G A K N HSH NORDBA We are building PORT 2012 PORT Re L FUTURE. A our 2012 AnnuAL REPORT Annu STROng FOR enTREPReneuRS CONTenTS 1 MANAgemenT 99 GROUP FinANCIAL STATemenTS 1 A firm eye on the future 100 Group statement of income 2 Interview: Constantin von Oesterreich 101 Group statement of comprehensive income 4 Management Board 102 Group statement of financial position 104 Group statement of changes in equity 106 Group cash flow statement 108 Group explanatory notes 7 WE ARE BuilDing 242 Auditor’s report OUR FUTURE 243 Responsibility statement by the Management Board 16 ABOUT The COMPANY 244 FuRTheR inFORMATION 17 Fields of business 18 Corporate and Private Clients 245 Report of the Supervisory Board 26 Products & Capital Markets 249 Corporate governance 252 HSH Nordbank Advisory Board 29 Restructuring Unit 254 Quarterly overview 30 Corporate responsibility 256 Multi-year overview 30 Employees 257 Contact / Imprint 31 Compliance 32 Social commitment 33 GROUP MANAgemenT REPORT 34 Underlying conditions and business overview 42 Earnings, net assets and financial position 60 Outlook 64 Risk report HSH NORDBANK GROUP AT A glANCE INCOME STATEMENT (€ m) 2012 2011 Net income before restructuring 160 912 Net income before taxes – 185 – 206 Group net loss – 124 – 265 BALANCE SHEET (€ bn) 31.12.2012 31.12.2011 Equity 5.3 4.8 Total assets 130.6 135.9 Business volume 138.5 145.4 CAPITAL RATIOS 1) (%) Tier 1 capital ratio 12.3 13.8 Core Tier 1 capital ratio 9.9 10.3 Regulatory capital ratio 19.1 21.3 EMPLOYEES (computed on full-time equivalent basis) Total 3,123 3,684 Germany 2,821 3,244 Abroad 302 440 LOng-TERM RATings Unguaranteed Guaranteed Public-sector Mortgage Ship liabilities liabilities 2 ) Pfandbriefe Pfandbriefe Pfandbriefe Moody’s 3 ) Baa 2 Aa 1 Aa 1 Aa 1 Baa 1 Fitch A – AAA – – – 1) Including market risk positions; after adoption of financial statements 2012. 2) Obligations covered by “Gewährträgerhaftung” (guarantee obligation). 3) Moody’s ratings under review for possible downgrade (except guaranteed liabilities). Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures. HSH NORDBANk – THE BANK FOR ENTREPReneuRS We are the BANK FOR enTREPReneuRS for Germany’s upper medium-sized companies. As a STROng AND ReliABle PARTNER, we advise our clients in all financial matters and support them in their business as well as private wealth management affairs. We think and act as entrepreneurially as our clients, to make us the preferred partner for all issues relating to loans, structured financing, export financing, payment transaction services, hedging products for commodity, currency and interest rate risks, M&A consulting services and private banking for entre- preneurs. Of our approximately 3,100 employees, more than 2,800 are employed in our two headquarters in Kiel AnD HAMBURG as well as our locations in Berlin, Hanover, Dusseldorf, Stuttgart and Munich. WE ARE CHAnging The new business model provides clarity for both clients and employees and has already shown first successes in 2012: We have systematically aligned the Bank’s sales structure with the needs of our clients. EU conditions and our commitment towards the EU are being implemented at high speed. We are securing our market position and are further expanding our new business. A fiRM EYE ON THE FUTURE Looking back on 2012, it was indeed a turbulent year. It was the first year following our realignment as a “Bank for Entre- preneurs” which set the course for fundamental change. We are now well on track towards long-term success. The underlying conditions for our relaunch might certainly have been more favourable. With the tense mood in the shipping industry, the eurozone’s sovereign debt crisis and the economic downturn, we certainly lacked a supporting tailwind. Despite this, however, we have remained steadfast and made great progress in implementing our business model. And this is the path we will consistently continue along. While we cannot control the broader economic situation, we can certainly influence our clients’ acceptance of us. It has also helped that our Management Board is now once again complete after having filled key positions as of the beginning of 2013. The consistent implementation of our business model also entails a clear commitment to our activities in ship finan- cing. We remain true to this goal and are conscious of our responsibility towards the maritime industry and the Northern German economy. Nonetheless, much remains to be done. We will tackle the tasks and challenges which lie before us resolutely and confidently, thanks to our sound and sustainable business model. The pro- gress realised in 2012 in our client business and in new business bolsters our conviction that we have set out on the right path. Constantin von Oesterreich Chairman of the Management Board 2 HSH NORDBANK 2012 INTERVIEW Constantin von Oesterreich, Chairman of the Management Board of HSH Nordbank, COMMENTS on the Bank’s CURRENT SITUATION and looks ahead to the COMING CHALLENGES. Mr. von Oesterreich, after HSH Nordbank launched its second loss guarantee provided by the federal states of new business model in 2011, 2012 was dominated Hamburg and Schleswig- Holstein. Accordingly, we in- by its new focus as a “Bank for Entrepreneurs”. How creased our loan loss provisions covering the Bank’s legacy would you sum up the past year? portfolios in 2012. On the basis of our new loan loss pro- The conclusion to be drawn from the past year is that our vision plan, we currently expect that we will require up to business model is a successful one. Our clients’ reactions to 1.3 billion euro under this guarantee from 2019 until the our new, comprehensive client advisory approach have end of 2025. been unanimously positive. Especially in our core region of Northern Germany, our clients welcome the fact that How has the Restructuring Unit developed in this context? they once again have a strong partner in us. In 2012, we The winding down of portfolios in the Restructuring Unit acquired new clients, thereby extending our client base in (RU) is proceeding according to plan. We have almost dis- our core business fields. We are proud to have achieved our posed of our equity holdings. The RU continues to focus target volume for new business – despite an environment on winding down our troubled assets as well as our non- which was highly challenging for banks and for us in par- strategic business fields and portfolios without putting ticular. A glance at the risk/return profile demonstrates the pressure on the market and our assets. However, the RU has outstanding quality of our new business, the margins of our accounted for much of the increase in loan loss provisions new business being on a very good level. With our business and has negatively affected the consolidated net result. model “Bank for Entrepreneurs”, we are on the right path to lead HSH Nordbank to a successful future. The future of the shipping industry is crucial for the Bank. Many banks backed out of this segment in the past year. Progress achieved in the Core Bank in 2012 contrasted When do you expect a recovery, and what is the Bank’s with a significant increase in loan loss provisions to future strategy for this business segment? cover the Bank’s troubled legacy portfolios, which have We do not expect to see a lasting improvement before 2014. negatively affected net income. Do you see a need for It may even take longer. But we are prepared for that. Even further loss provisions? if the crisis in the shipping industry takes longer than In the course of the past year, our operating environment originally anticipated and hits us harder, we stand by our worsened in a manner which was not foreseeable. The sig- role as a reliable long-term partner for the maritime economy, nificant deterioration in the international shipping industry, which is vital for Hamburg and for Northern Germany the economic downturn and the eurozone’s sovereign debt as a whole. Shipping remains a core business field for crisis prompted us in particular to revise our loan loss provi- HSH Nordbank. Its recovery is just a matter of time, for sion planning. In the period until 2014, we envisage a further there is no alternative to shipping in global commerce. increase in loan loss provisions and increasing default rates in the Bank’s legacy portfolios which are covered by the Interview MANAGEMENT 3 In the past year you announced measures to improve Th e savings banks are an indispensable cornerstone of our the Bank’s core capital ratios. How far has the Bank business model. Not only do they form part of our group of progressed with this process? shareholders, from the very start they have also been among Th e key issue for us was the demand from rating agencies, our key institutional sales and refi nancing partners. We will investors and refi nancing partners for higher capital ratios. expand our range of products and services within a separate Against this backdrop, we have identifi ed a series of internal Savings Banks & Institutional Clients unit. We have estab- and external measures that enable us to sustainably maintain lished a permanent contact at Management Board level for adequate capital resources even with the implementation every savings bank. of Basel III. We already began to implement these measures in the past year. Without a doubt, the most eff ective of You took over as Chairman of the Management Board in these measures is re plenishing the guarantee provided by November 2012.