Aareal Bank Group proves its business model in a challenging environment
- Consolidated net income almost tripled, to post record results for 2007
- Three-continent strategy for Structured Property Financing to be pursued further in 2008
- Consulting/Services once again expected to contribute stronger results
Wiesbaden, 28 March 2008 – Looking back on the most successful year in its corporate history, Aareal Bank Group is confident of being able to hold its course in a market environment that continues to be challenging, and to sustain its profitable growth trend over the coming years. “Aareal Bank Group is in an excellent strategic position. Thanks to its performance during the last two years, the Group is in a very robust state today. Our business model, incorporating the two strong columns of Structured Property Financing and Consulting/Services, is unique in our industry. What is more, it has turned out to be correct and sustainable – particularly in the current market environment, which is burdened by the crisis affecting global financial markets”, said Dr Wolf Schumacher, Chairman of the Management Board of Aareal Bank AG, at the press conference to present the financial statements held in Frankfurt/Main.
Aareal Bank Group posted record results for the financial year under review: According to the final, audited results which are now available, consolidated net income after minority interest totalled € 290 million, up 171% year-on-year, and equivalent to a 25.0% net return on equity after taxes. Consolidated operating profit soared by approx. 138%, to € 380 million (2006: € 160 million). Excluding special effects of € 221 million (2006: € 27 million) before taxes, these were up by 20%. At € 11.7 billion, new business originated in the Structured Property Financing segment outperformed the target of € 10 billion by 17%. Net provisions for loan losses of € 77 million for the segment were below the € 80 to 90 million range projected for the full year 2007. Operating profit in the Consulting/Services segment rose nearly four-fold, to € 30 million, thus outperforming the projected target range of € 22 million to € 28 million.
“We have returned Aareal Bank Group to profitability, after a successful turnaround. We have focused our strengths on what we do best. We are growing in all business lines, having achieved ambitious targets within a short period of time. We have demonstrated that our business model is correct and sustainable”, summarised Schumacher.
Strategy to be developed further, in a consistent manner
Aareal Bank Group will consistently pursue its successful strategy throughout the current year; in addition, appropriate measures will be undertaken to adapt the strategy to the changed environment, which reflects the crisis on financial markets. Aareal Bank continues to push ahead with the internationalisation of its Structured Property Financing business, implementing its three-continent strategy: in this context, its offices in Singapore and Warsaw will be developed into distribution hubs for the high-growth regions of Asia/Pacific and Central/Eastern Europe (CEE). “It is in difficult times like these that a broad geographical diversification is particularly valuable”, Schumacher explained, explaining that “the bank is thus in an even better position to offset any downtrends affecting individual markets through performance elsewhere.” The Group will also strongly benefit from the improvement in profit contributions from Consulting/Services: the segment has evolved into an increasingly important source of income. Its market position will be expanded through targeted investment in its product range and distribution power. Schumacher added: “The strategic combination of two strong segments gives us a unique edge, particularly beneficial in the current market environment: Consulting/Services generates income that is largely independent from property cycles and the current turbulence on financial markets.”
Aareal Bank Group has reacted to the changes in market conditions, as a result of the crisis affecting financial markets, by adapting its strategic focus. The growth programme launched in the spring of 2007 was adjusted to match the new situation, with an extended planning horizon. Given that syndication and securitisation are unlikely to be available as feasible exit options in the property finance business for some time, the bank will modify its tried-and-tested ‘buy-manage-sell’ model into a ‘buy-manage-hold’ approach. The required adjustments to the organisational structure and processes will be undertaken within the framework of the adapted growth programme FUTURE 2010. This will also include further optimisation in the Consulting/Services segment. “These adjustments will provide a sustained enhancement to our competitiveness, enabling us to weather the challenges we face in the market. This will provide the basis for Aareal Bank Group’s continued success – despite a changed framework – and for achieving our ambitious targets”, Schumacher emphasised.
Cautiously optimistic outlook for 2008
The Management Board is cautiously optimistic for the current financial year. Schumacher affirmed the outlook thus: “Barring any further major distortions on financial markets this year, in 2008 we will be able to repeat the strong results we delivered in the previous year – with a positive market environment, we should be able to even exceed them. Our medium-term financial targets remain, in fact, unchanged. Assuming a return to normal market conditions by 2009 at the latest, our projections indicate that we will reach our target return on equity after taxes of 13%; however, given the prevailing market uncertainty, this will be achieved by 2010.”
Although the uncertainty affecting the current market situation makes a precise forecast for the Structured Property Financing segment difficult, it is worth noting that the current environment not only holds risks, but also significant opportunities. Aareal Bank will continue to pursue a selective new business origination policy, with strict requirements in terms of quality and returns, to consistently exploit available market opportunities. The Management Board envisages a continued increase in risk-weighted assets in 2008. Together with a continued recovery in margins, this will have a positive impact on net interest income.
A significant increase is expected in the results generated by the Consulting/Services segment.
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 25 countries.