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Aareal Bank Group posts solid results for the 2009 financial year

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Wiesbaden (ots)

- Profit before taxes of EUR 86 million for the full year 2009 -
  23 million for the fourth quarter
- Allowance for credit losses of EUR 150 million, in line with 
projections
- Tier 1 ratio of 11.0% pursuant to the Credit Risk Standard Approach
(CRSA)
- Initial partial redemption of SoFFin contribution planned by early 
2011
- CEO Dr Wolf Schumacher: "We have performed very well during the 
crisis. From today's perspective, we see good potential for 
increasing operating profit in 2010, even though the market 
environment is still fraught with uncertainty."
Aareal Bank Group concluded the financial year 2009 with a solid 
result, in a challenging market environment. According to the 
preliminary, unaudited figures, consolidated operating profit 
amounted to EUR 86 million, after EUR 110 million the year before. 
Operating profit of EUR 23 million was generated in the fourth 
quarter of 2009, equating to an increase of EUR 13 million over the 
final quarter of 2008.
The comparative figures for the 2008 financial year and the fourth
quarter of 2008, as well as those posted for the first three quarters
of 2009, show a slight divergence from the figures released 
previously. This marks the successful conclusion of an IFRS 
accounting project Aareal Bank has conducted over several years: the 
related accounting change required minor adjustments to prior 
periods.
Against the background of a sound performance to date throughout 
the crisis affecting financial markets and the economy, and the 
bank's solid capitalisation, the Management Board aims to start 
repayment of the silent participation provided by the German 
Financial Markets Stabilisation Fund ("SoFFin"). The bank intends to 
repay the first tranche - the volume of which will be agreed upon in 
due course - already until the beginning of 2011. Aareal Bank has 
various options for funding the repayment; the specifics have yet to 
be decided upon. In any case, the high Tier 1 ratio of 11.0% (in 
accordance with the CRSA) offers some room for manoeuvre, when 
compared to the medium-term target of 10%. Aareal Bank assumes that 
in view of its solid refinancing situation, it will not need to draw 
on the remaining EUR 2 billion SoFFin guarantee facility for 
unsecured issues during the current year.
Dr Wolf Schumacher, Chairman of Aareal Bank's Management Board, 
explained: "We have weathered the crisis affecting financial markets 
and the economy satisfactorily up to now. On the basis of our 
business model comprising two pillars, we have performed well during 
the challenging 2009 financial year. We have achieved the targets we 
forecasted for the period. Furthermore, the positive results mean 
that Aareal Bank will service all of its subordinated refinancing 
vehicles for the 2009 financial year. This includes the silent 
participation by SoFFin. From today's perspective, we see good 
potential for increasing operating profit in 2010, even though the 
market environment is still fraught with uncertainty. Although the 
persistently fragile market environment calls for a careful stance, 
the anticipated business development in 2010 should offer us the 
opportunity to further strengthen our competitive position."
2009 financial year: on track in a difficult market environment
Consolidated net interest income totalled EUR 459 million for 2009
(2008: EUR 495 million). Higher margins in the lending business were 
offset by lower returns on the very comfortable level of liquidity 
reserves maintained. The unfavourable interest rate environment also 
burdened results in the deposit-taking business with the 
institutional housing industry. The figure for the previous year was 
characterised by an extraordinarily strong net interest income for 
the fourth quarter, reflecting the favourable interest rate 
environment at the time.
Allowance for credit losses was recognised in an amount of EUR 150
million (2008: EUR 80 million), in line with projections. Additional 
allowance for credit losses in an amount of EUR 34 million recognised
in 2008, on account of the difficult market environment, was not 
utilised in the financial year under review; in fact, it was 
increased by an additional EUR 14 million, bringing the total 
additional allowance to EUR 48 million.
Net commission income of EUR 133 million (previous year: EUR 149 
million) reflected - amongst other things - EUR 17 million in running
costs for the guarantee facility extended by SoFFin.
Net trading income/expenses of EUR 44 million (2008: EUR -31 
million) was mainly accounted for by the measurement of financial 
instruments in the trading portfolio. This figure was due primarily 
to a recovery in the value of credit derivatives.
Restructuring the securities portfolio - conducted at the 
beginning of 2009 within the scope of the conservative risk policy 
adopted - was a main influencing factor upon the result from 
non-trading assets of EUR -22 million (2008: EUR -101 million). No 
further material burdens to non-trading assets were recognised during
the remainder of 2009.
Administrative expenses of EUR 361 million were virtually 
unchanged year-on-year (2008: EUR 364 million). This reflects the 
strict cost discipline pursued within the Group.
Taking into account net other operating income and expenses of EUR
-14 million (2008: EUR 34 million), consolidated operating profit for
the 2009 financial year totalled EUR 86 million, after EUR 110 
million in 2008. Taking into consideration taxes of EUR 19 million 
and minority interest income of EUR 18 million, net income 
attributable to shareholders of Aareal Bank AG amounted to EUR 49 
million (unchanged from the previous year). After deduction of the 
net EUR 26 million cost of the SoFFin silent participation (taking 
into account the related tax effects), consolidated net income stood 
at EUR 23 million.
Both of the business segments contributed to Aareal Bank Group's 
satisfactory results for 2009 in the face of difficult market 
conditions.
Aareal Bank continued to pursue its conservative policy, with a 
strict focus on quality, in the Structured Property Financing 
segment, and achieved a positive result, despite the impact of the 
crisis affecting financial markets and the economy.
The focus in originating new business was on the existing client 
base, and on extending loan terms for existing financing projects. At
EUR 3.8 billion, the volume of new business, including renewals, 
exceeded the target corridor of EUR 2 to 3 billion announced 
originally.
Net interest income posted by the segment for the financial year 
under review amounted to EUR 409 million (2008: EUR 426 million). 
Higher margins in the lending business were offset by lower returns 
on the very comfortable level of liquidity reserves maintained. 
Aareal Bank has built up a liquidity cushion, within the framework of
its conservative liquidity management policy in a market environment 
defined by uncertainty. Low short-term interest rates meant that this
liquidity cushion could only be invested at low yields, which had a 
negative effect on net interest income.
Overall, operating profit for the Structured Property Financing 
segment was EUR 66 million, unchanged from the previous year's figure
(EUR 66 million). Taking into consideration tax expenses of EUR 12 
million and EUR 16 million in minority interest income, the segment 
result was EUR 38 million (2008: EUR 21 million).
The Consulting/Services segment also highlighted its importance as
Aareal Bank Group's second pillar in the difficult environment during
2009. The volume of deposits from the institutional housing industry 
remained virtually stable and averaged at around EUR 4.0 billion in 
the 2009 financial year. This reflects the high level of confidence 
that institutional housing industry clients in Germany place in 
Aareal Bank as their reliable banking partner. This relationship of 
trust built up over many decades is bearing fruit, especially in an 
uncertain market environment.
Sales revenue amounted to EUR 209 million in the 2009 financial 
year (2008: EUR 229 million). The decline was largely due to the low 
interest rate environment, which impacted unfavourably on 
profitability of the deposit-taking business with the institutional 
housing industry. Revenue generated by our subsidiary group Aareon AG
remained stable, despite the general economic weakness, which led to 
a lower volume of project tenders in the market - especially in the 
first half of the year. This reflected the successful continuation of
Aareon's multi-product strategy. The new Wodis Sigma product, which 
was launched in the second quarter, was met with great interest.
On balance, operating profit for the Consulting / Services segment
was EUR 20 million (2008: EUR 44 million). The year-on-year decline 
was due on the one hand to the effects of the historically low 
interest rate environment, which significantly impacted on the 
results generated in the deposit-taking business. On the other hand, 
non-recurring expenses for capacity adjustments at Aareon, as well as
expenditure for the suspension of non-core activities, also affected 
results. Taking into account these non-recurring effects, which 
amounted to an aggregate EUR 6 million, the segment's operating 
profit was within the communicated range of EUR 25-30 million.
After deduction of EUR 7 million in taxes and EUR 2 million in 
minority interest income, the segment result stood at EUR 11 million 
(2008: EUR 28 million).
Solid refinancing situation and good capitalisation
Aareal Bank continued to adhere to its forward-looking refinancing
policy during the year under review. Several private placements as 
well as public issues were successfully distributed to a broad 
investor base over the course of the year. Pfandbriefe totalling EUR 
2.3 billion were issued within the scope of the bank's refinancing 
activities in the 2009 financial year. Aareal Bank benefited from an 
easing of market sentiment that was evident from mid-year onwards, to
increase its placements of unsecured bonds and promissory note loans.
The issuing volume for the year as a whole amounted to EUR 1.1 
billion, plus a EUR 2 billion unsecured bond issue guaranteed by 
SoFFin.
As at 31 December 2009, Aareal Bank's Tier 1 ratio - measured in 
accordance with the Credit Risk Standard Approach (CRSA) - was 11.0 
%, which is high by international standards. The Tier 1 ratio is thus
clearly above the medium-term target ratio of 10%, as defined by the 
Management Board. Good capitalisation provides Aareal Bank with the 
necessary scope to continue to act as a reliable financing partner 
for its existing clients, and also to increasingly exploit the market
opportunities presented to it.
Notes on the preliminary Income Statement for the fourth quarter 
of 2009
Aareal Bank Group also posted a profit in the fourth quarter of 
2009. Consolidated net income after minority interests and the net 
interest cost on the SoFFin silent participation amounted to EUR 6 
million, after EUR 3 million in the same quarter of the previous 
year.
According to preliminary figures, net interest income in the final
quarter of 2009 stood at EUR 115 million (Q4 2008: EUR 140 million), 
up EUR 3 million from the third quarter of 2009. Allowance for credit
losses for the period amounted to EUR 35 million (Q4 2008: EUR 20 
million). Net commission income for the fourth quarter was EUR 39 
million in the fourth quarter (Q4 2008: EUR 48 million).
Net trading income/expenses in the final quarter of 2009 was EUR 3
million, compared with EUR -25 million in the same quarter of the 
previous year. Results from non-trading assets in the fourth quarter 
were EUR -3 million (Q4 2008: EUR - 61 million).
Administrative expenses amounted to EUR 83 million in the fourth 
quarter (Q4 2008: EUR 90 million), also below the third quarter of 
2009 (EUR 92 million).
On balance, operating profit for the fourth quarter was EUR 23 
million (Q4 2008: EUR 10 million). After deduction of EUR 4 million 
in income taxes and EUR 5 million in income attributable to minority 
interests, consolidated net income after minority interests amounted 
to EUR 14 million (Q4 2008: EUR 3 million). After deduction of EUR 8 
million in net interest payable on the SoFFin silent participation, 
consolidated net income stood at EUR 6 million.
Outlook: rising net interest income expected for 2010, allowance 
for credit losses will remain manageable
Aareal Bank Group anticipates a slight overall improvement in 
business development for the current financial year - even though the
environment for commercial property finance is expected to be equally
as challenging as in 2009.
Against the background of a slight to moderate increase in 
interest rates, the Management Board expects net interest income to 
grow to a range of EUR 460-480 million. This projection is based on 
higher lending margins, together with a lower burden from liquidity 
reserves.
Aareal Bank expects allowance for credit losses to remain at 
manageable levels during the 2010 financial year. Allowance for 
credit losses recognised in income is expected to range between EUR 
117 million to EUR 165 million: the actual level will depend in 
particular on the extent to which the additional allowance for credit
losses of EUR 48 million will, in fact, be utilised. As in the 
previous year, the bank cannot rule out additional allowances for 
credit losses that may be incurred during 2010.
Aareal Bank Group expects a moderate year-on-year rise in net 
commission income.
Although Aareal Bank does not engage in proprietary trading in the
conventional sense, it is impossible to forecast net trading 
income/expenses owing to market-related fluctuations, the measurement
of hedges within the scope of refinancing the bank's core business, 
as well as the measurement of financial instruments held in our 
trading portfolio.
Administrative expenses continue to be defined by the continued 
strict cost discipline, and the figure for 2010 is expected to be 
roughly in line with last year.
From today's perspective, Aareal Bank sees good potential for 
increasing operating profit in 2010, even though the market 
environment continues to be fraught with uncertainty.
New business generated in the Structured Property Financing 
segment is currently expected to range between EUR 4 billion and EUR 
5 billion in 2010. Aareal Bank will continue to concentrate on the 
funding requirements of its existing client base. The increase in the
volume of new business will reduce the share of loan term extensions 
relative to new business.
The Management Board believes the challenging interest rate 
environment will continue to impact on the segment result for 
Consulting/Services: profit before taxes are expected to slightly 
above the adjusted operating profit of the previous financial year.
Aareal Bank
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.

Contact:

Aareal Bank AG
Corporate Communications

Sven Korndörffer
phone: +49 611 348 2306
sven.korndoerffer@aareal-bank.com

Christian Feldbrügge
phone: +49 611 348 2280
christian.feldbruegge@aareal-bank.com

Investor Relations

Jürgen Junginger
phone: +49 611 348 2636
juergen.junginger@aareal-bank.com

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