• Pre-tax earnings still negative but significantly improved
• Core capital ratio stabilized at 7.2% (7.4% at end of 2008, 6.7% Q1 2008)
• Wolfgang Klein: “Confident that we're over the worst of the crisis.”
• Successful customer business, €5.3 billion in new savings business

Deutsche Postbank AG posted profits after tax of €84 million in the first three months of 2009, down from €117 million in the same quarter of the previous year. The result was once again marked by special effects. However, compared with the previous two quarters there was a significant decline in the burden sustained from the crisis. Above all, a special effect from the reversal of deferred taxes had a positive impact. Pre-tax earnings improved very sharply on the fourth quarter of 2008 from €-866 million to €-91 million without Postbank's income statement benefiting from changed accounting policies. The core capital ratio (Tier 1 ratio) developed positively: Despite burdens from rating adjustments, Postbank maintained a very stable ratio of 7.2% compared with 7.4% at the end of 2008 and even improved considerably from 6.7% on a year-on-year basis. Here the measures aimed at derisking the balance sheet and stabilizing revaluation reserves have already paid off.

“We are confident that following the fourth quarter of 2008 we are now over the worst of the financial market crisis and that the trend is now slowly turning,” said Dr. Wolfgang Klein, Chairman of the Management Board of the Bonn-based bank. He underlined that the measures contained in the action plan launched in 2008 to optimize the quality of earnings and the risk profile have already had an effect. This meant greater burdens for the income statement and balance sheet were avoided. In line with its action plan, Postbank removed all its equity holdings and stabilized its core capital position by means of various measures at the end of 2008. However, Klein also cautioned against premature optimism: “The spillover of the financial market crisis onto the real economy will mean new challenges for the banking system.” Postbank CFO Marc Heß emphasized in this respect “that the current historically low interest rate level serves to support economic performance on the one hand. On the other hand, however, the margins of institutions with large deposit sums are coming under pressure due to this. Furthermore, the rating adjustments typical of a recession will result in greater equity movements at banks due to the nature of the system.”

Wolfgang Klein was pleased with the renewed successful performance of the customer business. Despite the financial crisis and strong competition in the retail banking sector, Postbank was able to maintain satisfactory performance in its business with customers in all major product areas and to underpin its good market position. In the highly competitive savings segment it even succeeded in significantly expanding its holdings while the securities and insurance business suffered from the negative underlying conditions in line with the market as a whole. Klein commented: “This development strengthens us in our belief that Postbank already has at its disposal something decisive that others are still trying to define for themselves: the right business model. Postbank has everything that the bank of the future needs. We do not need to reinvent ourselves.”

Savings business up significantly

Savings business up significantly The increasing need of customers for simple and transparent banking products gave rise to a boom in gross new business with savings products, which at €5.3 billion was more than twice as high as in the first quarter of 2008 (€2.2 billion). Total holdings in savings deposits grew by almost 19% year-on-year or 7.3% quarter-on-quarter to €52.7 billion owing to the strength of new business, thereby also enabling Postbank to expand its market share further.

In the first quarter, the bank sold over 117,000 new checking accounts, somewhat less than in the strong first quarter of the previous year (133,000). Postbank accordingly managed 5.0 million private checking accounts as per March 31, 2009 and is the clear market leader in this field.

In the new customer business with installment loans, Postbank recorded a slight decline of 1.3% to €375 million. Holdings increased to €3.3 billion compared with €3.0 billion at the end of 2008.

More modernization loans in the mortgage business

Holdings in private mortgage loans increased by over six percent and amounted to €73.0 billion as of March 31, 2009 (previous year: €68.6 billion). In new business, a trend towards modernization loans with comparatively low volumes emerged. At €2.1 billion, Postbank's total new mortgage business was down 12.5% on the previous year's figure of €2.4 billion.

Owing to strong pull-forward effects, there was a fall throughout Germany of applications for new home savings business of 12.7% year-on-year in the first quarter of 2009. With a decline of 11.4% to €2.5 billion, Postbank performed somewhat better than the overall trend. The sum of home savings loans paid out continued to increase and at €365 million was up by around one third year-on-year in the first quarter of 2009.

Sound operating business with corporate clients

Sound operating business with corporate clients Operating business with corporate clients developed positively in the first quarter of 2009 despite the challenging underlying conditions. The sum of loans to medium-sized businesses as contained in the overall volume of €25.3 billion increased by €2.1 billion to €5.5 billion compared with the previous year's figure. In the area of commercial real estate financing the bank only entered into new transactions very selectively. The overall volume grew here from €15.9 billion to €16.6 billion. The investment volume of corporate clients increased from €13.3 billion to some €17.1 billion since the end of 2008.

Income statement

At €-91 million, pre-tax earnings improved very strongly on the previous quarter (€-866 million) but were below the result for the first quarter of 2008 (€168 million).

Net interest income increased significantly year-on-year during the first quarter by €76 million or 13.6% to €633 million.

Net trading income and net income from investment securities fell against the first quarter of 2008 by €224 million to €-211 million overall. However, compared with the last two quarters of 2008 there was a significant improvement in the capital market-induced costs in these income items.

Owing to the further increase in credit spreads and rating migrations, net trading income incurred costs of €186 million from embedded derivatives contained in structured credit products. However, in the fourth quarter of 2008 these amounted to €-388 million. Altogether, net trading income as of March 31, 2009 came to €-107 million, down from €12 million in the same period of the previous year.

Net income from investment securities amounted to €-104 million compared with €1 million in the first quarter of 2008 and €-700 million in the fourth quarter of 2008. This item contains impairments of €35 million on structured credit substitution transactions. In addition, the bank has carried out impairments on other fixed-income securities as well as on mutual funds amounting to €58 million still contained within the holdings.

Net fee and commission income amounted to €308 million, down €51 million year-on-year. On top of the expected decline in income from the sale of postal services and new services at our branches as well as in the Transaction Banking segment totaling €11 million, net fee and commission income from the banking segment also fell. This reflects the market trend that has given rise to considerable buying reservation among customers in the securities and insurance business and is accordingly being manifested in falling fee and commission income. Postbank initially expects this customer trend also to continue in the coming quarters.

Total income in the first quarter of 2009 came to €730 million compared with €929 million in the first three months of 2008. The development is primarily attributable 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 increased together by €25 million to €941 million.

At €124 million, the allowance for losses on loans and advances in the period under review remained at a very moderate level compared with the competition. The increase on the fourth quarter of 2008 came to some €20 million, while in comparison with the first quarter of 2008, which was not impacted by the financial market crisis, it amounted to €49 million. This development is a result of the overall economic downturn and in line with expectations. The transfers to specific valuation allowances that rose by €49 million to €139 million are primarily attributable to the area of commercial real estate financing as well as global valuation allowances formed as a precaution in retail banking. Furthermore, Postbank has increased the transfer to portfolio-based impairment allowances by €7 million to €23 million.

Administrative expenses also developed positively in the first quarter of 2009: Here the bank reaped the benefits of the efficiency initiatives carried out over the past few years and its unique cost culture. In view of the pressure on the earnings situation resulting from the economic downturn, Postbank has further stepped up its efforts in terms of expenditure management. This enabled it to reduce administrative expenses by 2.6% or €18 million to €684 million despite an ongoing increase in the number of customers.

Net other income and expenses came to €-13 million, down from €16 million in the first quarter of the previous year.

Income tax expense was positive due to the reversal of deferred taxes to the tune of €150 million (the underlying fiscal matter was resolved) and the reported pre-tax losses of €26 million. Accordingly, consolidated net profit came to €84 million, down from €117 million in the same quarter of the previous year, which is equivalent to earnings per share of €0.38 (previous year: €0.71).

The return on equity after taxes came to 6.7%, down from 9.4% in the previous year, and the cost/income ratio was 93.7% (75.6% in the first quarter of 2008).

Balance sheet

Total assets increased from €231.3 billion at the end of 2008 to €240.6 billion as of March 31, 2009. This expansion in total assets is primarily attributable to the interest rate environment, which has resulted in a significant rise in the market value of dealing derivatives on both the assets and liabilities sides of the balance sheet. Accordingly, there was no expansion in the bank's risk position owing to the virtually balanced portfolio.

Balance sheet equity as of March 31, 2009 amounted to €4.97 billion, down from €5.02 billion at the end of 2008. The revaluation reserve contained in this totaled €-863 million following €-724 million as of December 31, 2008.

The core capital ratio in accordance with Basel II was 7.2% on March 31, 2009, down from 7.4% at the end of 2008. The relevant negative components of the revaluation reserve were subtracted in full from equity during calculation.

Postbank believes that by means of the measures already carried out in 2008 it has created suitable prerequisites for significantly reducing the sensitivity of its core capital ratio to the extreme fluctuations resulting from the capital market crisis.

Outlook

Postbank continues to expect overall costs in 2009 to be below those of 2008 as long as no further macroeconomic deterioration exceeding the currently expected level occurs. Following a normalization of the overall economic environment, it will continue to strive towards achieving a sustained medium-term return on equity of 13% to 15% after taxes on the basis of its enhanced strategic focus on business with private, business, and corporate clients.