HypoVereinsbank with strong operating profit

Net operating profit in the first half of 2015 €105 million or 27.2% higher than last year
Strong second quarter exceeds Bank’s own expectations
Operating income 6% higher than last year: net interest stable, net fees and commissions solid, net trading income much stronger
Stable cost development with simultaneous investments in areas of growth and implementation of regulatory requirements
All business segments post earnings growth and positive contribution to profits
Strategic measures take effect

HVB Group (also referred to as HypoVereinsbank) increased its operating income by 6% to €2,428 million in the first half of 2015 and generated net operating profit of €491 million. This represents growth of 27.2% or €105 million compared with the equivalent period last year. HypoVereinsbank has thus succeeded in achieving a profit before tax of €490 million (first half of 2014: €499 million) despite the one-off charge of €70 million incurred for the first time for the European bank levy. After tax, the profit amounted to €326 million (first half of 2014: €324 million adjusted for the sale of DAB Bank AG in 2014).

“We were convincing in the first half due to our strong operating performance. The second quarter made up for the restrained start to the year. We managed to match last year’s good half-year result and significantly increase operating profit. Both of the business segments generated growth in earnings”, says Dr Theodor Weimer, Board Spokesman of HypoVereinsbank. “We see the low interest rates, the volatile markets and the increasing regulatory requirements as being a structural and not a temporary phenomenon. We will therefore align our activities accordingly.”

Operating performance supported by higher lending and deposit volumes

The positive operating performance of HypoVereinsbank was supported by an increase in lending and deposit volumes. Loans and receivables with customers thus increased by 1.4% from €109.6 billion to €111.2 billion in the first six months. At the same time, customer deposits rose by 2.9% from €100.7 billion to €103.6 billion.

Earnings growth in both business segments

The positive development was bolstered in the first half of the year by earnings growth in both of the Bank’s business segments – despite the low interest rates, the investments in areas of growth and the one-off charge to the European bank levy. In Corporate & Investment Banking, income was up by 15.7% to €1,104 million (first half of 2014: €954 million). In Commercial Banking, which bundles both the retail and the corporate customers business, it amounted to €1,255 million after the first six months of 2015 compared with the year-ago figure of €1,252 million.

Net interest stable, net fees and commissions solid, net trading income much stronger

The rise in operating income of HypoVereinsbank was driven primarily by the increases of €168 million, or 59.6%, to €450 million in net trading income and €17 million, or 3.1%, to €559 million in net fees and commissions. Net interest remained pleasingly stable despite the historically low level of interest rates and only fell by a slight 1.5%, or €20 million, to €1,320 million. The decline can be attributed solely to the Other/consolidation segment caused by the lower level of interest rates. By contrast, net interest was up in the two business segments Corporate & Investment Banking and Commercial Banking.

Stable cost development, net write-downs of loans and provisions for guarantees and commitments still very low

As a result of our consistent cost management we were able to maintain operating expenses at €1,827 million almost unchanged at the same level as last year (€1,814 million) despite the increase in payroll costs due to higher expenses for pensions, additional marketing expenses for the new advertising campaign and higher IT expenses in connection with the tougher regulatory requirements.

Net write-downs of loans and provisions for guarantees and commitments were up by €20 million at 30 June 2015 and at €110 million, are still at an extremely low level.

Stable result in Commercial Banking with low risk profile

The profit before tax in the Commercial Banking business segment totalled €180 million at 30 June 2015 (first half of 2014: €241 million). In this context, it should be borne in mind that the business segment was charged for the European bank levy and operating costs also increased primarily on account of the higher investments in connection with the realignment of our retail banking business and the expansion of digital sales channels.

Operating income in the Commercial Banking business segment rose slightly despite the difficult market environment. Net interest developed well, rising by €6 million to €809 million. By contrast, net fees and commissions totalling €408 million failed to match the year-ago figure of €421 million. Net trading income rose sharply from €14 million to €48 million on account of a positive development in foreign exchange transactions, among other factors.

Net write-downs of loans and provisions for guarantees and commitments progressively normalised in the Commercial Banking business segment, rising to €62 million in the first half of 2015 compared with €44 million in the equivalent period last year.

Positive effects can also be increasingly seen in retail banking activities one year after the start of their realignment. In the first half, there was an increase in the investment volume, particularly in the volume of securities accounts in the core segment of clients seeking advice, with the securities business faring well. Above average growth was also recorded in private building loans.

The modernisation of the branch-based business is proceeding on schedule and will be completed by the end of the year. In the last ten months, 250 branches throughout Germany have already been completely converted and equipped with state-of-the-art technology. By year-end 2015, one branch will follow on each workday until all 341 branches have been modernised. At the same time, HypoVereinsbank has further expanded its mobile and internetbased consulting and service offering and streamlined its product portfolio.

Corporate & Investment Banking posts significant growth

In the Corporate & Investment Banking business segment, the profit before tax in the first half of 2015 improved from €221 million to €289 million compared with the year-ago figure despite the charge due to the European bank levy. The half-year operating income was boosted by €150 million to €1,104 million compared with the previous year. This is largely due to the increase of €137 million to €395 million in net trading income and of €25 million to €154 million in net fees and commissions. Net interest also rose from €527 million to €539 million. At the same time, operating costs fell.

Driven by higher reversals, net write-downs of loans and provisions for guarantees and commitments totalling €36 million are substantially lower than last year (first half of 2014: €62 million) and are thus still at a very low level.

Balance sheet structure figures and capital ratios reflect HVB’s strength

The total assets of HypoVereinsbank increased by €13.3 billion, or 4.4%, to €313.7 billion at 30 June 2015.

The total risk-weighted assets fell by €4.5 billion to €81.3 billion compared with year-end 2014, mainly due to the reduction in risk-weighted assets from credit risk (down €4 billion) and the market risk (down €0.6 billion).

HypoVereinsbank has an excellent capital base. Both the core capital ratio (Tier 1 ratio) and the Common Equity Tier 1 (CET1) capital ratio amounted to 23.4% at 30 June 2015 compared with 22.1% at year-end 2014. The equity funds ratio totalled 24.2% after 22.9% at year-end 2014. This means that these banking supervisory ratios under Basel III are still at an excellent level by both national and international standards. The leverage ratio defined as the ratio of core capital to the overall risk position (risk position values of all assets and off-balance-sheet items) amounted to 6.0% at the end of June 2015 after 6.1% at 31 December 2014.

To download the complete Half-yearly Financial Report at 30 June 2015, please visit HVB's Investor Relations website at www.hvb.de/ir.