Despite the tensions on the financial markets, the Sal. Oppenheim Group managed to continue its positive performance in 2007. Profit from operating activities was € 333 million (previous year: € 309 million), of which € 301 million was contributed by Sal. Oppenheim, and € 59 million by BHFBANK. Group management costs totalled € 27 million. Net income for the period amounted to € 255 million. Income was generated in the amount of € 1,262 million, 16% up on the previous year. Total assets rose by 16% to € 41 billion. The volume of assets under management rose by € 14 billion to € 152 billion.
| 2007 | 2006 | +/- | +/- | |
| € M | € M | € M | € M | |
| Net interest income | 250 | 242 | 8 | 3 |
| Provision for loan losses | -10 | -2 | -8 | >100 |
| Share of the profit or loss of associates and joint ventures accounted for using the equity method | 81 | 47 | 34 | 72 |
| Net commission income | 633 | 528 | 105 | 20 |
| Net trading income | -37 | 151 | -188 | - |
| Net income/(loss) from non-current financial assets | 317 | 118 | 199 | >100 |
| Administrative expenses | -929 | -782 | -147 | 19 |
| Other operating income and expenses, net | 28 | 7 | 21 | >100 |
| Profit/(loss) from operating activities | 333 | 309 | 24 | 8 |
| Income taxes | -78 | -68 | -10 | 15 |
| Net income/(loss) for the period | 255 | 241 | 14 | 6 |
Net interest income
Net interest income amounted to € 250 million, and in addition to the traditional components from lending and money market business, also includes interest income and expense from banking book securities. € 162 million of net interest income was attributable to Sal. Oppenheim and € 104 million to BHF-BANK. Interest expense at group level was € 16 million.
Provision for loan losses
Provision for loan losses amounted to € 10 million. While allowances for impairment losses on loans and advances increased € 11 million in net terms, provisions for loan losses fell by € 1 million due to reversals. Additions to allowances for impairment losses on loans and advances relate primarily to the increase in the general allowances for doubtful accounts. The vast majority of the loan portfolio comprises Investment Grade borrowers.
Share of the profit or loss of associates and joint ventures accounted for using the equity method
The share of the profit or loss of associates and joint ventures accounted for using the equity method of € 81 million was largely attributable to our equity investments in IVG Immobilien AG, Oppenheim-Esch Holding GbR and Deutsche Hypothekenbank AG (Actien-Gesellschaft). € 74 million is attributable to Sal. Oppenheim and € 7 million to BHF-BANK.
Net commission income
Net commission income, which was already at a high level in the previous year, increased 20% to € 633 million. This growth was driven by commission income from the securities business and asset management. Equity sales and corporate finance business were also successful. € 405 million of the total net commission income was generated by Sal. Oppenheim and € 228 million by BHF-BANK.
Net trading income
Net trading income totalled € -37 million. € 27 million of this amount is attributable to Sal. Oppenheim and € -64 million to BHF-BANK. It must be taken into consideration that the cost of hedging the banking book assets was reported under Net trading income in accordance with IFRS; however, profit from the assets in the amount of € 52 million was reported under Net income/(loss) from non-current financial assets. The volume of retail derivatives issues increased considerably once again. At Sal. Oppenheim, the focus is on equity retail derivatives business, while BHF-BANK concentrates on fixed income and currency trading.
Net income/(loss) from non-current financial assets
Net income from non-current financial assets totalled € 317 million, of which € 64 million was attributable to profit from banking book securities. The remaining € 253 million was largely attributable to the disposal of 10.6% of the shares in IVG Immobilien AG resolved in May 2007, the second tranche of the sale agreed in 2006 of a further 18.9% stake in IVG Institutional Funds GmbH (formerly Oppenheim Immobilien-Kapitalanlagegesellschaft mbH), and the 25.0% stake in Deutsche Hypothekenbank (Actien- Gesellschaft), held as a financial investment. A negative effect was the write-down of our 5% stake in IKB Deutsche Industriebank AG, to the year-end price. € 258 million of the net income from non-current financial assets is attributable to Sal. Oppenheim and € 59 million to BHF-BANK.
Administrative expenses
Administrative expenses increased by 19% to € 929 million. This was primarily due to higher provisions for profit-based remuneration and an increase in the number of employees by 355. We employed a workforce averaging 3,769 in the Group in the reporting year. Personnel expenses increased correspondingly by 18% to € 551 million. Other administrative expenses increased to € 337 million, largely as a result of investments in the further improvement of IT security and expenses incurred in connection with the relocation of the Group’s headquarters to Luxembourg. Depreciation and amortisation totalled € 41 million. € 621 million of administrative expenses are attributable to Sal. Oppenheim, € 297 million to BHF-BANK, and € 11 million to the Group.
Consolidated net income
Consolidated net income before taxes was € 333 million. After current income tax expenses of € 44 million, and deferred tax expenses of € 34 million, net income for the period totalled € 255 million. The share of profit attributable to minority interests amounted to € 5 million.
| 2007 | 2006 | +/- | +/- | |
| € M | € M | € M | % | |
| Cash and cash equivalents | 475 | 361 | 114 | 32 |
| Assets held for trading | 13,472 | 9,335 | 4,137 | 44 |
| Positive fair values from hedge accounting | 31 | 26 | 5 | 19 |
| Financial assets designated at fair value through profit or loss (fair value option) | 3,190 | 3,484 | -294 | -8 |
| Loans and advances to banks | 10,170 | 9,241 | 929 | 10 |
| Loans and advances to customers | 7,116 | 6,231 | 885 | 14 |
| Allowances for impairment losses on loans and advances | -167 | -159 | -8 | -5 |
| Non-current financial assets and investments accounted for using the equity method | 5,531 | 6,023 | -492 | -8 |
| Property, plant and equipment | 322 | 246 | 76 | 31 |
| Other assets | 950 | 559 | 391 | 70 |
| Assets | 41,090 | 35,347 | 5,743 | 16 |
| Liabilities held for trading | 12,439 | 9,818 | 2,621 | 27 |
| Negative fair values from hedge accounting | 17 | 60 | -43 | -72 |
| Deposits from banks | 5,206 | 7,548 | -2,342 | -31 |
| Deposits from customers | 19,614 | 14,426 | 5,188 | 36 |
| Debt securities | 676 | 715 | -39 | -5 |
| Provisions | 85 | 109 | -24 | -22 |
| Other liabilities | 693 | 541 | 152 | 27 |
| Subordinated capital | 186 | 195 | -9 | -5 |
| Equity | 2,174 | 1,935 | 239 | 12 |
| Liabilities and equity | 41,090 | 35,347 | 5,743 | 16 |
Top
Total assets
The Group’s total assets amount to € 41.1 billion, an increase of € 5.7 billion compared to the previous year. € 4.6 billion of this growth relates to Sal. Oppenheim and € 1.1 billion to BHF-BANK, and reflects the positive operating development of the first half of the year. € 22.1 billion of total assets are attributable to Sal. Oppenheim and € 19.0 billion to BHF-BANK.
Assets held for trading
Assets held for trading increased from the previous year’s figure by € 4,137 million to € 13,472 million. They include bonds and fixed-income securities at € 4,175 million, equities and other non-fixed income securities at € 3,693 million, and positive fair values from derivative financial instruments at € 5,591 million.
Financial assets designated at fair value through profit or loss
Financial assets designated at fair value through profit or loss decreased by € 294 million to € 3,190 million. This item includes, in particular, bonds totalling € 2,209 million and equities and other non-fixed income securities totalling € 895 million.
Loans and advances
Loans and advances to banks amounted to € 10,170 million at the balance sheet date, an increase of 10%. This item includes liquidity provided to us that was not channelled into other asset items. Due to the tension in the money market, the ensuing considerations regarding credit quality, and growing needs for collateralisation, the repo volume increased again. The growth in unsecured money market business was comparatively low. Money market transactions were concluded on a short-term basis as far as possible, to ensure sufficient flexibility for the outflow of funds. Loans and advances to customers rose by 14% to € 7,116 million. € 4,129 million of this amount is attributable to business with corporate clients, and € 2,932 million to private client business. The remaining € 55 million is primarily attributable to public-sector clients.
Allowances for impairment losses on loans and advances
Allowances for impairment losses on loans and advances were up slightly on the prior year at € 167 million, € 124 million of which was attributable to specific valuation allowances and € 43 million to general allowances for doubtful accounts.
Non-current financial assets
Non-current financial assets including investments accounted for using the equity method fell by € 492 million to € 5,531 million. € 3,918 million of this amount is attributable to fixed-income securities, and € 383 million to equities and other non-fixed-income securities. Equity investments include in particular the 10% stake in IVG Immobilien AG.
Other assets
Other assets totalling € 950 million include income tax refund claims at € 381 million, and intangible assets at € 304 million.
Liabilities held for trading
Liabilities held for trading increased substantially by € 2,621 million to € 12,439 million. These include trading book bonds and notes issued of € 6,611 million, and negative fair values from derivative financial instruments of € 5,700 million.
Liabilities
Deposits from banks fell by € 2,342 million to € 5,206 million. These relate primarily to money market deposits at BHF-BANK. Client deposits rose considerably once again with growth of € 5,188 million to € 19,614 million, accounting for almost half of total liabilities and equity. These deposits remain the Group’s main refinancing instrument and reflect the trust placed in our Bank. Debt securities represent another refinancing instrument, with a volume of € 676 million.
Other liabilities
Other liabilities totalled € 693 million. These include current and deferred income tax liabilities of € 247 million, and minority interests qualified as debt of € 76 million.
Subordinated capital
The subordinated capital of € 186 million relates solely to BHF-BANK and contains subordinated liabilities only.
Equity
The € 239 million increase in equity to total € 2,174 million is primarily due to the consolidated net income of € 255 million.
Performance indicators
The Bank uses the cost/income ratio as a key performance indicator. The calculation of the cost/income ratio includes all of the pre-tax income statement items, with the exception of impairments and the proceeds from the sale of equity investments. Administrative expenses are weighed against income items. This produces a cost/income ratio of 92.3% for the reporting year. Return on equity is another key indicator. To calculate return on equity, net income for the period before taxes is weighed against equity. The annual result is assumed to have been continuously generated throughout the year for the purpose of the calculation. Thus, equity as at 1 January 2007, less dividends paid, plus half of the annual net income, forms the basis for the calculation. This produces return on equity of 16.4%. The overall ratio in accordance with Principle I under the German Banking Act (Grundsatz I) and the related risk assets serve as further key performance indicators. At the end of 2007, the ratio was 11.8% with risk assets of € 17.5 billion. Equity is composed primarily of tier 1 capital.
Supplementary report
No transactions occurred after the close of the financial year that significantly affected the operating results, the financial position, or the net assets of the Group.