Foreword by the management board
Ladies and gentlemen,
The EU Commission’s favourable decision in the state-aid proceedings characterised the year 2015 to a major extent for HSH Nordbank. Two years of negotiations were followed in October 2015 by the green light from Brussels. We therefore now have planning certainty and a clear outlook on the future. The agreement reached with the EU gives HSH Nordbank the opportunity to sell legacy assets of up to EUR 6.2 billion to an institution under public law that the states of Hamburg and Schleswig-Holstein established in December 2015. The plan is to make a transfer of initially EUR 5 billion in the summer of 2016. HSH Nordbank will thereafter be able to dispose of further critical assets worth up to EUR 3.2 billion on the market. The losses on these disposals will be charged to the existing guarantee. The Bank will thus be liberated from at least some of the massive legacy assets that stem from the time prior to 2009. It should not go unmentioned, however, that we would have wished for more substantial relief. The non-performing loans stemming from the past continue to weigh on HSH Nordbank to a major extent and conceal its actual ability to perform as they tie capital and are – to put it briefly – negatively reflected on the balance sheet. Ultimately, they will diminish the potential price to purchase HSH Nordbank. Everyone involved must be aware of that.
The change of ownership planned for 2018 will present HSH Nordbank with tremendous challenges – but it simultaneously means a great opportunity. These are the poles between which the Bank will be moving in the next two years. We must now establish the conditions for the change of ownership in order to make it a success. Potential investors will be interested in HSH Nordbank only if they are convinced by its structure, ability to perform as well as its long-term potential. Alongside a solid client base that has grown over time and a good market position, this also includes efficient processes in sales and back-office operations accompanied by a cost-income ratio that is appropriate overall.
A glance at our results of the past year underscores HSH Nordbank’s operating strength and shows its potential to generate steady income over the medium and long term. In 2015, HSH Nordbank generated a positive result with pre-tax income of EUR 450 million. However, this profit was heavily affected by technical factors that are directly connected with the complex guarantee structure. The Bank performed well in operating terms and increased its total income by nearly 70 per cent to EUR 995 million. That is particularly notable given a difficult market setting and the protracted uncertainty until the informal agreement was reached with EU Commission in October 2015. The amount of new business was, in accordance with projections issued during the year, down slightly on good margins and high disbursement ratios. However, following a very strong 2014, the figure of EUR 8.8 billion was well above the 2013 level. The crucial factor is that we are getting better and better at balancing our loan portfolio between the Shipping, Corporate Clients and Real Estate Clients divisions, with each accounting for about one third of the volume. Whereas we are intentionally reducing the portfolio in the Shipping division, which continues to be marked by the persistently weak shipping markets, our Real Estate Clients and Corporate Clients divisions are gaining in significance. In 2015, we were particularly successful in, amongst other areas, financing renewable energies – a future sector where we are amongst the market leaders in both Germany and Europe.
At the same time, we resolutely and extensively equipped ourselves to confront the risks in the portfolio: given the still deteriorating shipping markets and the effects already taken into account of the impending transfer of non-performing loans to the federal states’ domain, the Bank has made very large risk provision of some EUR 3 billion before guarantee effects. By far the largest proportion of this concerns the legacy shipping portfolio. After guarantee effects, including the considerable reversal of premiums previously allocated, there was a positive balance for risk provisioning of EUR 304 million. We will continue to keep a very close eye on the remaining risks, which still stem from the legacy shipping portfolio. As was already the case in the preceding years, HSH Nordbank also showed a very solid, 12.3 per cent common equity ratio with its 2015 financial statements. That is testament to the Bank’s stability. Total assets dipped – due above all to the planned wind-down in the Restructuring Unit – from EUR 110 to 97 billion.
All told, HSH Nordbank looks back on 2015 as a year that was as challenging as it was successful. The conclusion of the EU state-aid proceedings is a key milestone – and simultaneously the starting point for a new era. We are convinced that HSH Nordbank will be a bank of interest to investors. It has a strong market position, already well-functioning processes on which we continue to work, as well as skilled, motivated employees. Its position in the northern German market is excellent, but it is also present in the rest of Germany. The preconditions for a new owner are consequently favourable, especially given that such a new owner will, in the future, be able to fully develop the Bank’s potential, i.e. without the EU Commission-stipulated restrictions that currently constrain our business opportunities.
HSH Nordbank is facing two crucial years that will be characterised by major effort and possibly unpopular decisions. We will do everything we can for a successful change of ownership and are convinced that this will be a step towards a thriving future.