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coupled with associated higher funding costs. The generally difficult
situation in the EU led to downgrades in the credit ratings of not only
peripheral countries, in some cases by several notches. Furthermore,
the situation on the interbank market deteriorated in the second half
of the year, with banks increasingly choosing to park their liquidity
with the ECB. In response to this renewed crisis of confidence in
the banking industry and in order to head of a looming credit crunch,
the six leading European central banks injected massive liquidity into
the European financial market in a concerted action in the fourth
quarter of 2011.
HVB Group performed well in the particularly difficult capital market
environment in the second half of 2011, even if it could not repeat the
pleasing earnings growth seen in the first half of 2011. All in all, we
generated a good profit before tax of €1.6 billion in HVB Group for the
whole of 2011, falling slightly short of the figure reported last year
by €267 million or 14.2%. Alongside a sharp decline in net trading
income (down €569 million year-on-year), the profit before tax was
also weighed down by additions to provisions for risks and charges
of €251 million (2010: €442 million) and restructuring costs of
€108 million (2010: €37 million). Despite the significant increase
to €640 million in income tax for the period, the consolidated profit
after tax still amounted to almost a billion euros (2010: €1.7 billion).
At €1,935 million, the net operating profit was down by €558 million
on last year’s figure. This sharp decline can be attributed notably to the
weak net trading profit as well as expenses totalling €168 million for
the bank levies 1 charged for the first time in Germany, Austria and the
UK in 2011. In this context, we benefited from lower net write-downs
of loans and provisions for guarantees and commitments in a persistently
favourable credit environment which, at €266 million in the 2011
financial year, were significantly below the €632 million recorded one
year ago. Within operating income of €5,812 million, we were unable
to repeat last year’s figure (€6,558 million) in the difficult market environment
but at €4,223 million in net interest including dividends (down
by €25 million or 0.6% compared with last year) and at €1,308 million
in net fees and commissions (down €4 million or 0.3% compared with
last year) we almost equalled last year’s level. Despite the turmoil on
the capital markets and credit value adjustments totalling €485 million,
net trading income delivered a positive contribution of €190 million to
1 in the 2011 financial year, the income statement of HVB Group contains expenses totalling
€168 million for bank levies for the first time. The expenses of €101 million for the German bank
levy are carried under net other expenses/income, while the expenses of €48 million for our Austrian
activities and of €19 million for our operations in the UK are shown under other administrative
expenses
operating income, even if this figure was well below the good year-ago
total of €759 million (down €569 million). At the same time, net other
income/expenses fell by €148 million to €91 million, notably on account
of the expense of €101 million for the German bank levy that
was included for the first time in 2011. Operating costs were up by
5.2% to €3,611 million, partly on account of the expenses for the bank
levies in Austria and the UK. Due to the steep decline in operating income,
the cost-income ratio increased to 62.1% (2010: 52.3%), although
this is still a good level by both national and international standards.
All the operating divisions contributed to the good profit before tax
of HVB Group. In recording a profit before tax of €1,226 million, the
Corporate & Investment Banking division (CIB) failed to match its yearago
total by €158 million. At the same time, the Family & SME division
(F&SME) performed very well, improving its profit before tax to
€147 million thanks to higher earnings from its operating activities
and lower net write-downs of loans and provisions for guarantees and
commitments. Moreover, the Private Banking division (PB) achieved
a profit before tax of €72 million with its contribution to the operating
profit remaining stable.
HVB Group continues to have an excellent capital base. The core Tier 1
ratio in accordance with Basel II (ratio of hard core capital excluding
hybrid capital instruments to the total amount of credit risks and
equivalent risk-weighted assets for market risk and operational risk)
amounted to 15.6% (15.9% at year-end 2010), even after the
regulatory requirements concerning the determination of market risk
introduced and expanded for the first time through the Capital
Requirements Directive 3 (CRD3). Hence the core Tier 1 ratio is still at
an excellent level by both national and international standards despite
the around €17 billion increase in equivalent risk-weighted assets for
market risk due to the CRD 3. The shareholders’ equity shown in the
balance sheet totalled €23.3 billion at year-end 2011. With total
assets up by 3.7% compared with year-end 2010 to €385.5 billion,
the leverage ratio (calculated as the ratio of total assets to shareholders’
equity shown in the balance sheet) amounted to 16.5x at
year-end 2011 after 15.7x at the end of December 2010.
HypoVereinsbank · 2011 Annual Report 31