DVB 9M results negatively impacted by shipping losses

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DVB Bank SE generated consolidated net income before taxes of €59.8 million (previous year: €72.6 million) during the first nine months of 2015, providing financing solutions and advisory services to its clients in the international transport sector.

Ralf Bedranowsky, CEO and Chairman of DVB Bank SE’s Board of Managing Directors, commented on the Bank’s nine-month results:

“Against the background of the overall situation on global transport finance markets, and given the macroeconomic and geopolitical environment, DVB assesses Group performance for the first nine months of 2015 overall satisfactory. DVB’s nine-month results were largely shaped by the following components:

On a positive note, we were able to originate new international Transport Finance business at attractive terms, in spite of persistent, intense competition amongst banks on the financing markets. The Bank’s new business in Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance during the first nine months of 2015 comprised 137 transactions with an aggregate volume of €5.0 billion – compared to 122 transactions with an aggregate volume of €4.0 billion during the first three quarters of 2014.

However, results were impacted by an increase in allowance for credit losses, from €28.5 million to €62.7 million; in particular, this was due to the individual shipping market sectors.

Other operating expenses was already charged by a non-recurring effect in June 2015: a full write-down of a claim for damages in the amount of €36.4 million, which had to be recognised as a result of a final arbitration ruling issued by the London Court of International Arbitration with regard to DVB’s consolidated subsidiary Dalian Deepwater Developer Ltd.

Full-year charges of €14.9 million needed to be recognised in income already in the first half of the year, for the first time – comprising expected bank levy charges of €10.3 million as well as €4.6 million in expenses for the Deposit Guarantee Scheme of the National Association of German Co-operative Banks (BVR).
With the ad-hoc disclosure published today, DVB has adjusted its outlook for the consolidated financial statements 2015:

The unexpectedly weak development in developed economies as well as in the BRIC countries (Brazil, Russia, India and China), the risks inherent in persistently volatile global financial markets, as well as geopolitical risks, have diminished overall demand – leading to a decline in global trade volumes. In contrast, the shipping transport capacity on offer has developed with almost unrestricted momentum.

Given this burdensome macroeconomic development and the absence of any discernible recovery on most of the shipping and offshore segments, additional allowance for credit losses for DVB’s Shipping and Offshore Finance portfolio appear commercially reasonable.

DVB forecasts consolidated net income before taxes for the fiscal year 2015 in the positive low- to mid-double-digit million euro range, and hence, below the previous year’s level.

This decline in consolidated net income before taxes (31 December 2014: €104.0 million) will largely be attributable to additional provisioning in the amount of approximately €60 million which DVB expects to recognise in the fourth quarter of 2015 (31 December 2014: €62.4 million). In view of the prevailing difficult situation on the international shipping and offshore markets, DVB considers the additional allowance for credit losses commercially reasonable.

Against this background, DVB also assumes that the key financial management indicators – namely, return on equity before taxes, the cost/income ratio, and risk-adjusted Economic Value Added – as forecasted in the Bank’s Annual Report 2014 will not be achieved.”

The individual components of the nine-month results developed as follows:

Net interest income decreased by 6.7%, from €162.5 million to €151.6 million. Thanks to the high volume of new Transport Finance business, interest income rose by 17.6%, from €654.4 million to €769.6 million. Interest expenses rose by 25.6%, from €491.9 million to €618.0 million.

Allowance for credit losses amounted to €62.7 million (previous year: €28.5 million). Specifically, new allowance recognised for credit losses totalled €106.3 million, of which €75.7 million was accounted for by Shipping Finance, due to the persistently difficult environment in individual subsegments of international shipping. Conversely, allowance for credit losses of €48.5 million was reversed (of which €31.0 million in Shipping Finance). Total allowance for credit losses (comprising specific allowance for credit losses, portfolio-based allowances for credit losses, and provisions) rose to €244.8 million, up 11.8% from year-end 2014 (€219.0 million).

Net interest income after allowance for credit losses of €88.9 million was lower than the previous year’s figure of €134.0 million.

Net fee and commission income, which primarily includes fees and commissions from new Transport Finance business, and asset management and advisory fees, was up 5.1%, from €73.2 million to €76.9 million.

Results from investments accounting for using the equity method declined from €7.9 million to €3.8 million.

Net other operating income/expenses amounted to €–50.3 million (previous year: €2.2 million). Other operating expenses was charged by a non-recurring effect: an unscheduled write-down of a claim for damages, in the amount of €36.4 million, for DVB’s consolidated subsidiary Dalian Deepwater Developer Ltd.

General administrative expenses rose by 1.5%, to €132.4 million (previous year: €130.4 million). Staff expenses decreased by 3.2%, to €78.5 million (previous year: €81.1 million), whilst non-staff expenses (including depreciation, amortisation and write-downs) amounted to €53.9 million (previous year: €49.3 million).

Net income from financial instruments in accordance with IAS 39 (comprising the trading result, the hedge result, the result from the application of the fair value option, the result from derivatives entered into without intention to trade, and the result from investment securities) – which is generally volatile – amounted to €87.8 million (previous year: €–8.2 million). The net figure largely comprised a significant non-recurring operating income from the sale of investment securities – the partial sale of a shareholding in Wizz Air Holdings plc. Accordingly, the result from investment securities was up by €46.1 million, to €46.9 million (previous year: €0.8 million).

Consolidated net income before bank levy, BVR Deposit Guarantee Scheme, and taxes totalled €74.7 million (previous year: €78.7 million). The expected bank levy charges of €10.3 million (2014: actual bank levy of €3.6 million) as well as €4.6 million in expenses for the Deposit Guarantee Scheme of the National Association of German Co-operative Banks (“BVR”) (2014: €4.4 million in expenses for the BVR Deposit Guarantee Scheme) needed to be deducted from this figure already for the first half of the year.

Consolidated net income before taxes declined by 17.6% year-on-year, from €72.6 million to €59.8 million, and consolidated net income after taxes of €51.3 million fell short of the previous year’s figure of €58.1 million.

DVB’s consolidated total assets increased to €25.9 billion as at 30 September 2015, up 5.5% from the 2014 year-end (31 December 2014: €24.5 billion), largely due to currency translation effects.

DVB’s nominal volume of customer lending (the aggregate of loans and advances to customers, guarantees and indemnities, irrevocable loan commitments, and derivatives) rose by 6.9%, reflecting currency translation effects, to €24.9 billion. In US dollar terms, it was down slightly, by 1.4%, to US$27.9 billion.

DVB’s key financial indicators developed as follows:

The return on equity before taxes stood at 7.6%, unchanged year-on-year, whilst the cost/income ratio was reduced by 5.8 percentage points, to 49.1% (previous year: 54.9%). Risk-adjusted Economic Value Added, which includes operating net income from investment securities, amounted to €–54.9 million (previous year: €15.8 million).

DVB discloses capital ratios determined in accordance with the Basel III framework (Advanced Approach). On this basis, DVB’s common equity tier 1 ratio as at 30 September 2015 was 17.1% (31 December 2014: 18.7%), whilst the total capital ratio amounted to 23.6% (31 December 2014: 21.6%).

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