To view the full report please check www.fioniabank.dk
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Highly unsatisfactory result especially due to extremely high provisions.
Satisfactory core operating result.
• Agreement with the Danish government's Financial Stability scheme to inject
capital into a newly established bank, which will continue Fionia Bank's
previous activities.
• After-tax loss of DKK 956.5 million.
• Provisions on loans and provisions for guarantees are DKK 1.2176 billion
against DKK 71.3 million in the prior year.
• Group capital adequacy ratios calculated according to the standard method of
8.3% (total) and 4.2% (tier 1), as at 31 December 2008.
• Core result before provisions is DKK 348.4 million compared with last year's
figure of DKK 411.2 million.
• Loss on holdings of DKK 66.2 million.
• “Det Private Beredskab” expenses of DKK 45.5 million.
Fionia Bank has entered into an agreement with the Danish government's
Financial Stability scheme, “Finansiel Stabilitet”, for a capital injection
into a newly established bank, in which Fionia Bank's previous activities will
be continued. The agreement, which was made on 22 February 2009, is a result of
Fionia Bank recognising that its capital adequacy requirement is above its
current solvency of 8.3 percent. For more information, please refer to company
notification no. 3/2009.
The capital injection creates a foundation that will allow Fionia Bank to carry
out its action plans and strategy adjustments for 2009, such that customers,
employees and other stakeholders can maintain their confidence in the bank's
continued operations and development.
The capital injection and the business structure changes are not expected to
significantly affect the previously budgeted company developments for 2009.
The new bank will continue as a going concern, while the audit expresses doubt
whether the operation is guaranteed in the old bank Fionia Bank A/S after the
divestment of assets and liabilities.
The bank's very disappointing income result is caused by the high provisions
taken, and to some extent the loss on holdings. This contrasts with the net
income from interest and fees, which has developed favourably.
The substantial provisions relate mainly to exposures in the property segment,
including mortgages.
Management is of the opinion that the financial sector's crisis and the
resulting general recession causes greater uncertainty in measuring exposures
in 2008 financial reporting than in previous years. The risk measurement of the
bank's exposures depends partly on measuring collateral that depend largely on
estimates of the rate of return partly in the property market.
The bank incurred a loss on holdings in 2008 of DKK 66.2 million after the
reclassification of certain securities, as compared with the DKK 24.7 million
loss in 2007. This reflects the negative impact of the global crisis in the
financial markets. In the 2008 accounts, the reclassification has a positive
effect on the earnings on holdings before tax equal to DKK 83.7 million.
Expenses for the “Det Private Beredskab” association established by the Danish
Bankers' Association totalled DKK 45.5 million. Fionia Bank has joined a
guarantee scheme adopted by the Danish Parliament on 10 October 2008. The
guarantee commission received for this was DKK 24.4 million, and provisions
relating to Det Private Beredskab were DKK 21.1 million. DKK 7.8 million of
this amount refers to Roskilde Bank.
Please refer to attached exerpts of the auditors report for reservations and
supplementary details.
Forecasts for 2009
2009 will continue to be affected by the financial crisis and profits will
depend on developments in the general economy and the capital markets. Due to
the general financial situation and trend, there is considerable uncertainty
associated with estimating the amount of provisions on loans. The level of
provisions in 2009 is expected to remain high.
Earnings on holdings will depend on overall trends on the financial markets.
For Fionia Bank, this will be a year for cutting back and focusing on
profitability. The bank expects consolidation with a slight reduction in loans.
Along with the continuation of measures to reduce the number and size of major
property exposures, a higher priority will be given to our business with
private customers and SMEs in Fyn and the Triangle district in Denmark. There
will also be an increased focus on high-wealth individuals and partnerships
with local financial institutions on the basis of our specialist skills in
financial planning advice, asset management and securities trading.
Deposits will remain a high priority, and growth is expected in this area.
Costs are expected to be reduced in 2009, with further reductions from 2010.
In January 2009 the bank reduced the number of employees by 70. The
cost-reduction effect of these will become apparent in 2010.
Total costs will however be affected by expenditure in relation to the
government guarantee scheme and the planned strengthening of the capital base.
Risk-reducing activities.
The capital injection from Financial Stability was necessary to strengthen the
bank's solvency. However, the bank will continue the planned adjustments to its
strategy and will continue to work to create a better balance between loans and
deposits and a better balance between the bank's private and business sectors.
Several risk-reducing activities are being initiated, including:
• an ongoing reduction in credit lines in the context of renegotiation of
customer exposures, for major commercial property exposures,
• increased focus on exposure control, including the formulation of action
plans,
• establishment of a specialist group to manage the bank's high-risk exposures,
to reduce the risks, and, if possible, wind up these exposures,
• increased focus on cross-function monitoring of credit quality in our
lendings portfolio,
• tighter business processes and procedures.
Summary of core and holdings results:
www.fioniabank.dk
Due to the current framework agreement for capital increase, Fionia Bank's
annual report will be released on 2 March 2009.
Proposal for the Annual General Meeting
The Board of Directors' proposals to the Annual General Meeting are announced
in company notification no. 4/2009, 24 February 2009.
Annual General Meeting (AGM)
The Annual General Meeting of Fionia Bank A/S will be held on 10 March 2009,
5:00 p.m., at Odense Congress Center, Ørbækvej 350, DK-5220 Odense SØ, Denmark.
Any questions concerning this announcement should be addressed to the bank's
General Manager, Jørgen Bast, phone +45 65 20 40 60.
Core result and profit on holdings:
www.fioniabank.dk
Trading earnings comprises primary transactions in securities, foreign exchange
and the money market, including returns from associated holdings, after funding
costs.
Profit on holdings comprises the return on the bank's own holdings, including
associated holdings, afterfunding and operating costs. www.fioniabank.dk
Core result
Core earnings excluding trading income were DKK 641.6 million, as compared with
DKK 648.2 million in the prior year. www.fioniabank.dk
Total loans increased by 5.9 percent to DKK 21.4 billion. Total guarantees were
DKK 2.8 billion, as compared with DKK 5.5 billion in the prior year. Deposits
rose by 2.8 percent to DKK 13.9 billion.
Fees and commission income was 5.5 percent down on the prior year, at DKK 103.1
million. This decrease is mainly attributable to less activity on the
residential property market.
Trading income, not including Totalkredit, comprising trading and portfolio
management, was DKK 317.5 million, as compared with DKK 328.1 million in the
previous year, excluding proceeds on the sale of Totalkredit. This is a slight
decrease of 3.2 percent. www.fioniabank.dk
Trading income has been affected by the extraordinary market conditions in
2008. It has been possible to maintain income in 2008 at the high levels
achieved in 2007, although this result masks some shifts in the income mix.
Portfolio management income fell in 2008, as a consequence of the sharp drop in
share prices on equity markets and the resulting decreases in capital assets.
Core costs and depreciation on tangible assets were DKK 665.5 million, as
compared with DKK 568.6 million in the prior year. www.fioniabank.dk
This represents a 12.8 percent increase in costs, depreciation and write-downs.
The increase is mainly attributable to the higher staff establishment, with a
net increase of 44 employees in 2008 (the average total establishment during
the financial year was 659.4).
Provisions on loans, net of the provisions of DKK 21.1 million for “Det Private
Beredskab”, were DKK 1,196.5 million.
Total provisions on loans were made up of provisions of DKK 690.8 million
(net), losses without prior individual provisioning of DKK 531.1 million and
other allocations of DKK 3.4 million, less income of DKK 7.6 million received
on loans previously written off. This figure comprises total individual
exposure provisions of DKK 818.4 million (up from DKK 157.3 million in 2007)
and total portfolio provisions of DKK 162.3 million (as compared with DKK 133.1
million in 2007).
The balance for accounts in suspense was DKK 728 million, up from DKK 172
million in the prior year.
The last two quarters of the year were characterised by marked reductions in
property-related exposures in particular. Complex company structures, customers
using several banks, and lower asset values, in conjunction with a weaker
market because of the financial crisis, limited the bank's ability to
restructure its exposures without incurring losses.
Further information on loans is provided in the Risk section of the annual
report.
Result on holdings
The loss on holdings after the reclassification of certain securities was DKK
66.2 million, as compared with a loss of DKK 24.7 million in 2007. Income on
holdings comprises the total return on the bank's own holdings of securities
less financing and operating costs. www.fioniabank.dk
The income result for 2008 was negatively affected by the crisis in the
financial market. Credit risk premiums and increasing interest rates are the
primary cause of the loss incurred. Equities market positions also contributed
to the situation.
The majority of the bank's credit bond holdings were reclassified with effect
from 1 July 2008. Accordingly, valuation is now at amortised cost rather than
the previously estimated market price, as required by the changes to IAS 39.
This led to a positive effect on the earnings on holdings before tax for the
2008 financial year of DKK 83.7 million.
Tax
Due to uncertainties in the use of the tax losses in future profits, deferred
tax assets are not recognised.
After-tax profit
There was an after-tax loss of DKK 956.5 million, resulting in a net asset
value per share of DKK 54.
Subsidiaries
The Fionia Bank Group comprises the parent entity Fionia Bank A/S,
Ejendomsselskabet Vestre Stationsvej 7, Odense A/S, Ejendomsselskabet
Fjordsgade 10, Odense A/S, Fionia Ejendomme Holding A/S as wholly-owned
subsidiaries, and Cura Management A/S, in which the bank has a 50 percent
stake.
Ejendomsselskabet, Vestre Stationsvej 7, Odense A/S
The company's purpose is to own the bank's domiciliary property. No staff are
employed. A profit of DKK 2.4 million was posted for the year, with equity of
DKK 107.7 million.
Ejendomsselskabet Fjordsgade 10, Odense A/S
The company's purpose is to own commercial property for lease. No staff are
employed. It returned a loss for the year of DKK 0.7 million, with equity of
DKK -0.2 million.
Fionia Bank has announced a declaration of support for the company until 3
February 2010.
Fionia Ejendomme Holding A/S
The company's purpose is to own or invest in properties or companies operating
in the real property sector, including the possession, purchase, sale,
investment in, administration, development and leasing of real property, and
any activities the Board of Directors deems related. No staff are employed. It
returned a loss for the year of DKK 0.9 million, with equity of DKK -0.4
million.
Fionia Ejendomme Holding A/S is sole owner of Fionia Ejendomme I A/S, Fionia
Ejendomme II A/S and Fionia Ejendomme III A/S, all of which will be
consolidated. The companies have no employees.
The bank has announced a declaration of support of Fionia Ejendomme II A/S and
Fionia Ejendomme III A/S until 3 February 2010.
Cura Management A/S
(50 percent stake with controlling influence)
The company's purpose is to provide advice on the purchase and sale of real
property, company administration and other related activities. The company had
an average staff of four full-time equivalents. The result for the year was a
surplus of DKK 4.4 million, with equity of DKK 5.0 million.
Capital and solvency situation
The bank's solvency is calculated by the standard method.
The total capital adequacy ratio at the end of 2008 was 8.3 percent, with a
tier 1 ratio of 4.2 percent (including hybrid tier 1 capital). The
corresponding figures for 2007 were 10.5 percent and 8.0 respectively.
Subordinated debt at 31 December 2008 was DKK 842.9 million, including DKK 805
million in tier 2 capital. The capital base after deductions at 31 December
2008 was DKK 1,696.9 million.
Fionia Bank's equity at 31 December 2008 was DKK 990.9 million.
Following discussions with the Danish Financial Supervisory Authority
(Finanstilsynet), Fionia Bank recognised that its capital adequacy is higher
than its solvency at 31 December. Accordingly, an agreement has been entered
into with “Finansiel Stabilitet A/S” to create a foundation to inject Fionia
Bank with supplementary or hybrid capital in a new company. Following this
capital injection, the new bank will have solvency of approximately 13 percent.
In connection with maintaining the newly established bank, where Fionia Bank's
previous activities will be continued, the former Fionia Bank will be converted
into Fionia Bank Holding.
Fionia Bank Holding's sole purpose is to own shares in the new Fionia Bank A/S.
According to this business model, the previous supplementary capital will
remain in Fionia Bank Holding. Since there is not expected to be significant
income from Fionia Bank Holding's business, and since dividends may not be paid
from Fionia Bank A/S at the current time, the supplementary loan can default.
It is the bank's expectation that there is a possibility to conclude
satisfactory arrangements with these lenders.
Accounting policies
The annual report for the group and parent entity is submitted according to the
International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB) as approved by the EU, along with
interpretations provided by the International Financial Reporting
Interpretation Committee (IFRIC). The report also complies with the Danish
disclosure requirements for annual reports as set down in the IFRS directive
for financial companies issued pursuant to the Danish Financial Services Act
and the requirements set down by NASDAQ OMX Copenhagen A/S.
New accounting rules
In accordance with the addition to IAS39, Assets from trading holdings has been
reclassified to Held to expiry. The reclassification was carried out because of
the financial crisis in the second half of 2008, which resulted in the
elimination of a functioning market for reclassified securities. The purpose of
their acquisition is therefore of a different character.
The reclassification at 1 July 2008 resulted in the asset item Bonds at fair
value being reduced by DKK 222.2 million and the asset item Bonds at amortised
cost being increased by DKK 222.2 million. The result of this amendment is a
positive effect of DKK 83.7 million on the year's before-tax profit. The
after-tax profit and equity has been positively affected by DKK 62.8 million.
The accounting policies applied are otherwise unchanged from the 2007 annual
report.
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Appendix to Announcement of annual financial statements
Extraction from auditors opinion (qualified)
Qualification regarding doubt about going concern
As at 22 February the Supervisory Board of the bank has informed the Danish
Financial Supervisory Authority that the bank's individual solvency need
exceeds the bank's actual made up solvency.
As a consequence, the bank has entered into a general agreement with
Afviklingsselskabet til sikring af finansiel stabilitet A/S ("Finansiel
Stabilitet") regarding financial support.
We refer to the management's review, section Framework agreement with the state
company Financial Stability, in which the management describe the content of
the entered general agreement. The essentials of the agreement are:
1. Fionia Bank A/S establishes a new bank (”Den ny Bank”) with in-kind
contribution of assets and liabilities, except from the postposed loan capital.
2. Finansiel Stabilitet accepts to strengthen Den ny Bank's capital base, so
that the solvency percent in Den ny Bank becomes approximately 13 %.
3. Finansiel Stabilitet accepts to provide the necessary funding by
market-related terms to Den ny Bank's operation, in case Fionia Bank A/S'
funding cannot be undertaken by Den ny Bank.
4. Fionia Bank A/S' assets including the right to vote in Den ny Bank are
pledged as security to Fi¬nansiel Stabilitet, after which Den ny Bank will no
longer be a subsidiary of Fionia Bank A/S.
5. Den ny Bank cannot distribute profit to or in any other way put resources at
the disposal of servicing Fionia Bank A/S' present share capital or postposed
loan capital.
Hereafter, as part of the plan, Fionia Bank A/S' only activity will be to own
(without controlling) the shares in Den ny Bank. The company will be financed
by the current share capital and postposed loan capital. The management is
planning negotiations with the responsible creditors regarding terms for
settling these loans.
We have not gained a substantial conviction that Fionia Bank A/S - cut off from
income from the former bank operation - will be able to pay interests of the
postposed loan capital concurrently with them falling due or that the
negotiations with the responsible creditors lead to a solution, which entails
that the company will be able to continue the operation.
As a consequence we make certain reservations that the annual report is
reported as a going concern.
Management however estimates that Den ny Bank, which in the future, according
to the general agreement, is subsidised by Finansiel Stabilitet, will be able
to carry on the current activity with the transferred assets and liabilities
from Fionia Bank A/S as a going concern, why the adding in and the measuring of
activities are made in accordance with the bank's usual accounting principles.
We agree on this.
Conclusion
As a result of the stated qualification for going concern we find that the
annual report does not give a true and fair viewof the parent company's and the
group's financial situation as it is our opinion that management's review and
the notes under the given circumstances are not sufficiently supported with
regard to the postposed capital.
Except from this, and in consideration of the entered general agreement, it is
our opinion that the annual report gives a true and fair view of the group's
and the parent company's assets and liabilities as of 31 December 2008 and from
the result of the group's and the parent company's operations and the group's
cashflow for the financial year 1 January - 31 December 2008 in accordance with
International Financial Reporting Standards approved by EU and further Danish
notification standards to annual reports for listed financial companies.
Emphasis of matter paragraph regarding circumstances in the financial statements
With no influence on our conclusion we refer to the management's review,
section Particular risk and uncertainty in the measurement of exposures,
regarding special risk and uncertainty in regard to measuring engagements based
on security in properties. We agree in the management's description of this
specific risk and insecurity."
Odense, 24th February 2009
KPMG C. Jespersen
Statsautoriseret Revisionspartnerselskab
Deloitte
Statsautoriseret Revisionsaktieselskab
Lars Koch-Pedersen
statsautoriseret revisor
Anders O. Gjelstrup
statsautoriseret revisor
Henning Jensen
statsautoriseret revisor
Highly unsatisfactory result especially due to extremely high provisions
| Source: Fionia Holding A/S