Annual Report 2014
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Annual Report 2014. Landesbank Baden-Württemberg Key figures of the LBBW Group. 1) Income statement (EUR million) 1 Jan. – 31 Dec. 2014 1 Jan. – 31 Dec. 2013 Net interest income 1 878 1 773 Allowances for losses on loans and advances – 104 – 314 Net fee and commission income 518 545 Net gains/losses from financial instruments measured at fair value through profit or loss – 120 369 Net gains/losses from financial investments, net income/expenses from investments accounted for using the equity method and from profit/loss 263 16 transfer agreements Other operating income/expenses2) 101 113 Total operating income/expenses (after allowances for losses on loans and advances) 2 536 2 502 Administrative expenses – 1 853 – 1 774 Operating result 683 728 Guarantee commission for the State of Baden-Württemberg – 191 – 300 Impairment of goodwill – 16 – 3 Net income/expenses from restructuring 1 48 Net consolidated profit/loss before tax 477 473 Income tax – 43 – 134 Net consolidated profit/loss 434 339 Key figures in % 1 Jan. – 31 Dec. 2014 1 Jan. – 31 Dec. 2013 1) Return on equity (RoE) 3.7 3.7 Cost income ratio (CIR) 77.9 63.4 Balance sheet figures (EUR billion) 31 Dec. 2014 31 Dec. 2013 Total assets 266.2 274.6 Equity 13.2 13.4 Ratios in accordance with CRR/CRD IV (with transitional rules)3) 31 Dec. 2014 31 Dec. 2013 Risk weighted assets (EUR billion) 82.2 79.4 Common equity Tier 1 (CET 1) capital ratio (in %) 14.6 15.7 Total capital ratio (in %) 19.9 22.5 Ratios in accordance with CRR/CRD IV (Basel III after full implementation) 31 Dec. 2014 31 Dec. 2013 Risk weighted assets (EUR billion) 82.2 89.8 Common equity Tier 1 (CET 1) capital ratio (in %) 13.6 12.6 Total capital ratio (in %) 18.9 18.7 Employees 31 Dec. 2014 31 Dec. 2013 Group 11 117 11 308 Rating (2 March 2015) Long-term Long-term Financial Public-sector Mortgage-backed Rating agency rating rating strength covered bonds covered bonds guaranteed non-guaranteed obligations obligations Moody’s Investors Service Aaa A24) D+ Aaa Aaa Fitch Ratings AAA A+4) bbb AAA – 1) After taking into account adjustments pursuant to IAS 8 and IFRS 10. 2) Net income/expenses from investment property is recognized as part of the other operating income/expenses. 3) Previous year in accordance with SolvV (Basel 2.5). 4) Rating outlook negative. Figures may be subject to rounding differences. 2014 FOREWORD AND REPORTS REPORTS AND FOREWORD Foreword and Reports 2 Foreword by the Board of Managing Directors. ......................................................... 3 Report of the Supervisory Board. .............................................................................. 8 Corporate governance at LBBW. .............................................................................. 19 Remuneration report. ............................................................................................. 28 Compliance. ........................................................................................................... 30 Combined Management Report 33 Group overview. ..................................................................................................... 35 Business report for the Group. ............................................................................... 46 Risk and opportunity report. .................................................................................. 58 Events after the reporting date. ............................................................................ 104 ICS with regard to the accounting process. .......................................................... 105 REPORT MANAGEMENT COMBINED Outlook. ............................................................................................................... 109 Explanatory notes on the annual financial statements of LBBW (Bank). ................. 114 Consolidated Financial Statements 122 Income statement ................................................................................................ 125 Total comprehensive income ................................................................................ 126 Balance sheet ....................................................................................................... 128 Statement of changes in equity ............................................................................ 130 Cash flow statement ............................................................................................ 132 Notes ................................................................................................................... 135 Basis of group accounting. ............................................................................... 135 Accounting policies. ......................................................................................... 135 Segment reporting. .......................................................................................... 161 Notes to the income statement......................................................................... 168 STATEMENTS FINANCIAL CONSOLIDATED Notes to the balance sheet. .............................................................................. 176 Notes on financial instruments. ........................................................................ 196 Other notes. ..................................................................................................... 225 Additional disclosures in accordance with Section 315a HGB. ........................... 240 Further Information 253 Responsibility statement. ..................................................................................... 254 Auditor's report. .................................................................................................. 255 Note regarding forward-looking statements. ........................................................ 256 Advisory Board of LBBW/BW-Bank. ........................................................................ 257 Customer Advisory Board of LBBW Rheinland-Pfalz Bank. ..................................... 260 Customer Advisory Board of LBBW Sachsen Bank. ................................................. 261 Glossary ............................................................................................................... 262 FURHTER INFORMATION Foreword and Reports. 2 FOREWORD AND REPORTS — FOREWORD BY THE BOARD OF MANAGING DIRECTORS Foreword by the Board of Managing Directors. FOREWORD AND REPORTS REPORTS AND FOREWORD Dear customers, dear business partners of the LBBW Group, Conditions in the banking sector remain challenging. In particular, the low interest rates, intense competition in the German banking market and the good liquidity situation of companies in general, which continued to be reflected in muted demand for loans in the first half of 2014 in particular, are resulting in challenging conditions. The global trend of digitalization, which is increasingly permeating all areas of life, is forcing banks to modify their products and processes accordingly. At the same time, the trend toward substantially more stringent prudential and regulatory requirements continues. The increasingly far-reaching regulation goes hand in hand with considerable challenges and burdens for the sector. Given these underlying conditions, we are satisfied with the net consolidated profit before tax of EUR 477 million that we generated in the 2014 financial year. This result slightly exceeds the pre-year figure and is fully in line with our expectations. After taxes, consolidated net profit came to EUR 434 million (previous year: EUR 339 million). At the level of LBBW Bank, we generated net profit before taxes and hybrid capital service of EUR 424 million in 2014. The net consolidated profit continues the series of net profits for our Company recorded since 2011. It shows that thanks to our systematic customer-oriented focus and reduction in risk weighted assets we have been able to reposition LBBW to ensure its sustained stability and viability. In view of the difficult setting in the banking industry we are not dissatisfied with the net profit before tax of EUR 1,067 million generated in our three operating segments, particularly since we successfully further developed our customer business in many areas in 2014. 3 FOREWORD AND REPORTS — FOREWORD BY THE BOARD OF MANAGING DIRECTORS In the corporate customer business, we recorded growing momentum as the year progressed following a muted start in the first half of the year. We were able to gain a number of new customers and realized a number of attractive deals particularly among large companies and in commercial real estate financing. This shows us that our Company is now increasingly being perceived in a positive light once again, and not only by investors and rating agencies but also, at the same time, by a rising number of companies who appreciate us as a competent and reliable partner. We expect the selective expansion of our presence at attractive locations outside our core regions to support this development further. We were also able to secure new customers in wealth management. In private customer business we have been working over the past year to present our customers with even more attractive offerings going beyond the usual network of branches. To this end, new concepts were implemented that take into account the growing digitalization and use of new media. Among other things, we have introduced video consultation. Within our service partnership with the savings banks we see further potential in market partner business,