â¢ Earnings trend increases in Q2
The Dresdner Bank Group generated a clearly positive result â both at an operational level and after taxes â in the first half of 2004. Its operating result rose by â¬372 million year-on-year to â¬422 million, continuing the Group's positive earnings trend into the second quarter. The operating result for the second quarter amounted to â¬235 million, up â¬48 million on the figure for the first three months. The return on equity after taxes (RoE) improved substantially as against H1 2003 from 0.5% to 5.3% and, at 5.8% in the second quarter, it was almost one percentage point above Q1 (4.9%).
All business areas contributed to this encouraging result. Administrative expenses and loan loss provisions declined substantially once again. All in all, the Dresdner Bank Group generated income before taxes of â¬272 million in the first six months of 2004. Income after taxes improved to â¬336 million (H1 2003: â¬25 million).
The Chairman of the Board of Managing Directors of Dresdner Bank, Herbert Walter, commented on the results as follows: "Dresdner Bank has succeeded in repeating its positive development of the first three months in the second quarter, despite the ongoing difficult economic environment. The results show that the modernisation of our Bank as part of our 'New Dresdner' programme is bearing fruit. We have done our homework and focussed our business squarely on the needs of our customers." Now, he continued, it was time to start the second phase, in which the Bank aims to use its customer-centric business model to leverage the major potential offered by the markets and the unique range of services provided by an integrated financial services provider. The goal was to further strengthen operational efficiency and profitability, and thus lay the foundations for high-margin growth, he said.
Details of the individual income and expense items are as follows:
Operating income remained essentially unchanged on an adjusted basis, amounting to â¬3,381 million in the first half of the year (H1 2003: â¬3,460 million, adjusted for the conscious reduction in risk-weighted assets, the resizing of the IRU portfolio, the application of IAS 39 and currency effects). At â¬1,674 million, operating income also stabilised in nominal terms quarter-on-quarter (Q1: â¬1,707 million).
Net interest and current income remained stable on an adjusted basis, falling 15% in nominal terms year-on-year to â¬1,102 million. This is primarily due to the conscious reduction in risk-weighted assets by an average of approximately â¬26 billion over the past year, especially in the Bank's non-strategic business. The interest margin improved encouragingly by 11 basis points. Among other things, this is reflected in the increase in net interest and current income of â¬62 million quarter-on-quarter to â¬582 million.
Net fee and commission income increased as against the prior-year period by â¬22 million to â¬1,370 million, mainly as a result of a rise in the Bank's securities business and the sale of insurance products.
Net trading income amounted to â¬909 million in the first six months of the year, down approximately 16% on last year's high figure. However, it should be noted that almost two-thirds of this decrease is due to the effect of the application of IAS 39. Net trading income improved quarter-on-quarter by â¬28 million to â¬469 million in Q2.
Loan loss provisions declined further to total â¬217 million after the first six months. This drop reflects the Bank's strict risk policy and the clear improvement in the quality of its portfolio.
The Bank's continuing systematic cost management can be seen in the reduction in its administrative expenses: the total figure for the first half of 2004 was â¬2,742 million â a drop of 8% year-on-year. This was due in equal measure to the decline in total staff costs and non-staff operating costs.
Net other operating income/expenses improved to â¬-44 million, after â¬-227 million in the previous year. The reason for this was a clear drop in other operating expenses of â¬203 million. The figure for 2003 contained write-downs at subsidiaries and in the area of IT.
The results from investment securities rose in the period under review to â¬81 million (H1 2003: â¬48 million). This increase is primarily due to income from the sale of investments, although this was partially offset by amortisation of and impairment losses on the Bank's non-strategic business.
In comparison to the end of 2003, total assets climbed to â¬556.8 billion, thanks to a sharp rise in securities-backed money market transactions. The lending volume fell by approximately 7% in the first six months of 2004 to â¬94.4 billion. The risk-weighted assets were reduced by a further â¬4.9 billion as against the end of 2003 to â¬107 billion. Regulatory capital (BIS) amounted to â¬15 billion as at 30 June 2004. The core capital ratio amounted to 6.9%, while the total capital ratio was 14%.
The four strategic business areas Personal Banking and Private & Business Banking (reported together for the last time as Private and Business Clients), Corporate Banking and Dresdner Kleinwort Wasserstein are operating profitably and contributed an aggregate of â¬407 million to the Bank's operating result. The Bank's non-strategic business â which primarily comprises the Institutional Restructuring Unit (IRU), Corporate Investments and Transaction Banking â generated a slight positive result of â¬15 million.
Despite an extremely competitive market environment, the Private and Business Clients division almost tripled its operating result to â¬294 million in the first half of 2004 (H1 2003: â¬105 million), making it the main income driver. This encouraging result was due in particular to successful sales by the Bank's German and foreign securities and funds businesses and to its even closer cooperation with Allianz. Administrative expenses and loan loss provisions, which declined by â¬77 million and â¬61 million respectively, also contributed to the earnings trend. Income before taxes jumped sharply to â¬232 million (H1 2003: â¬41 million).
Corporate Banking increased its operating result by approximately 22% to â¬213 million in the first six months. Despite the conscious reduction in risk-weighted assets and the ongoing muted economic situation in the corporate sector, operating income was down only slightly year-on-year. Encouragingly, corporate lending margins improved further. Administrative expenses fell by approximately 11%. At â¬68 million, loan loss provisions were â¬29 million below the figure for the previous year. The already healthy cost-income ratio improved further to 45.6%. Income before taxes almost doubled to â¬204 million (H1 2003: â¬119 million).
Dresdner Kleinwort Wasserstein (DrKW) generated an operating result of â¬161 million in the first half of 2004. This is the seventh time in a row that DrKW has recorded a positive quarterly operating result, which shows the solidity of its business model as a European investment bank with an international focus. 80% of income was generated by customer business, not proprietary trading, enabling DrKW to consolidate or expand its market position in key sectors. The drop in the operating result in comparison to the previous year is due in particular to lower income from foreign exchange trading and from the risk-driven products business. Equities trading improved notably. The decline in income was partially offset by lower administrative expenses. Overall, the division recorded income before taxes of â¬147 million (H1 2003: â¬251 million).
The Institutional Restructuring Unit (IRU) reported a clear improvement in its operating result of â¬350 million in the first half of 2004 to â¬-30 million. Substantially lower levels of loan loss provisions were recognised due to the reduction in the foreign loan portfolio. In addition, administrative expenses dropped by around a third as part of the resizing of the IRU portfolio. The non-operating result clearly improved in comparison to the previous year due to the sale of investments, among other things. Total income before taxes amounted to â¬85 million (H1 2003: â¬-622 million).