2019 preliminary result: HCOB’s transformation bearing fruit
- Pre-tax profit of € 77 (2018: 97) million
- Strong CET1 ratio of 18.5 %
- CEO Ermisch: “Targets for 2019 fully met and well on track for admission to BDB (Association of German Banks) in 2022”
Hamburg Commercial Bank AG (HCOB) has used the first year following its successful privatization for its sustainable realignment and is, based on preliminary calculations for 2019, showing solid financials and a pre-tax profit (IFRS) of € 77 (2018: 97) million. This satisfactory result is due, among other factors, to a consistent focus on new business with adequate margins, significantly lower funding costs and structural progress in reducing costs.
“Our comprehensive transformation towards being a commercial bank with above-par capital resources and competitiveness follows clear objectives. The main focus is on sharpening our market image as a specialist provider of finance, making significant efforts to reduce administrative expenses, investing extensively in our technological infrastructure and digitalization, and consistently building our financial strength. All this serves HCOB’s overarching goal of seamlessly transitioning to the deposit protection scheme of Germany’s private banks and thereby laying the foundation for a range of strategic options,” said Stefan Ermisch, CEO of Hamburg Commercial Bank AG.
Margins widening – cost reductions taking effect – funding position clearly improved
Significant progress in this profound transformation was already evident by the end of 2019: Based on preliminary calculations, the Bank earned € 77 (97) million before taxes in 2019. Due to a planned, non-recurring reduction of deferred taxes in the wake of successfully restructuring its capital structure, the Bank reports a net result after taxes of € 12 (77) million.
“HCOB is well received in the market and among its clients. Our staff, our entire management and our international owners are contributing to this, as are a number of outside stakeholders – including regulatory authorities and rating agencies – which are constructively monitoring our work,” Stefan Ermisch said.
Selective with new business – good portfolio quality
In light of a downturn in the economic climate, the Bank managed new business selectively and achieved considerably higher profitability on an intentionally lower gross business volume of € 7.2 (2018: 8.4) billion. The significantly lower refinancing costs in the wake of privatization contributed considerably to this encouraging performance. Total income amounted to € 463 million and is not comparable with the previous year’s figure of € 1,586 million, which included exceptional items; particularly income of nearly € 1 billion following the revaluation of hybrid instruments. Loan loss provisions reflect the good portfolio quality and contributed to the result with a positive balance of € 11 (-367) million.
As well as developing targeted growth strategies in its core areas of Commercial Real Estate, Corporate Clients, Shipping and Project Finance (particularly renewable energy and infrastructure), the Bank laid the foundations for new business areas such as financing of factoring and leasing companies and diversified lending, including outside of the German domestic market.
HCOB further optimized its portfolio structure in 2019, thereby improving its non-performing exposure ratio to 1.8% (from 2.0% at the end of 2018), which is below the strategic target of 2.0%. The systematic reduction of risk-weighted assets lifted the Common Equity Tier 1 ratio to a very comfortable 18.5% (18.4), despite RWA being boosted by regulatory factors. A further improved leverage ratio of 8.2% (7.3) underlines the Bank’s strong capital position. Total assets decreased further to € 47.7 (55.1) billion.
Transparent, forward-looking restructuring since privatization
In summary, the transformation program in 2019 primarily focused on consistent cost management and greater operating efficiency. This entailed a personnel and operating cost program that was agreed in early 2019 and was already reflected in the 2018 balance sheet. Administrative expenses in 2019 amounted to € -413 (-402) million, with the slight increase from the previous year attributable to investment in areas such as IT and smaller cost effects from job reductions.
At the end of 2019, the Bank employed 1,482 (1,716) full-time equivalents (FTE). In December 2019 the Bank ramped up its efficiency program from late 2018 due to the weaker than previously assumed economic outlook for Germany and the global economy; the program now puts the target for the total number of FTE at approximately 700 in 2022, rather than approximately 1,000. The additional provisions required for this are already reflected in the 2019 financial statements. At the end of 2018, there were still around 1,700 FTE at HCOB. Since its privatization, Hamburg Commercial Bank has thus devoted itself to a transparent and forwardlooking restructuring program that ranks among the most extensive in the European banking sector.
The Bank expects to release its complete and final annual report on 16 April 2020.
Preliminary figures:
| Profit and loss statement (IFRS, € m) – preliminary figures – | Jan – Dec 2019 | Jan – Dec 2018 | Change in % |
|---|---|---|---|
| Total income | 463 | 1,586 | -71 |
| Loan loss provisions | 11 | 3671 | >-100 |
| Administrative expenses | -413 | -402 | 3 |
| Result from restructuring and transformation | -66 | -366 | 82 |
| Net income before taxes | 77 | 97 | -21 |
| Income tax expenses | -65 | -20 | >100 |
| Group net result | 12 | 77 | -84 |
| Additional preliminary figures of Hamburg Commercial Bank Group | 31 Dec 2019 | 31 Dec 2018 |
|---|---|---|
| Total assets (€ bn) | 48 | 55 |
| Common Equity Tier 1 (CET1) capital ratio (in %) | 18.5 | 18.4 |
| Overall capital ratio in % | 23.5 | 23.3 |
| Leverage Ratio (in %) | 8,2 | 7.3 |
| Liquidity Coverage Ratio in % | 165 | 225 |
| Net Stable Funding Ratio in % | 112 | 121 |
| Full-time employees (FTE) | 1,482 | 1,716 |
1Incl. Hedging effect of credit derivative.
The information contained in this press release does not constitute an offer for the sale of any type of Hamburg Commercial Bank AG securities. Securities of Hamburg Commercial Bank AG may not be sold in the United States without registration pursuant to US securities legislation, unless such a sale takes place on the basis of relevant exceptional provisions.
This press information can contain forward-looking statements. These statements are based on our beliefs and assumptions, on information currently available to us which we consider reliable. Forward-looking statements include all statements which are not historical facts, including information concerning future growth prospects and future economic developments.
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