Interim Report as at 30 June 2020 Hamburg Commercial Bank Group overview INCOME STATEMENT (€ million ) BALANCE SHEET (€ billion) Net income before restructuring and Reported equity privatisation January - June 2020 30.06.2020 (cf. January - June 2019: 104) (cf. 31.12.2019: 4.4) ↘ 76 → 4.4 Net income before taxes Total assets 30.06.2020 (cf. January - June 2019: 96) (cf. 31.12.2019: 47.7) ↘ 71 ↘ 41.8 Group net result Business volume 30.06.2020 (cf. January - June 2019: 5) (cf. 31.12.2019: 55.6) ↘ 4 ↘ 48.0 CAPITAL RATIO & RWA (%)1) EMPLOYEES (computed on full-time equivalent basis) CET1 ratio 30.06.2020 (cf. 31.12.2019: 18.5) Total 30.06.2020 (cf. 31.12.2019: 1,482) ↗ 21.7 ↘ 1,215 Total capital ratio 30.06.2020 Germany 30.06.2020 (cf. 31.12.2019: 23.5) (cf. 31.12.2019: 1,421) ↗ 27.0 ↘ 1,180 Risk weighted assets (RWA) 30.06.2020 Abroad 30.06.2020 (€ billion) (cf. 31.12.2019: 21.0) (cf. 31.12.2019: 61) ↘ 19.0 ↘ 35 Due to rounding, numbers presented throughout this report may not add up to the totals disclosed and percentages may not precisely reflect the absolute figures. 1) Not in-period: regulatory disclosure pursuant to the CRR Content Interim Management Interim group financial Report statements 2 Economic report 46 Group statement of income 2 Underlying economic and industry conditions 7 Business development 47 Group statement of comprehensive income 9 Earings, net assets and financial position 17 Segment results 48 Group statement of financial position 19 Employees of Hamburg Commercial Bank 50 Group statement of changes in equity 21 Forecast, opportunities and risk report 52 Group cash flow statement 21 Forecast report including opportunities and risks 27 Risk report Group explanatory notes 53 Group explanatory notes 53 General information 57 Notes on the group statement of income 64 Notes on the group statement of financial position 74 Segment reporting 77 Disclosures on financial intruments 108 Other disclosures 111 Review Report 112 Responsibility statement by the management board 2 Hamburg Commercial Bank Interim management report Economic report Underlying economic and industry conditions Economy hit by downturn After GDP growth of 2.1% (QoQ, annualised) was recorded in Coronavirus crisis triggers a global recession the final quarter of last year, the US slid into recession in the Global economic output fell rapidly in the first half of 2020 in first quarter of 2020. The US economy contracted by 5% the wake of the coronavirus crisis. The recession is emerging (QoQ, annualised) in the first three months. The impact of the both in the world’s industrialised countries and in the emerg- coronavirus pandemic on GDP is likely to be even more severe ing markets. The global PMI purchasing managers’ indices for in the second quarter. Unemployment figures shot up in April, the manufacturing and services sectors fell to all-time lows in rising to almost 15% at times. The continuing threat of an esca- April. lation of the trade conflict with China is also putting pressure The massive slump in economic activity in the first half of on the situation. 2020 is the result of the shutdown measures taken in the In China, too, where the economy expanded by 6.1% in the course of the pandemic, the associated temporary production previous year, the coronavirus crisis is also reflected in a signif- stoppages and the ongoing restrictions and (hygiene) require- icant drop in economic output. China was the first country to ments. The crisis has resulted in a simultaneous negative sup- be hit by the pandemic, meaning that it had already reached ply and demand shock. Although the latest economic data its economic low point in the first quarter. Gross domestic points to a recovery now that shutdown measures have been product fell by 9% (QoQ) during this period. Beijing has with- lifted, activity remains at a low level for the time being. Recent drawn its growth target for the current year and has not pub- reports suggest that a large number of countries, including lished a new one. While the situation in China gradually parts of the US and a number of major emerging markets, are started to stabilise at the beginning of the second quarter, not in full control of the coronavirus spread. Germany is wit- case numbers in Europe and the US continued to rise at the nessing regionally contained hotspots, which also entail a con- beginning of April. The Chinese economy remained sluggish in siderable economic risk. Overall, GDP in the economic areas of the second quarter due to a lack of unit sales opportunities the US, the eurozone, Japan and China in the first half of the abroad and disruptions affecting global supply chains. year is likely to be down by around 7% year-on-year on aver- In the eurozone, the pace of growth had already slowed age. While the coronavirus crisis largely overshadowed all down considerably. The economy grew by only 1.0% in 2019. In other issues, the trade dispute between the US and China re- the first quarter of 2020, gross domestic product dipped by mains a burden. The same applies to the future relationship 3.6% (QoQ). The rate of expansion is likely to have fallen well between the EU and the UK, which is currently being negoti- into negative territory in the second quarter. The coronavirus ated. crisis has pushed the industrial sector, which was already ail- In view of the dramatic economic slump and the risk of a fi- ing, into a deep recession. A massive slump has emerged in nancial market crisis, the major central banks, the Fed and the each of the four major EMU economies – Germany, France, It- ECB, have taken extraordinary monetary policy steps, at the aly and Spain. German industry has been stuck on a downward same time signalling their readiness to take action whenever trajectory since mid-2018. they have to. The German economy grew by only 0.6% in 2019 and con- In this environment, yields on German and US government tracted by 2.2% (QoQ) in the first three months of 2020. The bonds have fallen significantly since the beginning of the year. downward trend is expected to bottom out in the second After initial massive setbacks, the stock markets, on the other quarter. hand, appear to be pricing in a rapid global economic recovery. Mounting geopolitical risks are also weighing on the econ- The euro/US dollar exchange rate was extremely volatile in the omy, with Brexit, in particular, an ongoing source of uncer- first half of the year. At times, the exchange rate moved close tainty. The United Kingdom will leave the European Single to parity, although it has recently bounced back. Market and the Customs Union at the end of 2020 (unless the exit negotiations are extended). If no free trade agreement has been concluded by then, trade will be conducted according to WTO rules from that point onwards. Interim management report Economic report 3 Need for action at central banks, capital market interest Consequences of the coronavirus pandemic and associated rates drop, volatile but surprisingly robust stock markets recession have led to significant slowdown in relevant In view of the coronavirus crisis, the ECB has launched a com- markets prehensive emergency programme (PEPP) consisting of bond The German real estate markets remained fairly unaffected purchases in the amount of EUR 1.35 trillion. At the same time, by the emerging recession in the first half of the year. The up- the previous limit on the proportion of government bonds of a ward trend witnessed in recent years continued, particularly member state that it is entitled to hold has been made more on the housing markets in the country’s major cities, with flexible. In addition, the ECB has relaxed the conditions for the rents and prices continuing to rise. Thanks to the second-larg- furnishing of collateral and launched new targeted long-term est transaction volume ever seen for larger residential portfo- tenders (TLTROs) in a quest to stimulate lending. Meanwhile, lios in the first quarter of 2020, investment activity in the first the ECB has left its key interest rate unchanged at 0%. The de- half of the year remained up significantly on the same period posit rate remains in the red (-0.5%). of the previous year. There has been little sign so far of any re- In May, the German Federal Constitutional Court issued a luctance on the part of investors to invest in residential real es- ruling on the asset purchase programme, which has been on- tate due to the pandemic and recession. On the contrary, the going since 2015. It calls for the proportionality of existing pur- number of building permits for multi-storey residential build- chase programmes to be reviewed. If this review is not per- ings, which has increased by a good 5% since the beginning of formed or the Federal Constitutional Court does not consider the year (January to May), shows that construction principals it to be convincing, the Bundesbank would no longer be able remain confident. The slower growth in the number of housing to participate in the asset purchase programme. The judgment construction orders, however, indicated that projects are al- does not relate to the PEPP programme. ready being implemented at a slower pace. The US Federal Reserve lowered its key interest rate in two On the office property markets, net demand for space fell steps in the first quarter to 0.25% (upper limit of the target very sharply in the first half of the year as companies’ willing- range).