Annual Financial Statements 2011 of Bank Austria

Management Report
Management Report (CONTINUED)
Private Banking
(€ m) 2011 2010 CHAngE
Operating income 149 140 +9 +6.7%
Operating costs –100 –101 +1 –0.5%
Operating profit 49 39 +10 +25.3%
Net write-downs of loans –4 –2 –2 n.m.
Net operating profit 45 37 +8 +21.5%
Profit before tax 47 39 +8 +21.4%
Total financial assets (avg.) 16,995 16,514 +481 +2.9%
Loans to customers (avg.) 389 369 +19 +5.2%
Risk-weighted assets (avg.) 484 535 –50 – 9.4%
Average equity 131 123 +9 +7.3%
n.m. = not meaningful
With its two well-known brands – Bank Austria Private Banking, the
private banking operations of a major bank, and Schoellerbank, a traditional
private banking institution – the Private Banking Division is
the third pillar of Austrian customer business. In Private Banking, too,
the range of services covers all banking services, from account management
to financing needs. Based on an exclusive advisory strategy,
these services are tailored to the client’s specific requirements. With
a presence in 25 locations throughout Austria, the Division’s 556
employees serve the top segment of private customers. With about
€ 17 bn in client assets (total financial assets at the end of 2011:
€ 16.9 bn) and serving almost 36,000 high net worth individuals
(19% market share), the Private Banking Division is market leader in
Austria (19% market share). In addition to its day-to-day business,
the Private Banking Division is important for Bank Austria’s image as
it has responsibility for the customer segment of high net worth individuals
and private foundations.
� The Private Banking business segment was challenged by the
volatile investment climate in 2011. However, the (temporary) slump
in prices in the higher risk investment categories, the uncertainty
prompted by the government debt crisis, and widespread scepticism
among clients over the long-term consequences of an expansive
monetary policy were all factors enabling Private Banking to meet
clients’ needs through the entire range of products and services –
from special Private Banking expertise through to issues and direct
deposits. 2011 saw a sharp rise in operating income (+6.7%); with
costs declining slightly, this boosted operating profit (+25.3%) and
profit before tax (+21.4%).
� 2011 was a disappointing year for investors – not catastrophic
like 2008, but a year in which popular investments failed to deliver
adequate returns. After a quiet first half-year, volatility as a measure
of unpredictable movements increased significantly as the government
debt crisis escalated in the late summer. In the first half of
2011, equities still held out some hope of adequate returns, before
being affected by the risk-averse behaviour of investors. At the end
of 2011, the world share index MSCI (in local currency) was 8.5%
lower than a year earlier; the performance of the New York Stock
Exchange prevented a sharper decline. Notwithstanding favourable
economic growth and occasional strong inflows of capital, the MSCI
index of the BRIC stock markets was 19.5% lower, and the MSCI
index of CEE stock markets fell to more or less the same extent
(–18.6%). The EuroStoxx index was down by 17.7%, and the ATX
index by 35.7%. Trends in equities were mirrored by bonds, where
performance in the second half of 2011 was contrary to that of the
first half. The flight to quality in connection with the government debt
crisis saw euro-denominated benchmark bonds gain 14.0% in 2011
as a whole, while non-financial euro-denominated corporate bonds
delivered a return of 2.5% (price+coupon). In average terms this is
not much more than that received on cash deposits; at 3.8%, yields
on jumbo mortgage bonds were higher. Both commodities (–5.3%,
Rogers, euro-hedged) and hedge funds (–8.7%, HFRX, euro) were
asset classes which were in negative territory. While gold reached an
all-time high of US$ 1,920 per ounce at the beginning of September
2011 (+35% since the beginning of the year), the rate of the
increase had fallen to 10.2% by the end the year.
� At the end of 2011, total financial assets (quarterly averages)
were € 16.9 bn, more or less equal to the level of the previous year
(–0.1%), despite the slump in market prices in Q3 2011. In average
terms for the year, total financial assets rose by 2.9% to € 17.0 bn.
The composition of total financial assets shifted slightly as customers
showed greater preference for liquidity: direct deposits accounted for
36%, up from 32% on the previous year. This compared with a slight
fall in the share of assets under custody (direct investments in securities/safe-custody
business) to 35% from 38% in the middle of
2011. The share of assets under management (funds and asset
management) remained unchanged, which reflects the long-term
strategy. The – probably temporary – shift of securities investments
into liquidity reflects the uncertainty given the exceptional conditions.
Investor restraint was most pronounced in the third quarter of 2011,
but has since eased somewhat. The structure of revenues shows a
similar trend.
� operating income rose steadily from quarter to quarter (fourth
quarter 2011: +9.3% on the previous year). At € 149 m for 2011 as
a whole, it was 6.7% up on 2010. Net interest increased by 36.9%,
driven by an increase in the volume of direct deposits which was
triggered partly by a successful time-deposit initiative by
Schoellerbank and by a general wait-and-see attitude of many customers.
Net interest was also supported by interest rate developments
(higher margins on deposits as a result of reference rate
developments). This had a much stronger positive impact than in
other business segments, especially as the converse, negative
spread effect does not really affect the results of the Private Banking
Division on account of the small volume of loans granted. As
expected, the rise in net interest compared with a lower level of
Bank Austria · Annual Financial Statements 2011
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