In the first half of 2005, the Hypo Real Estate Group has reported strong earnings growth which was fully in line with its ambitious plans. The Group's new business of 8.3 billion was above expectations, as the figure originally budgeted for the full year was approx. 13.5 billion. The company is planning far-reaching restructuring for the Group, which will increase its effectiveness on the markets and will further improve the earnings situation in the medium term.
Development of Group in H1 2005
In the first half year 2005, the Group reported net income before taxes of 215 million, which is equivalent to growth of 89% compared with the equivalent previous year period (114 million). After taxes, net income at the six-month point increased by 92% from 84 million to 161 million. This figure does not include a deferred tax expense of 17 million from capitalised losses carried forward. This results (excl. minority interest of 1 million) in earnings per share of 1.19 (previous-year period: 0.62). Return on equity after taxes (adjusted by the tax effect) improved to 7.7% (full year 2004: 4.0%), and is within the target range of 7.5 to 8% for the full year in 2005. This means that the Hypo Real Estate Group has covered its capital costs.
Operating revenues (the sum of net interest income, net commission income, net trading income, net income from investments and the balance of other operating income/expenses) increased by 5.1% in H1 from 414 million in the previous year to 435 million. Net interest income of 330 million was lower than the corresponding previous-year figure (346 million), because new business in Q2 was not yet fully interest-bearing. All other items of operating revenues improved appreciably compared with the corresponding previous-year figures.
The addition to provisions for losses on loans and advances amounted to 71 million, and accordingly more than halved compared with the previous-year figure (down by 75 million from 146 million), which included a pro-rata risk shelter of 65 million provided by HVB AG to Hypo Real Estate Bank AG.
General administrative expenses of 149 million were roughly in line with the figure seen in the first half of 2004. Higher operating revenues and a stable cost situation saw the cost-income ratio improve from 37.7% in 2004 to 34.3%.
The lending volume declined from 99.1 billion as of 31 December 2004 to 95.6 billion, whereby growth in the international portfolio is opposed by further downsizing of the Germany portfolio. Despite the lower lending volume, total consolidated assets at the Hypo Real Estate Group amounted to 153.3 billion as of 30 June 2005, up 5.2 billion compared with the figure as of 31 December 2004. For instance, stronger trading activities at "Capital Markets" resulted in higher trading positions; security purchases increased the portfolio of investments.
Development in Q2 2005
For the second quarter of 2005, Hypo Real Estate Group reports consolidated net income before taxes of 113 million (previous-year period 59 million). Consolidated net income (excl. the effects from capitalised losses carried forward) for Q2 stood at 83 million (previous year period 43 million). Excluding minority interest of 1 million consolidated profit is 82 million.
Future Group structure
In addition, Hypo Real Estate Holding AG has announced plans to restructure the Group in order to boost its effectiveness in the markets and to reduce the overall level of complexity in the Group. The plans envisage that worldwide international business will be combined in the Stuttgart-based subsidiary Württembergische Hypothekenbank. Instead of three operational banks, the Group will in future operate its real estate financing business from only two banks. There will thus be an even greater distinction between German and international business, as international business in future will be run from a single entity.
Changes in the Management Boards of the subsidiaries
The restructuring will also result in changes in t