Results for the 2006 financial year:
BA-CA increases operating performance significantly
- BA-CA is on the right path: profit before tax adjusted for one-off effects increased by 21 per cent to EUR 1.5 billion
- One-off effects totalled EUR 1.8 billion
- Realignment of UniCredit Group completed: CEE banks transferred to BA-CA
- CEE business segment again made the largest contribution to overall results
- Cost/income ratio improves further to 57.9 per cent
Bank Austria Creditanstalt (BA-CA), a member of UniCredit Group, increased its adjusted profit before tax by 21 per cent to EUR 1.5 billion. In total its profit before tax increased to EUR 3.3 billion (2005: EUR 1.3 billion). The major portion of the increase, EUR 1.8 billion, resulted from one-off effects such as the sale of the Polish Bank BPH and the Croatian Splitska banka.
BA-CA CEO Erich Hampel: "I am satisfied with the results. They show that we have worked well. Even without one-off effects the results improved considerably. Business in Central and Eastern Europe has again developed well. We have made visible progress in business in Austria, even if work still lies ahead. I see high growth potential for 2007, particularly due to the new subsidiaries in Central and Eastern Europe and to our enlarged perimeter."
Realignment of UniCredit Group complete: banks in CEE transferred to BA-CA
UniCredit Group recently completed the realignment of its CEE business with the transfer to BA-CA of the banking subsidiaries in Central and Eastern Europe. BA-CA has assumed responsibility in the Group for Central and Eastern Europe (excluding Poland and Ukraine) and thus for additional units in Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Latvia (with branches in Estonia and Lithuania), Romania, Russia, Slovakia and Turkey.
On this basis, BA-CA's business volume in CEE, measured by total assets, will grow from about EUR 40 billion to about EUR 78 billion. The number of customers will increase from 5.5 million to about 18 million, the number of employees will rise from about 19,000 to 39,000 and the number of branches will increase from 1,100 to almost 1,800. Overall, including Austria, BA-CA will have about 50,000 employees in about 2,200 branches. UniCredit Group's CEE Division, managed by BA-CA, is responsible for a market of over 300 million inhabitants and BA-CA's perimeter in this region triples.
This effect is not reflected in the 2006 financial statements as the transactions were carried out in 2007.
One-off effects total EUR 1.8 billion
BA-CA's net income from investments includes a capital gain of about EUR 1.6 billion on the sale of its shares in the Polish Bank BPH to UniCredit.
In the second quarter of 2006, BA-CA's net income from investments included a capital gain of EUR 684 million on the sale of the Croatian Splitska banka, which was effected to comply with merger control requirements.
A capital gain of EUR 38 million was realised on the sale of subsidiaries of Capital Invest in Hungary and Croatia to Pioneer Investments.
These positive one-off effects in the total amount of EUR 2.3 billion are to be seen alongside the following provisions:
Provisions in the amount of EUR 231 million were made in the item "Integration costs" for integration measures, reorganisation and restructuring in customer business in Austria and in the Markets & Investment Banking Division.
On the basis of improved methodologies used for measuring default risk in connection with preparations for Basel II, additional provisions in the amount of EUR 278 million were made in the Retail Division; of this total amount, provisions of EUR 79 million were made in the third quarter of 2006.
On balance, one-off effects were about EUR 1.8 billion.
Dividend: EUR 4 per share
At the Annual General Meeting the Management Board of BA-CA will propose raising the dividend from EUR 2.50 to EUR 4 per share in line with the favourable development of the bank's results.
Items in the income statement
BA-CA's net interest income was EUR 2.7 billion, an increase of 4.7 per cent over the previous year (2005: EUR 2.6 billion). Net fee and commission income and net trading income also developed favourably: Net fee and commission income increased by 14.4 per cent over the previous year to EUR 1.7 billion (2005: EUR 1.5 billion). Net trading income was EUR 348 million, up by 31.6 per cent over the previous year (2005: EUR 264 million). At EUR 4.8 billion, total revenues increased by 11.6 per cent (2005: EUR 4.3 billion).
Operating expenses remained more or less unchanged and saw a marginal increase of 3.8% to EUR 2.8 billion (2005: EUR 2.7 billion). Operating profit was EUR 2 billion, an increase of 25% over 2005 (2005: EUR 1.6 billion).
Net writedowns of loans and provisions for guarantees and commitments increased by 38.4 per cent to EUR 679 million (2005: EUR 491 million). As mentioned above, the increase primarily resulted from improved methodologies used for measuring default risk in connection with preparations for Basel II.
Net income from investments was EUR 2.3 billion (2005: EUR 305 million). This includes capital gains on the sale of subsidiaries already mentioned.
BA-CA's profit before tax reached EUR 3.3 billion, an increase of 151 per cent over the previous year (2005: EUR 1.3 billion). Profit after tax and minority interests was EUR 3 billion, an increase of 213 per cent over the previous year (2005: EUR 964 million).
Adjusted for the previously mentioned one-off effects, profit before tax increased by 21 per cent to EUR 1.5 billion (2005 also adjusted: EUR 1.3 billion). The adjusted profit after tax and minority interests rose by 22 per cent to EUR 1.1 billion (2005 also adjusted: EUR 914 million).
The following key financial data have been calculated on the basis of these results:
- Adjusted earnings per share were EUR 7.61 (2005: 6.22). Including the one-off effects, earnings per share rose to EUR 20.56 (2005: EUR 6.56).
- Despite a further increase in equity, the adjusted ROE after tax increased to 15.8 per cent (2005: 13.5 per cent). Including the one-off effects, the ROE after tax rose to 39.5 per cent (2005: 14.3 per cent).
- The cost/income ratio improved significantly to 57.9 per cent (2005: 62.3 per cent).
- The risk/earnings ratio deteriorated to 25.3 per cent due to one-off effects relating to credit risk. Adjusted for one-off effects, it was 14.9 per cent (2005: 19.2 per cent / adjusted 16.3 per cent).
The results of BA-CA's divisions
In the third quarter of 2006, BA-CA adapted its business segments in line with the structure of UniCredit Group. BA-CA now reports its results in five divisions: Retail, Private Banking & Asset Management, Corporates, and Markets & Investment Banking as well as Central Eastern Europe (CEE). The bank also shows results for its Corporate Center.
The main changes compared with the previous year: The Private Banking & Asset Management Division (PB&AM) has been added to the divisions transacting business with customers in Austria. PB&AM comprises business with high net worth individuals, who are served by Schoellerbank and BANKPRIVAT. Business with large corporates and with institutional real estate customers is now managed in the Corporates Division. The division serves corporate customers whose turnover exceeds EUR 3 million or which regularly use international services and corporate finance products. Small businesses, i.e. small corporate customers whose turnover is less than EUR 3 million, are now served by the Retail Division.
The operating profit generated by the Retail Division increased from EUR 107 million to EUR 305 million. This is primarily due to the reduction in operating expenses but also to new business. BA-CA was very successful in securities business. The strong placement power in mutual funds, especially in capital-guaranteed products, is reflected in net fee and commission income. Net interest income remained relatively stable. After deduction of net writedowns of loans and provisions for guarantees and commitments the Retail Division recorded a loss before tax of EUR 119 million (2005: a loss before tax of EUR 283 million). This result is due to three factors: the previously mentioned improvements in credit risk management standards; the difficult environment in business with the small business sub-segment, which is now part of the Retail Division; and finally the transfer of business with high net worth individuals to the new Private Banking & Asset Management Division. BA-CA expects the Retail Division to be restored to profitability in 2007. Measures were already implemented in 2005 and 2006 to achieve this goal. These measures included the bundling of back-office and settlement activities in BA-CA Administration Services in particular. The division's cost/income ratio was 76.2 per cent (2005: 91.5 per cent).
The new Private Banking & Asset Management Division achieved an operating profit of EUR 66 million, an increase of 36 per cent over the previous year (2005: EUR 48 million). The increase was due to improved results of the two private banks BANKPRIVAT and Schoellerbank as well as to the sales successes of Pioneer Investments Austria (PIA) with capital guarantee funds, where the group is the clear market leader in Austria. "FokusInvest", a further innovative investment management product, was launched in 2007. It enables standardised investment management from an amount of EUR 15,000. Profit before tax of the Private Banking & Asset Management Division was EUR 63 million, almost matching the previous year's level (2005: EUR 64 million). The slight decline is almost entirely due to the sale of Schoellerbank's shares in Investkredit. Adjusted for this effect in 2005, profit before tax would have increased by 12 per cent. ROE before tax was 36.5 per cent (2005: 40.8 per cent). The cost/income ratio was 61.6 per cent (2005: 65.3 per cent).
The Corporates Division recorded operating profit in the amount of EUR 623 million, 9 per cent higher than in the previous year (2005: EUR 573 million). All customer segments and products contributed to this growth. Particular mention should be made of leasing operations, real estate financing and especially the good results from M&A activities. Profit before tax was EUR 507 million (2005: EUR 642 million). The decrease of 21 per cent is primarily due to two factors: the one-off effect of the sale of shares in Investkredit in 2005 and adjustment of the provisioning charge in 2006. Adjusted for one-off effects, profit before tax increased by 8 per cent from EUR 534 million to EUR 575 million. ROE before tax, adjusted for the one-off effects, was 23.3 per cent (2005: 27.5 per cent; adjusted figure for 2005: 22.9 per cent). The cost/income ratio was 41.2 per cent (2005: 43.0 per cent).
In 2007, BA-CA aims to make the advantages resulting from cooperation in UniCredit Group work even better for customers. Corporate customers can now use the entire network of UniCredit Group with some 7,000 offices in 20 countries. This network advantage is to be turned into a business advantage. Especially companies operating internationally can benefit from products in the areas of trade finance, cash management, leasing, corporate finance or M&A.
The Markets & Investment Banking Division (MIB), which accounted for 12 per cent of the bank's profits, increased its operating profit by 34 per cent to EUR 235 million (2005: EUR 175 million). Trading activities in all product areas and customer business contributed to this success. Special mention should be made of the expansion of interest-rate and equity derivatives business, the structuring of several retail funds and CA IB's successful partnering of companies throughout the IPO process. Profit before tax was EUR 207 million after EUR 206 million in 2005. Adjusted for provisions for integration costs, profit before tax rose by 12 per cent to EUR 237 million. ROE before tax, on an adjusted basis, was 76.2 per cent (2005: 62.7 per cent). The cost/income ratio amounted to 41.6 per cent (2005: 36.2 per cent).
UniCredit Group's Markets & Investment Banking Division now operates under the global name "UniCredit Markets & Investment Banking", thus clearly communicating the advantages of the business combination with the Group to the market: UniCredit Group is one of the five largest providers of investment banking services in Europe.
In 2007, BA-CA's capital market activities will be combined in a wholly-owned subsidiary. This move will create a powerful unit for capital market activities, which will act in line with market requirements and customer needs.
The CEE Division accounted for 40 per cent of BA-CA's profits. Its operating profit increased by 10 per cent to EUR 808 million (2005: EUR 733 million), although the results of Splitska banka and Bank BPH contributed to the 2006 profit and loss account for only part of the year. Profit before tax was EUR 655 million (2005: EUR 741 million). This decrease is primarily due to a positive one-off effect from Banca Tiriac in 2005. The profit before tax adjusted for one-off effects grew by 7 per cent to EUR 680 million. ROE before tax, adjusted for the one-off effect, was 18.7% (2005: 18.3%). The cost/income ratio remained stable at 53.2 per cent (2005: 53.0 per cent).
In 2007, BA-CA will assume the holding company function for CEE subsidiaries of UniCredit Group. At the beginning of 2007, the shareholdings in all CEE banks of UniCredit and HVB with the exception of Poland and Ukraine were transferred to BA-CA. The mergers between these new banking subsidiaries with the existing BA-CA subsidiaries will be completed in 2007 in five countries. These integration projects will create the largest banks in Bulgaria and Bosnia and Herzegovina. The Group's position in Romania, Slovakia and the Czech Republic will be significantly strengthened. In Croatia, BA-CA assumes responsibility for Zagrebačka banka, the country's largest bank. Particular mention should be made of the new banking subsidiaries in Russia and Turkey – both large markets with considerable growth potential.
With total assets of about EUR 6.6 billion, International Moscow Bank (IMB) is currently the ninth-largest bank in Russia. IMB has about 2.000 employees and operates 47 branches. The bank plans to increase this branch network to about 100 branches in the medium term. The bank was included in the BA-CA's group of consolidated companies as from 1 January 2007.
In Turkey, BA-CA has acquired 50 per cent of Koç Finansal Hizmetler A.Ş., Turkey and thus of Yapi Kredi. Yapi Kredi emerged at the beginning of October 2006 from the merger between Yapi ve Kredi Bankasi A.S. and Koçbank A.S. Yapi Kredi Bankasi A.S. was established in 1944 as Turkey's first privately owned nationwide bank. Measured by its total assets of around EUR 29 billion, Yapi Kredi is currently the country’s fourth-largest bank with 650 branches and about 156000 employees.
As a result of the business combination, UniCredit Group operates the largest international banking network in Central and Eastern Europe comprising over 3,000 branches. More than 60,000 employees serve about 24 million customers.
There is still substantial growth potential in Central and Eastern Europe. Annual growth in the loan market is 33 per cent; in Russia, 46 per cent. BA-CA's economists estimate GDP growth in the region to have been 6 per cent in 2006. Financial intermediation, i.e. total assets in the banking sector as a percentage of GDP, suggests that enormous potential is available for the catching-up process: while the figure for the euro area is 246 per cent, in Central and Eastern Europe it is only 78 per cent.
BA-CA's Corporate Center recorded profit before tax of EUR 2.0 billion (2005: a loss before tax of EUR 68 million). This is due to the capital gains mentioned above.
As at December 31, 2007, BA-CA's total assets were EUR 154.3 billion (31 December 2005: EUR 158.9 billion), 2.9% lower than at year-end 2005, due mainly to the sale of Splitska banka and Bank BPH. The group of consolidated companies of BA-CA will change considerably in 2007, as the CEE subsidiaries of UniCredit in Bosnia and Herzegovina, Bulgaria, Croatia, Romania, Slovakia, the Czech Republic and Turkey as well as the HypoVereinsbank subsidiaries in Russia and the three Baltic states have been transferred to BA-CA.
On the assets side of the balance sheet, financial assets held for trading fell by 5.8 per cent to EUR 16.7 billion (2005: EUR 17.7 billion). At EUR 32.5 billion, loans and receivables with banks were 13.5 per cent higher than in the previous year (2005: EUR 28.7 billion). Loans and receivables with customers were down by 3.7 per cent to EUR 80.1 billion (2005: EUR 83.2 billion).
Liabilities and equity developed as follows: deposits from banks rose by 9.1 per cent to EUR 48.3 billion (2005: EUR 44.3 billion). Deposits from customers fell by 11.3 per cent to EUR 55.0 billion (2005: EUR 62.0 billion). Debt certificates including bonds were down by 5.7 per cent to EUR 25.4 billion (2005: EUR 26.9 billion). Equity (including minority interests) increased by 34.8 per cent to EUR 10.1 billion (2005: EUR 7.5 billion). BA-CA thus has the strongest capital base of all banks in Austria.
At 31 December 2006, the number of employees in the BA-CA Group was 21,087, down by 10,705 from the end of the previous year (31 December 2005: 31,792 employees). This significant decline is due to the sale of Bank BPH and Splitska banka. Following the transfer of the CEE banking subsidiaries, the number of employees will rise to about 50,000.
Outlook for 2007
In the current business year, BA-CA's group of consolidated companies will change as a result of the bank's integration in UniCredit Group. The region of Central and Eastern Europe will gain in importance as a result of the new perimeter and size. Operations in Russia and Turkey – two markets with large potential – have been transferred to BA-CA and will have a positive influence on profits.
On the basis of stable economic and business growth, BA-CA expects visible improvements in results from Austrian customer business. The bank expects the Retail Division to return to profitability.
As a result of the transfers, BA-CA's total assets will increase to about EUR 180 billion and the number of employees will rise from about 30,000 to about 50,000. BA-CA's CEO Erich Hampel: "BA-CA will emerge even stronger from the combination."
Enquiries: Bank Austria Creditanstalt Press Relations
Peter N. Thier, tel.: +43 (0)5 05 05 EXT 52371;