annual report - Hypo Real Estate Holding AG

Business Performance
Balance Sheet
The on-balance sheet commitments fell by 12% to
€171 billion. However this includes a net reduction of
€34 billion as at 31 December 2007 from the disposal
of DEPFA Deutsche Pfandbriefbank AG, net of the
acquisition of HPFB. Excluding this exceptional effect,
the on-balance sheet commitments grew by 6%.
This shows that the Bank has been able to maintain its
overall public sector financing volume at a virtually
constant level despite significant asset sales activity
during the course of the year involving over €30 billion
of assets. Almost 50% of the drawn financing volume
is made up of 0% risk-weighted sovereign borrowers,
including central governments, government agencies,
multilateral institutions as well as certain local and
regional authorities.
There has been a perceptible shift in 2007 towards
20% risk-weighted borrowers reflecting the growth
especially in the municipal business in the United
States where local and regional authorities are
assigned a 20% risk weighting, as well as the quasisovereign
student loan market. The volume of 100%
risk-weighted assets has grown to €19 billion but still
represents a small portion (11%) of the drawn total.
68
Typi cally, this category refers in particular to public
sector related concession based lending under Public
Private Partnership (PPP) financing arrangements in
which the Bank’s debt is often serviced by cash flows
from the public sector (subject to satisfactory performance
by the private sector partner).
The Bank’s treasury management activities have continued
to provide very stable support for the Bank’s
asset side even in the very difficult market environment,
which were evident since the summer. The success of
the funding strategy employed by DEPFA in 2007 is
reflected in the fact that the Bank raised its targeted
€13.5 billion of long-term funding at deeper sub-LIBOR
levels than was achieved in 2006 or at any stage in
recent years. This was achieved whilst maintaining an
average weighted tenor of new borrowings of approximately
9 years. The public sector asset base of DEPFA
was deployed to an increasing degree in the repo
markets during the latter half of the year given the
strong appetite among market participants for this
asset class during the ongoing credit crisis, reflecting
the flight to quality. The Bank’s total secured funding
including covered bond issuance and repo finance
amounted to 69% of total funding.
2007* % 2006
Change from
previous year
Drawn Financing Volume – Group € m € m € m %
Total 171,168 100% 194,585 -23,417 -12%
of which loans with 0% weighting 83,199 49% 134,507 -51,308 -38%
of which loans with 10% weighting 640 0% 110 530 482%
of which loans with 20% weighting 66,577 39% 51,943 14,634 28%
of which loans with 50% weighting 1,900 1% 826 1,074 130%
of which loans with 100% weighting 18,852 11% 7,199 11,653 162%
* Consisting of DEPFA including HPFB and excluding DEPFA Deutsche Pfandbriefbank AG