Annual Report 2013
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Annual Report 2013. Landesbank Baden-Württemberg Key figures of the LBBW Group. 1 Jan. – 1 Jan. – Income statement (EUR million) 31 Dec. 2013 31 Dec. 2012 Net interest income 1,794 2,057 Allowances for losses on loans and advances – 310 – 143 Net fee and commission income 522 514 Net gains/losses from financial instruments measured at fair value through profit or loss 373 24 Net gains/losses from financial investments, net income/expenses from investments accounted for using the equity method and from profit/loss transfer agreements 16 135 1) Other operating income/expenses 105 – 33 Total operating income/expenses (after allowances for losses on loans and advances) 2,500 2,554 Administrative expenses – 1,774 – 1,860 Operating result 726 694 Guarantee commission for the State of Baden-Württemberg – 300 – 305 Impairment of goodwill – 3 0 Net income/expenses from restructuring 48 10 Net consolidated profit/loss before tax 471 399 Income tax – 134 – 1 Net consolidated profit/loss 337 398 1 Jan. – 1 Jan. – Key figures in % 31 Dec. 2013 31 Dec. 2012 Return on equity (RoE) 3.6 3.8 Cost income ratio (CIR) 63.5 72.6 Balance sheet figures (EUR billion) 31 Dec. 2013 31 Dec. 2012 Total assets 273.5 336.3 Equity 13.4 10.3 Ratios in accordance with SolvV (Basel 2.5) 31 Dec. 2013 31 Dec. 2012 Core capital (EUR billion) 14.7 14.7 Own funds (EUR billion) 17.9 18.8 Risk weighted assets (EUR billion) 79.4 95.8 Core capital ratio (Tier 1 ratio) (in %) 18.5 15.3 Total ratio in accordance with SolvV (in %) 22.5 19.7 Ratios in accordance with CRR/CRD IV (Basel III after full implementation) 31 Dec. 2013 31 Dec. 2012 Risk weighted assets (EUR billion) 89.8 - Common equity Tier 1 ratio (in %) 12.6 - Total ratio in accordance with SolvV (in %) 18.7 - Employees 31 Dec. 2013 31 Dec. 2012 Group 11,308 11,642 Rating (4 March 2014) Mortgage- Public-sector backed Long-term Long-term Financial covered covered Rating agency rating rating strength bonds bonds guaranteed non-guaranteed obligations obligations Moody’s Investors Service Aaa2) A3 D+ Aaa Aaa Fitch Ratings AAA A+ bbb– AAA – 1) Net income/expenses from investment property is recognized as part of the other operating income/expenses. 2) Rating Watch negative. Figures may be subject to rounding differences. 2013 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...............................................................................18 Remuneration report..............................................................................................27 Compliance............................................................................................................30 Combined Managment Report 32 Group overview......................................................................................................34 Business report for the Group. ...............................................................................44 Risk and opportunity report. ..................................................................................55 Events after the reporting date...............................................................................99 ICS with regard to the accounting process. ..........................................................100 REPORT MANAGEMENT COMBINED Outlook................................................................................................................104 Explanatory notes on the annual financial statements of LBBW (Bank). .................109 Consolidated Financial Statements 116 Income statement ................................................................................................119 Total comprehensive income................................................................................120 Balance sheet.......................................................................................................122 Statement of changes in equity ............................................................................124 Cash flow statement ............................................................................................126 Notes ...................................................................................................................129 Basis of group accounting. ...............................................................................129 Accounting policies. .........................................................................................129 Segment reporting. ..........................................................................................156 Notes to the income statement.........................................................................163 STATEMENTS FINANCIAL CONSOLIDATED Notes to the balance sheet. ..............................................................................171 Notes on financial instruments.........................................................................193 Other notes......................................................................................................216 Further Information 240 Responsibility statement. .....................................................................................241 Auditor's report. ..................................................................................................242 Note regarding forward-looking statements. ........................................................243 Advisory Board of LBBW/BW-Bank.........................................................................244 Customer Advisory Board of Rheinland-Pfalz Bank................................................247 Customary Advisory Board of Sachsen Bank. ........................................................248 FURTHER 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, Behind us lies another demanding year. Highly competitive markets and mounting regulatory requirements posed challenges for the entire banking sector. Even so, LBBW has once again made significant headway. On a particularly encouraging note, the extensive restructuring activities begun in 2009 have been successfully completed in all main respects. We have managed to convert LBBW into a solely customer-driven bank and have further expanded our customer-related activities. Once again risks were reduced substantially. In 2013, we generated net consolidated profit before tax of EUR 471 million in accordance with IFRS. As a result, we have clearly achieved our goal of closing the year with a profit. This is a gratifying result particularly since we had to contend with a number of sources of strain, such as low interest rates, mounting regulatory costs, the return to a normal level of allowances for losses on loans and advances, and our ongoing efforts to run off risks particularly in the credit substitute business. As of the beginning of the year, we have been able to look back on a total of eight consecutive profitable quarters. This shows that the extensive restructuring activities implemented in the wake of the financial market crisis and the reorientation of our Bank have resulted in the sustained stabilization that we have been aiming for. At the level of LBBW (Bank), we generated net profit before taxes and hybrid capital service of EUR 531 million (in accordance with the German Commercial Code) in 2013. As a result, we will be able not only to honor the current interest payments on existing profit-participation certificates and silent partners' contributions, but also catch up in full on the outstanding payments omitted in earlier years. 3 FOREWORD AND REPORTS — FOREWORD BY THE BOARD OF MANAGING DIRECTORS This was particularly important for us in order to justify the trust placed in the Bank's ability to regenerate itself in this regard as well. After the discharge of the outstanding past and current interest payments on hybrid capital, the net profit stands at EUR 72 million. As in the previous year, all operating segments made a positive contribution to consolidated net profit in the 2013 financial year. Once again, the Corporates segment was a core and reliable source of income for our Bank in 2013. Given difficult underlying conditions in our corporate customer business, which was dominated by competitive market conditions and muted borrowing demand, earnings fell short of the previous year's figure, which, however, had been characterized by a relatively strong performance and extraordinarily low allowances for losses on loans and advances. We were gratified by the positive experience we are enjoying in the wake of our regional growth initiatives in the corporate customer business. Earnings in the Retail/Savings Bank segment were slightly up on the previous year in 2013. In this connection, business with our private customers once again provided stable underpinnings for our business performance despite the low interest rates, cost-intensive additional consumer-protection requirements and intense market competition. Moreover, our investments aimed at expanding our business with high- net-worth customers also yielded encouraging results. The Financial Markets segment in 2013 likewise generated earnings in excess of the previous