DVB Bank SE: DVB Group publishes nine-month results for 2015 and…

Ralf Bedranowsky, CEO and Chairman of DVB Bank SE’s Board of Managing Directors, commented on the Bank’s nine-month results:

“Against the background of the overall situation on global transport finance markets, and given the macroeconomic and geopolitical environment, DVB assesses Group performance for the first nine months of 2015 overall satisfactory. DVB’s nine-month results were largely shaped by the following components:

• On a positive note, we were able to originate new international Transport Finance business at attractive terms, in spite of persistent, intense competition amongst banks on the financing markets. The Bank’s new business in Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance during the first nine months of 2015 comprised 137 transactions with an aggregate volume of EUR5.0 billion – compared to 122 transactions with an aggregate volume of EUR4.0 billion during the first three quarters of 2014.
• However, results were impacted by an increase in allowance for credit losses, from EUR28.5 million to EUR62.7 million; in particular, this was due to the individual shipping market sectors.
• Other operating expenses was already charged by a non-recurring effect in June 2015: a full write-down of a claim for damages in the amount of EUR36.4 million, which had to be recognised as a result of a final arbitration ruling issued by the London Court of International Arbitration with regard to DVB’s consolidated subsidiary Dalian Deepwater Developer Ltd.
• Full-year charges of EUR14.9 million needed to be recognised in income already in the first half of the year, for the first time – comprising expected bank levy charges of EUR10.3 million as well as EUR4.6 million in expenses for the Deposit Guarantee Scheme of the National Association of German Co-operative Banks (BVR).

With the ad-hoc disclosure published today, DVB has adjusted its outlook for the consolidated financial statements 2015:

The unexpectedly weak development in developed economies as well as in the BRIC countries (Brazil, Russia, India and China), the risks inherent in persistently volatile global financial markets, as well as geopolitical risks, have diminished overall demand – leading to a decline in global trade volumes. In contrast, the shipping transport capacity on offer has developed with almost unrestricted momentum.

Given this burdensome macroeconomic development and the absence of any discernible recovery on most of the shipping and offshore segments, additional allowance for credit losses for DVB’s Shipping and Offshore Finance portfolio appear commercially reasonable.

DVB forecasts consolidated net income before taxes for the fiscal year 2015 in the positive low- to mid-double-digit million euro range, and hence, below the previous year’s level.

This decline in consolidated net income before taxes (31 December 2014: EUR104.0 million) will largely be attributable to additional provisioning in the amount of approximately EUR60 million which DVB expects to recognise in the fourth quarter of 2015 (31 December 2014: EUR62.4 million). In view of the prevailing difficult situation on the international shipping and offshore markets, DVB considers the additional allowance for credit losses commercially reasonable.

Against this background, DVB also assumes that the key financial management indicators – namely, return on equity before taxes, the cost/income ratio, and risk-adjusted Economic Value Added – as forecasted in the Bank’s Annual Report 2014 will not be achieved.”

The individual components of the nine-month results developed as follows:

Net interest income decreased by 6.7%, from EUR162.5 million to EUR151.6 million. Thanks to the high volume of new Transport Finance business, interest income rose by 17.6%, from EUR654.4 million to EUR769.6 million. Interest expenses rose by 25.6%, from EUR491.9 million to EUR618.0 million.

Allowance for credit losses amounted to EUR62.7 million (previous year: EUR28.5 million). Specifically, new allowance recognised for credit losses totalled EUR106.3 million, of which EUR75.7 million was accounted for by Shipping Finance, due to the persistently difficult environment in individual subsegments of international shipping. Conversely, allowance for credit losses of EUR48.5 million was reversed (of which EUR31.0 million in Shipping Finance). Total allowance for credit losses (comprising specific allowance for credit losses, portfolio-based allowances for credit losses, and provisions) rose to EUR244.8 million, up 11.8% from year-end 2014 (EUR219.0 million).

Net interest income after allowance for credit losses of EUR88.9 million was lower than the previous year’s figure of EUR134.0 million.

Net fee and commission income, which primarily includes fees and commissions from new Transport Finance business, and asset management and advisory fees, was up 5.1%, from EUR73.2 million to
EUR76.9 million.

Results from investments accounting for using the equity method declined from EUR7.9 million to EUR3.8 million.

Net other operating income/expenses amounted to EUR-50.3 million (previous year: EUR2.2 million). Other operating expenses was charged by a non-recurring effect: an unscheduled write-down of a claim for damages, in the amount of EUR36.4 million, for DVB’s consolidated subsidiary Dalian Deepwater Developer Ltd.

General administrative expenses rose by 1.5%, to EUR132.4 million (previous year: EUR130.4 million). Staff expenses decreased by 3.2%, to EUR78.5 million (previous year: EUR81.1 million), whilst non-staff expenses (including depreciation, amortisation and write-downs) amounted to EUR53.9 million (previous year: EUR49.3 million).

Net income from financial instruments in accordance with IAS 39 (comprising the trading result, the hedge result, the result from the application of the fair value option, the result from derivatives entered into without intention to trade, and the result from investment securities) – which is generally volatile – amounted to EUR87.8 million (previous year: EUR-8.2 million). The net figure largely comprised a significant non-recurring operating income from the sale of investment securities – the partial sale of a shareholding in Wizz Air Holdings plc. Accordingly, the result from investment securities was up by EUR46.1 million, to EUR46.9 million (previous year: EUR0.8 million).

Consolidated net income before bank levy, BVR Deposit Guarantee Scheme, and taxes totalled EUR74.7 million (previous year: EUR78.7 million). The expected bank levy charges of EUR10.3 million (2014: actual bank levy of EUR3.6 million) as well as EUR4.6 million in expenses for the Deposit Guarantee Scheme of the National Association of German Co-operative Banks (“BVR”) (2014: EUR4.4 million in expenses for the BVR Deposit Guarantee Scheme) needed to be deducted from this figure already for the first half of the year.

Consolidated net income before taxes declined by 17.6% year-on-year, from EUR72.6 million to
EUR59.8 million, and consolidated net income after taxes of EUR51.3 million fell short of the previous year’s figure of EUR58.1 million.

DVB’s consolidated total assets increased to EUR25.9 billion as at 30 September 2015, up 5.5% from the 2014 year-end (31 December 2014: EUR24.5 billion), largely due to currency translation effects.

DVB’s nominal volume of customer lending (the aggregate of loans and advances to customers, guarantees and indemnities, irrevocable loan commitments, and derivatives) rose by 6.9%, reflecting currency translation effects, to EUR24.9 billion. In US dollar terms, it was down slightly, by 1.4%, to US$27.9 billion.

DVB’s key financial indicators developed as follows:

The return on equity before taxes stood at 7.6%, unchanged year-on-year, whilst the cost/income ratio was reduced by 5.8 percentage points, to 49.1% (previous year: 54.9%). Risk-adjusted Economic Value Added, which includes operating net income from investment securities, amounted to EUR-54.9 million (previous year: EUR15.8 million).

DVB discloses capital ratios determined in accordance with the Basel III framework (Advanced Approach). On this basis, DVB’s common equity tier 1 ratio as at 30 September 2015 was 17.1% (31 December 2014: 18.7%), whilst the total capital ratio amounted to 23.6% (31 December 2014: 21.6%).

About DVB Bank SE
DVB Bank SE, headquartered in Frankfurt/Main, Germany, is the leading specialist in the international Transport Finance business. The Bank offers integrated financing solutions and advisory services in respect of Shipping Finance, Aviation Finance, Offshore Finance and Land Transport Finance. DVB is present at all key international financial centres and transport hubs: at its Frankfurt/Main head office, as well as various European locations (Amsterdam, Athens, Hamburg, London, Oslo and Zurich), plus offices in the Americas (New York City and Curaçao) and in Asia (Singapore and Tokyo). DVB Bank SE is listed at the Frankfurt Stock Exchange (ISIN: DE0008045501). Further information is available on www.dvbbank.com.