- Consolidated net income after minority interests almost quadrupled, to € 272 million
- 31.4% return on equity after taxes
- Provisions for loan losses down 13.6% from the previous quarter, to € 19 million
- High level of new business generated in Structured Property Financing
- Positive contribution by Consulting/Services for the fifth consecutive quarter
Wiesbaden, 12 November 2007 - Aareal Bank Group consolidated net profit after minority interests was € 272 million for the first nine months of the 2007 financial year. With this record value, the bank almost quadrupled the figure recorded for the first nine months of 2006. Return on equity after taxes amounted to 31.4%.
Factors which contributed to this gratifying result included non-recurring income of € 153 million on the disposal of the bank's shareholding in Immobilien Scout GmbH, plus a € 65 million mark-up on its investment in Deutsche Interhotel (Q2: € 2 million, Q3: € 63 million), which is accounted for at equity. A non-recurring € 13 million tax expense was recognised during the third quarter, reflecting the re-measurement of deferred tax assets following the German business tax reform passed in July 2007.
Aareal Bank recorded strong growth in new business generated by its Structured Property Financing segment, up 19% year-on-year, to € 8.75 billion. International transactions accounted for approx. 89% of new business.
Dr. Wolf Schumacher, Chairman of the Management Board of Aareal Bank, said that “against the background of the US sub-prime crisis, which also slowed down international property markets during the third quarter, this result is particularly gratifying. We consider the current market situation as an opportunity to generate new business, on a selective basis, and to grow our balance sheet. For us, not being exposed to the US sub-prime market – directly or indirectly – has paid off. In our view, the movement towards a more appropriate pricing of credit risks, together with a greater focus on clients' credit rating and on the quality of the financed properties are positive knock-on effects.”
Results of operations
Nine-month net interest income was up slightly, compared with the same period of the previous year, to € 302 million (up € 5 million). Thanks to the good performance of its loan portfolio, Aareal Bank reduced third-quarter provisions for loan losses to € 19 million - 13.6% below the figure for the second quarter of 2007. At € 63 million for the first nine months of the year, provisions for loan losses were down 4.5% year-on-year, and at the lower end of the target range of € 80 to 90 million communicated for the year 2007 as a whole.
At € 105 million, net commission income was up slightly, by € 1 million year-on-year, whereby the previous year's figure included € 7 million in non-recurring income. The net figure was influenced by opposing trends in the two segments. Clients significantly reduced early repayments of property loans, causing prepayment fees generated in Structured Property Finance to decline during the third quarter. This was offset by the positive development in net commission income for the Consulting/Services segment.
Net trading income was a € 6 million loss. The € 12 million negative swing compared to the figure for the same period of the previous year reflected lower mark-to-market values of securities held for trading (predominantly affecting senior unsecured bank bonds), plus write-downs on the bank’s ABS portfolio.
The result from non-trading assets amounted to € 188 million, almost five times the € 39 million recorded in the same period of the previous year. This marked increase was attributable in particular to the € 153 million sales proceeds recognised from the sale of the Immobilien Scout stake. Compared to the operating profit originally budgeted for Immobilien Scout GmbH, the transaction boosted Aareal Bank's projected consolidated net income for the year by € 140 million after taxes.
The net result from investments accounted for at equity of € 68 million includes a € 63 million mark-up recognised to reflect the disposal of assets within Deutsche Interhotel Group, plus the 2006 dividend from the stake formerly held in Immobilien Scout GmbH, which was recognised during the second quarter of 2007.
Administrative expenses were up slightly year-on-year, by 1.9% to € 273 million. This increase was predominantly attributable to investments to expand Aareal Bank Group's international business. The increase was offset by successful cost-reduction measures implemented within the scope of realigning Aareon AG.
After taking into account net other operating income and expenses of € 27 million, Aareal Bank’s consolidated operating profit/loss before taxes amounted to € 353 million. After deduction of € 67 million in income taxes and € 14 million in income attributable to minority shareholders, consolidated net income after minority interests amounted to € 272 million – up 272.6% compared to the nine-month result for 2006 of € 73 million. Return on equity after taxes thus amounted to 31.4%.
International profile enhance further
Aareal Bank’s property financing portfolio under management grew to € 23.7 billion during the first nine months, up 4.1% since the end of 2006. Moreover, the high volume of new international commitments further enhanced the regional diversification of Aareal Bank’s overall portfolio. Compared with the year-end figures for 2006, the bank’s international business was expanded by 13.4%, to € 16.2 billion as at 30 September 2007, and the German business reduced by 11.7%, to € 7.5 billion. Overall, of the total portfolio under management, € 17.4 billion related to commercial and € 6.3 billion to residential lending business.
Solid refinancing base
By 30 September 2007, Aareal Bank had taken up a total of € 4.1 billion of funding. At € 1.7 billion, Pfandbriefe issued during the first three quarters of 2007 accounted for a share of overall funding volume in excess of 40%. At present, Aareal Bank sees no need to raise finance through public issues, private placements, or Pfandbriefe. The significant level of deposits generated through Aareal Bank’s Institutional Housing Business – € 4.55 billion during the first nine months of the financial year – helps to clearly reduce the bank's dependency on the money and capital markets.
Consulting/Services segment continuing to develop positively
The Consulting/Services segment enjoyed great success during the period under review. A particularly positive development was recorded with regard to the multi-product strategy launched last year, comprising the four enterprise resource planning (ERP) systems Blue Eagle, GES, Wohndata and Wodis. The products are being well received on the market and the first synergistic benefits are emerging. A new sales management system has also reinforced the profit-oriented and customer-focused approach of the Consulting/Services segment. For five quarters in a row now, the segment has been making a positive profit contribution to Aareal Bank Group's success.
Outlook
Aareal Bank Group affirms its full-year target for return on equity after taxes clearly in excess of 20%. In the Structured Property Financing segment, the bank envisages to achieve its € 10 billion target for new business by the 2007 year-end, and expects to exceed this level. In the Consulting/Services segment, operating profit before taxes will lie within the projected range of € 22 to 28 million by the year-end. Aareal Bank indicated that it will continue to consistently pursue its strategy of internationalisation. The funds raised from the sale of the stake in Immobilien Scout GmbH have been earmarked for investment in the further expansion of the bank's core businesses.
“The nine-month results clearly show the benefits of Aareal Bank Group’s clear strategic positioning, and that its profitable growth approach is bearing fruit”, Schumacher added.
