Foreword by the management board
Ladies and gentlemen,
In 2017, we established the conditions for the successful privatisation of HSH Nordbank, thereby laying the foundations for a successful future. Over the past few years we have been busy with intensive preparations for the change in owners demanded by the European Commission in the wake of the state aid proceedings. We have now taken a very decisive step forward: On 28 February 2018, the federal states of Hamburg and Schleswig-Holstein and the four US private equity investors Cerberus Capital Management, J.C. Flowers, GoldenTree Asset Management and Centaurus Capital as well as Austria’s BAWAG agreed on the sale of HSH Nordbank. We would also like to express our thanks to the federal states of Hamburg and Schleswig-Holstein as they managed this complicated selling process with commitment, calm and circumspection.
However, the two federal state parliaments, the regulatory authorities as well as the European Commission must still give the change of ownership their final approval. A seamless transition from the guarantee system of the Savings Banks Finance Group to the Federal Association of German Banks has also yet to be managed. As we are breaking new ground here, experts on the guarantee systems are called upon and we are, of course, supporting them to the best of our ability.
We are now working on closing the deal, which is planned for the second or third quarter of 2018, when the change in owners is due to be completed. The first privatisation of a landesbank in Germany will then have been concluded – a historic event. It means a huge opportunity for us, and at the same time the start of an enormous transformation lasting many years that will lead us to become a client-focused, efficient and lastingly successful bank.
The sale of HSH Nordbank has already impacted on the results for the 2017 financial year, which we therefore closed with a loss of € 528 million after taxes. The main reason for this was the sale of a portfolio of non-performing loans totalling € 6.3 billion to an entity of our new owners. As a result, we had to make unforeseen, once-off loan loss provision of € 1.1 billion for 2017. Due to this portfolio transaction, which is a precondition for our successful privatisation, the Bank has hardly any non-performing exposures left on its books and will be able to shape its future without legacy assets. Because we have been freed from these encumbrances of the past, the quality of our portfolio has improved to an outstanding level when compared with the European competition. Our prospects are thus very good.
In operational terms, we once again demonstrated our strength in day-to-day business with a 2017 pre-tax profit of € 732 million in the Core Bank. This figure, which also benefits from the realisation of reserves, is just under ten percent above the previous year’s result. In terms of new business, we almost matched the good 2016 result with a figure of € 8.5 billion despite the charges from the privatisation process – our sincerest thanks go to our clients for their loyalty! Over the past year, we have lent about € 2.3 billion to around 120 new clients – which once again demonstrates the good quality of our offerings. Our common equity Tier 1 ratio without the guarantee is above 15 percent and very solid when compared to our competitors in Germany and Europe. At the same time, we have cut the volume in the Non-Core Bank by more than half, from € 21.4 billion to € 9.8 billion. Once the portfolio transaction comprising € 6.3 billion has been closed, all non-performing exposures from the Non-Core Bank will disappear. These results, which are genuinely satisfactory overall, are the outcome of a strong performance by all our colleagues, and we would like to express our thanks to them for this.
We are now shaping the new bank, which will have its basis in our current areas of business. The disappearance of the EU restrictions opens fresh opportunities, and we will take advantage of them on a selective basis. For example, we will carefully extend our business with commercial real estate financing to some international markets. We will broaden our radius slightly more when it comes to financing infrastructure projects and renewable energies, in which we already have business outside Germany. There are also fresh opportunities in the capital markets business; we are strengthening our office in Singapore. And of course, we will boost our proven sector-focused SME business in Germany despite the fierce predatory competition. In particular, we will take care to provide even better assistance through services in the areas of domestic and international transaction business, corporate finance and through to hedging products – in this way we will improve our non-interest-related result. In short, there is sufficient potential and we will make use of it. At the same time, we are reducing the complexity of our internal processes visibly. In so doing, we are becoming an agile bank that offers its clients precisely what suits them.
In 2017, we were on the move. We will continue with this in 2018 – change is becoming our everyday fare. In this process, thinking outside of the box is desirable more than ever, as is creativity. This is the only way for us to be successful in a market that is subject to dynamic change.