- First-quarter consolidated operating profit of € 67 million slightly exceeds the previous year's figure of € 65 million (adjusted for negative goodwill from the Corealcredit acquisition)
- Net interest income of € 178 million markedly higher year-on-year (Q1 2014: € 144 million)
- Full-year outlook for 2015 affirmed: Aareal Bank anticipates consolidated operating profit of between € 400 million and € 430 million, including a positive non-recurring effect from the acquisition of WestImmo
Wiesbaden, 7 May 2015 – Aareal Bank Group enjoyed a good start into the 2015 financial year. It generated consolidated operating profit of € 67 million, a slight year-on-year increase on the previous year's figure of € 65 million, adjusted for the one-off negative goodwill of € 154 million from the acquisition of COREALCREDIT BANK AG ("Corealcredit"), which was closed in the spring of 2014. Net interest income increased and allowance for credit losses declined year-on-year. On the other hand, there were higher expenses for the integration of Corealcredit and the expected costs of the European bank levy, which were already recognised for the full year during the period under review.
After deduction of the imputed net interest payable on the Additional Tier 1 (AT1) bond of € 4 million, consolidated net income attributable to ordinary shareholders amounted to € 36 million (Q1 2014: € 35 million, excluding the one-off effect due to Corealcredit).
Net interest income rose strongly, to € 178 million (Q1 2014: € 144 million), reflecting the higher lending volume – especially due to the acquisition of Corealcredit; the continued satisfactory average lending margins, combined with a high level of early loan repayments and low funding costs, also had a positive effect. The net figure continued to be burdened, however, by a lack of attractive investment opportunities for liquidity reserves, due to the persistent low interest rate environment.
Allowance for credit losses amounted to € 18 million in the first quarter (Q1 2014: € 37 million), thus remaining within expectations. Aareal Bank Group is exposed to securities issued by HETA Asset Resolution AG ("HETA") to a very limited extent only: impairments were limited to € 7 million, shown in the result from non-trading assets. Of this amount, € 4 million (before taxes) were already recognised in the revaluation surplus as at the year-end 2014. This means that equity was burdened by only € 3 million (before taxes) in the first quarter of 2015.
On 22 February 2015, Aareal Bank Group announced the acquisition of Westdeutsche Immobilienbank ("WestImmo"). The transaction is still expected to be completed during the first half of 2015. The integration of Corealcredit into Aareal Bank Group is also making good progress. In terms of corporate law, Aareal Bank intends to transfer Corealcredit's operating activities to Aareal Bank, also during the first half of 2015, as announced on 15 April 2015.
CEO Dr Wolf Schumacher stated: "Aareal Bank Group’s positive business performance continued into the first quarter of the current year. Once again, it is evident in the current environment that we enjoy an excellent position, thanks to our business model – and that we have taken the right strategic decisions for continuing along this path of success in the future."
Structured Property Financing: a marked increase in net interest income
Operating profit in the Structured Property Financing segment amounted to € 74 million in the first quarter of 2015, an increase compared to the same period of the previous year (€ 71 million, adjusted for the negative goodwill from the acquisition of Corealcredit). The increase was largely attributable to higher net interest income: at € 178 million in the first quarter of 2015, it clearly exceeded the figure for the same quarter of the previous year (Q1 2014: € 143 million).
New business originated in the segment during the period under review amounted to € 1.8 billion (Q1 2014: € 1.6 billion), of which newly-originated loans accounted for 47 per cent. Aareal Bank pursues a selective policy regarding new business, especially in view of increasing margin pressure, due to intensified competition, and the acquisition of WestImmo, which will lead to non-organic growth in interest-bearing lending volume.
Consulting/Services segment: volume of deposits remains stable, on a high level
Operating profit in the Consulting/Services segment totalled -€ 7 million during the first quarter of 2015 (Q1 2014: -€ 6 million). The business activities of the Aareon AG subsidiary developed in line with projections: its € 5 million profit contribution was unchanged from the previous year.
The volume of deposits in the segment's banking business remained high, averaging € 9.3 billion during the quarter under review (Q4 2014: € 9.1 billion). The persistently low interest rate environment burdened income generated from the deposit-taking business, and therefore the segment result. Nonetheless, the importance of this business goes way beyond the interest margin – which is under pressure in the current market environment – generated from the deposits. Deposits from the housing industry are a strategically important additional source of funding for Aareal Bank.
Comfortable funding situation and strong capitalisation
Aareal Bank maintained its long-term funding inventory at a high level. It raised a total of € 0.9 billion in long-term funds on the capital markets during the first quarter, including € 0.7 billion in Mortgage Pfandbriefe as well as unsecured refinancing of € 0.2 billion.
Aareal Bank continues to be very solidly capitalised. As at 31 March 2015, the Bank’s Tier 1 ratio was 16,7 per cent, which is comfortable on an international level. Assuming full implementation of Basel III, the Bank's pro-forma Common Equity Tier 1 (CET1) ratio would be 12,6 per cent.
Notes to Group financial performance
Net interest income amounted to € 178 million during the quarter under review, up significantly year-on-year (Q1 2014: € 144 million). Net commission income totalled € 41 million (Q1 2014: € 40 million). The aggregate of net trading income/expenses, the net result on hedge accounting, and net result from non-trading assets totalled € 1 million during the quarter under review.
At € 132 million (Q1 2014: € 102 million), administrative expenses were higher than in the previous year, as expected. The increase was largely due to the running costs for Corealcredit, included in expenditure since the second quarter of 2014, as well as € 12 million in expenses for its integration. Moreover, the Bank recognised the expected full-year European bank levy, in the amount of € 9 million, during the first quarter of 2015.
Aareal Bank Group's consolidated operating profit stood at € 67 million in the first quarter, an increase over the same period of the previous year (€ 65 million, adjusted for negative goodwill resulting from the acquisition of Corealcredit). Taking tax deductions of € 22 million into account, consolidated net income was € 45 million. After deduction of € 5 million in non-controlling interest income, and the imputed net interest payable on the Additional Tier 1 (AT1) bond of € 4 million, consolidated net income attributable to ordinary shareholders of Aareal Bank AG amounted to € 36 million (Q1 2014: € 35 million, excluding the one-off effect due to Corealcredit).
Outlook for 2015 affirmed
For the current financial year 2015, Aareal Bank does not expect any dynamic momentum, given subdued growth. The presence of a variety of risks means that global economic development remains susceptible to disruptions. Sentiment is characterised by numerous uncertainty factors, such as the crisis in the Ukraine, the risk of deflation in Europe, as well as imponderabilities concerning the development of the European sovereign debt crisis – especially concerning Greece. For commercial property markets, it is fair to assume that competition in Europe, North America and Asia will remain intense during the course of this year.
In spite of substantial uncertainties and numerous risk factors, Aareal Bank remains generally confident for the 2015 financial year and affirms its full-year guidance, as announced in February, according to which net interest income is expected in a range between € 720 million and € 760 million. Despite a larger loan portfolio, Aareal Bank continues to forecast allowance for credit losses in a range of € 100 million to € 150 million. As in the previous years, the Bank cannot rule out additional allowance for unexpected credit losses that may be incurred during the current year.
Net commission income for 2015 is projected to be in a range between € 170 million and € 180 million. Administrative expenses, including one-off effects related to the takeover of WestImmo and the integration of Corealcredit, are expected in the region of € 520 million to € 550 million.
All in all, Aareal Bank sees good opportunities, including negative goodwill from the acquisition of WestImmo, to achieve consolidated operating profit of between € 400 million and € 430 million for the current year. Negative goodwill from the acquisition of WestImmo is expected to amount to some € 150 million. The Bank expects RoE before taxes to be around 16 per cent, and earnings per share between € 4.80 and € 5.20, based on an assumed full-year tax ratio of 31.4 per cent. Adjusted for the non-recurring income from the acquisition of WestImmo, Aareal Bank expects RoE before taxes of around 10 per cent, with EPS in a range between € 2.30 and € 2.70.
Aareal Bank's medium-term target RoE of approximately 12 per cent before taxes remains unchanged.
New business of between € 6 billion and € 7 billion is anticipated for the Structured Property Financing segment during the current financial year.
In the Consulting/Services segment, Aareal Bank expects its IT subsidiary Aareon to contribute approximately € 27 million to results before taxes.
