Press releases

23.11.2011

DekaBank – capital market developments depress results for the first nine months

• Economic result of EUR 341 million
• Net commission income of EUR 768 million is main source of income
• Core tier 1 capital ratio of 9.1%
• Achieving increase in fund unit sales remains key task

• 1) This comprises risk provisions for securities in the lar and htm categories of around EUR -72 million (previous year: EUR -1 million).
• 2) The previous year’s figures have been adjusted. For details, please refer to the interim report as at 30 June 2011.

In the third quarter of 2011, the DekaBank Group achieved a slightly positive economic result of EUR 4.1 million against a backdrop of difficult market conditions. For the nine-month period, this key figure totalled EUR 340.7 million and, as already anticipated in spring, was therefore below the excellent previous year’s figure, which was favourably impacted by non-recurring factors (EUR 625.6 million). Two opposing trends produced this result. The following had a positive effect:

• Steady net commission income, which at almost EUR 770 million was only slightly down on the previous year’s level and
• a strong trend in the result from customer trading activities, which amounted to EUR 159.8 million (previous year: EUR 86.3 million).

In contrast, the difficult economic environment had a significant adverse impact on the income trend in the third quarter of 2011. The national debt crisis and associated market turmoil led to negative valuation results, which in part also affected securities in the form of risk provisions. Provisions for loan losses of EUR -60 million remained in line with expectations at the end of the quarter (previous year: + EUR 29.6 million).

Franz S. Waas, Chairman of DekaBank’s Board of Management, believes that his financial institution is in good shape, despite the current market conditions: “We came through the financial market crisis in 2008 with a good level of capitalisation, and our current capital ratio is also above the minimum capital ratio required by the banking supervisory authorities as at 30 June 2012 of probably 9%.” At the end of September, the core tier 1 capital ratio amounted to 9.1% (end of 2010: 10.7%). This excludes silent capital contributions of EUR 552 million, as the share of these which may be included in core capital is set to decrease continually once Basel III comes into force. Franz S. Waas explaines, “Regardless of the strong starting position, we expect capital requirements to increase considerably over the coming years. We need to prepare for this with forward-looking capital and risk planning.”

Rating agency Standard & Poor’s (S&P) has affirmed it’s A rating for DekaBank’s unsecured long-term debt. However, S&P gave a negative outlook, mainly due to the temporarily reduced capital resources following the acquisition of the Bank’s own shares worth EUR 1 billion. As part of a method-based review of systemic support at the Landesbanken and DekaBank, Moody’s downgraded the long-term rating by one notch from Aa2 to Aa3 in mid November. All of the ratings which reflect DekaBank’s financial strength were affirmed.

The uncertainty in the wake of the EU debt crisis also resulted in marked investor restraint overall with regard to investing in securities. Outflow of capital from mutual funds in the third quarter of the year reflected this trend in the sector as a whole as well as at DekaBank. In the Asset Management Capital Markets (AMK) business division, securities funds recorded net sales of EUR -6.0 billion in the first nine months of 2011 (same period in 2010: EUR -185 million). Conversely, the fact that investors were seeking long-term steady and safe investments resulted in an increase in net sales of EUR 699 million (+ EUR 1.5 billion) for the property funds of the Asset Management Property (AMI) business division, based on customer funds – despite the difficult sector situation. Total net funds outflows and the sharp decline in prices on the capital markets over the past nine months caused a decrease in the total assets under management of AMK and AMI of EUR 12.6 billion to EUR 142.6 billion (end of 2010: EUR 155.2 billion).

In DekaBank’s opinion, general conditions for investment fund business will become more difficult in the future and will therefore temporarily limit the profit contribution from Asset Management. Consequently, Franz S. Waas sees a need to take action: “In view of the high level of net funds outflows, we cannot stand still. This means that achieving an increase in fund unit sales remains the most important topic for us.” DekaBank already launched a sales campaign in the summer and has also created additional jobs for fund specialists, who will provide on-site support to customer advisers in the savings banks on selling investment products. Franz S. Waas emphasises, “We are facing the challenge together with the savings banks, in order to regain lost ground.”

In terms of the individual income components, net commission income proved very stable in the first nine months of 2011. At EUR 768.2 million, it almost matched the strong previous year’s figure of EUR 778.3 million. Commission from both investment fund business and banking business was virtually at the level of the comparative figures for 2010. Net interest income fell by 4.9% to EUR 275.8 million (same period in 2010: EUR 290.1 million), primarily due to lower portfolio volumes of loans and securities. In net terms, provisions for loan losses of EUR -60.0 million (+ EUR 29.6 million) were in line with expectations. Net financial income, which comprises trading and non-trading positions, declined by 64.6% to EUR 42.0 million (EUR 118.8 million). Net financial income from non-trading positions of EUR -117.8 million (EUR 32.5 million) also included specific valuation allowances of around EUR -75 million on a Greek government bond issue and Portuguese bank bond issues in the held-to-maturity (htm) category. At the same time, net financial income from trading positions was up 85.2% to EUR 159.8 million (EUR 86.3 million). Trading in bonds and equity derivatives as well as repo/lending activities contributed to this rise. The increase in expenses of 16.6% was almost entirely attributable to higher scheduled project costs for upgrading the IT infrastructure, the bank tax incurred for the first time and higher expenses as a result of the takeover of activities of LBBW and WestLB in Luxembourg.

In the fourth quarter of the year, DekaBank expects minor positive impetus at best for the net income figure for 2011. The EU debt crisis is likely to result in uncertainty in the securities markets and increasingly also in the real economy for some time yet before it is brought under control, which is foreseeable. In view of these uncertainties and the resultant expected economic slowdown, demand for investment funds is set to remain rather modest for the time being.

• Financial Report as at 30 September 2011