Aareal Bank Group – Annual Report 2012 Key Group Figures Our Business Model: Two Strong Pillars
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THE FOUNDATIONS OF CHANGE Aareal Bank Group – Annual Report 2012 KEY GROUP FIGURES OUR BUSINESS MODEL: TWO STRONG PILLARS 01 Jan - 01 Jan - Change 31 Dec 2012 31 Dec 2011 € mn € mn € mn Income Statement Operating profit 176 185 -9 Net income/loss after non-controlling interests 105 114 -9 Indicators Cost/income ratio (%) 1) 40.9 43.9 Earnings per share (€) 1.75 2.11 RoE before taxes (%) 7.2 8.3 RoE after taxes (%) 4.8 5.7 31 Dec 2012 31 Dec 2011 Change Change € mn € mn € mn % Portfolio Data Property financing 23,304 23,986 -682 -3 In the Structured Property Financing segment, we finance In the Consulting /Services segment, Germany is our core of which: international 19,991 20,425 -434 -2 commercial property – particularly offices, shopping centres, market; we are also active in several European countries. Property financing under management 2) 23,496 24,239 -743 -3 logistics properties and hotels. We facilitate property pro- The segment offers a wide range of services to the German of which: international 19,991 20,425 -434 -2 jects for our domestic and international clients within the institutional housing industry – specifically, IT systems and Equity 2,352 2,169 183 8 framework of a three-continent strategy covering Europe, related consultancy services, combined with integrated Total assets 45,734 41,814 3,920 9 North America and Asia. In this context, our particular pay ments systems, as well as a comprehensive range of strength lies in the success we have in combining local services for managing property portfolios. Regulatory Indicators market expertise and sector-specific know-how. Tier 1 ratio pursuant to AIRBA 3) 16.7 4) 16.3 Total capital ratio pursuant to AIRBA3) 20.6 4) 19.5 31 Dec 2012 31 Dec 2011 Ratings Fitch Ratings, London Long-term A - A - Short-term F1 F1 1) Structured Property Financing segment only 2) The figures for property financing under management include property loans managed on behalf of Deutsche Pfandbriefbank AG 3) Advanced Internal Ratings-Based Approach 4) After confirmation of Aareal Bank AG’s financial statements 2012. The inclusion of retained earnings transferred as part of Aareal Bank AG’s liable equity as at 31 December 2012 is subject to approval by the Annual General Meeting. Key Group Figures Key Group www.aareal-bank-90years.com Key Group Figures Fundament des Wandels des Fundament 3 Transparency Consolidated Financial Statements Group Management Report Aareal Bank Group The Foundations of Change360° 4 Aareal Bank Group – Annual Report 2012 | The Foundations of Change | Contents 5 360° 10 18 34 Since its foundation back in 1923, Aareal Commercial property financing not only Aareal Bank Group takes account of 06 Letter to Shareholders Wandels des Fundament The Foundations of Change of Foundations The Bank has consistently developed inno- requires speed but also profound know- ecological and social considerations in 10 TRUST builds on continuity – vative product offerings for its clients. In how, in order to evaluate the entire the way it conducts its business – a 90 years of Aareal Bank Group this way, the bank not only built long- framework. Our particular strength lies in practice that not only allows the bank to 14 STRENGTH builds on stability term client relationships, but has kept the combination of local market exper fulfil its corporate responsibility, but has 18 SUCCESS builds on expertise evolving to the leading international prop- tise and sector-specific know-how. This also cemented itself into a sustainable 22 PArtNERSHIP builds on dependability erty specialist it is today. Mutual trust is makes us a strong partner in assessing and future-oriented business strategy. 26 PROGRESS builds on innovation an indispensable foundation for such a and valuing the location and quality of a 30 THE BEDROCK – Essay by Wolf Lotter development. property. 34 RESPONSIBILITY builds on conviction 38 EXPErtisE builds on commitment Aareal Bank Group 43 Aareal Bank Group 51 Group Management Report 119 Consolidated Financial Statements 231 Transparency TRUST SUCCESS RESPONSIBILITY BUILDS ON BUILDS ON BUILDS ON Management ReportGroup CONTINUITY EXPErtisE CONVICTION CONTENTS Consolidated Financial Statements Financial Consolidated Transparency 6 Aareal Bank Group – Annual Report 2012 | The Foundations of Change | Letter to Shareholders 7 360° 2012 once again confronted Aareal Bank Group and the entire banking sector with tremendous challenges. Whilst important resolutions were adopted to combat the European sovereign debt crisis indeed led to a noticeable easing on the financial and Wandels des Fundament capital markets, particularly in the second half of the year, in many areas ongoing concerns about the stability of European Change of Foundations The economies loomed large. The unresolved questions regarding the budget conflict in the USA added to this tension. The European Central Bank (ECB) played a decisive role in calming the markets. Its key contributions included providing extensive funding options at attractive interest rates for the European commercial banking sector in December 2011 and February 2012, in order to stave off a renewed liquidity shortfall on the interbank market. In the third quarter of 2012, the ECB also announced its intention to purchase government bonds on the secondary market for financially vulnerable euro countries to a limited extent, and subject to certain conditions. As a consequence, risk premiums for the bonds of peripheral euro zone countries decreased and the refinancing situation for banks in the European core countries eased noticeably. Aareal Bank Group Coordinated European political efforts succeeded in launching two more aid packages for Greece as well as an extensive credit package to shore up Spanish banks. The European Stability Mechanism was funded and came into force in October 2012. Europe demonstrated that it was both willing and capable of acting in 2012. Europeans are well on their way to withstanding the test of the European sovereign debt crisis, even if a final enduring solution to the crisis may not yet be a reality and a repeated escalation cannot be ruled out. Global economic growth proceeded to lose further momentum over the course of the year. Restrictive fiscal policies and rising unemployment adversely impacted the economies of Southern Europe in particular, where recession persisted in some countries in 2012. The interrelated nature of international trade meant that these developments also had negative economic repercussions in other regions. In North America, the economy showed lacklustre development while China saw the previous year’s rapid pace of growth slow significantly. Group Management ReportGroup In addition to the sovereign debt crisis and economic slowdown, the banking sector also had to contend with numerous regula- tory initiatives last year. Quite a few measures have already been adopted, while others were still being discussed or prepared. Although the adverse consequences associated with the changes to the regulatory environment are considerable, one positive development to note is that the requirements for individual institutions have gradually become clearer, even though some details relating to technical implementation remaining open. The decision by the United States not to introduce Basel III’s new capital requirements for the time being is cause for concern, however, as it lays the groundwork for renewed regulatory arbitrage, bring- ing about competitive disadvantages for European – and in particular German – banks. In this largely quite challenging environment, Aareal Bank Group once again remained on track. I am pleased to be able to share with you our annual report testifying to another successful financial year. We delivered on our promises and achieved our key objectives. In a volatile environment, Aareal Bank Group performed well, solidifying its leading market position in both Group segments and strengthening its capital and liquidity situation. Consolidated Financial Statements Financial Consolidated With a consolidated operating profit of € 176 million, we achieved a result just slightly below last year’s excellent level as planned, despite the many challenges we confronted. The bank once again demonstrated that even amidst a volatile environment, its sustainable business model, founded on the two segments of Structured Property Financing and Consulting/Services, is from left to right: The Management Board of Aareal Bank Group: capable of delivering sustainably stable results. Our prudent business policy geared toward enduring success once again proved Dirk Große Wördemann, Hermann J. Merkens, Dr Wolf Schumacher, Thomas Ortmanns its mettle in 2012. Transparency 8 Aareal Bank Group – Annual Report 2012 | The Foundations of Change | Letter to Shareholders 9 In commercial property financing, transaction volumes in Europe remained stable in a year-on-year comparison. However, we As such we have already begun to make gradual adjustments to what has been a very conservative investment strategy. We will have placed our particular focus on first-class properties in the markets we serve. Aareal Bank once again seized attractive new continue doing so in 2013. We anticipate that interest rate levels will remain low, which means that net interest income will only business opportunities, particularly during the second half of the year. At € 6.3 billion, we were able to originate considerably improve slightly. Against the background of sustained moderate allowances for credit losses and only slight cost increases,