In the first six months of 2009, Deutsche Postbank AG reported a consolidated net profit of €70 million (previous year: €238 million). It profited from the positive tax effects that were incurred in the first quarter in particular. Pre-tax earnings amounted to € 160 million (previous year: €340 million), € 69 million of which related to the second quarter and € 91 million of which to the first. “The trend is right,” said Stefan Jütte, CEO of Postbank since July 1. “One look at the second quarter confirms that. The losses on the structured credit portfolio that were still very heavy in the first quarter have declined further. Loan loss provisions are up as expected, but they are still at a moderate level compared to the competition.”

Postbank increased its Tier 1 ratio by 1.7 percent as against the first half of 2008 to 8.0 percent. “For a bank focusing on retail banking that is a satisfactory level,” said Jütte. For the first time, the equity ratio was calculated based on the adjusted Konzernabschlussüberleitungsverordnung (KonÜV – regulation governing the procedure for calculating the own funds of groups of institutions and financial holding groups when using consolidated or interim financial statements at group level), which significantly improves international comparability.

Postbank continued to perform well in customer business. It again saw significant growth in the key product area of savings and increased its savings deposits by 20 percent as against previous year's reporting date to around €56 billion. There was also progress in other product areas. Loan business with private clients grew by more than four percent on the first half of 2008. In spite of the greater difficulties in general market conditions, the credit volume for medium-sized corporate clients even rose by €2.2 billion to €6.2 billion – without compromising its risk-oriented lending criteria. As for discussions of a possible credit crunch for German medium-sized businesses, Stefan Jütte therefore sees Postbank's activities positively: “We are playing an active role in lending to the German economy and profiting from our solid liquidity situation.”

Savings business again posts strong growth

Postbank again generated a significant volume increase in savings business: Savings deposits including home savings deposits rose by 14.5 percent as against the first half of 2008 to €71.7 billion, while the overall market grew by only 3.2 percent to €540.8 billion as of the end of May 2009.

The Bank generated new business in traditional savings deposits of €9.4 billion, a surge of 81 percent as against the same period of the previous year. The most popular product here was Postbank Gewinnsparen, with a newly acquired volume of €6.5 billion.

Checking accounts: number of accounts stable, sight deposits rising

The number of private checking accounts remained unchanged as against the first six months of the previous year at 4.9 million. One positive factor here is the rise in sight deposits in these accounts. These rose by 5.4 percent year-on-year in the first half of the year to €17.5 billion.

222,700 new checking accounts were opened in the first half of the year, down 11.6 percent on the same period of the previous year. Postbank is planning to attract more customers in the second half of the year with innovative offers in order to stop this declining trend before it has a chance to take hold. One example of this is the cooperation with the Shell corporation, allowing to Postbank customers to withdraw cash at Shell stations.

Gains in market share in mortgage lending and installment loans

Postbank outperformed the shrinking market for mortgage lending. It increased its volume by 3.9 percent as against the previous year's reporting date to 72.8 billion, achieving a market share of 9.3 percent as of June 30. As anticipated, new business declined without portfolio acquisitions. This was down 15.7 percent year-on-year at €4.3 billion.

As against June 2008, Postbank increased its consumer loans by 25.9 percent to €3.4 billion. It thereby clearly outstripped the market, which picked up by only 4.5 percent overall (latest available market data from the end of March). As a result, its market share climbed from 2.1 percent to 2.5 percent. At €744 million, new business in private loans, which is highly dependent on the economy, was on the rise but no longer as high in the first half of 2009 as in the same period of the previous year (€821 million).

Corporate clients and transaction banking performing well

Postbank made significant progress in operating business with corporate clients in the first half of 2009 in spite of the difficult general conditions. It increased its corporate loan volume including property loans, leasing and factoring by 29 percent to €26.8 billion. This figure includes loans to medium-sized business, which soared by 55 percent to €6.2 billion.

In its transaction banking segment, Postbank gained its first ever public sector client in June. Its subsidiary Betriebs-Center für Banken AG is now handling payment transaction settlement for HSH Nordbank. As a result, the number of annual transactions at Postbank has increased by a further 430 million to around 8 billion.

Income statement

Net interest income rose by 1.7 percent year-on-year in the first half of the year to €1,199 million. The massive drop in interest rates as against the previous year led to slides in both interest income and interest expenses, although the decline in interest income was more moderate on account of good volume development compared to the previous year.

Net trading income and net income from investment securities fell by €322 million against the first half of 2008 to € 328 million overall. As a result of the financial market crisis, the Bank faced losses of €457 million in the first half of the year, €309 million of which related to the first quarter. This figure was down to only €148 million in the second quarter.

The Bank's primary trading income benefited from positive contributions from the swap positions entered into for hedging and banking book controlling purposes as part of balance sheet structure management. However, the remeasurement result of embedded derivatives in the structured credit substitution portfolio was significantly negative. The losses amounted to €314 million, of which €128 million related to the second quarter. The negative remeasurement effects of embedded derivatives had amounted to €197 million in the same period of the previous year.

Net income from investment securities amounted to €–118 million in the first half of 2009 after €–79 million in the same period of the previous year. However, this improved significantly year-on-year in the second quarter of 2009 by €90 million to €–14 million. This item includes impairments of € -41 million on the structured credit substitution portfolio (€ 6 million of which in the second quarter). In addition, Postbank recognized impairments on other fixed-income securities and on mutual funds still held of € 76 million (€ 18 million of which in the second quarter).

Net fee and commission income amounted to €645 million, down 9.0 percent on the previous year's level despite a tangible improvement in the second quarter. This includes structural declines in income from sales of postal services and new services at the branches as well as in transaction banking segment. As there was considerable purchase reluctance among customers in the securities and insurance business in light of the poor market conditions, especially in the first quarter, net fee and commission income from banking business was unable to offset this development.

Total income amounted to €1,516 million after €1,882 million in the first six months of 2008. This development is primarily due to the capital market-induced costs of net trading income and net income from investment securities. By contrast, the operating earnings components comprising net interest and commission income fell by only €44 million combined to €1,844 million.

At €281 million in the reporting period, the allowance for losses on loans and advances was up €120 million on the very low figure for the same period of the previous year, which is still an excellent value compared to other banks at around 53 basis points of credit volume. This development is in line with expectations. It is a result of the overall economic downturn and the tense situation on the international real estate markets in particular.

Administrative expenses fell slightly by €17 million year-on-year in the first six months to €1,403 million. Non-staff operating expenses declined in particular. In contrast, staff costs climbed slightly by €14 million to €703 million. Postbank intends to push further ahead with its cost management efforts with the aim of keeping administrative expenses stable while customer volumes continue to rise.

Net other income and expenses totaled €8 million, down from €39 million in the first half of the previous year.

Earnings before taxes amounted to € 160 million in the first half of 2009 after €340 million in the first half of the previous year.

The figure for income taxes was positive at €231 million on account on non-recurring factors (reversal of deferred taxes and pre-tax losses). Accordingly, consolidated net profit amounted to €70 million, down from €238 million in the previous year and equivalent to earnings per share of €0.32 (previous year: €1.45).

The return on equity after taxes decreased to 2.8 percent after 9.9 percent in the previous year. The cost/income ratio was 92.5 percent (75.5 percent in the first half of 2008).

Balance sheet

As of June 30, total assets amounted to €237 billion after €231 billion at the end of the past fiscal year and €241 billion on March 31, 2009. The growth in total assets as against the figure at the end of the previous year was essentially due to the change in interest.

Balance sheet equity as of June 30, 2009 amounted to €4,995 million, down from €5,019 million as of the end of 2008. Overall, the revaluation surplus included in equity amounted to € 819 million after €–724 million as of December 31, 2008.

The Basel II Tier I capital ratio as of June 30, 2009 was 8.0 percent after 7.4 percent at the end of 2008 and 7.2 percent as of March 31, 2009. The calculation of the regulatory equity ratio was based on the Konzernabschlussüberleitungsverordnung (KonÜV – regulation governing the procedure for calculating the own funds of groups of institutions and financial holding groups when using consolidated or interim financial statements at group level) adjusted as of June 30, 2009. Under this new system, the negative components of the revaluation surplus from debt instruments are no longer deducted from regulatory equity – as is already standard practice in most other European jurisdictions. This facilitates comparability at an international level and helps to counter distortions in competition.

Outlook

In terms of earnings development in the current fiscal year, Postbank is assuming that the losses due to the capital market crisis will focus on the first half of the year and that the trend will gradually reverse in the second half. Economic developments are expected to lead to a growing number of insolvencies and thereby to a higher level of defaults, which will require rising loan loss allowances. Postbank is also assuming that it will be affected significantly less than its competitors overall as it focuses on small, highly collateralized German retail banking. The healthy development in customer business is also expected to continue in the coming months. This reaffirms Postbank in its conviction that it has the right business model and that it will achieve its goal of a return on equity of between 13 and 15 percent when economic developments have normalized and the financial markets settle again.

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