn), representing 6.8% (5.8%) of the capital markets business. The Not eligible as cover sub-portfolio, which contains all securities claims that cannot be used as ordinary or further cover, decreased to 0.9 bn ( 1.2 bn). Interim Management Report 9

10 Derivative Portfolio As at the reporting date, the Bank held a portfolio of derivative financial instruments with a nominal volume of 11.8 bn (31 December 2014: 12.7 bn), consisting of interest swaps with a nominal volume of 11.5 bn and cross-currency swaps with a nominal volume of 0.3 bn. The total market value of the derivative portfolio was -0.8 bn as at the reporting date. The derivative portfolio s decline of 0.9 bn was primarily due to the scheduled maturity of commitments as well as the early closing of swaps with no impact on income and interest risk, inter alia in connection with active sales of securities. Within the framework of the new product process, the first customer derivative transaction (interest swap) was concluded in the real estate financing business in the first half of Funding and Liquidity The Bank was again able to obtain funding and secure sufficient liquidity during the first half of Mortgage Pfandbriefe totaling 40.0 m were issued in the reporting period (prior year period: 50.0 m). In view of the strategy of scaling back public-sector financing, no Public-sector Pfandbriefe ( 0.0 m) were issued. Since June 2012, the Bank has had an issuance program endorsed by the Commission de Surveillance du Secteur Financier (CSSF, Luxembourg) for both secured and unsecured bearer bonds, and therefore has the option of issuing ECB-eligible Pfandbriefe. The issuance program is updated once a year and was last updated on 6 July Other key sources of funding in the reporting period were fixed-term deposits and short-term promissory notes issued as customer or bank deposits. As before, the open market business with the ECB and Eurex repo trading also continued to be important sources of liquidity. The liquidity ratio was 2.4 as at 30 June 2015, above the statutory minimum of 1.0. Total Assets and Own Funds In the first half of 2015, total assets were reduced by a further 1.9 bn to 9.4 bn due to maturities and active portfolio management. On the assets side, Bonds and other fixed-interest securities declined 1.3 bn to 5.6 bn. Receivables from banks were down 0.7 bn at 1.8 bn. As in the previous year, the decline in both balance sheet items was partly attributable to maturities, but primarily the result of the planned reduction of the capital market portfolio and additionally scaling back the Austrian portfolio. By contrast Receivables from customers advanced 0.1 bn, driven by new real estate financing commitments. In line with the asset portfolios, total liabilities to banks and customers declined by 1.6 bn to 8.8 bn. Maturities accounted for a further 0.2 bn reduction in Securitized liabilities. Equity capital pursuant to the Capital Requirements Regulation for credit institutions and investment firms (Regulation (EU) No. 575/2013, CRR) was m as at 30 June 2015, including the half-year result. All equity capital was core tier 1 capital. Therefore, as at the reporting date, the statutory core tier 1 capital ratio, core capital ratio and total capital ratio each were 11.7%. In February 2015, a voluntary conversion of the remaining 40 m in mandatory convertible bonds into equity took place. 10 Düsseldorfer Hypothekenbank AG Interim Report 2015

11 Development of Earnings The Bank s earnings situation in the first half of 2015 continued to be impacted by measures taken in previous years (up to and including 2007). However, clear improvements were made, particularly in ordinary current net interest income, which was partly boosted by an increase in new real estate financing business. While non-recurring income was low in the first half of 2014 ( +0.1 m) and had a limited impact on net interest income ( m), net interest income in the period under review ( m) included negative non-recurring effects totaling m. After adjusting for these non-recurring effects, current net interest income therefore advanced 11.6 m to m. Net commission income amounted to 0.7 m, down 0.9 m year-on-year ( 1.6 m). The decline was largely driven by (net) commission income from real estate financing business, which was 1.1 m lower than in the same period in General administrative expenses amounted to 16.3 m, an increase of 3.9 m against the previous year s figure of 12.4 m. This increase is mainly the result of a rise of 3.3 m in other administrative expenses, which is partly due to the introduction of the new bank levy and partly due to the 0.8 m increase in consultancy needs. Personnel expenses rose 0.7 m to 4.2 m, mainly due to the planned increase in personnel in real estate financing. Depreciation and amortization on tangible and intangible assets was nearly unchanged year-on-year at 0.2 m. The valuation result for the first half of 2015 came to m, comprising the valuation results from the real estate lending business totaling 0.5 m (30 June 2014: -0.1 m) and from the capital markets business amounting to m (30 June 2014: +7.8 m). The valuation result from real estate lending business includes individual loan loss provisions for interest and capital, which were more than offset by income from write-backs. The valuation result from the capital markets business was primarily influenced by losses totaling 15.4 m linked to the active reduction of the capital market portfolio, including scaling back the Austrian portfolio and the complete reduction of the remaining MBS portfolio. The extraordinary result came to 39.1 m, which consists of the loss compensation received from the ESF under the agreed support scheme. Based on this scheme, the Bank divested Austrian capital markets exposure with a nominal volume of m in the period under review, which led to net valuation losses of 27.9 m and negative net interest income of 11.2 m from the associated closing out of swaps. The Bank s segment reporting breaks down operations into the Real estate financing segment, composed of the Mortgage loan business and MBS sub-portfolios, and the Capital markets business segment, composed of the sub-portfolios Public-sector lending (ordinary cover), Substitute cover business and business that is Not eligible as cover. After allocating the pro rata administrative expenses and offsetting the valuation result, the pre-tax result for the real estate financing segment was 2.4 m (30 June 2014: 4.3 m). The bulk of the year-on-year decline was attributable to the reduction in net commission income and the losses incurred in selling off the MBS portfolio. The capital markets business reported a loss of m ( m). The pre-tax result of other activities totaled -4.9 m ( -5.6 m). Rating On 14 April 2015, following the indirect takeover of the Bank by the BdB, Fitch Ratings confirmed Düsseldorfer Hypothekenbank s issuer rating for long-term unsecured liabilities as BBB- and also adjusted the outlook from rating watch negative to stable. The support rating remained unchanged at 2; the viability rating was downgraded in light of the necessary support measures from c to f. The loss-free valuation as at 30 June 2015 pursuant to IDW RS BFA 3/2012 did not identify any need for provisions. Interim Management Report 11

12 1 Exposure in Focus Countries in m Banks Sovereigns Subsovereigns MBS Total Total Austria ,837 Italy ,234 1,363 Portugal Slovenia Spain ,383 1,442 Total 1,031 1,497 1, ,813 5,096 Risk Report The Bank continued to consistently develop its risk management system in the first half of For example, a maximum potential loss in line with the present value going-concern approach was introduced for the balance sheet-oriented going-concern approach. Based on this figure the limits for individual risks are determined. The resulting capital and risk buffers for the calculated risk-covering potential are no longer used to determine risk limits. Instead, the buffers are available for unquantified risks (e.g. model risks, reputational risks). In the first half of 2015, the risks associated with the negative developments regarding Heta were a major concern for the Bank. As the credit risk exposure from the Heta positions in the portfolio was neutralized by a guarantee from the Bank s owner, there was no significant impact on the risk-covering potential. In response to the Heta-issue, the Bank increased the pace of risk reduction within the capital markets portfolio. This included actively reducing positions in Austrian issuers by m. The sale of these positions had no material impact on risk-covering potential, because the losses were offset by compensation payments from the ESF. Over the first six months of 2015, the Bank sold off Austrian positions with a volume of m in total. Credit risk exposure for the capital market business as a whole declined, driven by the active portfolio reductions and scheduled maturities. In the real estate financing business, disbursements of real estate loans (including prolongations) significantly improved the Bank s risk-covering potential. After accounting for new commitments in the first half of 2015, credit risk in this segment remained stable. Market price risk exposure is actively managed and was further reduced in the first half of the year. The Bank complied with the limits under the balance sheet-oriented approach to measuring risk at all times and utilization was moderate. The Bank still exceeded risk limits in the present value risk-bearing capacity calculation, as was the case at the end of The improved risk-bearing capacity achieved by acquiring new business was offset by the negative effects of restructuring and interest rate trends. The Bank uses well-known and established models to calculate the quantitative impact of the significant risk types (cf. Annual Report and Disclosure Report 2014 of the Bank); the models are regularly reviewed and adapted to reflect current market conditions and regulatory requirements. The Bank s valuation models have also been modified. The changes focused particularly on incorporating negative interest rates into the calculation of present value and on measuring variable-interest real estate financing loans with longer residual terms. 12 Düsseldorfer Hypothekenbank AG Interim Report 2015

13 Capital Market and MBS Exposure in Focus Countries The Bank s total exposure in current focus countries (Austria, Italy, Portugal, Slovenia and Spain) was significantly reduced to 3.8 bn as at 30 June 2015 (31 December 2014: 5.1 bn). The reduction in the portfolio is attributable to maturities and sales. As indicated, especially Austrian bank exposure was actively and severely reduced by m. The remaining Heta positions as at 30 June 2015 no longer classify as credit risk because of the full capital guarantee (risk substitution) provided by the ESF. Furthermore, the remaining MBS portfolio was completely sold off. [C1] Report on Outlook This report contains forward-looking statements relating to Düsseldorfer Hypothekenbank s future business development and results of operations, which are based on current plans, estimates, forecasts and expectations. These statements contain risks and uncertainties. There are numerous factors impacting the Bank s business that are largely beyond its own control. In particular, these factors include economic developments, the state of the European and global financial markets, altering market conditions due to regulatory changes and potential loan defaults. When making these forecasts, the Bank assumes that the key elements within the current business and risk strategy will be continued. Actual events and developments may differ materially from those expressed or implied by these forward-looking statements. They are therefore only valid at the time of their publication. The Bank assumes no obligation to update these forward-looking statements in view of new information or unexpected events. In the first half of 2015, Düsseldorfer Hypothekenbank was able to acquire new business in the commercial real estate financing segment meeting margin targets and expanded the loan portfolio in the segment. Total new business volume, however, lagged behind the target volume due to the issues regarding the Heta-exposure, which in turn affected the midyear result negatively. In the second half of 2015, the Bank will maintain its new business strategy in the selected core markets, in line with the risk and return objectives, and selectively use existing opportunities in the real estate markets. Thanks to its strategic positioning and flat hierarchies, the Bank is able to offer solution-oriented and flexible financing options with short decision-making processes as a niche provider. Additional qualified and experienced staff have been recruited in order to maintain and consolidate new business. The current density of competition and existing high pressure on margins pose a risk for the realization of the Bank s targets. In the first half of 2015, as planned, the capital market portfolio was successfully scaled back further through maturities and active divestments of securities and derivatives positions were reduced as well. In the second half of 2015, the Bank will continue the restructuring and portfolio reduction activities in the capital market segment using a risk and return-oriented active portfolio management approach. A further recovery on the capital markets would favor the active reduction of non-strategic securities planned in the capital markets segment and an active reduction of the derivatives portfolio. Reducing specific exposures in favor of lower-risk positions can mitigate the impact of adverse trends. Economic, political and regulatory developments harbor risks that could influence the ability and willingness of issuers (countries, municipalities and credit institutions) in the Bank s portfolio to fulfill their obligations. The Bank s funding situation remains to a large extent dependent on developments in the money and capital markets. Opportunities arising from the ECB s sustained expansionary monetary policy and the reputation of the Pfandbrief as a proven investment vehicle are to be taken advantage of. The emergence of new risks, especially in the financial sector, through economic, political and regulatory developments may lead to market uncertainties. The opportunities and risks described in April 2015 in the Bank s last Annual Report and the predicted developments in the earnings, net assets and financial position of Düsseldorfer Hypothekenbank also apply to the second half of Following the change of ownership and guarantee issued for the Heta bonds, there are no other identifiable risks to the Bank s equity or liquidity, all other factors being equal. Interim Management Report 13

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15 Interim Financial Statements

16 2 Balance Sheet Assets in k Cash reserve 58,234 28,781 of which: with Deutsche Bundesbank (58,232 ) (28,778) Receivables from banks Public-sector loans 565, ,192 Other receivables 1,224,265 1,789,394 1,516,598 Receivables from customers Mortgage loans 1,398,133 1,179,634 Public-sector loans 548, ,833 Other receivables 10 1,946,589 8 Bonds and other fixed income securities Bonds and notes of public-sector issuers 3,697,563 3,945,745 of other issuers 1,838,963 5,536,526 2,937,757 Own debt instruments 99,994 5,636, ,013 Shares and other variable-yield securities Participating interests 8 8 Intangible assets of which: purchased licenses, industrial property rights, similar rights and values as well as licenses for such rights and values (690) (839) Tangible assets Other assets 1,483 1,273 Deferred items from issuing and lending business 4,867 5,137 Other 7,385 12,252 2,961 Total assets 9,445,658 11,346, Düsseldorfer Hypothekenbank AG Interim Report 2015

17 Balance Sheet Liabilities in k Liabilities to banks Registered Mortgage Pfandbriefe issued 15,256 61,494 Registered Public-sector Pfandbriefe issued 83,384 82,493 Other liabilities 2,326,103 2,424,743 4,471,252 Liabilities to customers Registered Mortgage Pfandbriefe issued 337, ,360 Registered Public-sector Pfandbriefe issued 2,598,755 2,808,961 Savings deposits 1 1 Other liabilities 3,479,993 6,416,491 2,695,980 Securitized liabilities Bonds issued Mortgage Pfandbriefe 241, ,321 Public-sector Pfandbriefe 95, ,371 Other bonds 10, ,264 10,185 Other liabilities 14,447 37,049 Deferred items from issuing and lending business Other 1,173 1,737 1,341 Provisions Tax provisions 0 0 Other provisions 4,899 4,899 3,369 Subordinated liabilities 0 92,010 Fund for general banking risks 30,000 30,000 Capital Subscribed capital 401, ,000 Capital reserve 362, ,412 Revenue reserve Other revenue reserves 48,893 48,893 Balance sheet loss -605, , ,952 Total liabilities 9,445,658 11,346,238 Contingent liabilities Irrevocable loan commitments 194, ,801 Interim Financial Statements 17

18 3 Profit and Loss Statement in k Interest income from lending and money market transactions 152, ,649 from fixed-income securities and debt register claims 106, , ,975 Interest paid -288,003-29, ,909 Income from shares and other variable-yield securities 0 0 from participating interests Commission income 1,431 2,578 Commission paid Other operating income General administrative expenses Staff expenses Wages and salaries -3,669-3,085 Compulsory social security contributions and expenses for pensions and other staff benefits , Other administrative expenses -12,053-16,291-8,799 Depreciation and valuation adjustments of intangible and tangible assets Other operating expenses Depreciation and valuation adjustments of receivables and certain securities as well as allocations to provisions for possible loan losses -17,500 0 of participating interests, shareholdings in affiliated companies and securities treated as fixed assets 0 0 Income from write-ups to receivables and certain securities as well as the reversal of provisions for possible loan losses to participating interests, shareholdings in affiliated companies and securities treated as fixed assets 710 6,976 Operating result -60,383-25,864 Extraordinary result 39,107 0 Result before taxes -21,276-25,864 Tax from income and earnings 0 0 Other taxes, not included under other operating expenses 0-1 Net result -21,276-25,865 Retained loss brought forward -583, ,907 Balance sheet loss -605, , Düsseldorfer Hypothekenbank AG Interim Report 2015

19 Notes (Condensed) Accounting and Valuation Principles These interim financial statements as at 30 June 2015 were prepared in accordance with Section 37w (3) and (4) of the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG), the relevant provisions of the German Commercial Code (Handelsgesetzbuch, HGB) and the Bank Accounting Regulation (Verordnung über die Rechnungslegung von Kreditinstituten, RechKredV). The interim financial statements also comply with the provisions of the German Public Limited Companies Act (Aktiengesetz, AktG) and Pfandbrief Act (Pfandbriefgesetz, PfandBG). The same accounting and valuation methods were applied in these interim financial statements as in the Bank s annual financial statements as at 31 December The interim financial statements were not audited in accordance with Section 317 HGB or reviewed by the auditors. Significant Changes to the Balance Sheet in Comparison with 2014 Receivables from Banks and Customers Total receivables from banks and customers decreased by 13.6% compared with 31 December 2014 because of scheduled maturities and early repayments. The figure was increased by disbursements in real estate financing. Bonds and Other Fixed-Interest Securities The portfolio of bonds and other fixed-interest securities declined 19.3% compared with 31 December 2014 due to maturities and active portfolio reductions. The portfolio includes securities with a carrying amount of 1.2 bn with a fair value as of the balance sheet date that is m below their carrying amount due to price fluctuations on the capital markets. Liabilities to Banks and Customers and Securitized Liabilities Liabilities to banks and customers and securitized liabilities declined by a total of 16.4% compared with 31 December 2014 due to maturities. Other Liabilities Other liabilities amount to 14.4 m. The reduction in comparison to the previous year was primarily caused by a balancing item for foreign currency conversion resulting from the conversion of financial instruments denominated in foreign currency at the ECB s reference rate as at the balance sheet date. This balancing item has declined 20.8 m year-on-year, from 35.0 m to 14.2 m. Subordinated Liabilities No subordinated liabilities were issued during the reporting period. The equity capital surrogate reported in 2014 with a nominal value of 50.0 m fell due during the period under review and was voluntarily converted into equity capital totaling 40.0 m in accordance with the issue conditions. There were therefore no subordinated liabilities as at the reporting date. Subscribed Capital Following the capital increase from contingent capital approved on 29 April 2014, the Bank issued 40,000,000 registered shares of 1.00 each on 12 February 2015, bringing the share capital to m. Significant Changes to the Income Statement in Comparison with the First Half of 2014 Net Interest and Commission Income Compared with the same period in 2014, net interest income decreased from m to m. However, during the period under review, earnings were depressed by nonrecurring negative effects totaling m due to closing out swaps, prepayment penalties, etc. By contrast, similar non-recurring effects actually had a positive impact on earnings ( +0.1 m) in the prior year. After adjustments for non-recurring effects, current net interest income remained negative ( m) due to measures from previous years that had a negative impact on earnings. Nevertheless, net interest income improved significantly by 11.6 m, which was also caused by a combination of restructuring measures in the capital markets business and new commitments in the real estate financing business. Net commission income declined by 0.9 m to 0.7 m due to lower handling fees for real estate financing. Interim Financial Statements 19

20 General Administrative Expenses General administrative expenses rose 3.9 m year-on-year, comprising 3.3 m of other administrative expenses linked to the introduction of the new bank levy and an increase of 0.8 m in general consultancy services for various projects. Personnel expenses increased 0.7 m, largely due to recruitment of new employees. Valuation Result The Bank posted a 16.8 m valuation loss for the period under review (30 June 2014: 7.6 m gain), essentially as a result of net losses from divestments of securities and public-sector loans, but also due to the early redemption of own issues totaling 15.4 m. Extraordinary Result The extraordinary result of 39.1 m consists exclusively of loss compensation received from the ESF for the realized losses incurred from the sale of certain Austrian assets and the associated closing out of interest hedges. Half-Year Result The net income after taxes amounts to m (30 June 2014: m). 20 Düsseldorfer Hypothekenbank AG Interim Report 2015

21 Boards of the Bank Supervisory Board Dr. Thomas A. Lange Chairman since 28 April 2015 (before that Member since 25 March 2015) Meerbusch Chairman of the Management Board NATIONAL-BANK AG Dr. Karsten von Köller Member and Chairman until 28 April 2015 Frankfurt am Main Chairman Lone Star Germany Acquisitions GmbH Paul Hagen Deputy Chairman since 28 April 2015 Düsseldorf Member of the Management Board HSBC Trinkaus & Burkhardt AG Benjamin Dickgiesser Member from 29 January 2015 to 28 April 2015 London Director Lone Star Europe Acquisitions LLP Dr. Marcus Chromik Member since 28 April 2015 Frankfurt am Main Chief Credit Risk Officer Commerzbank AG William D. Young Member from 29 January 2015 to 24 March 2015 London Senior Vice President Hudson Advisors UK Ltd. Joachim Dobrikat Member since 28 April 2015 Munich Chief Financial Officer UniCredit Bank AG Bruno Scherrer Member and Deputy Chairman until 29 January 2015 London Consultant Lone Star Europe Acquisitions LLP Andreas Dörhöfer Member since 28 April 2015 Erding Managing Director Deutsche Bank AG Dr. Andreas Tuczka Member until 29 January 2015 Vienna Managing Director Aldridge Capital Partners GmbH Dr. Hans-Joachim Massenberg Member since 28 April 2015 Berlin Member of the Senior Management Board Bundesverband deutscher Banken e.v. Interim Financial Statements 21

22 Management Board Dr. Christian Freiherr von Villiez Spokesman of the Management Board Starnberg Dr. Marcus Tusch Member of the Management Board Gauting Executive Vice President Jürgen Jung Member of the Extended Management Board Eschborn Düsseldorf, August 2015 Düsseldorfer Hypothekenbank AG Management Board Dr. Christian Freiherr von Villiez Dr. Marcus Tusch 22 Düsseldorfer Hypothekenbank AG Interim Report 2015

23 Imprint Editor Düsseldorfer Hypothekenbank AG Berliner Allee Düsseldorf HRB Düsseldorf Nr Contact Corporate Communication & Human Resources Barbara Hugo-Dilworth T: F: E: Layout and Conceptual Design Amt für Gestaltung, Berlin Goss + Partner, Köln Interim Financial Statements 23