Press Information
Aareal Bank’s preliminary financial indicators for 2006 show that the bank is back on track
- € 160 million operating profit
- € 107 million consolidated net income (after minority interest), equivalent to 10.1% net return on equity
- NPL portfolio reduced to € 643 million
- At € 9.9 billion, new business clearly exceeded expectations
Wiesbaden, 21 February 2007 – Aareal Bank Group concluded the implementation of its six-point realignment programme for its operating business ahead of forecast. Figures released for the financial year 2006 indicate operating profit of € 160 million: the bank thus fulfilled its profit target, which had already been raised in November 2006. € 38 million in profits were generated during the fourth quarter of 2006 alone – up by almost 50% against the same quarter of the previous year.
According to preliminary figures, consolidated net income after minority interest amounted to € 107 million, equivalent to a 10.1% net return on equity. The total capital ratio according to BIS rules stood at 7.3%, up from 7.1% as at 31 December 2005.
“We are very proud of this performance”, said Dr. Wolf Schumacher, Chairman of the Management Board of Aareal Bank, pointing out that the bank had come “back on track” much faster than anticipated. He added that “Aareal Bank’s economic situation has improved significantly, thanks in particular to the systematic expansion of new business, the sustained reduction in the NPL portfolio, and the strict focus on our core areas of expertise.”
New property finance business grew by almost 40% during the period under review, from € 7.1 billion to € 9.9 billion – clearly outperforming the bank’s own target, which it had raised to above € 8 billion as recently as November. Aareal Bank’s international business accounted for 84% of new commitments: the bank was thus successful in further diversifying the regional structure of its portfolio. At the same time, it continued to strengthen its prominent market position as a leading international property finance specialist, with extensive sector and market expertise.
Aareal Bank also exceeded its own targets for the reduction of non-performing loans (NPLs) during the financial year under review: with two portfolio placements and several individual disposals, the € 1 billion target was in fact hit by September. The bank’s overall NPL portfolio was reduced from € 2,085 million (31 Dec 2005) to € 643 million at the year-end 2006, thus returning to normal dimensions. This is also reflected in provisions for loan losses – at € 89 million, provisioning remained within the projected range.
Further key elements of the bank’s realignment process involved the focus on its core areas of expertise, the disposal of non-strategic assets, and the optimisation of Aareal Bank Group’s organisational structure. At the same time, Aareal Bank streamlined its investment portfolio and enhanced its process efficiency during the period under review.
“We have achieved quite a lot”, Dr. Schumacher added. “Thanks to these achievements, we are in a position to adopt a growth strategy much earlier than anticipated. The bank is now very well positioned for the future, thanks to the resumption of dividend payments, its enhanced capital base, the upgrade by Fitch Ratings, and its flexible corporate structure.”
Notes on the preliminary Income Statement for the fourth quarter of 2006
Q4/2006 net interest income of € 92 million fell short of the same quarter of the previous year (Q4 2005: € 97 million). This was due to lower risk-weighted assets, as a result of the accelerated reduction of exposures no longer in line with the bank’s strategy, together with the impact of securitisation transactions (which provided relief on net trading income to the same extent).
Provisions for loan losses amounted to € 23 million. The resulting figure of € 89 million for the year as a whole remained within the communicated target range.
At € 34 million, net commission income fell short of the previous year’s level of € 47 million. It should be noted, however, that the figure for Q4 2005 included subsidiaries which were subsequently sold.
Net trading income amounted to € 7 million (Q4 2005: -€ 11 million); the clearly positive measurement results of standalone derivatives more than compensated for expenses incurred for credit derivatives used for portfolio hedging.
The result from non-trading assets of € 27 million was largely attributable to the disposal of fixed income securities from the available-for-sale portfolio, and the deconsolidation and disposal of subsidiaries. In contrast, the result from investment property was negative, at € 12 million.
Administrative expenses were down significantly, by 12.9%, to € 88 million. This reduction reflects the success of the bank’s realignment.
After taking into account net other operating income and expenses of -€ 2 million, operating profit amounted to € 38 million in the fourth quarter. The full-year figure of
€ 160 million confirms the bank’s ambitious target set in November 2006.
Despite the increase of taxable domestic income, the income tax burden for the fourth quarter is shown as only € 1 million. This is due to a tax claim recognised during the fourth quarter, reflecting the present value of corporation tax credits attributable to previous periods.
The current result from sold asset management entities, amounting to a net € 1 million (including taxes), is shown below operating profit, under results of discontinued operations.
Consolidated net income (including minority interest) thus amounted to € 38 million for the fourth quarter, up 58.3% over the fourth quarter of 2005. The € 34 million figure (after minority interest income) is equivalent to a 70% increase.