DBRS: DZ BANK Reports Strong Rise in Earnings Helped by Reversals of Impairment Losses

Summary:
• Ongoing positive core earnings across the main units of DZ BANK Group help to sustain the Bank’s franchise strength and leading market shares
• Reversals of impairment losses on the Euro peripheral sovereign bond portfolio drove the strong improvement in earnings for the full year
• Strengthening of the Bank’s regulatory capital ratios via retained earnings and capital increase with the support of cooperative financial network owners
• DBRS rates DZ BANK’s Senior Long-Term Debt & Deposit at AA (low) with a Stable trend

From DBRS Ratings Limited (DBRS)’ perspective, DZ BANK’s 2013 results reflect the ongoing stability of the overall franchise, as well as the further strengthening of the Bank’s financial position. DZ BANK reported a EUR 2.2 billion pre-tax profit for the year, up 68% from the prior year earnings of EUR 1.3 billion. The result reflected both the continued positive performance of the Bank’s main operating units, but importantly the significant reversal of impairment losses which had been taken in prior years. Overall, improved valuations on the bond portfolio of peripheral Euro sovereign debt, particularly at DG HYP, contributed to a EUR 1.1 billion gain on financial instrument valuations for the year. Adjusting for the reversal, DBRS notes that underlying performance for the Group might be better characterised as relatively stable.

Across the franchise, DZ BANK reported positive developments at its business units which help to sustain operating strength and leading market shares. Corporate Banking and Export Finance benefitted from higher lending volumes for the year and Transaction Banking operations expanded to record levels of activity. At the operating subsidiary level, franchise strength was supported by the expansion of activity at key units including Bausparkasse Schwaebisch Hall (DZ’s building and loan operations), Union Invest (one of Germany’s leading asset managers) and DG HYP (the commercial property finance operation). Likewise, VR LEASING, which is still undergoing restructuring, reported positive earning dynamics for the year.

Importantly, the results included detail on the strengthening of the Bank’s regulatory capital ratios. Core Tier 1 as of 1 January 2014 (as per partial Basel III phase in) was reported at 8.6% and DZ BANK confirmed that the pro-forma ratio would rise to roughly 10% following the completion of the EUR 1.5 billion capital increase scheduled for completion by the end of July 2014. In DBRS’ view, the strengthened capital position and the support DZ BANK receives from the broader cooperative financial network is central towards maintaining the strength of the current rating profile.

DBRS rates DZ BANK AG Deutsche Zentral-Genossenschaftsbank AA (low) with a Stable trend.

Notes:
All figures are in Euros (EUR) unless otherwise noted.

[Amended on December 23th, 2014 to remove unnecessary disclosures.]