LBBW continued to develop its business in a selective and risk-conscious manner in the first three quarters of 2015. For example, it extended the range of services it provides to SMEs in international business, by opening new representative offices in Istanbul and Tashkent and expanding the German Centre in Beijing. LBBW demonstrated the strength of its operating performance with, among other things, various large capital market transactions, including the largest promissory note issue to date for ZF Friedrichshafen. In addition, only a few days ago, the Bank was a lead manager for MANN+HUMMEL Holding GmbH, the third-largest promissory note loan ever issued.
At the same time, the Bank further strengthened its capital base with a EUR 500 million subordinate issue placed in the first half of the year. As at 30 September 2015, the common equity Tier 1 (CET1) ratio under current regulatory law (CRR/CRD IV phase-in) rose to 15.2 percent. Under CRR/CRD IV without the transitional arrangements that are in place until 2019, it stood at 14.3 percent (fully loaded). The total capital ratio improved to 20.7 percent under CRR/CRD IV phase-in and to 19.9 percent fully loaded (31 December 2014: 19.9 percent phase-in and 18.9 percent fully loaded). Risk weighted assets as defined under CRR/CRD IV fell slightly by the end of September to EUR 79.2 billion (previous year: 82.2 billion). The leverage ratio pursuant to CRR/CRD IV fully loaded was 4.0 percent. "In view of the levels reached, we believe we are well positioned to meet all foreseeable regulatory requirements", stated Hans-Jörg Vetter.
Overview of expense and income items
Net interest income continued to reflect the historically low interest rates and intense competition. Accounting-related effects pursuant to IFRS constituted an additional burden. Combined, this resulted in net interest income of EUR 1.231 billion after nine months (previous year: EUR 1.433 billion).
Allowances for losses on loans and advances after three quarters fell from EUR 95 million to EUR 27 million. Besides the fact that the economic situation in LBBW's core markets remains stable, this is down to the Bank's pronounced risk awareness and the associated high quality of the loan portfolio.
Net fee and commission income amounted to EUR 360 million as at 30 September. While the securities and custody business developed positively, earnings from the brokerage business declined. Net fee and commission income was therefore down EUR 10 million in total on the previous year's figure.
Net gains/losses from financial instruments measured at fair value through profit/loss increased noticeably by EUR 112 million over the same period of the previous year to EUR 120 million. This development was supported by robust customer business because of strong demand for hedging products, among other things.
Net gains/losses from financial instruments and net income/expense from investments accounted for using the equity method improved to EUR 89 million (previous year: EUR 54 million). This was attributable primarily to income from investments accounted for using the equity method.
Other operating income/expenses amounted to EUR 82 million in the first nine months after EUR 93 million the year before. This item was defined by a large number of single effects, such as lower income from the development of real estate projects.
The European bank levy for 2015 is already taken into consideration in full in administrative expenses, as is the higher contribution for the deposit guarantee funds operated by the Savings Banks Finance Group. Together with additional effects, these charges led to a EUR 53 million increase in administrative expenses to EUR 1.410 billion.
The guarantee commission for the State of Baden-Württemberg stood at EUR 95 million as at 30 September 2015.
At EUR 350 million, consolidated profit before tax after the third quarter exceeded the previous year's figure by EUR 21 million. Consolidated profit after tax of EUR 237 million was also slightly higher than the previous year.
Overview of the operating segments
The customer business, especially with companies, private and institutional customers, proved once again to be a reliable source of earnings in the first nine months of the current year. The Corporates segment, which includes the corporate customer business and commercial real estate finance, achieved profit before tax of EUR 576 million, after EUR 483 million in the same period of the previous year. It benefited from a very healthy loan portfolio, among other things, which was reflected in considerably lower allowances for losses on loans and advances and higher revenue from investment business.
The Financial Markets segment improved its pre-tax result to EUR 166 million (previous year: EUR 129 million). The high degree of volatility on the securities markets led to increased customer trading activities and to growing demand for hedging products. In addition, LBBW was involved in an increas number of bond issues.
The Retail/Savings Banks segment could not quite match the pre-tax result of the previous year. The decline from EUR 50 million the year before to EUR 45 million was largely due to higher administrative expenses arising from investments in future projects, such as the pending change in the core bank system and the impact of historically low interest rates on deposit revenue.
Outlook for the current year confirmed
Despite the challenging market environment, LBBW still expects consolidated profit before tax for the full year 2015 to come in moderately higher than in the previous year, barring any unforeseen market turbulence.