Carola von Schmettow, Chief Executive Officer, said: "We have successfully implemented our growth strategy with a new focus, enabling us to make ourselves fit for the future by investing in technology and IT. We owe our success to the unusually high share of fee-based business in all client segments, our comfortable capitalisation – and our position as a leading international bank in the German market."
In 2016, the Bank generated the strongest growth in the Global Banking and Markets segment. It was able expand its relevance in the corporate event business and in respect of the capital market financing of German companies. This is evident from the strong increase in credit commission for financing large corporate transactions, for example in assisting Bayer in financing the acquisition of the US seed manufacturer Monsanto.
Carola von Schmettow continued: "This success speaks for the service capacity of the HSBC network and the capital strength of the HSBC Group." According to von Schmettow HSBC Germany was also able to gain further ground in the fixed income business in 2016, and is today one of the top three banks in Germany in the business with interest rate products.
There was a similarly strong trend in the securities services business thanks to the technologically leading system infrastructure. The custodian bank volume increased by 14% to €156bn. In fund administration, HSBC INKA collected funds of more than €20bn, bringing the total to around €190bn at the master capital management company (Master-KVG) at the end of 2016.
The Commercial Banking segment benefited primarily from a further increase in interest and fee income in the lending and foreign exchange business, mainly on account of higher volumes. This more than compensated for the decline in net interest income on sight deposits due to lower margins as a result of the ECB cutting market interest rates and the increase in loan loss provisions, confirming the success of the growth strategy in the corporate banking business. In Private Banking and Asset Management, the growth in fee income was unable to compensate for lower interest income on sight deposits on account of lower margins. The business with high net worth private clients above all suffered from the restraint shown in the first half of the year owing to the major uncertainty on the capital markets and from the negative interest rates.
Net fee income, which traditionally accounts for around 60% and therefore the largest share of the operating result, grew by 7.6% to €474.7m, providing evidence of further growth in the client business. Net interest income improved by 4.8% to €211.4m, thanks to significantly higher interest income earned in the client lending business, despite the negative interest on our surplus liquidity and a further reduction in interest income from securities holdings in the liquidity reserve.
Shareholders’ equity was up by 14.9% to €2,240.0m. The regulatory capital ratio increased by 1.8 percentage points to 14.4%, due mainly to the Bank raising additional tier 1 capital (AT1) in December 2016 for the total amount of €235m. The issue proceeds will ensure that the Bank's growth complies with the regulatory requirements. "Thanks to the improvement in our capitalisation, we can push ahead consistently with the expansion of our market share in all business segments," said von Schmettow. The tier 1 capital ratio stood at 12.3% (+2.0 percentage points) at the end of 2016. In line with the prior-year forecast, the return on equity before tax remained above the 10% mark at 11.8% (2015: 11.7 %).
The Bank is moderately optimistic in its base scenario for 2017. It will continue along the path of earnings-oriented growth it has embarked upon. Furthermore, the Bank is investing strongly in IT infrastructure with the aim of making itself viable for the future and strengthening its platforms for the securities infrastructure even further. This includes transaction settlement, the custodian bank function as well as fund administration.
Net interest income was up by €9.7m, or 4.8%, to €211.4m (adjusted prior-year figure: €201.7m). In accordance with the change in the Bank's internal management, interest from money market transactions (balance sheet management) is reported in net interest income and no longer in net trading income from the 2016 financial year on. The prior-year figures were adjusted accordingly. The adjustment of the prior-year figures led to an increase in net interest income of €24.2m as well as a corresponding reduction in net trading income.
After net loan impairment and other credit risk provisions of €0.2m the previous year, this item came to €4.4m in the 2016 financial year. Individually assessed impairments featured new provisions of €12.7m as well as reversals of €8.3m. Recoveries on loans and advances previously written off resulted in income of €0.3m. Collectively assessed impairments required a net addition of €0.3m. The Bank’s conservative stance is unchanged in relation to the assessment of default risks. The risk provisioning requirements were therefore slightly higher compared to the very low prior-year figure, as expected.
Net fee income again increased significantly by 7.6%, or €33.5m, to €474.7m (2015: €441.2m), demonstrating the strong expansion of the Bank's business with clients and the associated market share gains.
Net trading income increased by €3.6m to €78.7m (adjusted prior-year figure: €75.1m). After the unusual distortions on the bond markets in the second quarter of the previous year, the income generated with bonds, money market transactions and interest rate derivatives improved significantly again in 2016. The result was up by €6.1m to €24.1m after adjusting the prior-year figure for interest from money market transactions. Net income from trading with equities and equity derivatives of €38.3m was significantly lower compared to €49.1m in the previous year. Alongside the slump on the stock markets at the beginning of 2016, Brexit and the US election campaign have led to lasting uncertainty among investors, which is also reflected in the lower volume of investment certificate transactions. Unlike in previous years, this effect could not be compensated by greater interest in trading products owing to only short-term peaks in volatility in a market which otherwise moved mostly sideways. The result of foreign exchange trading was up by €2.2m to €9.9m against the backdrop of the still major need on the part of our clients to hedge against exchange rate fluctuations in the currently volatile foreign exchange market environment. There was a substantial decline in the result from trading with derivatives held in the banking book of €9.4m to €2.3m. The prior-year result had benefited considerably from the major weakening of the euro exchange rate versus the US dollar.
Administrative expenses rose by €37.5m, or 7.1%, from €530.4m to €567.9m. The growth in staff numbers as a result of the growth strategy is reflected in the €19.3m increase in staff expenses to €355.4m, alongside the general salary increases. Furthermore, the adjustment of the growth plan (‘Germany 2020’ strategy) and the focusing on qualitative growth associated with it led to higher non-recurring staff expenses compared to the previous year. Other administrative expenses rose by €21.3m to €195.6m. This increase is due among other things to the high non-recurring expenses for the accelerated implementation of the Global Standards of the HSBC Group, which will help to fight financial criminality better and build up and further expand a strong, lasting relationship with clients. Overall, the cost efficiency ratio stands at 70.8% (2015: 70.9%) and is in line with the prior-year forecast at just above 70%.
The Bank increased income from financial assets by €9.9m to €24.9m (2015: €15.0m). Gains on the disposal of securities as well as on write-ups on securities were set against very low write-downs on investments in the real estate sector as well as impairments on securities.
As at the balance sheet date, total assets amount to €23.1bn compared to €21.7bn the previous year, an increase of €1.4bn. Customer accounts still represent the Bank's main source of refinancing and amounted to €13.6bn (2015: €12.9bn), or 59.0% of total equity and liabilities, on the balance sheet date. The Bank regards the high level of customer accounts as a clear commitment on the part of its clients to its solid business policy and high credit standing. As part of the HSBC Group, HSBC Trinkaus & Burkhardt AG is rated 'AA- (Stable)' by Fitch Ratings.
The final business results for 2016 are scheduled to be published on 27 April 2017.
HSBC Germany is part of the HSBC Group, one of the world's leading commercial banks. It is the "Leading International Bank" and has a network in more than 70 countries worldwide which account for more than 90% of global economic output. HSBC Germany's clients are companies, institutional clients, the public sector and high net worth private clients.
The Bank, which operates as HSBC Trinkaus & Burkhardt AG, stands for internationality, comprehensive advisory expertise, major placement power, first-class infrastructure and capital strength. With its "AA- (stable)" rating, it has the highest Fitch rating of all private commercial banks in Germany. HSBC Germany was founded in 1785 and has more than 2,800 employees in Düsseldorf and at a further eleven locations.
Robert von Heusinger
Phone: +49 211 910-1664