dr johannes-jÖrg riegler (ceo) and dr …...with multibank capability ›statement.next digital...

Annual Results Press Conference 2016 Consolidated Earnings BayernLB continues to perform well: profit before taxes of EUR 708m

DR JOHANNES-JÖRG RIEGLER (CEO) AND DR MARKUS WIEGELMANN (CFO)

16 March 2017

Agenda

› 2016

› Results of operations

› Outlook

› Appendix: detailed charts

Profit before taxes of EUR 708m

up 9.6% on the excellent year-

before figure of EUR 646m

Very good operating profit in all

customer segments; total lending

to corporate and real estate

customers rises, DKB gains some

400,000 new retail customers

High portfolio quality results

in low risk provisions of EUR -

87m; BayernLB’s NPL ratio of

1.6 percent one of the lowest

among German banks

Cost/income ratio remains in

the target range at 59.3%

Strong CET1 ratios: improved

once again to 14.7 percent

phase in and 13.2 percent fully

loaded from the Banks own

resources despite repayment

to the Free State of Bavaria

3

Position as one of the top German banks consolidated

Partnerships

New partnership

launched with

Standard Chartered,

partnership with

Berenberg enjoys

market success

Customers

Customer satisfaction

Excellent values

confirmed externally:

Greenwich Quality

Leader and Best Arranger

of Schuldscheine

Portfolio Rating Capital

Asset quality

improved further

Best NPL ratio among

German banks

New customers

In the Corporates &

Mittelstand segment

alone, the Bank has

gained a triple-digit

number of new

customers

Upgrades

Moody’s has

upgraded our long-

term issuer rating to

A2 and Fitch has

hiked the viability

rating to bbb

Low-cost funding

Rating upgrades bear

fruit immediately -

excellent funding

conditions

Capital adequacy

Capital ratios remain

strong:

phase in 14.7%, fully

loaded 13.2%

RWA

Further reduction thanks

to profitabilityfocused

management

5

Strong earnings contribution from all business segments

Corporates & Mittelstand

› Position as one of Germany’s top

corporate lenders consolidated

further: its customers now include

29 of the 30 Dax corporations and 42

of the 50 MDax companies

› Total lending up slightly

› Strong expertise on challenging

issues, such as takeovers, succession

planning and big-ticket investments

EUR 203m

Profit before taxes

Real estate & savings banks / association

› Business growing: new business

volume incl. renewals in real estate

EUR 6.8bn

› Business relationships with around

400 savings banks in GER; no. 1

partner of the Bavarian savings banks

› One of the market leaders in foreign

notes & coins / precious metals in

Germany

EUR 203m

Profit before taxes

Financial Markets

› BayernLB among top international

arrangers of Schuldschein note loans

› Interest rate, currency and liquidity

management for customers

expanded

› Earnings from customer business

with capital market products higher

year-on-year

EUR 29m

Profit before taxes

DKB

› Almost 400,000 new retail customers

gained in 2016, position as one of

the leaders in digital banking

consolidated

› Investing in the digital future:

additional successful partnerships

with FinTechs, such as Barzahlen.de,

Gini and FinTecSystems

› Leading position in renewable

energy segment

EUR 381m

Profit before taxes

Earnings increasingly

under pressure

Weak market growth

and low interest rates

weigh on earnings

Cost of meeting regulatory

Requirements

Wealth of regulations means

more requirements and

complexity

Need for

more flexibility /

Agility

Customers’ needs and the

external environment are

continuously shifting

Digitalisation driving

Changes

Capital spending needed to deal

with growth in standardisation

and digital transactions

The new normal poses challenges

11

https://www.google.at/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjezt7GsPDKAhVDuBoKHf33CqcQjRwIBw&url=https://de.wikipedia.org/wiki/Datei:Bayern-LB-Logo.svg&psig=AFQjCNHXR1xvQkzGj5gZ6twYzK9xPV5_2Q&ust=1455303070364524

How are banks reacting to the new normal?

Source: Ernst & Young’s “Bankenbarometer Deutschland / Europa” of April 2016

67%

47%

19%

15%

3%

3%

Optimise / further automate processes

Minimise expenses that are not entirely necessary

Restructure operating business

Optimise the balance sheet

Dispose of assets

Outsourcing

12

German banks are tackling tough competition and cost pressure primarily by optimising and automating / digitalising processes and cutting costs.

Everyone is talking about digitalisation. We give our customers solutions.

DKB acts as a digital lab

for the BayernLB Group,

and has thereby enabled

digitalisation to become

part of everyday life at the Bank

Since 1995, BayernLB

has had a strong Group

brand in the form of DKB,

one of the pioneers in

digital banking

We incorporate many of

the solutions developed

and tested at DKB into

our business with large

customers

14

digital.next: people are at the heart of our digital activities.

Digital access channels

› client.next central access to all digital customer solutions

› e.client.next software solution for secure payment transactions

› e.client.next app smartphone and tablet app with multibank capability

› statement.next digital account statements

Automation

› Target investments in our IT platform to further standardise and simplify processes

› Customers benefit from faster and more efficient processes

› In addition, customers enjoy cost benefits as a result of automation

Customer at the core

› Digitalisation and standardisation give us leeway to provide our customers with even more indepth, personal advice

› High level of continuity in the adviser-customer relationship; relationships with large corporates have been ongoing for an average of 17 years

› Relationship manager also provides advice on digital services

15

Everyone is talking about efficiency. We have been working successfully on this for a long time.

› Cost/income ratio very good compared to peers at 59.3 % – despite capital spending on

future growth areas and high regulatory costs

› Transformation from an “old Landesbank” to a new, efficient customer bank by focusing

on core competencies

› The task at hand now is to secure the high level of efficiency for the future

Total assets EUR bn

31 Dec 2008

RWA EUR bn

-49.7% -67.0%

82 6

Restructuring Unit (RU) gross credit volume in EUR bn

Launch of RU 2009

31 Dec 2016

-92.7%

260 718

Core business profit before taxes Profit in EUR m

31 Dec 2008 31 Dec 2016

+176.2%

16

31 Dec 2016 31 Dec 2008 31 Dec 2016

421.5 212.1 197.7 65.2

New programme launched to strengthen long-term culture of efficiency in the Bank: Work 4.0, culture of innovation, short decision channels, agile project teams, etc.

› Encourage each individual to think in a customer-focused and entrepreneurial manner

› Play an active role in shaping Work 4.0

› Customers at the heart of all process optimisations

› Shorten decision paths further

› Partnerships: create added value for customers and BayernLB

› Flexible, forward-looking IT: transition the business model to the digital age

› Continuously develop our digital solutions focusing on customer needs

› Simplify IT: streamline and standardise the IT landscape

On the way to becoming a modern, agile customer bank

18

Agenda

› 2016


› Outlook


Key figures

› Consolidated profit up more than 10% to EUR 545m (FY 2015: EUR 495m)

› Total assets slightly down year on year at EUR 212bn, RWA cut 6.3% to EUR 65bn

thanks to strict management

› Leverage ratio phase-in 4.2%, fully loaded 3.8%

646 708

Profit before taxes EUR m

2015 2016

Consolidated profit EUR m

+9.6%

CIR in %

495 545

2015 2016

+10.2%

53.6 59.3

2015 2016

+5.7 Pp

6.7 8.1

2015 2016

+1.4 Pp

Total assets EUR bn

31 Dec 2015 31 Dec 2016

RWA EUR bn -1.7%

69.6 65.2

-6.3%

10.5 9.6

15.1%

8.3 8.6

12.0% 13.2% 14.7%

20

RoE in %

CET 1 capital & ratio (phase in) EUR bn / %

CET 1 capital & ratio (fully loaded) EUR bn / %

31 Dec 2015 31 Dec 2016 31 Dec 2015 31 Dec 2016 31 Dec 2015 31 Dec 2016

215.7 212.1

Net interest and net commission income satisfactory

› Lower net interest income mainly due to persistently low interest rates and a decrease in assets

› Net interest income stabilised in second half of 2016

› Slight 2.2% rise year on year › Higher expenses for complying with regulatory requirements and expenses for pension provisions and litigation

› Launch of efficiency programme to soften the impact of additional regulatory cost increases

2015 2016

Net interest income EUR m

Net commission income EUR m

Administrative expenses EUR m

21

1,612 1,475 289 296

-1,168 -1,280

2015 2016 2015 2016

Low risk provisions and reduced NPL ratio

› Good gains of EUR 102m on interest-related transactions and EUR 27m on currency-related transactions

› Shares in Visa and Deutsche Factoring Bank sold for a total of EUR 172m

› Previous year reflected sales of securities

› Net additions to risk provisions were low resulting in particular from good portfolio quality and successful restructuring

› NPL ratio fell from 2.4% to 1.6%, primarily due to derecognition of the impaired portion of the HETA exposure

Gains or losses on fair value measurement EUR m

Gains or losses on financial investments EUR m

Risk provisions EUR m

22

286 274

-56

142

-264 -87

2015 2016 2015 2016 2015 2016

Stable performance in business with customers

› Core business contributes EUR 718m to profit before taxes, non-core business contributes EUR -10m

› Earnings from customer business in the Corporates & Mittelstand, Real Estate & Savings Banks/Association and DKB segments remained largely unchanged; risk provisions and administrative expenses weighed on earnings more heavily than the previous year in all three segments

› Earnings in the DKB segment jumped to EUR 381m due in part to sale of stake in Visa Europe Ltd. to Visa Inc.

› Financial Markets’ earnings fell, mainly due to much lower net interest income because of the low interest rates and charges on the valuation of BayernLB’s own issues following the Bank’s rating upgrade

› Earnings in the Non-Core Unit improved considerably from the previous year thanks to very low charges overall for risk provisions; RWA in the Non-Core Unit have now been reduced to only EUR 2.6bn, just over half what they were at the end of 2015


Real Estate & Savings Banks/ Association

DKB Financial Markets

Central Areas & Others1)

Non-Core Unit Profit before taxes in

EUR m

1) Incl. consolidation 2) Of which the bank levy and deposit guarantee scheme accounted for EUR -60m

Core segments Profit before taxes in EUR m

23

282 212 336 145

19

-347

203 203 381 29

-10 -98 2)

2016 2015


› Operating earnings from net interest and net

commission income largely stable at a total of EUR

418m (FY 2015: EUR 432m) despite persistently low

interest rates and the competitive market

environment

› Earnings from the sale of Financial Markets

products to customers remain pleasing and were

up slightly year on year

› One-time gain of EUR 28m resulted from sale of

shares in Deutsche Factoring Bank

› Risk provisions contributed EUR 8 million to profit

before taxes (FY 2015: EUR 65m), but year-before

period was boosted by much higher recoveries on

written down receivables

› Administrative expenses rose to EUR -293m (FY

2015: EUR -258m) mainly due to higher costs for

major projects to implement and fulfil new

regulatory requirements

EUR million 2016 2015

Net interest income 304 317

Risk provisions in the credit business 8 65

Net commission income 114 115

Gains or losses on fair value measurement 44 48

Other earnings components 26 -6

Administrative expenses -293 -258

Profit/loss before taxes 203 282

Risk-weighted assets (RWA) 21,783 22,196

24

54.4 60

2015 2016

+10%

11.1 8

2015 2016

-28%

CIR in %

RoE in %

Real Estate & Savings Banks / Association

› Profit before taxes largely unchanged at EUR 203m

(FY 2015: EUR 212m)

› Solid operating earnings from net interest and net

commission income totalled EUR 324m (FY 2015:

EUR 325m) despite tough interest rate environment

› Measurement gains on derivatives transactions to

hedge against interest rate risk prompted a surge in

earnings to EUR 77m (FY 2015: EUR 47m) at

BayernLabo

› Earnings contribution from risk provisions

(particularly in the Real Estate division) was once

again positive, boosted by very good portfolio

quality at EUR 24m (FY 2015: EUR 38m)

› The increase in administrative expenses to EUR -

210m (FY 2015: EUR -191m) primarily weighed on

the earnings of the Real Estate and Savings Banks &

Association divisions; the main cause is higher

costs for major projects to implement and meet

new regulatory requirements

CIR in %

RoE in %

51.4 53.7

2015 2016

+5%

24 24.8

2015 2016

+3%



Risk provisions in the credit business 24 38







25

DKB

› Earnings rose from EUR 336m to EUR 381m, driven

mainly by EUR 132m from sale of stake in Visa

Europe Ltd.

› Net interest income on a par with last year at EUR

786m (FY 2015: EUR 789m) despite persistently

tough interest rate environment

› Charge for risk provisions up year on year at EUR -

108m (FY 2015: EUR -64m); rise posted across all

sub-segments

› Implementing and meeting new regulatory

requirements weighed heavily on administrative

expenses of EUR -432m (FY 2015: EUR -398m)

› Expenses from the bank levy and deposit guarantee

scheme totalling EUR -27m (FY 2015: EUR -14m)

were almost double that in 2015

› Bayern Card-Services reports profit before taxes of

EUR 11m (FY 2015: EUR 4m), which also benefited

from the sale of an investment

49 45.6

2015 2016

-7%

11.6 13.6

2015 2016

+17%



Risk provisions in the credit business -108 -64







26

CIR in %

RoE in %

Financial Markets

› Profit before taxes: EUR 29m (FY 2015: EUR 145m)

› Earnings from Financial Markets products sold by

customer-serving segments slightly higher year on

year; earnings continue to be reported under the

respective segments

› Segment’s earnings hurt by sharp drop in net

interest income to EUR 41m (FY 2015: EUR 100m).

Low interest rates and the sale of securities in the

year-before period were the chief reasons for the

difference

› Due to an increase in BayernLB’s credit rating, the

valuation of the Bank’s own issues resulted in

charge of EUR -25m (FY 2015: EUR +61m); it also

made a measurement loss overall in relation to fair

value adjustments but this was less than the

previous year

› Profit before taxes of consolidated subsidiaries:

BayernInvest EUR 7m (FY 2015: EUR 8m), Real I.S.

EUR 6m (FY 2015: EUR 6m)

57.3 87.5

2015 2016

+53%

13.5 2.8

2015 2016

-79%



Risk provisions in the credit business -1 0



Other earnings components 86 114




27

CIR in %

RoE in %

Non-Core Unit (NCU)

› Systematic winding down of RWA continues: RWA

cut by another 45 percent from year-end 2015 to

EUR 2.6bn.

› A significant improvement in profit before taxes to

EUR -10m from EUR -347m in the year-before period

resulted predominantly from a much smaller

charge for risk provisions of EUR -9m

(FY 2015: EUR -304m)

› In addition, HETA-related impairments weighed

heavily on the year-before period

› Restructuring Unit: profit before taxes of EUR 70m

(FY 2015: EUR -94m) is a marked improvement on

the previous year; the decline in gross earnings due

to winding down the portfolio was more than

offset by the positive performance of risk provisions

› DKB Non-Core: the main cause of the loss before

taxes of EUR 28m (FY 2015: EUR -55m), as in the

previous year, was the creation of risk provisions

Risk-weighted assets (RWA) EUR m

4,769 2,616

31 Dec 2015 31 Dec 2016

-45%



Risk provisions in the credit business -9 -304


Gains or losses on fair value measurement 0 -121

Other earnings components -16 104


Profit/loss before taxes -10 -347

28

RU winddown mandate fulfilled; release of tied up capital and profits since 2009 contribute significantly to the repayment plan

› Winddown portfolio cut to below EUR 6bn as at 31 December 2016

› The remaining winddown portfolios will be reported under Central Areas & Others in the future

› Portfolio winddown clearly has a positive impact on the CET 1 ratio (fully loaded)

Gross loan volume/ Risk-weighted assets (RWA)in

EUR bn

Tied up capital (flat-rate recognition: 10% of RWA) EUR bn

28 6

31 Dec 2016

2

Winddown portfolio at start

of RU in 2009

82

RWA Gross credit volume (GEX)

BEX: -93%

RWA: -93%

31 Dec 2016 Total winddown portfolio

2009-2016

684

29

Profit/loss before taxes since RU was founded EUR m

-93%

0.2

2.8

SREP minimum ratios: well below BayernLB’s CET 1 fully loaded ratio of 13.2%

› BayernLB’s CET 1 ratio fully loaded of 13.2% on

31 Dec 2016 is well above the current SREP

minimum ratio of 8%

› The capital requirements are recalibrated as part of

the annual SREP

› The minimum CET 1 ratio set by CRR (Pillar 1

requirement) is 4.5%

› On top of that is an individual premium (Pillar 2

requirement) of 1.92%

› Additional mandatory capital buffers:

Capital conservation buffer for 2017: 1.25%

Countercyclical buffer for 2017: 0%

Buffer for nationally systemically important

banks 2017: 0.33%

National, system-relevant buffer

Countercyclical buffer

Capital conservation buffer

Pillar 2 Requirement

Pillar 1 Requirement

30

SREP minimum ratios in %

13.18

4.50 4.50

1.92 1.92

1.25 2.50

1.00

0.33

buffer 518 bp

31 Dec 2016 CET 1 ratio fully loaded

2017 CET 1 SREP

Requirement

8,00

Expected 2019 CET 1 SREP

Requirement

9.92

0.00

Phase in 0.00

Agenda

› 2016


› Outlook


Viable business model:

develop profitable mix of wholesale and

digital retail business

High-performance platform:

streamline processes and successively modernise the IT

systems

Excellent asset quality:

non-core business almost completely wound down; legacy

issues resolved

Realignment

completed

Our roadmap for

sustainable success

Consolidate top position – despite new normal

Customers

Transition the business model into the digital age, expand

and consolidate the role as an advisory bank

Costs

Maintain strict cost discipline at all times; new efficiency

programme to stabilise the cost/income ratio at

under 60%

Culture

Firmly embed a culture of efficiency beyond cost

consciousness; modern, agile organisation that embraces

change

Capital

Safeguard the strong capital base

and risk/return-based capital allocation

– 2016 Strategic focus Future

32

Outlook

Tough competition

Profitable growth

with no change in

risk profile – forge

ahead with

digitalisation

Costly regulations

Continue to optimise

costs to soften the

impact of high

regulatory expenses

Low interest rates

Solid capital base as

foundation for

growth in the core

business

Economic risks

Profit before taxes

expected in the mid-

triple-digit million

range

33

Agenda

› 2016


› Outlook


EU repayment well advanced

Repayment of approx. EUR 5bn in state aid to the Free State of Bavaria (EUR million)

Date Payments to

the Free State of Bavaria

of which silent partner contributions

of which clawback

Umbrella fee Remaining balance of

state aid

Target 3,000 1,960 4,960

2009 to 2012 446 – 240 206 4,720

2013 830 – 691 139 4,029

2014 1,809 700 1,029 80 2,300

April 2016 1,300 1,300 1,000

Total 4,385 2,000 1,960 425 1,000

› Nearly EUR 4.4bn paid so far – around EUR 4bn counts as a repayment

› Remaining amount of state aid EUR 1bn

35

Year-on-year earnings comparison

EUR million 2016 2015 Change in %

Net interest income 1,475 1,612 -8.5

Risk provisions in the credit business -87 -264 -67.2

Net interest income after risk provisions 1,389 1,348 3.0

Net commission income 296 289 2.2

Gains or losses on fair value measurement 142 -56 -

Gains or losses on hedge accounting -80 -24 >100.0

Gains or losses on financial investments 274 286 -4.0

Administrative expenses -1,280 -1,168 9.6

Expenses for bank levy and deposit guarantee scheme -88 -90 -2.0

Other income and expenses 51 71 -27.2

Gains or losses on restructuring 4 -10 -

Profit/loss before taxes 708 646 9.6

Income taxes -158 -150 5.2

Profit/loss after taxes 550 496 10.9

Profit/loss attributable to non-controlling interests -5 -1 >100.0

Consolidated profit/loss 545 495 10.2

36

Quarterly earnings comparison

EUR million Q4 2016 Q3 2016 Q2 2016 Q1 2016

Net interest income 385 362 356 372

Risk provisions in the credit business -43 -40 -19 15

Net interest income after risk provisions 343 322 337 387

Net commission income 115 62 61 58

Gains or losses on fair value measurement 67 62 35 -22

Gains or losses on hedge accounting -31 -21 -22 -6

Gains or losses on financial investments 6 52 172 44

Administrative expenses -391 -311 -277 -301

Expenses for the bank levy and deposit guarantee scheme

-3 8 -17 -76

Other income and expenses -2 9 36 8

Gains or losses on restructuring 15 -2 -8 -1

Profit/loss before taxes 119 180 318 91

37

EUR m 1 Jan – 31 Dec 2016

Co

rpo

rate

s &

M

itte

lsta

nd

Re

al E

sta

te &

Sa

vin

gs

Ba

nks

/Ass

oci

ati

on

DK

B

Fin

an

cia

l M

ark

ets

Ce

ntr

al A

rea

s &

O

the

rs (

incl

ud

ing

C

on

soli

dati

on

)

No

n-C

ore

Un

it

Gro

up

Net interest income 304 235 786 41 38 71 1,475

Risk provisions in the credit business 8 24 -108 -1 0 -9 -87

Net commission income 114 89 23 71 -6 4 296

Gains or losses on fair value measurement 44 65 51 41 -57 0 142

Gains or losses on hedge accounting 0 2 -86 6 -1 0 -80

Gains or losses on financial investments 29 0 156 64 12 13 274

Other income and expenses -2 -1 19 16 45 -26 51

Administrative expenses -293 -210 -432 -208 -77 -60 -1,280


0 0 -27 0 -60 0 -88

Gains or losses on restructuring 0 -1 0 0 8 -3 4

Profit/loss before taxes 203 203 381 29 -98 -10 708

Return on equity (RoE) (%) 8.0 24.8 13.6 2.8 - -2.7 8.1

Cost/income ratio (CIR) (%) 60.0 53.7 45.6 87.5 - 96.3 59.3

Segment overview

38

EUR m 1 Jan – 31 Dec 2015

Co

rpo

rate

s &

M

itte

lsta

nd

Re

al E

sta

te &

Sa

vin

gs

Ba

nks

/Ass

oci

ati

on

DK

B

Fin

an

cia

l M

ark

ets

Ce

ntr

al A

rea

s &

O

the

rs (

incl

ud

ing

C

on

soli

dati

on

)

No

n-C

ore

Un

it

Gro

up

Net interest income 317 244 789 100 79 81 1,612

Risk provisions in the credit business 65 38 -64 0 0 -304 -264

Net commission income 115 81 22 67 -6 11 289

Gains or losses on fair value measurement 48 50 15 56 -103 -121 -56

Gains or losses on hedge accounting 0 -2 -40 15 3 0 -24

Gains or losses on financial investments 0 0 11 107 94 74 286

Other income and expenses -6 -2 14 -8 37 35 71

Administrative expenses -258 -191 -398 -193 -10 -118 -1,168


0 -1 -14 0 -75 0 -90

Gains or losses on restructuring 0 -5 0 0 0 -5 -10

Profit/loss before taxes 282 212 336 145 19 -347 646

Return on equity (RoE) (%) 11.1 24.0 11.6 13.5 - -44.1 6.7

Cost/income ratio (CIR) (%) 54.4 51.4 49.0 57.3 - >100,0 53.6

Segment overview 2015

39

EUR bn 31 Dec 2016 31 Dec 2015 Change in %

Loans and advances to banks 28.8 29.4 -2.1

Loans and advances to customers 134.8 135.8 -0.8

Assets held for trading 16.9 17.3 -2.3

Financial investments including interests in companies 26.7 28.9 -7.4

Total assets 212.1 215.7 -1.7

Liabilities to banks 54.2 60.4 -10.2

Liabilities to customers 86.8 86.0 0.9

Securitised liabilities 39.6 34.8 13.7

Liabilities held for trading 11.0 12.3 -10.7

Subordinated capital 3.1 4.7 -34.7

Equity 11.1 11.1 -0.1

Balance sheet overview

40

BayernLB. The Bavarian Bank.

dr johannes-jÖrg riegler (ceo) and dr …...with multibank capability ›statement.next digital...

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