annual report - Hypo Real Estate Holding AG

Management Discussion – Segments
Distribution
DEPFA’s Global Sales team consolidated their position
as a leading provider of liquidity to the Group, in both
short-term and long-term products. Against a backdrop
of shrinking liquidity and declining investor
appetite, the Bank directly placed over €232 billion (vs.
€190 billion in 2006) in short-term liquidity instruments
across 8 funding platforms. Meanwhile, the Bank also
increased its sale of long-term covered bonds and
public sector assets from €3.2 billion in 2006 to €3.4
billion in 2007. Participating in over 10 roadshows,
DEPFA attracted over 40 new clients, to enhance its
client base, diversified across Central Banks, Private
Banks, Asset Managers and Building Societies as well
as Corporate Treasuries. For the first time, the Bank
achieved a #1 position on its own Capital Markets
dealer group, distributing €1.45 billion (almost double
the volume of 2006 at €745 million.)
Results*
Net interest income, generated through DEPFA’s
stable, long-term asset and liability base, amounted to
€348 million in 2007, (compared to €356m in 2006), a
2 % decrease on the previous year. This change is
partly because of increased asset sales (taking advantage
of favourable market prices), which accordingly
Budget Finance
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removed the contribution to net interest income from
such assets sold. Non-interest revenues, generated
through fees from US Liquidity Facilities, the active
management of the Budget Finance asset portfolio
and other activities increased to €368 million in 2007,
(compared to €283 million in 2006), a 30% increase
on the previous year. New business in the mature
markets, most notably in the USA and Italy was
particularly strong. The U.S. now contributes 25% of
the overall budget financing volume of DEPFA whilst
also enhancing the credit quality of the portfolio.
DEPFA’s funding activities remained strong, meeting
and exceeding the Bank’s targets for its long- and
short-term funding mix and enhancing/reducing the
overall cost of funding in 2007. Profit before taxes in
this segment totaled €613 million in 2007.
Outlook
The outlook for 2008 is volatile but not without profitable
opportunities. For those institutions like DEPFA,
which have the ability to utilise their reputation as a
balance sheet investor, operating within high quality
credit (Government and tax-revenue backed) markets,
there may indeed be opportunities to further enhance
the portfolio’s efficient frontier in terms of risk adjusted
return.
€ m 2007 2006 Change Change %
Net interest income 348 356 -8 -2%
Non interest revenues 368 283 85 30%
Total operating income 716 639 77 12%
Operating expenses -103 -84 -19 23%
Profit before taxation 613 555 58 10%
Key Balance sheet items**
Financing volume (on-balance sheet) 125,577 167,438 -41,861 -25%
Financing volume (off-balance sheet) 22,086 21,885 201 1%
Total commitments 147,663 189,323 -41,660 -22%
* For reconciliation of the results to the published in come statement, see page 62.
** For comparability with the financial statements, 2007 volumes include HPFB and exclude DEPFA Deutsche Pfandbriefbank
AG.