- Consolidated net income after minority interest almost tripled in 2007, with return on equity after taxes at 25.0 per cent
- At € 11.7 billion, new Structured Property Financing business clearly exceeded projections
- Very positive development of Consulting/Services division outperforms expectations
- Provisions for loan losses remained below the forecast target corridor
Wiesbaden, 18 February 2008 - Aareal Bank concluded the financial year 2007 with the best result in its corporate history. According to preliminary, unaudited figures, 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 138%, to € 380 million (2006: € 160 million). A significant improvement in operating results contributed to this increase: excluding special effects of € 221 million (2006: € 27 million), these were up by 20 per cent.
Consolidated operating profit in the fourth quarter of 2007 amounted to € 27 million (Q4 2006: € 38 million). This decrease was due predominantly to a € 20 million net trading loss, which reflected the marking to market of securities portfolios in line with changed market conditions. At approximately € 16 million, these write-downs were attributable to asset-backed securities (ABS) and bank bonds in equal proportions. Net trading income also regularly includes ongoing expenditure for the bank's own securitisations; these amounted to € 2.5 million. The remaining € 1.5 million was attributable to stand-alone derivatives, government debt issued by EU member states, and interest payments. The fact that the mark-to-market charges were manageable demonstrated that Aareal Bank's cautious risk policy once again paid off during the fourth quarter.
Aareal Bank Group has no direct or indirect exposure to the US sub-prime market, nor does it hold any investments in Collateralised Debt Obligations (CDOs) or US Residential Mortgage Backed Securities (US RMBS). Furthermore, Aareal Bank holds no securities which are backed by US monoline insurers.
Thanks to its outstanding results for the year, Aareal Bank maintained its core capital ratio as at 31 December 2007 at 7.3 per cent, unchanged from the previous year. Average risk-weighted assets rose to € 21 billion (2006: € 19 billion).
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 - clear evidence of the high quality of Aareal Bank's financing portfolio.
Operating profit in the Consulting/Services segment rose nearly four-fold, to € 30 million in the financial year under review. Outperforming the projected target range of € 22 million to € 28 million, the segment has evolved into an increasingly important source of income.
"Aareal Bank Group is right on track, despite prevailing turbulence on financial markets", said Dr Wolf Schumacher, Chairman of the Management Board of Aareal Bank AG, adding that the bank "achieved - and in some cases clearly outperformed - its key targets in the year under review. With its strong track record established in the 2007 financial year, Aareal Bank Group has proven once again that the strategic focus on its Structured Property Financing and Consulting/Services segments is the right one, and that the bank is well positioned for the future."
The Management Board is confident that it will be able to preserve the Group's successful business momentum throughout the current year, even if market conditions should remain challenging. Although the current market situation makes precise forecasts difficult, in principle, the Management Board envisages the opportunities available to Aareal Bank Group to outweigh potential risk exposure. For instance, the more adequate pricing of credit risk - which can be observed in the market - is one of the positive effects on the bank's financing business, as margins are improving. Furthermore, the successful regional diversification of Structured Property Financing, within the scope of a three-continent strategy, permits Aareal Bank Group to balance out potential negative trends in individual markets.
"Barring any further major distortions on financial markets this year, we will be able to repeat our strong results seen in 2007 in the current year - with a positive market environment, we should be able to even exceed it", Schumacher added.
Notes on the preliminary Income Statement for the fourth quarter of 2007
Based on preliminary figures, net interest income for the fourth quarter of 2007 rose to € 109 million (Q4 2006: € 92 million), reflecting the strong momentum in new financing business. The figure reflects stronger new business in the Structured Property Financing segment, as well as a rise in margins, which was the result of changed market conditions. Provisions for loan losses could be reduced to € 14 million (€ 23 million).
Net commission income increased to € 37 million (€ 34 million), whilst the net trading result showed a swing to a loss of € 20 million, compared to a € 7 million profit in Q4 2006.
Results from non-trading assets totalled € 18 million in the fourth quarter. Following significant non-recurring income from the sale of shareholdings recognised in Q3, there were no further material special effects during Q4.
Administrative expenses were kept unchanged, at € 88 million; the pressure on expenditure emanating from the dynamic business development could be contained through strict cost discipline.
After taking into account net other operating income and expenses of € 9 million ( € 2 million), operating profit amounted to € 27 million in the fourth quarter, down € 11 million compared to the same quarter of the previous year. Aareal Bank Group's consolidated net income after minority interests for the fourth quarter of 2007 thus amounted to € 18 million (Q4 2006: € 34 million).
