Following conclusion of the announced indepth review of its credit portfolio, Aareal Bank Group will set aside 189 million in risk provisioning for the third quarter, bringing total provisions for loan losses for the first nine months to 249 million. According to Dr. Wolf Schumacher, Chairman of the Management Board, the changed valuations resulting from the review of the bank's credit portfolios provide the basis for a positive performance starting in 2006: "We now have a solid foundation on which to re-position Aareal Bank AG for the 2006 financial year and beyond."
View the preliminary key figures for the third quarter of 2005 (in accordance with IFRS)
· New commitments rise by 23% during the first nine months of 2005, to 5 billion
· Credit portfolio review concluded
· Resolution passed to strengthen the bank's equity by means of a 10% capital increase
· Aareal Hypotheken Vermittlungs GmbH sold to PlanetHome AG
The in-depth audit covered more than 70% of Aareal Bank's overall credit portfolio. In addition to higher-risk exposures, all of which were scrutinised, the remaining exposures were also subject to a detailed, extensive review. Overall, more than 6,000 individual exposures were reviewed. Schumacher stressed that the "extensive scope of the review gives us certainty regarding the bank's credit portfolio, allowing for the rapid disposal of further NPL portfolios".
Thanks to its reserves, Aareal Bank has the financial resources to cover the additional provisions required. Distributions for the 2005 financial year on all of Aareal Bank's outstanding profit-participation certificates, as well as on bonds issued by Aareal Bank Capital Funding LLC and Capital Funding GmbH, will proceed according to schedule.
On Sunday, the Management Board and Supervisory Board of Aareal Bank AG resolved to increase the bank's capital by 10%, exercising the existing Authorised Capital, and excluding shareholders' pre-emptive subscription rights. Schumacher emphasised that, "by strengthening the bank's equity, this measure is designed to support Aareal Bank's future growth." The Page 2 of 6 shareholders of Aareal Holding Verwaltungsgesellschaft mbH continue to support Aareal Bank's business model. Subject to approval by their corporate bodies and committees, they have agreed to subscribe the entire capital increase.
Aareal Bank AG remains focused on realigning and streamlining its business. Following cutbacks affecting first-line management, the bank's entire organisational structure has been realigned. Schumacher stressed that "the realignment also involves some tough decisions", adding that Aareal Bank AG alone is set to reduce staff numbers by 253 (currently 1,249), by the end of 2008.
He also emphasised that the lowering of future provisions for loan losses to around 80 to 90 million p.a., combined with a strict cost management regime designed to strengthen Aareal Bank's structure as a medium-sized institution, represent a decisive contribution to improving the bank's future results.
The announced realignment process of the Aareal Bank Group also encompasses certain changes to its participating interests, designed to further focus the Group's holdings onto its core areas of expertise. Accordingly, Aareal Hypotheken Vermittlungs GmbH has been sold to PlanetHome AG, part of the HVB Group. Aareal Hypotheken Vermittlungs GmbH is an innovative outsourcing service provider for the distribution of retail property loans.
At 5 billion, new commitments during the first nine months exceeded the very good figure achieved in the first three quarters of 2004 by 23%. The bank's strategic German business gathered visible momentum during the period under review, and will be expanded further.
The opening of a representative office in Turkey during the quarter under review emphasises the bank's strategy of further diversifying its international activities. Aareal Bank's business activities in the Turkish