The FINANCIAL — HSBC Trinkaus & Burkhardt AG had a positive start to 2015. The growth initiative is progressing successfully, particularly in terms of further expansion of the commercial banking business.
The Bank’s strategy of becoming the ‘Leading International Bank’ in Germany has been effective, by expanding our product offering for internationally operating MMEs and multinational corporations, extending the range of our target clients and acquiring new clients. Our customers benefit from HSBC’s special expertise, which lies in its global connectivity, primarily in growth markets.
In the first quarter of 2015, the Bank increased pre-tax profit by 6.3%, from €57.0m to €60.6m. Profit after tax amounted to €41.6m (Q1 2014: €38.3m), an increase of 8.6%. The Commercial Banking and Global Banking and Markets segments improved their results further as a result of volume-based growth in interest income in the lending business and high fee income from credit, foreign exchange and custody business. Global Asset Management benefited from higher revenues in the mutual and special fund business, while Global Private Banking results suffered from the ongoing low interest rate environment, according to HSBC Trinkaus & Burkhardt AG.
The Bank maintains a strong and liquid balance sheet. The regulatory capital ratio of 12.4% (31 December 2014: 13.0%) reflects increased risk-weighted assets in line with the Bank’s growth strategy. The tier 1 capital ratio is 10.0% (31 December 2014: 10.4%). HSBC Trinkaus & Burkhardt AG, the HSBC Group’s principal subsidiary in Germany, is rated ‘AA- (Stable)’ by Fitch Ratings.
Financial commentary
Net interest income increased by 4.1% to €43.6m (Q1 2014: €41.9m). This increase was primarily due to the significant improvement in interest income based on higher client lending volumes. Interest income in the deposit-taking business and from financial assets remained under pressure due to the low interest rate policy pursued by the central banks.
Net loan impairment and other credit risk provisions were nil in the first quarter after a reversal of €0.8m in the comparable period of 2014. The Bank continues to have a conservative approach in relation to the assessment of default risks.
Net fee income rose by 12.8% to €105.1m (Q1 2014: €93.2m). The broader positioning of the Bank in customer-related interest and foreign exchange business met increased consulting and hedging needs due to movements in the currency markets. Fee income from securities transactions improved due to the positive momentum on the stock markets as well as the steady growth in volumes.
Net trading income was up 15.3% to €40.6m (Q1 2014: €35.2m).
Administrative expenses rose by 6.9%, from €126.6m to €135.3m. Higher costs were expected and are primarily due to a significant increase in staff numbers. The cost efficiency ratio declined slightly in the first three months to 69.0% versus 69.2% in the comparable period of 2014 as there was a stronger increase in income than in administrative expenses.
Income from financial assets declined from €8.3m to €4.2m essentially due to lower gains on the disposal of financial assets.
As at the balance sheet date, total assets amount to €26.3bn (31 December 2014: €22.2bn), an increase of 18.4%. Customer deposits of €14.4bn (31 December 2014: €13.1bn) are still the Bank’s most important source of funding. They demonstrate our customers’ trust in the Bank’s solid business model, the growth path we have embarked upon and our high credit standing.
Outlook
The Bank will continue to implement the growth initiative started in mid-2013 and is forecasting further improvement in revenues and pre-tax profit for 2015. The Bank is expecting a significant increase in administrative expenses as a result of the increase in staff numbers, the expansion of the product offering and investment in IT systems. There is a risk that the expansion of customer lending might lead to higher loan losses and increased capital requirement because of higher risk-weighted assets.
Discussion about this post