DGAP-News: Aareal Bank Group posts a strong start to the 2014 financial year (news with additional features)

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| Source: EQS Group AG
DGAP-News: Aareal Bank AG / Key word(s): Quarter Results
Aareal Bank Group posts a strong start to the 2014 financial year
(news with additional features)

07.05.2014 / 07:00

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Aareal Bank Group posts a strong start to the 2014 financial year

  - Consolidated operating profit of EUR 215 million, including negative
    goodwill from the acquisition of Corealcredit

  - Business development on schedule: consolidated operating profit
    excluding negative goodwill up year-on-year, to EUR 65 million;
    forecast for full-year 2014  affirmed

  - Capitalisation and liquidity situation remain very solid - Aareal Bank
    continues to comply with CRD IV requirements, even following the
    Corealcredit transaction

Wiesbaden, 7 May 2014 - Aareal Bank Group started the 2014 financial year
with a markedly higher result, even without the non-recurring effect from
the acquisition of COREALCREDIT BANK AG ("Corealcredit"). As already
announced, first-quarter consolidated operating profit of EUR 215 million
was materially influenced by EUR 150 million in negative goodwill from the
acquisition of Corealcredit, which was closed with effect from 31 March
2014. But even without this non-recurring effect, Aareal Bank Group
succeeded in increasing consolidated operating profit: at EUR 65 million,
it was up when compared both year-on-year (Q1 2013: EUR 47 million) and the
strong final quarter of the previous year (Q4 2013: EUR 58 million).
Consolidated profit was EUR 185 million. Even adjusted for negative
goodwill, at EUR 35 million, it clearly exceeded the comparative figures of
EUR 22 million (Q1 2013) and EUR 27 million (Q4 2013), respectively.

Given that the closing of the Corealcredit transaction took place on 31
March 2014, Corealcredit's operative results will be included in Aareal
Bank Group's consolidated income statement for the first time in the second
quarter of this year. Accordingly, the results adjusted for negative
goodwill, as well as all other income statement items for the first
quarter, exclusively reflect the performance of Aareal Bank Group in its
structure to date.

The Bank's good net interest income was the main contributor to another
very positive performance. Net interest income of EUR 144 million for the
first three months of the 2014 financial year was up 19 per cent on the
same period of the previous year (Q1 2013: EUR 121 million). In particular,
the higher volume of the credit portfolio had a positive effect on net
interest income; the figure also included EUR 4 million in non-recurring
effects from early repayments.

Aareal Bank recognised EUR 37 million in allowance for credit losses for
the first quarter of 2014. The figure was lower compared to the previous
quarter (Q4 2013: EUR 39 million), yet higher than in the first quarter of
2013 (EUR 17 million); it comprised a very low level of specific allowance
for credit losses - at EUR 6 million, this reflects the high quality of
Aareal Bank's credit portfolio, plus EUR31 million in portfolio-based
allowance for credit losses. The latter is due to a change in measurement
parameters for determining the portfolio-based valuation allowance, and
thus essentially non-recurring. This does not affect the forecast for the
year as a whole (EUR 100 million to EUR 150 million).

However, due to a positive non-recurring effect from the reversal of
provisions recognised at the peak phase of the financial markets crisis,
net other operating income/expenses improved to EUR 16 million (Q1 2013:
-EUR 5 million).

In spite of further intensified competition for attractive transactions,
new business originated in the Structured Property Financing segment
remained at a high level, totalling EUR1.6 billion during the first
quarter. Given a lower volume of loans for renewal, the figure was slightly
below the previous year's level (Q1/2013: EUR 2.0 billion); the share of
newly-originated loans increased to the high level of 67.4 per cent
(Q1/2013: 59.5 per cent).

"As expected, we had a very successful start into the new financial year.
Once again, we were able to fully leverage our strengths in a highly
competitive environment, thus further improving results. Overall, looking
at the positive performance in the first quarter, we are very confident of
being able to maintain the steady upward trend that we have shown over
recent financial years throughout the current year, as announced", said CEO
Dr Wolf Schumacher.

Structured Property Financing segment: net interest income at a high level

Consolidated operating profit in the Structured Property Financing segment
amounted to EUR 221 million in the first quarter of 2014. Excluding EUR 150
million in negative goodwill from the acquisition of Corealcredit, it
amounted to EUR 71 million, clearly exceeding the previous year's figure of
EUR 51 million. The increase was mainly attributable to markedly higher net
interest income, which rose to EUR 143 million in the quarter under review
(Q1 2013: EUR 118 million). The higher volume of the credit portfolio had a
particularly positive effect in this context.

Allowance for credit losses amounted to EUR 37 million (Q1 2013: EUR 17
million) in the first quarter, comprising EUR6 million in specific
allowance for credit losses and EUR 31 million in portfolio-based allowance
for credit losses. The latter is largely due to a change in measurement
parameters for determining the portfolio-based valuation allowance, and
thus essentially non-recurring.

Consulting/Services segment: Aareon developed on schedule

Operating profit in the Consulting/Services segment totalled -EUR 6 million
for the quarter under review (Q1 2013: -EUR 4 million).

The business activities of the Aareon AG subsidiary developed on schedule;
it contributed EUR5 million (Q1 2013: EUR 5 million). Following a fourth
quarter characterised by high licence fees (which is a usual feature in
this type of business), the first quarter was shaped - as in the previous
years - by contributions from consultancy, maintenance, and software rental
fees. Aareon's international business also remained positive during the
first quarter. In contrast to the first quarter of 2013, the subsidiary
Incit AB was fully consolidated in the quarter under review.

As in the previous year, the banking business in the Consulting/Services
segment continued to be shaped by two developments. On the one hand,
deposit volumes continued to increase, averaging EUR 8.1 billion during the
quarter under review, up from EUR 7.7 billion in the fourth quarter of
2013. On the other hand, the persistently low interest rate environment
continued to burden the results generated from deposit-taking business
during the first three months of the year. Yet the importance of this
business therefore goes way beyond the interest margin generated from the
deposits, which is under pressure in the current market environment.
Deposits from the housing industry represent a strategically important
additional source of funding for Aareal Bank.

Successful funding activities and strong capitalisation

Aareal Bank raised a total of EUR 1.7 billion in long-term funds on the
capital market during the first quarter. This sum comprised Mortgage
Pfandbriefe in the amount of EUR 0.7 billion, unsecured funding of EUR 0.6
billion, as well as subordinated liabilities of EUR 0.4 billion. Aareal
Bank has therefore maintained its long-term funding at a high level.

Aareal Bank therefore continues to be very solidly financed. The Tier 1
ratio as at 31 March 2014 stood at 15.9 per cent, which is comfortable on
an international level, whilst the Common equity tier 1 ratio without the
silent participation of SoFFin was 12.1 per cent on the reporting date.
Both ratios already include the impact of the Corealcredit transaction.
Aareal Bank already complies today with the capital and liquidity
requirements under the CRD IV, which will be gradually implemented between
now and the end of 2018.

Notes to Group financial performance

Net interest income of EUR 144 million for the first three months of the
2014 financial year was up significantly on the same period of the previous
year (EUR 121 million). Net commission income was up slightly on the
previous year, to EUR 40 million. The aggregate of net trading
income/expenses, the net result on hedge accounting, and net result from
non-trading assets, of EUR 4 million resulted largely from the measurement
of derivatives used to hedge interest rate and currency risk.

Administrative expenses totalled EUR102 million (Q1 2013: EUR 92 million).
The increase was largely attributable to higher project-related costs
(including costs incurred in relation to the acquisition of Corealcredit)
as well as to regulatory measures such as the Asset Quality Review by the
ECB.

Net other operating income/expenses amounted to EUR16 million (Q1 2013:
-EUR 5 million).

Taking into consideration income taxes of EUR 20 million and
non-controlling interest income of EUR5 million, consolidated operating
profit of EUR 215 million (EUR65 million excluding the negative goodwill
from the acquisition of Corealcredit) translates into net income
attributable to shareholders of Aareal Bank of EUR 190 million. After
deduction of EUR5 million in net interest payable on the SoFFin silent
participation, consolidated profit stood at EUR185 million for the first
quarter (Q1 2013: EUR 22 million).

Outlook: forecast for the full year 2014 affirmed

Aareal Bank continues to expect a slight global recovery during the 2014
financial year, as well as more intense competition. In this environment,
Aareal Bank envisages a continuation of its positive business development
during the remainder of the year. One main focus of the activities will be
the integration of Corealcredit. Discussions concerning the future business
policy of the new subsidiary will take place over the coming months.

The Bank has already incorporated the acquisition of Corealcredit into its
forecasts for the full 2014 financial year. Given the positive performance
during the first quarter, Aareal Bank has affirmed its forecast for net
interest income to rise to between EUR 610 million and EUR 640 million.
Despite a larger loan portfolio, Aareal Bank continues to forecast
allowance for credit losses in a range of EUR 100 million to EUR 150
million. As in the previous years, the Bank cannot rule out additional
allowance for unexpected credit losses that may be incurred during 2014.

Net commission income is projected to increase slightly, to between EUR 170
million and EUR 180 million. Administrative expenses are expected in the
region of EUR 430 million to EUR 450 million. A material reason for the
projected increase over the previous year is the acquisition of
Corealcredit.

All in all, Aareal Bank sees good opportunities, including the negative
goodwill from the acquisition of Corealcredit, to achieve consolidated
operating profit of between EUR 370 million and EUR 390 million for the
current year. Adjusted for this non-recurring effect, the Bank anticipates
consolidated operating profit of between EUR 220 million and EUR 240
million. On this basis, RoE before taxes is likely to be in the region of 9
per cent; Aareal Bank's medium-term target RoE of approximately 12 per cent
before taxes remains unchanged.
 
New business of between EUR 8 billion and EUR 9 billion is expected for the
Structured Property Financing segment in 2014.

In the Consulting/Services segment, Aareal Bank anticipates a slightly
higher profit before taxes over the previous year for its Aareon
subsidiary, at around EUR 28 million.

Note to editors: The full interim report for the first quarter of 2014 is
available on
http://www.aareal-bank.com/en/investor-relations/financial-reports/.

Contact:
Aareal Bank AG
Corporate Communications

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

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

Heinrich Frömsdorf
Tel.: +49 611 348 2061
heinrich.froemsdorf@aareal-bank.com

------------------------------------

Aareal Bank AG, 
Registered Office: Wiesbaden 
Commercial Register: Amtsgericht Wiesbaden HRB 13184 
Chairman of the Supervisory Board: Marija G. Korsch
Management Board: Dr. Wolf Schumacher (Chairman), 
Dagmar Knopek, Hermann J. Merkens,
Thomas Ortmanns


End of Corporate News

+++++
Additional features:

Document: http://n.equitystory.com/c/fncls.ssp?u=LJPSFEMMTA
Document title: 20140507_PM_Q1__2014_en

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07.05.2014 Dissemination of a Corporate News, transmitted by DGAP - a
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Language:    English                                               
Company:     Aareal Bank AG                                        
             Paulinenstr.15                                        
             65189 Wiesbaden                                       
             Germany                                               
Phone:       +49 (0)611 348 - 0                                    
Fax:         +49 (0)611 348 - 2332                                 
E-mail:      aareal@aareal-bank.com                                
Internet:    www.aareal-bank.com                                   
ISIN:        DE0005408116                                          
WKN:         540811                                                
Indices:     MDAX                                                  
Listed:      Regulierter Markt in Frankfurt (Prime Standard);      
             Freiverkehr in Berlin, Düsseldorf, Hamburg, München,  
             Stuttgart; Stockholm                                  
 
 
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