WestLB Core Bank Established
- Core bank profitable and substantially freed from risk
- Net interest and commission income up by 37 %
- Administrative expenses down by 11 %
- Special burdens squeeze earnings
- Result before tax € -503 million, adjusted € +165 million
WestLB took major strides forward in 2009. Freed substantially from risk, the core bank is now established and profitable. Group profit was adversely impacted by special burdens arising from the refocusing of the Bank as well as expenses in connection with the sale of consolidated subsidiaries. WestLB also absorbed a significantly higher impairment charge for credit losses of € 796 million (2008:
€ 479 million) due to the global recession. Adjusted for non-recurring effects, profit amounted to € 165 million (2008: € -628 million), testifying to the Bank´s operating profitability. WestLB closed the 2009 financial year with a pre-tax loss of € 503 million (2008: € +26 million); Group profit after tax amounted to € -531 million (2008:
€ +18 million). The figure for the previous year was strongly influenced by a ring-fence gain of € 962 million from the transfer of high-risk securities to the Phoenix special purpose vehicle.
In the year under review the Bank continued to focus on its business with customers and improved its risk profile on a sustainable basis. Total assets decreased by 16 % in line with the strategy and risk-weighted assets by 6 %. Following the second tranche of the silent contribution by SoFFin, the core capital ratio amounted to 8.2 % at the beginning of 2010. This will improve further to roughly 9 % after the spin off of risk positions and non-strategic assets to the workout entity, Erste Abwicklungsanstalt (EAA), by the end of April 2010.
Dietrich Voigtländer, Chairman of the Managing Board, said: “The global recession and special burdens have clearly left traces on our results for 2009. At the same time the results show that WestLB has made good progress operationally in its core business and is firmly anchored in the markets. Major steps have also been taken to stabilise the Bank. Last year was a year of strategic repositioning for WestLB. The impending spin off of risk positions and non-strategic assets marks a further milestone in the sustainable development of the Bank. The core bank is firmly ancored in the markets and largely freed from risk.”
Customer Business Further Strengthened
WestLB remained on course operationally in 2009 despite challenging market conditions, strengthening and improving numerous market positions in its core business segments. With almost 4,300 clients, the corporate client portfolio is broadly diversified. WestLB is the leading German bank in ABS financing for companies and project finance, the fourth largest provider of promissory notes in Germany, and ranks seventh in syndicated loans to German companies. The Bank consolidated its strong market position in Zertifikate and in 2009 became market leader for capital-guaranteed products for the first time.
The successes on the sales front are meanwhile reflected in sharply rising revenues. Thus, net interest income stood at € 1,868 million, an increase of € 652 million
(+54 %) on the previous year. The increase was driven primarily by money market business, interest-rate products in the capital market business and higher margins in new business with corporate and savings bank clients. Net fee and commission income fell from € 341 million in 2008 to € 264 million and was attributable above all to weaker securities and custody business. The significant expansion of the Zertifikate business with the savings banks led to a sharp rise in fee and commission expense
(€ 84 million compared to € 22 million in 2008), which is offset by higher income in the net trading result. In the lending and syndicated lending business as well as in the payments business, net fee and commission income was clearly up on the year-earlier figures.
The net trading result was influenced by measurement effects and amounted to
€ -71 million. There were negative effects of € 244 million from market-induced credit spread changes with own liabilities. Positive effects of € 39 million resulted from measurement mismatches relating to the application of IAS 39 and of € 86 million from write-ups on government bonds and similar assets in our portfolio. Adjusted for these measurement effects (in net terms € -119 million), the net trading result is slightly positive at € 48 million. The year-earlier result of € 47 million was largely shaped by the ring-fence gain from the Phoenix risk shield in an amount of
€ 763 million.
The impairment charge for credit risks reflects a net allocation of € 796 million (2008: € 479 million), which is largely accounted for by the portfolio of non-strategic assets to be ring-fenced and is attributable to rating downgrades in connection with the global recession. We have taken due account of all discernible risks.
The result from financial investments stood at € -10 million; the year-earlier figure
(€ -19 million) included income of € 111 million from the Phoenix transaction.
Costs Cut by over One Third Since 2006
Administrative expenses fell substantially for the third year in a row, namely by 11 % to € 1,192 million (2008: €1,341 million). Thanks to systematic cost management, streamlined structures and optimised processes, the Bank has reduced its costs by a total of 35 % since 2006. Personnel expenses fell 7 % in 2009 to a total of
€ 598 million, mainly as a result of the reduction in the number of full-time employees by 692 to 4,971 at the end of 2009. Other administrative expenses decreased by
17 % to € 518 million.
The net figure for other operating income and expense stood at € -39 million; this includes, among other things, expenses arising from the deconsolidation of Weberbank. The year-earlier figure of € 402 million was largely the result of the deconsolidation of special purpose vehicles in connection with the Phoenix transaction.
The restructuring expenses of € 463 million (2008: € 141 million) above all include provisions related to the sale of consolidated subsidiaries (€ 335 million) and allocations in connection with services for the Erste Abwicklungsanstalt (€ 99 million).
Total Assets and Risk-Weighted Assets Reduced in Line with Strategy
Total assets fell by € 46 billion (-16 %) to € 242.3 billion. The decrease was mainly due to the further systematic reduction of non-core assets and the transfer of a sub-portfolio of non-strategic assets to the Erste Abwicklungsanstalt at the end of 2009. Adjusted for positive fair values from derivative financial instruments and from derivative hedging instruments, total assets fell to approximately € 196 billion. The Bank is therefore on course to fulfil the condition imposed by the European Commission of reducing, in a first step, total assets to € 187 billion by March 31, 2010. Risk-weighted assets fell by € 5.5 billion to € 83 billion.
Following payment of the second tranche of SoFFin´s silent contribution to capital of
€ 1.5 billion on the first business day of 2010, the core capital ratio stood at 8.2 % and the overall ratio 10.9 %. At the end of 2009 the core capital ratio was 6.4 % and the overall ratio 9.1 %.
Segment Results: Customer Focus Bearing Fruit
The firm anchoring of WestLB in the markets is reflected in the development of the customer units. Thus, the result before tax in the Corporates and Structured Finance segment rose sharply to € 192 million (2008: € 23 million). Of particular note were the successful placement of several Schuldscheindarlehen, the strengthening of our leading position in international project finance and our strong position in corporate bonds. In the Capital Markets segment, the focus on customer-driven business paid off. The result before tax stood at € 370 million (2008: € -146 million) and was fuelled mainly by business in interest rate and money market products with public-sector clients, retail activities of the savings banks and with corporate clients. Income from the lending business in the Verbund & Mittelstand segment rose by € 19 million to
€ 28 million. The result before tax amounted to € -30 million (2008: € -33 million) and was largely influenced by the deconsolidation of Weberbank (€ -57 million). In the Transaction Banking segment, the transaction volume increased by 5 % over the previous year. The pre-tax result of € -2 million (2008: € 44 million) was mainly due to the sharp decline in net interest income on account of the low level of interest rates. In the PEG/Unbundling segment, the pre-tax result amounted to € -513 million (2008: € -767 million). Results from the downsizing of WestLB in connection with the decision announced by the European Commission on May 12, 2009 factored into this development.
Refocusing of Business Mostly Implemented
WestLB largely implemented the decision of the European Commission in 2009. In addition to reducing its total assets and risk-weighted assets, the Bank proceeded as planned with the streamlining of its domestic and foreign branch network and the sale of participations. The branches and offices in Buenos Aires, Houston, Johannesburg, Kiev, Mumbai, Peking, Santiago de Chile, Mexico City, Dortmund, Bielefeld and Münster were closed, to be followed by Cologne in mid-2010. Weberbank, WestLB Hungaria Zrt. and Servicegesellschaft Kreditmanagement GmbH no longer form part of WestLB´s participations portfolio. On March 12, 2010, the signing took place for the sale of our Polish subsidiary WestLB Polska. The selling process for WestImmo is proceeding on schedule: the bidding procedure began punctually at the beginning of January 2010. Numerous offers underline the substantial interest in the market; a handful of bidders have been selected for the next round.
Lean Core Bank with a Balanced Risk Profile
WestLB is the first German bank to spin off high-risk and non-strategic securities using the possibilities afforded by Germany´s Financial Market Stabilisation Fund Act (FMStFG). An initial sub-portfolio was already transferred to the Erste Abwicklungsanstalt in December 2009; the main portfolio is scheduled to follow by the end of April, with retroactive effect from January 1, 2010. This means that the Bank will be freed from fair value fluctuations and rating migrations from the spun-off portfolios on a sustainable basis. After the spin off WestLB will have a core capital ratio of approximately 9 %. Following a thorough review of the Bank´s business model, SoFFin made a silent contribution to capital of € 3 billion, the first occasion on which it has injected capital into a Landesbank. The European Commission has provisionally approved the spin off of the main portfolio and the capitalisation by SoFFin and announced a final decision by the end of June 2010 at the latest.
Well Prepared for the Consolidation Process
WestLB took a number of important steps towards mapping out its future course in 2009, freeing its balance sheet from risks and non-core business activities. Following the stabilisation of the Bank, the focus in 2010 will be on strengthening and selectively expanding the customer business. At the same time the Bank will continue to implement, step by step, the measures agreed with the European Commission for refocusing its business. In doing so, it will seek to use freed-up resources – also with a reduced balance sheet – for new business with an improved risk/return structure.
The Bank is well prepared for the necessary structural changes in the banking sector. Consolidation remains the preferred solution. Dietrich Voigtländer added: “We now have to seize the opportunity for a fundamental restructuring of the Landesbanks. WestLB is ready for the necessary consolidation process. This year we will build on our unique strengths and work systematically towards expanding the market position of the Bank.”
Enclosures
Group Statement of Income 2009
Group Balance Sheet as at December 31, 2009