Annual Financial Statements 2011 of Bank Austria

Management Report of UniCredit Bank Austria AG
income/expenses from the disposal and valuation of securities
valued as financial fixed assets, and of shares in group companies
and equity interests (– € 633 m). The latter item includes the writedown
on Greek government bonds held as financial fixed assets
and the results from the disposal and valuation of shares in group
companies and equity interests, which were mainly determined by
the adjustment of the book values of shareholdings in our banking
subsidiaries in Kazakhstan and Ukraine through impairment
charges.
Items in the profit and loss account for 2011 compared with
the previous year
Net interest income in the reporting year was € 1,390 m, up by
€ 81.6 m or 6.2%.
Income from securities and equity interests decreased by
€ 184.2 m or 26.6% to € 508.4 m in 2011. The decline was partly
due to the fact that dividend income from credit institutions and
specialised credit institutions in 2011 was down by € 27.9 m, also
because profits generated by CEE banks in which UniCredit Bank
Austria AG holds interests were retained locally (in 2010, our
Slovak banking subsidiary had paid a large special dividend). But
the main reason for the decline was the sale of UniCredit CAIB in
the middle of 2010, which resulted in substantial income from the
intermediate holding company in that year.
Net fee and commission income was down by 18% to € 572.7 m.
Fee and commission income declined by 11.9% to € 802.9 m and
fee and commission expenses rose by 8.4% to € 230.2 m. In
lending business, income from guarantees given to CEE banks fell
significantly while risk-related commission expenses vis-à-vis
leasing companies increased. In the securities sector, mutual fund
business declined strongly and commission income from foreign
exchange dealings was also down by about 13%. Among other
services, commission income declined in the areas of new building
society savings agreements and insurance contracts.
The item net profit/loss on trading activities increased to
€ 69.5 m, despite the reorganisation of trading activities to focus on
customer-driven business. The figure cannot be directly compared
with the previous year (+ € 35 m) because UniCredit CAIB was
sold within UniCredit Group in 2010.
Operating income in 2011 totalled € 2,615 m and was thus down
by € 225.8 m or 7.92% from the 2010 figure.
In 2011, general administrative expenses (€ 1,564 m) rose by
€ 102.1 m or 7.0%. Staff costs increased by 8.4% (+ € 73.6 m) to
€ 953.2 m. Other administrative expenses, including those for
services provided by Group-internal service companies, rose by
4.9% (+ € 28.5 m) to € 610.8 m, mainly as a result of increases in
the areas of advisory services and Information & Communications
Technology (ICT). The major portion of the cost increase was due
to structural changes: as part of the separation of customer-driven
business and trading-related activities of UniCredit CAIB AG, a
number of UniCredit CAIB AG’s employees were reintegrated in
UniCredit Bank Austria AG before the banking subsidiary was sold.
Moreover, in the middle of 2010, various operations-related
services (Postal Service and Printing Service) were retransferred
from UniCredit Business Partners (UCBP) to the bank, increasing
staff costs and other administrative expenses.
Total operating expenses – including depreciation and
amortisation and other operating expenses, which together did not
change to any significant extent – rose by € 114.6 m or 6.8% to €
1,802 m.
Net expenses from the disposal and valuation of loans and
advances as well as securities were € 565.9 m, down by
€ 138.8 m from the previous year. Most of the decline resulted from
a reduction of write-downs on customer loans. The provisioning
charge (€ 522 m net) for 2011 was down by 23% or € 153 m from
the 2010 figure. Contributions to this further improvement – which
was supported by favourable economic trends in the first six
months of the reporting year – came from retail banking and from
business with corporate customers, with the latter also benefiting
from successful restructuring of loans.
Net expenses arising from the disposal and valuation of
securities valued as financial fixed assets rose by € 226.5 m or
55.7% to € 632.9 m. The increase resulted primarily from valuation
losses on securities investments (Greek government bonds). The
European Council decisions made on 21 July 2011 to support
Greece were for the first time accompanied by an offer for the
participation of private investors, suggesting an impairment of the
investments in Greek government bonds of about 21%. The
European Council’s statements of intent of 26 October 2011 made
a more extensive debt restructuring appear more likely, and
financial markets discounted this factor. Therefore the investments
held as financial fixed assets were written down to the mid-market
prices prevailing as at the end of 2011. This resulted in an expense
of € 262 m reflected in the valuation results for financial
investments (including another € 14 m from current assets).
Together with the partly favourable development of other financial
investments, the results from the disposal and valuation of
securities investments were – € 213 m after + € 30 m in the
previous year. Within the item “net income/expenses from the
disposal and valuation of securities valued as financial fixed
assets, and of shares in group companies and equity interests”, the
results from the valuation and disposal of shares in group
companies and equity interests were a net expense of € 419 m,
down by € 17 m from the previous year’s figure (2010: – € 436 m).
As part of the current multi-year planning process (five-year plan
covering the period from 2011 to 2015) Bank Austria updated
medium-term scenarios for its business segments and regions.
Compared with the original assumptions made for planning
purposes, the less favourable earnings trend for JSC ATF Bank in
Kazakhstan and for PJSC Ukrsotsbank and PJSC Ferrotrade
International in Ukraine required an adjustment of the respective
book values in the combined amount of € 569 m. This expense
was offset to the extent of about one half by positive results from
the valuation and disposal of other equity interests; for example,
the 50% interest in the Turkish Koç Finansal Hizmetler A.Ş.
(“KFS”), on which we made a write-down in 2008 following an
impairment test, has in the meantime developed much more
favourably than originally assumed. And the outlook is also
positive, as confirmed in our multi-year plan. This means that the
reasons for the lower valuation were no longer applicable, and we
were able to make a write-up, valuing the equity interest at cost.
The large expense arising from the results of valuation and
disposals in 2011 led to negative results from ordinary
business activities in the amount of – € 386.3 m (2010:
+ € 41.8 m). After deduction of income taxes (€ 21.5 m) and other
taxes (€ 78 m) and after a release of reserves, the profit for the
year was € 100 thsd (2010: € 234 thsd). Together with the profit
brought forward from the previous year, UniCredit Bank Austria
AG’s accumulated profit was € 2.4 m.
Bank Austria – Annual Financial Statements 2011 190