BayernLB 2015 Annual Report and Accounts Consolidated financial statements BayernLB Group at a glance Income statement (IFRS) 1 Jan – 31 Dec 1 Jan – 31 Dec EUR million 2015 2014 Change in % Net interest income 1,612 1,671 – 3.5 Risk provisions in the credit business – 264 – 1,498 – 82.4 Net interest income after risk provisions 1,348 173 > 100 Net commission income 258 249 3.4 Gains or losses on fair value measurement – 62 – 25 > 100 Gains or losses on hedge accounting – 24 – 70 – 65.9 Gains or losses on financial investments 286 419 – 31.8 Administrative expenses – 1,168 – 1,171 – 0.3 Expenses for the bank levy and deposit guarantee scheme – 90 – 4 > 100 Other income and expenses 102 114 – 9.9 Gains or losses on restructuring – 10 – 33 – 67.8 Profit/loss before taxes 640 – 348 – Income taxes – 150 99 – Gains or losses on discontinued operations 0 – 1,070 – Profit/loss after taxes 490 – 1,320 – Cost/income ratio (CIR) 53.8% 49.7% 4.1 pp1 Return on equity (RoE) 5.8% – 2.6% 8.5 pp1 Balance sheet (IFRS) EUR million 31 Dec 2015 31 Dec 2014 Change in % Total assets 215,711 232,124 – 7.1 Business volume 252,466 272,834 – 7.5 Credit volume 175,428 182,584 – 3.9 Total deposits 146,390 145,773 0.4 Securitised liabilities 34,840 44,285 – 21.3 Subordinated capital 4,719 4,722 – Equity 11,063 11,789 – 6.2 Banking supervisory capital and ratios under CRR/CRD IV (after close of year) EUR million 31 Dec 2015 31 Dec 2014 Change in % Common Equity Tier 1 capital (CET 1 capital) 10,537 9,822 7.3 Own funds 12,214 11,715 4.3 Total RWA 69,606 76,616 – 9.1 CET 1 ratio 15.1% 12.8% 2.3 pp1 CET 1 ratio (fully loaded) 12.0% 10.2% 1.8 pp1 Total capital ratio 17.6% 15.3% 2.3 pp1 Employees 31 Dec 2015 31 Dec 2014 Change in % Number of employees 7,082 6,842 3.5 Current ratings Long-term Short-term Pfandbriefs2 Fitch Ratings A – F1 AAA Moody’s Investors Service A2 P –1 Aaa 1 Percentage points 2 Applies to public Pfandbriefs and mortgage Pfandbriefs Corporate profile BayernLB is one of Germany’s leading commercial banks and headquartered in one of Europe’s strongest economic regions. Our clients include large corporates and Mittelstand companies, real estate customers, financial institutions and asset management customers, the public sector and almost every savings bank in Germany. Deutsche Kreditbank AG, Berlin (DKB), an integral part of our business model, rounds out the model by providing retail banking services as an online bank and as a specialist in the target infrastructure and business customer sectors. As principal bank to our customers and the central bank to the Bavarian savings banks, we recognise our responsibility to the economy and to society at large. We know our customers in the large corporates and Mittelstand market segment better than other banks thanks to our deep roots and business relationships which have been built up over decades. We are a lender they can rely on and turn to for expert advice in Bavaria, Germany and around the world. We have a particularly close relationship with the savings banks. For us, they are not only customers but also partners. Together we create tailor-made financial solutions for retail, corporate and municipal customers. By doing so we perfectly complement their range of products and services. One of BayernLB’s traditional core competences is real estate. Our services range from financing project developers and long-term investors right through to services such as advising customers on buying or selling real estate. We help draw up investment strategies and manage property on behalf of our customers. At BayernLabo we work with the Free State of Bavaria to help mostly young families realise their dream of owning their own home. We help residential construction companies to build, renovate or modernise rental homes in Bavaria. For the public sector we provide a wide range of customised financing and investment solutions to state governments, local authorities and public institutions. Our financial market experts advise our customers on how to cushion themselves against moves in prices, interest rates and exchange rates on the markets in which they operate. As a result, we help optimise their earnings and cash-flow structures. As an issuer with a proven track record, we arrange and place bonds and Schuldschein note loans for our customers and supply them with investment advice and products. We offer high quality asset management through our subsidiaries BayernInvest and Real I.S. Our 100%-owned subsidiary DKB, which serves over three million customers, is one of the most successful online banks in Germany. DKB offers its retail and business customers state-of-the-art, intuitive online banking including savings products and investment products for long-term asset growth, real-estate financing and consumer loans. DKB is also very successful in business loans in the areas of renewable energy, environmental technology, housing, healthcare and agriculture. Owners Association of Free State of Bavaria Bavarian Savings Banks AAA/Aaa¹ approx. approx. 25% 75% BayernLB Holding AG 100% 100% State guarantee Institution established under public law 100% 100% 100% ¹ Standard & Poor’s, Moody’s Locations • Germany USA Europe Munich head office, Berlin, Düsseldorf, Frankfurt, Hamburg, Nuremberg, Stuttgart • Europe London, Milan, Paris branches, representative office in Moscow • America New York branch Business areas Core business Non-core business (Non-Core Unit) Real Estate & Corporates & Financial Restructuring Savings Banks/ DKB Other Mittelstand Markets Unit Association • Corporates • Commercial • Retail • Capital market • Portfolios • Non-core Large real estate customers products that no longer activities corporate customers • Corporates • Treasury belong to the core business customers • Savings Banks • Infrastructure products • Mittelstand & Association • Treasury/ • Financial • Public sector asset liability institutions • BayernLabo management (Asia, EMEA, Development • Institutional Latin America) bank customers/ FI developed markets • BayernInvest • Real I.S. Contents 1 2 3 Board of Management and Selected business highlights 12 Taking responsibility 16 Supervisory Board 2 Human resources 18 Foreword by the Community work 24 Board of Management 2 Education and science 28 Board of Management 4 Art and culture 29 Report by the Supervisory Board 6 Environmental protection at BayernLB 30 Sustainable financial solutions 32 4 5 6 BayernLB Group management report 36 BayernLB Group’s consolidated Committees and advisory boards 230 Overview of the BayernLB Group 38 financial statements 112 Supervisory Board 232 Report on the economic position 42 Statement of comprehensive General Meeting 233 Events after the reporting period 58 income 114 Audit Committee 234 Report on expected develop- Balance sheet 116 Risk Committee 235 ments and on opportunities Statement of changes in equity 118 BayernLabo Committee 236 and risks 59 Cash flow statement 120 Nominating Committee 236 Notes 124 Compensation Committee 237 Responsibility statement Trustees 237 by the Board of Management 227 Savings Bank Advisory Council 238 Auditor’s Report 228 Wirtschafts- und Finanzforum Country by Country Reporting 229 Bayern (Bavarian Economic and Finance Forum) – BayernLB Economic Advisory Council 239 Locations and addresses 244 BayernLB . 2015 Annual Report and Accounts 1 Foreword Dear customers and business partners, ladies and gentlemen, Last year BayernLB’s operating profit in the core business rose to nearly one billion euro, a hefty increase, and its profit before taxes was an outstanding EUR 640 million (FY 2014: loss of EUR 348 million). The figures show that our strategy to significantly downsize and concentrate BayernLB’s focus on its core competencies has paid off. We have almost completely wound down our non-core business, strengthened our capital base, significantly cut costs and made further progress in becoming a customer-focused credit and advisory bank for the Bavarian and German economy. In the retail customer business we successfully expanded DKB’s position as the second- largest online bank in the German market. Each of our customer segments made a strong contribution to BayernLB’s 2015 results. The large corporates and Mittelstand customer business, the commercial real estate business, the business with the savings banks and DKB’s retail customer business all turned in a very good performance. This is not just clear proof of our customers’ confidence in the expertise and professionalism of our staff in all four business segments, but also a sign that our strategic initiatives and measures to accelerate and improve internal processes is bearing fruit. For example, the Bank last year signed a partnership agreement with Hamburg-based Berenberg bank, which is now scoring its first joint successes. We are now closer to our customers after opening new sales offices in Hamburg, Stuttgart, Frankfurt and Berlin. We restructured the capital markets business pooled within the Financial Markets segment and focused it strictly on customers’ needs. We pumped in additional investment into digitalisation projects and, via DKB, initiated or expanded partnership agreements with innovative fintechs such as Cringle, PayPal and FinReach. As well as restructuring and strengthening BayernLB, we made further good headway in resolving the Bank’s last remaining legacy problems. Noteworthy here is the settlement of the legal disputes relating to Heta. Upon the adoption of the annual financial statements we will also be repaying EUR 1.3 billion in silent partner contributions to the Free State of Bavaria. This means that over the past few years BayernLB will have returned nearly EUR 4.4 billion to the Free State of Bavaria, 2 BayernLB . 2015 Annual Report and Accounts 2 Board of Management and Supervisory Board 2 Foreword by the Board of Management 4 Board of Management 6 Report by the Supervisory Board of which EUR 4.0 billion counts as state aid repayment.