Annual Report 2016

Letter to shareholders

 
Titel Image

“This result reflects the good
performance of our group’s
customer business and, at the
same time, the successful
merger with WGZ BANK.”

Wolfgang Kirsch, Chief Executive Officer

“This result reflects the good performance of our group’s customer business and, at the same time, the successful merger with WGZ BANK.”

The DZ BANK Group can look back on a successful and strategically significant year. With profit before taxes of €2.2 billion, we comfortably achieved the target that we had set ourselves for 2016 of a pre-tax profit of more than €2 billion. This result reflects the good performance of our group’s customer business and, at the same time, the successful merger with WGZ BANK. The merger, which was accomplished in a very short time frame, underpins our organization’s resolve to tackle our shared challenges.

The merger-related income and expenses, which amounted to net income of €256 million, are reported in the income statement under ‘Net income from the business combination with WGZ BANK’. All the other line items relate to the business performance of DZ BANK Group before the merger in the first half of 2016 and to the performance of the merged bank in the second half of the year. The figures shown are therefore not comparable with previous years.

From left to right:
Wolfgang Köhler, Uwe Berghaus, Frank Westhoff, Wolfgang Kirsch (Chief Executive Officer), Hans-Bernd Wolberg (Deputy Chief Executive Officer), Dr. Christian Brauckmann, Thomas Ullrich, Karl-Heinz Moll, Dr. Cornelius Riese, Michael Speth, Lars Hille, Stefan Zeidler

Net interest income reached €2.66 billion, with DZ BANK AG’s corporate banking business performing particularly well. We have made good progress on attracting new customers and expanding our business relationships. However, there was a negative impact from provisions that were recognized to cover interest rate bonuses at Bausparkasse Schwäbisch Hall (BSH) because of the persistently low interest rates. Allowances for losses on loans and advances stood at €569 million and were primarily affected by negative developments in DVB Bank’s shipping finance portfolio but were otherwise unremarkable. At €1.7 billion, net fee and commission income was again at a high level. This was mainly due to continued strong business performance from Union Investment and to increases at DZ BANK AG and BSH. Gains and losses on trading activities amounted to €780 million and were influenced by valuation effects for own issues as well as by the growth of primary market business for bonds. DZ BANK also boosted its sales of structured products and expanded its market share in this business. Gains and losses on investments came to €127 million and included extraordinary income from the disposal of shares in VISA Europe. The net income from insurance business of €760 million is the result of R+V Versicherung’s positive operating performance and encouraging level of gains and losses on investments held by insurance companies. Administrative expenses in the DZ BANK Group amounted to €3.6 billion and were influenced primarily by the extensive portfolio of projects required by current regulatory standards as well as by the continued investment in our market initiatives.

The success of the past financial year and the speedy implementation of our merger reflect the special commitment of the employees in the DZ BANK Group. My colleagues on the Board of Managing Directors and I would like to express our sincere gratitude to them. These good results have enabled us to again retain profits. We have further strengthened our capital base from our own resources, not least due to the positive effects from the merger. Applying the provisions of the Capital Requirements Regulation (CRR) in full, the DZ BANK Group’s common equity Tier 1 capital ratio therefore reached 14.5 percent as at December 31, 2016. At the end of 2015, this ratio for the pre-merger DZ BANK Group stood at 13.0 percent. Effective capital management will continue to be very important to our banking group going forward, in particular as further regulatory requirements – especially those in connection with Basel IV – appear on the horizon, placing a further strain on our capital.

“We have further strengthened our capital base from our own resources, not least due to the positive effects from the merger.”

Having weighed up our capital management requirements and the legitimate interests of our owners, we will propose a dividend of 18 cents per share (2015: 16 cents) to the Annual General Meeting.

Looking ahead, we will continue to face challenging conditions. These include heightened political risk, particularly the emerging changes in transatlantic relations and Europe’s as-yet unresolved identity crisis. Some European countries are still experiencing structural problems, while the European Central Bank continues with its expansionary monetary policy in spite of mounting evidence for the negative side-effects this is having. On a positive note, the economic sentiment indicators in the eurozone appear much brighter. Economic momentum in our German domestic market is fairly encouraging; employment is at a record level and is likely to continue improving. Our economists predict growth of 1.5 percent in 2017.

“We have made good progress on attracting new customers and expanding our business relationships.”

Against this economic backdrop, it is important that we continue to focus on our market success while remaining fully confident in our own strengths. The merger has reinforced the DZ BANK Group’s strategic and business structures for the long term. We are now even better placed to operate in the market from a position of strength. Our sound capital adequacy and liquidity, good reputation, one of the best bank ratings in Europe and, following the merger, a complete range of products and services are arguments in our favor. The positive feedback from our customers, especially in the corporate banking business, gives us further encouragement.

The next significant step in the structuring of the DZ BANK Group will be the gradual move toward a holding company structure. We will do the necessary groundwork this year. In addition, we are aiming to reorganize our real estate finance activities. We are taking these steps in order to ensure the highly effective management of our business. At the same time, the individual units can concentrate even more on continuously improving their own products and services.

“The merger has reinforced the DZ BANK Group’s strategic and business structures for the long term.”

Our earnings for 2017 will be significantly influenced by this structural work following on from our merger, while the full benefit of the synergies will only come to bear in the years ahead. With these factors in mind, we anticipate that profit before taxes will be at the lower end of our long-term earnings range of €1.5 billion to €2 billion in 2017 before rising again in subsequent years.

Ensuring the competitiveness of our cooperative financial network lies at the core of our joint efforts. Completion of the process to consolidate the central institutions was pivotal in this regard. The merger of the computing centers, the pooling of strengths at association level, and also the consolidation of cooperative banks represent further steps in this direction. At the same time, the success that we have achieved sets the bar high for the months and years ahead – a challenge that we are working to meet.

Kind regards,

Wolfgang Kirsch
Chief Executive Officer