Annual Financial Statements 2011 of Bank Austria

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Management Report Management Report (CONTINUED) level two years ago also resulted in a 42% increase per year. At € 567 m, net operating profit for Q4 2011 was nevertheless considerably lower than in 2007 and 2008, when quarterly averages exceeded € 600 m. Given the stable development of operating profit – in both Austria and CEE – the upward trend in net operating profit in the past two years was determined by the reduction of the provisioning charge from the exceptionally high level of € 659 m in the final quarter of 2009 to € 317 m in Q4 2011, which was the lowest figure since Q3 2008, the last quarter before the collapse of Lehman Brothers. Quarterly profit trends at Bank Austria (including the Corporate Center) were determined by non-operating deductions, primarily impairment losses on goodwill. This reflects the fact that the break caused by the financial market crisis and the subsequent recession Quarterly trends in the past three years 132 809 129 126 123 Average lending volume 128 124 129 129 130 130 133 € bn 132 131 130 129 128 127 126 125 124 204 3) € m 547 500 450 400 350 300 250 200 286 242 217 302 341 299 Greecerelated effect, net 150 3) 100 139 129 50 0 –50 –14 –100 –150 –200 Performance generated by the bank as a whole = net profit attributable to the owners of Bank Austria –250 –300 –350 –400 –450 –500 –550 3) –600 –650 –635 2009 2010 2011 2) Goodwill impairment 3) Net operating profit of customer business segments 513 533 532 564 567 467 326 282 392 470 3) 411 3) 1) 1) Customer business segments = Austria (F&SME, PB and CIB) and CEE = Bank Austria without Corporate Center. / 2) Difference compared with operating profit of customer business segments = operating profit of Corporate Center; recasting difference; provisions for risks and charges, integration/restructuring costs, net income from investments and goodwill impairment as well as income tax and non-controlling interests. / 3) Impairment losses on goodwill 131 led to a reassessment of the medium-term and long-term business outlook in Central and Eastern Europe, mainly in the CIS countries. At the end of 2008, Bank Austria recognised an impairment loss (of over € 1 bn) on goodwill related to the banks which it had acquired shortly before; further substantial impairment losses on goodwill were recognised in the middle and at the end of 2010 and in the third quarter of 2011. The goodwill impairment charge in Q3 2011 absorbed profits accumulated until then. In Q4 2011, Bank Austria achieved a net profit of € 204 m; without the additional burdens (Greece, bank levy) this would have been the best quarterly performance since the beginning of 2009. � At Bank Austria and in the entire UniCredit Group, the strategic focus after the turning point marked by the financial market crisis has been on building customer business in a steady and sustainable manner and on widening the funding base and increasing the riskbearing capacity. Within Bank Austria this is reflected in a structural improvement in the bank’s financial position, in a risk-focused employment of funds, and in a higher level of equity capital. In a year-end comparison of 2011 with 2010, loans and receivables with customers rose faster than total assets, and their share of total assets increased to 67.7%. Activity in the area of the bank’s own issues was stepped up in 2011 with a view to further reducing funds raised via wholesale markets, so that loans to customers were covered to the extent of 100% by primary funds (deposits from customers and debt securities in issue). The leverage ratio (total assets/ equity, pursuant to the cash concept without intangibles) improved from 13.8 to 13.3; in 2008 it was still 21.9. Risk-weighted assets declined, while customer lending volume increased; in the Austrian business segments they are lower than loans to customers, and in CEE higher. Thanks to the capital increase in March 2010, the capital ratios were well above the required levels: the Core Tier 1 capital ratio came to 10.55% as of 31 December 2011. Key figures – business volume and capital (€ bn) 31 dEC. 2011 31 dEC. 2010 CHAngE ovEr 2010 2) Total assets 199.2 193.0 +6.2 +3.2% Customer loans Primary funds (deposits from customers and debt securities in 134.9 130.1 +4.8 +3.7% issue) 134.7 127.8 +6.8 +5.3% Loans/primary funds (L/D in %) 100% 102% IFRS equity 17.7 17.5 +0.2 +1.1% As % of total assets 8.9% 9.1% Leverage ratio *) 13.3 13.8 Risk-weighted assets 125.2 127.9 –2.7 –2.1% Capital resources as defined in the Austrian Banking Act 15.9 15.5 +0.4 +2.3% Core Tier 1 capital ratio 10.55% 10.04% Total capital ratio 12.68% 12.13% *) Calculated under the cash concept, without intangible assets. Bank Austria · Annual Financial Statements 2011 12
Management Report Management Report (CONTINUED) � UniCredit’s business model has proved effective especially in the difficult years following the financial market crisis, when customer centricity and customer business were the top priorities. – In early 2011 we completed organisational projects such as One4C. Proximity to customers was also the main idea behind strengthening local management in the matrix of Divisions and regions. More specifically, we streamlined the organisational structure and more clearly defined sub-segments of our sales network based on customer proximity, simplicity and specific needs. The main step in 2010 was to combine customer-driven capital market activities with commercial banking business to form the Corporate & Investment Banking (CIB) Division and the bundling of proprietary trading activities in UniCredit Bank, Munich (previously Bayerische Hypo- und Vereinsbank AG), which involved the intra-group sale of UniCredit CAIB. The transfer of the SME sub-segment (small and medium-sized enterprises), also initiated in 2010, from the CIB Division to the F&SME Banking Division took place at the beginning of 2011. For medium-sized companies (defined according to qualitative criteria and/or turnover between € 3 m and € 50 m), we introduced a targeted service model, implementing a decentralised sales network step by step with offices in selected locations. At the end of 2011, specialised customer service centres were available to this group of customers in 54 locations. After defining the target group of the top segment of private customers for Private Banking and completing the necessary transfer of customers from other segments in 2010, we set up a competence centre serving foundations in the Private Banking Division in 2011 and transferred customers from other business segments. ➔ For a meaningful comparison with the previous year, segment reporting figures for 2011 were adjusted to the new structure. – Our range of instruments for raising customer satisfaction – including customer surveys, feedback talks, mystery shopping, customer dialogues, internal standards of service and advice provided, training and ongoing measurement of customer satisfaction – is an integral part of business and has proved effective. This was confirmed in an audit, performed by specialists from the University of St. Gallen in 2011, which resulted in Bank Austria being voted “Austria’s most customer-oriented service provider”. To maintain reputation levels and regain general confidence in banks following the disruptions caused by the financial market crisis, we simplified the product range, adjusted our internal performance incentives to focus on customer satisfaction and revised the way in which the bank presents itself to the public. With a number of charitable initiatives and a new overall sponsoring strategy, Bank Austria and its employees moreover underlined their intention to display solidarity within the community. ➔ More details are included in the section on “Financial and non- financial performance indicators”. – External pressure on the banking sector to build risk buffers, increase capital ratios and fund business on a sustainable basis from local commercial sources as far as possible also prompted Bank Austria to adopt a more restrained approach in the growth markets of Central and Eastern Europe (CEE). While the commitment of Bank Austria and the entire UniCredit Group to CEE is unchanged, we are now differentiating on the basis of criteria such as market size and market position, in line with the requirement of capital efficiency. We have suspended the ambitious branch expansion programme, which started in 2009, for the time being; in some cases, e.g. Hungary, the local investment climate was a factor considered in this decision. Quite generally, and despite the cross-regional approach, the business policy in CEE aimed at funding lending business from local sources to the -largest possible extent. The focal points of business policy were set out in a new multi-year plan in the third quarter of 2011. ➔ See “Outlook for Bank Austria’s performance”. – In 2011 we made significant progress on the way towards the cross-regional bundling of back-office production and settlement functions (All4 Quality project) and unlocked cross-regional synergies with a view to reducing costs. We combined IT, transaction settlement, facility management, security and procurement in several steps. The first step was the bundling of the former IT companies UGIS (UniCredit Global Information Services) and BAGIS (Bank Austria Global Information Services) in UGIS Austria as at 1 July 2011. In a second step, carried out in the course of 2011, some units of Bank Austria Procurement and Security and the Strategic Procurement Coordination CEE unit were integrated in UGIS Austria. The third step was the integration of the back-office services provider UCBP (UniCredit Business Partner GmbH), including its branches in Poland and Romania, with UGIS Austria turning into UBIS Austria, a subsidiary of the global UniCredit Business Integrated Solutions S.C.p.A. based in Milan, as at 1 February 2012. This service provider is unique in the European financial sector and gives customers – i.e. the banks in UniCredit Group – the required local support and international developments using significant synergies. In 2011, some units of software devel opment, of the computer operations centre and of support functions were outsourced to Blue IT Services gmbH, a subsidiary of IBM Austria, under a cooperation agreement. Key figures for the past five years (in per cent) 2007 2008 2009 2010 2011 Customer loans/total assets 55.1 60.7 63.6 67.4 67.7 Customer loans/primary funds 96.4 105.2 89.2 101.8 100.0 Goodwill/total assets 1.9 1.6 1.8 1.7 1.2 IFRS equity/total assets 7.3 6.4 7.3 9.1 8.9 Tier 1 capital ratio under the Austrian Banking Act 8.76 6.82 8.68 10.35 10.88 Operating income/risk-weighted assets 6.14 5.59 6.06 5.77 5.62 Provisioning charge/operating profit 15.8 30.7 62.5 54.5 43.9 Provisioning charge/lending volume 0.50 0.80 1.78 1.44 1.03 Return on equity (ROE after tax) 17.0 7.8 8.1 4.5 1.2 Marginal RARORAC 15.8 12.5 1.3 2.3 1.4 Bank Austria · Annual Financial Statements 2011 13
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