Distortions on capital mar­kets due to Covid-19 weigh on half-year ear­nings

• Operating activities perform better than previous year: operating income up by ap-prox. 6 percent; net interest and net fee and com­mis­sion income grow by 7 and 13 percent, respectively
• Trans­for­mation programme “Scope” on track - costs remain stable
• Negative valua­tion effects (from fair value measure­ment) push net profit before tax in the first half of 2020 to EUR -274 million
• Recognised impair­ment losses of around EUR 300 million of temporary nature and will largely be offset over time
• Loan loss provisions of EUR 151 million set aside to cover potential defaults
• CET-1 ratio of 13.3 percent still com­fortably above regula­tory require­ments
• Helaba expects an im­prove­­ment in the second half of the year
• No specific forecast for FY 2020 results due to un­certainties related to Covid-19 pan­demic; Helaba cannot rule out a negative result for the year as a whole

Helaba Landesbank Hessen-Thüringen recorded a con­soli­dated net loss before tax under IFRS of EUR -274 million in the first half of 2020 (previous year: EUR +325 million). After tax, the con­soli­dated net loss amounted to EUR -185 million (previous year: EUR +255 million).

"Distortions on the capital markets in the wake of the Covid-19 pan­demic had a severe impact on our balance sheet. Fair value measure­ment weighed heavily on our earnings and resul­ted in a valuation loss of around EUR 300 million. However, these negative valua­tion effects on our port­folios, which mainly consist of public-sector counter­parties, are only of a tempo­rary nature. Over time, they will largely be reversed so that, on balance, we do not expect to incur any sig­nifi­cant losses," explains Thomas Groß, Helaba’s CEO. "In this macro­eco­nomic crisis, our di­versi­fied busi­ness model is a source of sta­bility. We are very pleased by the growth in our opera­ting in­come of around 6 per­cent in the first half of the year. Net interest income rose by some 7 percent, while the 13 percent rise in net fee and com­mis­sion income was particularly encoura­ging. In addition, our real estate portfolios are generating steady income streams. Given the anti­cipated impact of the pan­demic on the real economy, as a pre­cautionary measure we have set aside higher loan loss pro­visions. Even in these challenging times, we shall continue to support our customers as a strong partner". With a view to the year as a whole, Groß commented: "The corona­virus pan­demic and related un­certain­ties will continue to affect all of us going forward. For this reason, we have decided to refrain from issuing a specific fore­cast for our full-year results. What I can say, though, is that even if the per­formance of our core busi­ness activities is equally strong in the second half of the year, valua­tion effects will act as a signi­ficant drag on our net income for the year. Therefore, from today's per­spective, we cannot rule out the possi­bility of recor­ding a loss."

The figures for the first half of 2020 at a glance

Net interest income increased sharply by EUR 41 million to EUR 598 million (previous year: EUR 557 million), which is mainly attri­bu­table to larger port­folios. Due to Covid-19 and in line with Helaba's con­serva­tive risk policy, pro­visions for losses on loans and ad­vances were raised by EUR 117 million to EUR -151 million (previous year: EUR -34 million). Overall, the quality of Helaba's portfolios remains high. Net fee and com­mis­sion income rose by EUR 25 million to EUR 211 million (previous year: EUR 186 million). This growth is pri­marily a result of higher fee income from pay­ment trans­actions, from Frankfurter Spar­kasse's securities and custody business, from the asset manage­­ment acti­vities of Frank­furter Bank­gesell­schaft and Helaba Invest as well as from Helaba's lending and guarantee business.

Income from rented properties mainly generated by GWH, which is reported se­pa­rately for the first time (previously reported under other income), repre­sents a stable and reliable ear­nings component. In the period under review it amounted to EUR 105 million (previous year: EUR 118 million). The slight decline is mainly due to lower earnings as a result of changes to property holdings.

Operating earnings, which comprise net interest income, net fee and com­mis­sion income and income from rented properties, in­creased to EUR 914 million (previous year: EUR 861 million) and reflect the good de­velop­ment of the Group's operating activities.

Net income from fair value measurement, which comprises net trading income and net income from hedge ac­counting and other financial in­stru­ments measured at fair value, was strongly affected by the signi­ficant increase in vola­tility on the financial markets. Mark-to-market valuation resulted in a fair value loss of EUR -303 million (previous year: EUR +78 million). These tempo­rary valua­tion effects are largely attri­butable to higher credit risk premiums on port­folios with good to invest­ment grade credit quality, espe­cially for long-dated public sector issues.

Other net income decreased by EUR 153 million to EUR 42 million (previous year: EUR 195 million). This is largely due to the absence of a special effect arising from the first-time con­soli­dation of KOFIBA in the previous financial year which contri­buted to higher earnings.

At EUR 778 million, general and ad­mi­nistra­tive ex­penses re­mained un­changed from the previous year (EUR 778 million) despite signi­ficantly higher allo­cations to the in­stitu­tional pro­tec­tion schemes and the in­creased bank levy. This trend also reflects the im­plemen­tation of the Scope trans­for­mation pro­­gramme as planned.

In the first half of 2020, the Helaba Group's balance sheet total rose by EUR 20.7 billion to EUR 227.7 billion (31 December 2019: EUR 207.0 billion). This rise was chiefly a result of enhanced measures to secure liqui­dity in the wake of the Covid-19 pandemic and increased fair values of derivatives. The busi­ness volume increased by EUR 20.4 billion to EUR 266.1 billion (31 December 2019: EUR 245.7 billion). At EUR 9.5 billion, the volume of new medium and long-term business - excluding WIBank's com­peti­tively neutral pro­mo­tional business - remained practi­cally un­changed from the same period last year (EUR 9.6 billion).

The CET1 ratio amounted to 13.3 percent as of 30 June 2020 (previous year: 14.2 percent). Return on equity (before tax) was -6.3 percent (previous year: +7.7 percent) and the cost/income ratio was 118.7 percent (previous year: 68.4 percent).

Segment report at a glance

The Real Estate segment focuses on larger-scale commercial portfolio and project financing for real estate. Pre-tax earnings in this segment amounted to EUR 118 million (previous year: EUR 131 million) and were thus marginally lower than last year. Thanks to a rise in the business volume, net interest income - as the main earnings com­ponent - reached EUR 192 million, thereby exceeding the same period last year (previous year: EUR 190 million). Risk pro­visio­ning costs amounted to EUR -2 million (previous year: EUR +12 million). The volume of new medium and long-term business de­creased to EUR 3.3 billion (previous year: EUR 4.0 billion), which was offset by a lower level of un­schedu­led repay­ments.

The Corporates & Markets segment comprises products for the Group's corporate, insti­tutional, public sector and muni­cipal corpo­ration client groups in addition to the custo­dian business. Pre-tax earnings in this segment came to EUR -256 million (previous year: EUR -49 million), with the main negative impact stemming from the fair value result. These tem­po­rary valu­ation effects are largely at­tribu­table to higher credit risk premiums on portfolios with good to investment grade credit quality, especially for long-dated public sector issues. In contrast, net interest income and net fee and com­mission income both recorded en­coura­ging growth. At EUR 101 million, pro­visions for losses on loans and advances were signi­ficantly higher than the same period last year (previous year: EUR 47 million). New busi­ness increased by EUR 0.5 billion to EUR 5.3 billion (previous year: EUR 4.8 billion).

Since March, Helaba has been sup­porting the Spar­kassen-Finanz­gruppe in the German states of Hesse and Thuringia in imple­menting new KfW lending pro­­grammes as a pass-through insti­tution. By the end of June, around 1,860 ap­pli­cations for KfW's corona­virus aid pro­grammes with a total volume of EUR 589 million had been processed.

The Retail & Asset Management segment includes Retail Banking, Private Banking and Asset Manage­ment via the subsidiaries of Frankfurter Sparkasse, Frank­furter Bank­gesellschaft and Helaba Invest in addition to Landes­bau­spar­kasse Hessen-Thüringen and GWH. This segment's pre-tax earnings of EUR 65 million, most of which were contri­buted by GWH, were lower than the previous year's figure of EUR 118 million. The positive de­velop­­ment in net interest and net fee and com­­mis­sion income was over­shadowed by the fair value result in this segment as well. Risk pro­­vi­sio­ning was increased to EUR -14 million (previous year: EUR -1 million).

WIBank is the vehicle through which Helaba fulfils a public de­velop­ment remit on behalf of the State of Hesse. Its fun­ding pro­grammes are aimed at agri­cultural enter­prises, private indi­viduals and housing asso­ciations as well as local au­tho­rities and com­panies. At EUR 15 million, WIBank gene­rated a pre-tax profit of EUR 15 million, which was slightly the same period last year (EUR 13 million). Net interest income rose by EUR 3 million to EUR 32 million due to an ex­pan­sion in busi­ness acti­vities. At EUR 21 million, net fee and com­mis­sion was mar­gi­­nally higher than in H1 2019 (EUR 19 million). WIBank is sup­por­ting the Hessian eco­nomy with tar­geted aid pro­­grammes during the Covid-19 pan­­­demic on behalf of the State of Hesse. By the end of June, funding com­mit­­ments of € 161.2 million for around 5,000 busi­nesses in Hesse had been ap­proved.