Hypo Real Estate Holding AG / Final Results
27.03.2008
Release of a Corporate News, transmitted by DGAP - a company of EquityStory AG.
The issuer is solely responsible for the content of this announcement.
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Hypo Real Estate Group publishes financial statements for 2007 with a
pro-forma pre-tax profit of 862 million for the new joint Group
2007 strong new business in all core segments, rapid integration of DEPFA
Bank
Performance in 2007 affected by numerous extraordinary factors,
particularly the impairments on US CDOs and the DEPFA acquisition
Figures thus in line with preliminary details released in January
Public Finance has made a very promising start in 2008, moderate new
business in Real Estate Financing
Further serious turmoil on the international financing markets mean that
it is difficult to make a specific assessment of the further development of
business
Munich, 27 March 2008: The Hypo Real Estate Group, an international
provider of financing solutions for commercial real estate, the public
sector and infrastructure projects has today published its financial
statements for 2007. On the occasion of today's accounts press conference,
CEO Georg Funke has said that the Group has adequate capital base for
further growth. As far as can be seen at present, capital increases are not
necessary according to Georg Funke. In his opinion however, the further
deterioration in market conditions which has occurred since the beginning
of the year means that 'great caution' has to be observed with regard to
statements concerning the future development of business and operations on
the market.
Summary of business development in 2007
In 2007, the Hypo Real Estate Group reported a positive operating
performance in its core areas of business. In terms of strategy, a new
phase in the company's history commenced with the acquisition of DEPFA Bank
plc which was completed at the beginning of October. The integration of
DEPFA has proceeded more rapidly and less expensively than originally
planned. The main legal and structural measures for restructuring have now
been completed or have been implemented to a large extend.
The results of the Group were affected by numerous extraordinary effects in
2007, partially as a result of the acquisition of DEPFA and partially as a
result of the crisis on the capital and financing markets which became even
more serious in the second half of the year.
Pro-forma earnings figures for 2007
In order to ensure that the figures can be compared on a like-for-like
basis, reference is made to pro-forma figures of the income statement in
the following. The corresponding principles of the Institut der
Wirtschaftsprüfer (IDW) have been used in this respect. This assessment has
assumed that DEPFA Bank has been part of the Group since 1 January 2006. In
reality, DEPFA was initially consolidated on 2 October 2007.
On a pro-forma basis, the Group generated a pre-tax profit of 862
million in 2006, compared with 1.06 billion in the previous year
(-18.5%). This decline is attributable to numerous extraordinary factors.
On an adjusted basis, pre-tax profit was only slightly lower than the
corresponding previous year figure (-2.9%).
The extraordinary effects include in particular:
o Impairments of 301 million recognised in the income statement in
relation to Collateralized Debt Obligations (CDO) portfolios (thereof 295
million US CDOs and 6 million European Credit Linked Investments; this is
shown under net trading income and net income from investments;
o Income of 90 million from the sale of a non-strategic real estate
portfolio to ING-DiBA.
Operating revenues (sum of net interest income and similar income, net
commission income, net trading income, net income from financial
investments, net income from hedge relationships and the balance of other
operating income/expenses) were reported as 1.46 billion, which was lower
than the corresponding previous year figure ( 1.84 billion; -20.7 %). This
was due to the impairments on CDOs which were recognised in the income
statement and which resulted in a considerable deterioration in net trading
income and net income from financial investments. On the other hand, net
interest income was supported by the strong new business in real estate-,
public sector-, and infrastructure finance as well as the profit from the
sale of the non-strategic real estate portfolio. Despite reflecting charges
arising from interest positions of DEPFA, net interest income and similar
income increased by 21 % to
1.47 billion. Net commission income, thanks to good new business,
improved by more than 31 % to 234 million.
Provisions for losses on loans and advances are shown as a reversal of
61 million, following an allocation of 159 million in 2006. This
development reflects the positive development of the portfolio quality,
enabling the reserves in the portfolio-based allowances to be reversed. As
it was the case last year, no new provisions for losses on loans and
advances had to be created at DEPFA in 2007.
General administrative expenses increased by 13 % from 580 million to
656 million. A major factor behind this increase was staff recruitment at
DEPFA and the initial consolidation of the US-Broker DEPFA First Albany
Securities LLC.
The cost-income ratio was 44.8 % (2006: 31.5%).
Earnings figures for 2007 shown in the income statement
The reported income statement of the Hypo Real Estate Group, in which the
results of DEPFA were only included from 2 October 2007 onwards and were
thus not included in the previous period, shows consolidated pre-tax profit
of 587 million (2006: 571 million, +2.8 %). The figures are only
comparable to a very limited extent as a result of the numerous
consolidation- and extraordinary effects.
Net income after taxes was reported as 457 million, 15.7 % lower than
the corresponding previous year figure of 542 million.
On a stand-alone basis, the Hypo Real Estate Group had announced a target
of at least 680 million for pre-tax profit at the beginning of 2007. If
the reported figure of 587 million is adjusted by the contribution to
earnings of DEPFA after the point of consolidation ( 59 million) and also
by all one-off effects which are not attributable to operating business,
pre-tax profit came in at 691 million, which illustrates the good
operating performance in the core areas of business.
Further key financials
As a result of the acquisition of DEPFA, the total assets of the Group
increased from 161.6 billion as of 31 December 2006 to 400.2 billion at
the end of 2007.
The Hypo Real Estate Group reports adequate capitalization as of 31
December 2007. The core capital ratio amounted to 7.0 % (31 December 2006:
7.0 %), the equity ratio amounted to 9.4 % (31 December 2006: 9.3 %). This
capitalization is adequate for funding further operating growth. As far as
can be seen at present therefore, capital measures are not necessary.
Dividend proposal: 0.50 per share
As communicated on 15 January 2008, the Management Board and Supervisory
Board of Hypo Real Estate Holding AG will submit a proposal to the annual
general meeting for a dividend of 0.50 per share to be paid for financial
2007 (2006: 1.50). The purpose of this pay-out policy is to ensure sound
capitalization.
Overview of the portfolios of the Group
The strategic real estate financing portfolio amounted to 65.6 billion
(31 December 2006: 62.2 billion). New business in real estate financing
had a positive impact in this respect; At 32.1 billion, this was
considerably higher than the corresponding previous year figure
( 26.6 billion) and also considerably higher than the announced target of
23.5 billion. Spread over all new business, the internal rate of return
(IRR) was more than 14% - and the trend was rising towards the end of the
year.
The Hypo Real Estate Group anticipated structural changes in key real
estate markets such as the USA, Spain and Great Britain at an early stage,
and has been reducing its exposure in these markets since the end of 2006.
At the end of 2007, total problem loans amounted to 2.7 % of the real
estate financing portfolio.
Public finance amounted to 229.0 billion at the end of 2007 (31
December 2006 incl. DEPFA: 244.2 billion). The decline was attributable
to sales of bonds and receivables which had increased in value. New
business (incl. DEPFA) amounted to 57.5 billion, a decline of 4.2
billion compared with the previous year.
Infrastructure finance (incl. DEPFA) reported a volume of 18.4 billion
as of 31 December 2007 (31 December 2006 : 10.1 billion). The strong
increase is attributable to the good new business (incl. DEPFA 12.3
billion, compared with 8.1 billion in the previous year). This is a
pleasant step towards generating the critical mass the Group plans to
achieve by pooling the activities in both houses
The capital markets portfolio amounted to 18.3 billion compared with
5.6 billion as of 31 December 2006. This increase is attributable i.a. to
an expansion of business with financial institutions and with sovereigns.
As already announced the non strategic trading activities of DEPFA have
been stopped. The future activities shall primarily support the core
business Commercial Real Estate, Public Sector- and Infrastructure Finance.
The portfolio of US CDOs was affected by impairments of 390 million in
the financial statements for 2007 (of which 295 million recognised
directly in the income statement), and the market situation for this asset
class has deteriorated even further so far this year. The possibility of
further impairments cannot be precluded at present for the remainder of the
year. The book value of the US CDO portfolio is currently stated at just
under 1 billion.
Besides the US CDOs, the Group has further so-called European 'Credit
Linked Investments' in its book, such as CDOs, CLOs and CSOs. The book
values of the products, including the US CDOs, is approx. 1.8 billion.
This is equivalent to just approx. 0.5 % of the Group's total assets of
400 billion.
The Hypo Real Estate Group holds 'Real Estate Linked Investments' such as
CMBS and RMBS products with a total volume of approx. 3.2 billion with a
direct link to the core business of the Group. The securities feature sound
quality in terms of rating, creditworthiness and default risks. Their risk
quality is consistent with the accustomed high standards in our real estate
financing. Accordingly, the Group is currently not anticipating any charges
on earnings arising from credit risks. However, changes in the market
prices of the securities have to be shown in the revaluation reserve.
Outlook for 2008
The Group has achieved different starts to the year in 2008 with its core
areas of business. In the field of public finance (Public Sector &
Infrastructure Finance segment), new business has been achieving a positive
performance in January and February, both in terms of volume and the
profitability of the business. In infrastructure finance, new business made
a moderate start in the first two months of the year. In commercial real
estate financing (Commercial Real Estate segment), new business has been
moderate. However, in view of the current market climate, Hypo Real Estate
has adopted a conservative approach and has concentrated on new business
eligible for Pfandbrief coverage. There was a continuation of the trend in
the development of margins which was commensurate with the level of risk
involved and which was reported in the fourth quarter of 2007. Capital
market operations of the Group (Capital Markets & Asset Management segment)
were characterised by the very difficult market conditions, and reported a
weak performance in the first two months of the year.
The planning for financial 2008 which was prepared at the end of 2007 was
based on various assumptions, including the assumption that there will be
no major deterioration in credit and refinancing spreads. The targets
communicated on the basis of this planning on 15 January 2008 were subject
to the proviso that there would be no unforeseen negative events of major
significance for the Group.
Indeed, spreads have widened even further so far this year, and this of
course has consequences for the Group's business. The international
financing markets are still fragile and, in certain areas, are not capable
of functioning or are only capable of functioning to a very limited extent.
In addition, the signs of a major economic slowdown in the USA and also in
Europe have increased. In this situation, it is not possible to make a
reliable assessment of the development of the capital and financial markets
in the near future. This means that it is also not possible to preclude the
possibility of further charges for the Hypo Real Estate Group.
The Management Board is anticipating a continuation of the positive
performance of operations in 2008. Growth is expected to be generated
particularly with the public finance and infrastructure finance activities
which have been considerably strengthened by DEPFA, where growth in
financing portfolios is expected. As far as can be seen at present, a
stable portfolio development is expected in the field of commercial real
estate financing.
Overall, the conditions for the Hypo Real Estate Group have become more
difficult since the beginning of 2008. It is thus not possible to preclude
the possibility that the forecasts for financial 2008 will not be entirely
met.
Georg Funke, CEO of Hypo Real Estate Holding AG: 'The current climate on
the financing markets is posing a major challenge for all banks and thus
also for the Hypo Real Estate Group. Caution has to be exercised. The aim
is to bring our Group safely through this unparalleled market crisis.
However, the extremely difficult climate must not disguise the achievement
of our Group in terms of operations and strategy in 2007. Following the
acquisition of DEPFA Bank, the new Hypo Real Estate Group has a sound and
well-balanced business model which provides excellent opportunities for
growth in the medium and long term.'
Press contact:
Hypo Real Estate Group
Oliver Gruß
Fon: +49 (0)89 203007 781
Fax: +49 (0)89 203007 772
E-Mail:oliver.gruss@hyporealestate.com
Contact:
Kontakt: Herr Oliver Gruss +49-89-203007-781
DGAP 27.03.2008
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Language: English
Issuer: Hypo Real Estate Holding AG
Unsöldstraße 2
80538 München
Deutschland
Phone: +49 (0)89 203 007-780
Fax: +49 (0)89 203 007-772
E-mail: ir@hyporealestate.com
Internet: www.hyporealestate.com
ISIN: DE0008027707, DE0008027731,
WKN: 802770, 802773,
Indices: DAX
Listed: Regulierter Markt in Frankfurt (Prime Standard); Freiverkehr
in Berlin, München, Hamburg, Düsseldorf, Stuttgart;
Terminbörse EUREX
End of News DGAP News-Service
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DGAP-News: Hypo Real Estate Group publishes financial statements for 2007 with a pro-forma pre-tax profit of 862 million for the new joint GroupHypo Real Estate Holding AG:
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