WestImmo posts good half-year results

Westdeutsche ImmobilienBank AG (WestImmo) posted good results in the first half of 2010 in what continues to be a difficult general economic climate.

At €81.5 mln., the operating result (earnings components less general administrative expenses) exceeded the figure for the first half of 2009 (€76.1 mln.) by 7.1%. Net interest income, which at €120.5 mln. was some 27% above the result for the same period last year (€95.2 mln.), showed a particularly positive trend.

Peter Knopp, Chairman of the Managing Board of WestImmo, said: “I am satisfied with this result. It underlines the operative strength of WestImmo in client business and demonstrates that the bank is a successful business even in these difficult times and under the harsh conditions that still prevail on the capital markets. Nevertheless, WestImmo will continue to apply its very high standards for new business in the future. Quality and security go above quantity.”

Pre-tax earnings came to €35.5 mln., down 19.5% on the figure for the same period last year (€44.1 mln.). After eliminating taxes, consolidated net income for the year was €24.8 mln., a fall of 19.6% on the previous year (€30.8 mln.). The downturn in earnings was due largely to special effects associated with the economic transfer of the private construction financing portfolio to Erste Abwicklungsanstalt (EAA). This was particularly reflected in net fee and commission income, which at €5.1 mln. was below the figure for the first half of 2009 (€13.9 mln.), and the balance of other operating income and expenses (-€11.8 mln. compared with -€0.1 mln. in the comparable period in the previous year).

On June 30, 2010 the risk provision for credit losses was in line with projections (PY: -€21.0 mln.). Net income from non-current financial assets improved on the first half of 2009 (-€11.0 mln.) to -€1.3 mln. The trading result stood at €4.9 mln. at the half-year mark and thus in line with projections; the figure for the previous year (€11.0 mln.) had been skewed by a one-off valuation effect. The increase in general administrative expenses to €49.0 mln. (PY: €44.0 mln.) can be attributed almost entirely to one-off expenses associated with the current sale process.

The key income ratios of the bank were also distorted by the one-off expenses and the transfer of the portfolio. The return on equity employed (RoE) came to 7.2% at the halfway point in 2010 (whole of 2009: 7.9%) and the ratio of costs to income (Cost-Income Ratio, CIR) rose to 41.3% (whole of 2009: 37.7%), but still well within WestImmo’s target corridor.

Private construction financing portfolio transferred to EAA The economic transfer of the private construction financing portfolio to EAA, completed in the first half of the year, was particularly significant for WestImmo. It means that WestImmo has taken a major step forward in its strategy of focusing on the commercial real estate lending business. Of the portfolio, which has a volume of some €4.2 bln., construction financing loans of around €500 mln. were transferred to EAA in a demerger. The remaining portfolio (about €3.7 bln.) is to remain with WestImmo and will be protected by a finance guarantee from EAA.

New business volumes reach €2.1 bln.
Although there are varying indications from the regions that the real economy is recovering from the crisis, the financial and real estate markets remain in a fragile state of health. While the bottom seems to have been reached or is at least in sight in some of the most important commercial real estate markets, the trend is varying by region and segment, which suggests no relaxation in the risk-conscious approach to new business.

In the first half of 2010 WestImmo committed €2.1 bln. in commercial real estate financing compared with €3.1 bln. in the same period last year. This is a satisfactory volume given the much more intense competition on the markets and the continuing difficulties in refinancing, particularly in uncovered refinancing.

Position in syndicate business strengthened
In the first half of 2010 WestImmo continued to step up the syndicate financing business in which it takes on the role of arranger and agent. In total it arranged loans worth €1.14 bln. in the first half of the year, well above the figure for the same half last year (€0.7 bln.). Of this total, WestImmo placed €0.6 bln. in the bank market, a rise of 58% on the figure for the comparable period in the previous year (€0.4 bln.).

Issuing volumes at previous year’s level
At €2.2 bln., issuing volumes in the first half of 2010 were in line with those for the first half of 2009. Of this amount, €1.6 bln. comprised issues of mortgage pfandbriefs and €0.6 bln. uncovered issues. The refinancing options overall were dominated by the general market trends and the caution that continues to dominate in relation to uncovered financing.

Outlook
For the year as a whole, WestImmo expects to see economic growth differ from one region to another, with a correspondingly varied upturn on the real estate markets. Competition will intensify further, particularly for core properties. The refinancing situation is expected to remain difficult in the second half of the year, which will have a considerable impact on the business options for real estate financiers.

WestImmo has remained consistently in the black throughout the severe crises of the last few years. The bank anticipates that net earnings for the year as a whole will be very respectable. The volume of new business will fall below that for 2009, due in the main to the uncertain and fragile conditions on the capital markets and the much more intense competition on the markets.

Source: Westdeutsche ImmobilienBank AG