PRESS RELEASE: Hypo Real Estate Holding AG:Hypo Real Estate Group continues to be profitable in Q2
Hypo Real Estate Holding AG / Half Year Results
13.08.2008
Release of a Corporate News, transmitted by DGAP - a company of EquityStory AG.
The issuer / publisher is solely responsible for the content of this announcement.
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Hypo Real Estate Group continues to be profitable in Q2
- Adjusted pre-tax profit up to EUR 40 million compared with Q1
- Core capital ratio has increased to 8.6%
- CDO effects of EUR 145 million recognised in results
- High-interest and high-margin new business in Public Sector Finance
- Positive pre-tax results at all operating business segments
- Market conditions are still uncertain and difficult
Munich, 13 August 2008 - The Hypo Real Estate Group has again operated
profitably in the second quarter of 2008 despite unfavourable market
conditions. Pre-tax profit, calculated without the effect of the Mandatory
Convertible Bond issued for financing the DEPFA acquisition, has improved
to EUR 40 million (Q1: EUR 6 million). All operating business segments -
Commercial Real Estate Financing, Public Sector & Infrastructure Finance as
well as Capital Markets & Asset Management - have reported positive pre-tax
results. There has been a particularly positive development in net interest
income in Public Sector Finance. The core capital ratio increased to 8.6%
as of 30 June, compared with 8.3% at the end of March 2008.
In the second quarter of 2007, before the outbreak of the international
financial crisis, the pro-forma consolidated pre-tax profit calculated
including DEPFA figures amounted to EUR 320 million.
The current pre-tax profit includes revaluations of EUR 145 million in the
CDO portfolio recognised in the income statement, with which the Hypo Real
Estate Group reflects the market environment. Such valuation changes had a
negative impact of EUR 175 million upon results in the first quarter.
With regard to new business in the second quarter, the Hypo Real Estate
Group again gave priority to reducing risk and assuring liquidity ahead of
achieving higher market shares, particularly in infrastructure and real
estate financing. In the field of public sector finance, the company again
succeeded in generating above-average margins of around 40 basis points and
yields in excess of 30%.
'We have presented a respectable result in view of the difficult
conditions. This result confirms our course of continuing to focus on
safety in terms of new business as well as risk and cost management', says
CEO Georg Funke. 'The next months will continue to be challenging for the
entire financial sector. The fact that market prospects are still uncertain
means that it is almost impossible to make reliable forecasts. However, one
aspect has been demonstrated by recent months: Our business model is
profitable, particularly following the acquisition of DEPFA, even in this
difficult market climate. Its two main pillars, namely commercial real
estate and public finance, are strong and viable on the basis of strict
risk management and on-balance-sheet lending. This assessment should be
fundamentally confirmed by developments in the remainder of the year unless
further external shocks dash all the hopes of market participants.'
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Group development, an overview (in EUR million)
Hypo Real Estate Group
2nd 1st 2nd H1 H1
Qua Qua Quart
rter rter er
2008 2008 2007 2008 2007
(Pro (Pro
forma) forma)
Operating performance
Operating revenues 236 184 520 420 1,018
Net interest income and similar income 304 299 335 603 674
Net commission income 34 35 55 69 109
Net trading income 12 -98 23 -86 51
thereof: Valuation result on synthetic -19 -87 - -106 -
CDOs affecting income
Net income from financial investments -135 -29 86 -164 163
thereof: Valuation result on cash CDOs -126 -88 - -214 -
affecting income
Net income from hedge relationships 15 -19 19 -4 19
Balance of other operating income/ 6 -4 2 2 2
expenses
Provisions for losses on loans and 37 33 30 70 64
advances
General administrative expenses 160 145 170 305 330
Balance of other income/ -22 184 - 162 -
expenses
(including effects from the
Depfa acquisition)
Pre-tax profit (1 17 190 320 207 624
Effects from the Depfa acquisition -23 184 - 161 -
Pre tax profit (2 40 6 320 46 624
Net income/loss (3 29 11 - 40 -
Net income/loss IFRS 12 148 - 160 -
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1)including the effect from the embedded derivative relating to the
Mandatory Convertible Bond
2)excluding the effect from the embedded derivative relating to the
Mandatory Convertible Bond
3)excluding the effect from the embedded derivative relating to the
Mandatory Convertible Bond; including the effects from capitalised losses
carried forward relating to other periods
Group development Q2 2008
- 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 EUR 236 million in
the second quarter of 2008, which was considerably higher than the
figure of EUR 184 million reported for the previous quarter. It was not
possible to repeat the pro forma figure of EUR 520 million (including
DEPFA) for the second quarter of 2007 as a result of the international
financial crisis and the associated value adjustments in relation to
the CDO portfolio recognised in the income statement.
- Compared with the previous quarter, net interest income and similar
income improved slightly to EUR 304 (299) million. This was due to
various factors, including the positive development in margins in the
public sector finance portfolio. The figure for the second quarter of
2007 was EUR 335 million.
- Net commission income of EUR 34 (35) million remained at the relatively
low level seen in the previous quarter, and was thus considerably lower
than the figure of EUR 55 million reported for the previous year. This
reflects mainly the conservative new business in real estate and
infrastructure financing.
- On this occasion, trading reported a positive result of EUR 12 million
(previous quarter: EUR -98 million). This includes negative valuation
effects on CDOs of EUR 19 (87) million. Net trading income in the second
quarter of 2007 amounted to EUR 23 million.
- Net income from financial investments was reported as EUR -135 million,
considerably lower than the figure of EUR -29 million for the previous
quarter and far below the previous year figure of EUR 86 million. This
development is due to negative valuation effects on CDOs of EUR 126
reflected in this position (previous quarter: EUR 88 million). In
addition, the previous quarter figure benefited from the effect of the
initial consolidation of Quadra Realty Trust. In the second quarter of
2008, the positive result attributable to the planned sale of a
property of Hypo Real Estate Bank in Munich was offset by an impairment
of a similar amount in relation to the equity participation in Babcock
& Brown.
- With regard to the valuation of the Group portfolio of Collateralised
Debt Obligations (CDO), the Hypo Real Estate Group has reduced the
model reserve which was created and recognised in the income statement
in 2007 with regard to uncertainty for the assumptions and estimates
which have been made; it has been reduced from EUR 90 million to around EUR
20 million. CFO Dr. Markus Fell explained: 'The fact that the model
reserve has been to a large extent released was appropriate because the
risks attributable to the method of valuing the CDO portfolio are now
of manageable proportions. This is also applicable for the possible
extent of the value adjustments which still have to be made. We are
assuming that any necessary CDO adjustments which will have to be
recognised in the income statement will to a large extent have been
completed by the end of 2008.'
- Net income from hedge relationships has improved appreciably to EUR 15
million (previous quarter: EUR -19 million), and was thus just lower than
the corresponding previous year level of EUR 19 million.
- Provisions for losses on loans and advances in the second quarter were
higher than the corresponding figure for the previous quarter (EUR 37
million compared with EUR 33 million) and also higher than the
corresponding figure for the second quarter of 2007 (EUR 30 million).
This item was however still below the pro-rata forecast for 2008.
- General administrative expenses of EUR 160 million were EUR 10 million
lower than the corresponding previous year, but they were EUR 15 million
higher than in the first quarter of 2008. This discrepancy reflects
synergies attributable to the integration of DEPFA. On the other hand,
the selection process in connection with the participation of strategic
investors in the Hypo Real Estate Group resulted in consultancy fees of
EUR 10 million.
- At EUR -22 million (previous quarter: EUR +184 million), the balance of
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