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- Third-quarter consolidated operating profit up 42 per cent year-on-year, to EUR 47 million - At EUR 138 million, nine-month consolidated operating profit already exceeds the full-year figure for 2010 - Tier 1 ratio at 16.6 per cent - core Tier 1 ratio at 11.5 as at 30 September 2011
Aareal Bank Group maintained its positive business development throughout the third quarter of 2011, in a challenging market environment. Consolidated operating profit of EUR 47 million exceeded the figure posted for the same period of the previous year by some 42 per cent (Q3 2010: EUR 33 million) and was also higher than in the previous quarter (Q2 2011: EUR 44 million). At EUR 138 million, Aareal Bank Group's nine-month consolidated operating profit has already exceeded the full-year figure for 2010 (EUR 134 million).
"During the third quarter, we were again able to exploit opportunities for high-margin new business, and to further strengthen our market position", said CEO Dr Wolf Schumacher." The moderate level of allowance for credit losses, which is expected to remain at the lower end of our projected range for the full year, affirms the prudent business policy which we have been pursuing over recent years. Looking back on the first nine months of the year, we are thus confident that we will be able to maintain our positive business performance."
Aareal Bank's capitalisation remains solid. The bank's comfortable Tier 1 ratio of 16.6 per cent (up from 15.8 per cent at the mid-year point) is also good by international standards. Aareal Bank was thus able to maintain the ratio at a high level, whilst having grown its new business volume as planned. The core Tier 1 ratio - defined as the Tier 1 ratio excluding hybrid capital and the remaining SoFFin silent participation - stood at 11.5 per cent. Furthermore, despite persistent uncertainty on the capital markets, Aareal Bank successfully carried out its funding activities as planned during the third quarter, fulfilling its full-year funding requirements ahead of schedule.
Aareal Bank is not exposed to Greek government bonds, and is thus not affected by the Greek debt reduction agreed upon at the special summit in Brussels at the end of October. "Thanks to its good business development during the year to date, Aareal Bank is in a position to take adequate measures, if required, to respond to any renewed escalation of the market situation within the framework of its active portfolio management - and thus to strictly contain the impact of the European sovereign debt crisis on the bank", Dr Schumacher explained.
Structured Property Financing: operating profit once again significantly exceeds the previous year's figure
Aareal Bank once again boosted operating profit in the Structured Property Financing segment year-on-year: at EUR 42 million for the third quarter of 2011, operating profit was up by 50 per cent from the previous year's figure of EUR 28 million, also exceeding the level posted in the previous quarter (Q2 2011: EUR 41 million) - despite the non-recurring burden from the partial repurchase of the remaining SoFFin-guaranteed notes maturing in March 2012. Allowance for credit losses was EUR 36 million in the third quarter, and was therefore consistent with the quarterly volatility expected by the bank.
Nine-month operating profit in the Structured Property Financing segment was up by more than 60 per cent to EUR 126 million. The increase was largely due to a marked increase in net interest income, and also to a lower allowance for credit losses. Aggregate allowance for credit losses after three quarters is EUR 78 million and is therefore at the lower end of the pro rata forecast range of EUR 110 to EUR 140 million for the full year.
During the course of 2011 to date the property sector has largely been stable, even improving slightly relative to the previous year, reflecting the still-robust performance of the economy as a whole. This statement also applies to the third quarter, even though the momentum of the recovery on the property markets has eased recently. However, in an economic environment that has slowed down slightly, the business framework for the commercial property markets was stable to slightly positive.
Aareal Bank remains well positioned in the current economic environment to take advantage of attractive opportunities for high-margin new business - whilst maintaining its risk-sensitive lending policy. New business totalled EUR 3.0 billion from July to September, thus exceeding the figures for both the previous quarter (EUR 1.8 billion) and for Q3 2010 (EUR 1.2 billion). During the first nine months of 2011, the volume of new business originated by Aareal Bank amounted to EUR 6.2 billion, which equates to growth of more than 50 per cent over the first three quarters of the previous year (EUR 4.1 billion). The share of initial loan issues relative to the volume of new business increased significantly.
Consulting / Services: volume of deposits remaining on a high level
Operating profit in the Consulting / Services segment for the third quarter of 2011 amounted to EUR 5 million, matching the figure for the same period of the previous year.
Averaging EUR 4.8 billion, the volume of deposits from clients from the institutional housing industry remained at a high level during the third quarter of 2011. Aareal Bank's clients make strong use of the bank's combined offer of cash investment schemes, specialist services for automated mass electronic payments processing, and the optimisation of downstream processes (together with related advice). This enables the bank to maintain a strong position in the market, despite high competitive pressure.
The performance of the IT subsidiary Aareon AG was also on schedule during the third quarter. In particular, Aareon's enterprise resource planning software Wodis Sigma continued to develop positively; with 35 clients signing new contracts this year, a total of 356 clients have now opted for Wodis Sigma. Most of the existing Wodis Sigma clients previously used the Aareon ERP products Wodis and WohnData. To do justice to the strong market demand, Aareon invested further in expanding its advisory and support capacities.
Funding activities successfully executed
Aareal Bank Group continued to successfully carry out its funding activities as planned during the third quarter of 2011. It raised a total of EUR 0.9 billion in long-term funds on the capital market between July and September 2011. Mortgage Pfandbriefe accounted for just under EUR 0.6 billion of new issuance, and unsecured refinancing for EUR 0.3 billion. Despite the still-challenging situation on the capital and financial markets, Aareal Bank was thus able to execute all of its funding activities planned year-to-date and during the third quarter, and already achieved its funding targets for the year as a whole.
The bank raised a total of EUR 3.7 billion in long-term funds on the capital market through private and public transactions during the first nine months of the 2011 financial year, comprising EUR 2.2 billion in Mortgage Pfandbriefe, EUR 100 million in Public Sector Pfandbriefe, and EUR 1.4 billion in unsecured refinancing. The bank has therefore maintained its long-term funding inventory at a high level. The comfortable liquidity situation is also highlighted by the early partial redemption of the remaining SoFFin-guaranteed notes maturing in March 2012.
Notes to Group financial performance
Net interest income for the third quarter of 2011 was EUR 133 million (Q3 2010: EUR 131 million). For the first nine months of the 2011 financial year, net interest income thus totalled EUR 401 million (9m 2010: EUR 370 million), an 8 per cent increase. Net interest income after allowance for credit losses amounted to EUR 323 million (9m 2010: EUR 273 million).
Net commission income for the third quarter was EUR 38 million (Q3 2010: EUR 24 million). The year-on-year increase was largely due to lower cost for SoFFin-guaranteed notes and to commission income generated by SG | automatisering bv, Aareon AG's Dutch subsidiary acquired in the fourth quarter of 2010. Nine-month net commission income of EUR 99 million was also up year-on-year (9m 2010: EUR 86 million). The net figure includes costs of EUR 18 million (9m 2010: EUR 20 million) incurred for bonds guaranteed by SoFFin.
Burdens in the result from non-trading assets were fully compensated by the positive net trading income/expenses figure, and by the positive net result from hedge accounting. Net trading income/expenses amounted to EUR 20 million for the third quarter (Q3 2010: EUR 2 million), totalling EUR 14 million for the first nine months of 2011 (9m 2010: EUR -5 million). Both the quarterly and the nine-month figure were primarily attributable to the measurement of derivatives used to hedge interest rate and currency risks, as well as from unrealised changes in value from the sale of hedging instruments on selected EU sovereign countries.
Results from non-trading assets amounted to EUR -22 million in the third quarter (Q3 2010: EUR -3 million); the figure for the first nine months of the year was EUR -18 million (9m 2010: EUR 11 million). These results were largely attributable to sales of fixed-income securities.
Consolidated administrative expenses totalled EUR 93 million for the third quarter (Q3 2010: EUR 88 million) and EUR 280 million for the first nine months of the year; the figure for the second quarter was EUR 96 million. This development highlights the Group's continued strict cost discipline.
Net other operating income and expenses in the third quarter amounted to EUR 2 million (Q3 2010: EUR 1 million), and EUR -10 million for the first nine months of the year (9m 2010: EUR -7 million), reflecting in particular expenses incurred with one individual property.
Consolidated operating profit for the third quarter thus totalled EUR 47 million (Q3 2010: EUR 33 million). Taking into consideration EUR 13 million in income taxes and EUR 5 million in income attributable to non-controlling interests, consolidated net income after non-controlling interests for the quarter stood at EUR 29 million. After deduction of the net interest payable on the SoFFin silent participation, consolidated income stood at EUR 24 million (Q3 2010: EUR 10 million).
Consolidated operating profit for the first nine months of the current financial year thus totalled EUR 138 million (9m 2009: EUR 94 million). Taking into consideration taxes of EUR 39 million and non-controlling interest income of EUR 14 million, net income attributable to shareholders of Aareal Bank AG amounted to EUR 85 million. After deduction of the net interest payable on the SoFFin silent participation, consolidated net income stood at EUR 69 million (9m 2010: EUR 27 million).
Outlook: year-to-date results already exceed the full-year figures for 2010
The European sovereign debt crisis is likely to remain at the top of the agenda on the financial and capital markets during the remainder of the 2011 financial year. It is thus fair to expect that market volatility will remain high for the time being, and that the resulting risks in the financial system will persist.
Given the good year-to-date performance and its solid capital and liquidity base, Aareal Bank Group believes that it is in a good position to act accordingly on anticipated changes in the market environment. This applies both to the active management of the securities portfolio and to the internal organisation, which is subject to a continuous review regarding potential efficiency enhancements in all areas.
Aareal Bank continues to expect net interest income for the full 2011 financial year to exceed the previous year's level. New business for the year as a whole is expected within the upper half of the forecast range of between EUR 7 billion and EUR 8 billion. Regarding allowance for credit losses, the bank maintains its forecast range of between EUR 110 million and EUR 140 million for the year as a whole. Based on developments during the first nine months, however, allowance for credit losses is expected to be at the lower end of the range. As in previous years, the bank cannot rule out additional allowances for unexpected credit losses in 2011.
A marked year-on-year increase in net commission income for 2011 is expected, thanks predominantly to the relief arising from lower guarantee fees through the redemption of a large proportion of the SoFFin-guaranteed notes. Administrative expenses continue to be defined by the bank's unchanged cost discipline, and the figure for the current year is expected to be marginally higher than in the previous year, including the burden associated with the special bank levy (Bankenabgabe).
Looking ahead, economic risks and future developments on financial markets are difficult to assess for the coming months. Generally, Aareal Bank remains in a position to further exceed consolidated operating profit of the 2010 financial year during the current year - having matched the previous year's results after nine months already.
Moreover, Aareal Bank continues to believe that it is able to match its target return on equity before taxes of between 12 per cent and 13 per cent, in normalised markets.
"Aareal Bank Group continues to perform strongly in its operative business. Moreover, its medium-sized business structure also means that it has the necessary flexibility to hold its own, time and again, in a rapidly-changing market environment. After all, as a premium provider, our goal is to always offer our clients the best solutions in both our segments. In this way, we will secure the bank's successful development in the future", Schumacher summarised.
Note to editors: The full interim report for the third quarter of 2011 is available on http://www.aareal-bank.com/en/investor-relations/financial-reports/.
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 20 countries.
Aareal Bank AG
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