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Annual General Meeting 2008
Speech by Dr. Wolfgang Klein, Chairman of the
Management Board Deutsche Postbank AG
May 8, 2008
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Annual General Meeting 2008
Shareholders, proxies, ladies and gentlemen, welcome to today's Annual General Meeting.
I am delighted to address you for the first time as Chairman of the Management Board of
Deutsche Postbank AG, on behalf of my fellow board members and all the staff of
Postbank.
Before I take you through the report from the Management Board, I would like to take the
opportunity to introduce you to a number of people who have assumed new resonsibilities
within the Bank since the last AGM.
Dr. Michael Meyer and Mr. Guido Lohmann joined the Board on July 1, 2007 and are
responsible for Product Marketing and Mobile Sales respectively. Both were briefly
introduced at the last AGM.
The meeting of the Supervisory Board of Postbank following today’s AGM will be
concerned with the appointing a successor to Mr. Loukas Rizos responsible for Financial
Markets. As you probably know, Mr. Rizos is moving to another bank on July 1. On behalf
of the Management Board and all the staff of Postbank, I would like to express our thanks
to Mr. Rizos now for his successful work at Postbank and wish him every success in his
professional and personal activities in the future.
To succeed him, we have put forward Mr. Horst Küpker, who has managed the Treasury
department of Postbank with great skill since 2004. This will enable Postbank to maintain
a high degree of continuity in this vital position. Mr. Küpker, I look forward to working
with you.
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Annual General Meeting 2008
2007: a positive result despite tough conditions
Now let me move on to the report from the Management Board. I am very happy to do
this, because I am able to present you with a positive set of results for the 2007 fiscal year.
This is all the more impressive as 2007 was such a turbulent and difficult year for the
financial sector, which found itself in a situation marked by turmoil in the international
financial markets from mid-year onward.
For Postbank, however, 2007 was a thoroughly successful and trend-setting year, as can
be seen from the highlights of the period:
• Our earnings showed very positive growth;
• The trend in our customer business was very satisfactory;
• We completed the integration of BHW as planned.
• We plan to use our strategic “Next Step” program to take Postbank into the future
and make it still more successful against our competitors;
• We have focused all our corporate structures efficiently on sustained value creation,
being guided at all times by what we can do well for ourselves and what is better
to obtain from a partner (“make or buy”). Examples of this are the sale of our life
and accident insurance activities to the Talanx Group and our partnership with
HUK-COBURG for sales of non-life insurance.
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Annual General Meeting 2008
Postbank shares hold their own
And let’s not forget that Postbank shares held their own in a volatile market climate,
especially for banks. Postbank shares initially continued their positive growth from the
previous year, reaching a new high of €74.72 on April 27, 2007. The end of July then saw
the beginning of a worldwide correction on the stock markets, triggered by the deepening
mortgage crisis in the USA. Financial stock prices slumped across the board. Postbank’s
shares were no exception to this trend, although they managed to offset their temporary
losses for the most part by the end of the year, closing at €60.75.
With a decrease of 5% over the year – 3.1% including dividend – Postbank shares
therefore performed better than any other German or European bank stocks: those listed
in the DAX lost 15% of their value on average, while our European peer group went down
by as much as 19%.
Gains in market share on across the board
There is no doubt that merger and acquisition rumors contributed to this stable trend in
our share price. But our core business with private customers also helped to keep the
shares on track. We further consolidated our position as the leading retail bank in
Germany, gaining market share with almost all our core products, in some cases quite
substantially. Attractive products and conditions helped us to continue our long-standing
success story in the face of ever-increasing competition.
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Annual General Meeting 2008
We achieved our ambitious target of one million new customers, an increase of a further
4% on the already successful year of 2006. Despite stiff competition, we gained especially
large numbers of new customers for our no-fee checking account, increasing the number
of checking accounts to 4.88 million.
Our second traditionally strong product also held its own well in the tough competition for
savings. Including call money deposit accounts, the volume of savings held by Postbank
rose by 4.3% to nearly €44 billion. If we include savings deposits, which were almost
unchanged at €16.6 billion, deposits with Postbank increased by 2.9% to €60.5 billion.
In private lending, we surpassed the record year of 2006, with growth of 17% taking us to
€2.87 billion.
The German home loans market remains under pressure, so it is all the more satisfying to
report that we increased our mortgage lending volume by almost €6 billion, or 9%, to
€68 billion, of which €58.2 billion were generated by Postbank – up to 8%.
The number of securities accounts held with Postbank at the end of the fiscal year was
965,000, 5.1% up on the previous year. The volume also increased by a good 7% from
€6.9 billion last year to €7.4 billion.
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Annual General Meeting 2008
Profit before tax breaks through the billion euro barrier
The positive trend in our operating business is also reflected in pleasing increases in
earnings. Apart from the crisis in the capital markets – whose effect on our 2007 profit
income statement was comparatively modest – Postbank was affected by the flat and at
times even inverted yield curve and the intensifying competition in the German retail
banking market. In view of this, we are very happy with our financial results in the 2007
reporting year.
Pre-tax profits rose last year by 6.7% to €1.004 billion. As in previous years, this increase
at Postbank is based on two pillars: first, on a moderate increase in income – despite the
tough conditions; and second, our traditionally high level of cost discipline, while the
allowance for losses on loans and advances remained stable.
The return on equity before taxes increased slightly as of December 31, 2007 to 19.3%
(against 18.9% the previous year); the return on equity after taxes was 16.7% (against
14.0% in 2006). The cost/income ratio for the whole bank improved to 67.2% (from
68.3%); in our traditional banking business, it came to 64.8% in the same period (against
66.7% last year).
The consolidated income statement was influenced by two significant extraordinary factors
in the 2007 fiscal year: first, we completed the sale of insurance equity investments to the
Talanx Group, which we announced in July.
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Annual General Meeting 2008
The positive overall effect on the income statement, which we saw in the third quarter,
amounted to around €125 million before taxes, after deduction of transaction costs and
provisioning in the asset and investment portfolio – which will have a positive impact on
income in future periods – and impairment losses arising from the sub-prime crisis.
This was offset by planned integration costs for BHW. Secondly the remeasurement of our
deferred tax position in response to the tax reform in Germany also had a positive impact,
resulting in a substantially reduced tax rate in the reporting year, which contributed to an
equally significant increase in consolidated net profit and earnings per share.
In 2007, total income including disposal gains on the insurance equity investments, even
despite the losses arising from the capital markets crisis, increased by 3.3% from the
previous year’s value – which was also helped by non-recurring gains – to €4.25 billion
(from €4.12 billion in 2006).
Allowances for losses on loans and advances stood at €338 million in the fiscal year, more
or less the same level as the previous year (€337 million), although the volume of
customer loans increased significantly in the reporting year. This reflects the positive
economic trend in Germany.
As I mentioned before, administrative expenses developed very satisfactorily. Despite one-
off expenses of €113 million, total costs increased by no more than 1.6% to €2.86 billion.
We see this as clear evidence of the great efficiency of Postbank’s structures and processes
and its ability to achieve significantly increased volumes of customer business while
keeping costs very stable. …
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Annual General Meeting 2008
Consolidated net profit for the previous fiscal year just ended came to €870 million,
25.2% up on the previous year (€695 million). Earnings per share also rose substantially
from €4.24 to €5.30.
Postbank’s total assets increased by 9.8% compared to December 31, 2006 to €203
billion. On the asset side, our lending business was a major factor in this increase. On the
liabilities side too, we continued to expand our private consumer business still further and
increased deposits.
At the end of 2007, equity stood at €5.3 billion, around €0.1 billion up on the previous
year’s level. The core capital ratio was 6.9%, 0.3% higher than the comparable value for
the previous year.
With the acquisition of BHW and the former Deutsch Post retail outlets in 2006, Postbank
assured future growth in income and profits. We financed these acquisitions without a
capital increase, diluting Postbank’s capital ratio. This ratio is of great importance to banks.
We therefore made it clear at the time of the acquisitions that we intend to increase our
capital ratio once again, partly by retention of earnings. We aim to achieve a capital ratio
of 7.5 % by 2009. This assumes that the amount of the dividend will remain stable this
year and probably also next. But with a stable dividend of €1.25 per share and a positive
trend in the share price since the IPO, we are convinced that our investors are equitably
participating in the growth of the company.
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Annual General Meeting 2008
I believe, ladies and gentlemen, that Postbank acquitted itself more than respectably in the
2007 fiscal year. Naturally, most of the credit for this outcome goes to our 24,500
employees.
Last year once again they gave their full commitment to the job at hand and overcame the
challenges with aplomb. My heartiest thanks to them all.
Focus on core customers
Postbank took another big step forward in 2007, but we do not intend to rest on our
laurels. The crucial thing for us is to stay that decisive step ahead of the competition in the
future also, because that is what has made us successful in the past.
We need to face up to the ever-intensifying competition for private banking customers
and anticipate it with new product concepts. Based on our successful strategy, we
therefore plan to move forward with our “Next Step” program and evolve further. Where
we have offered the same products to all our customers in the past, we now want to focus
more strongly on our core customers.
But I would also emphasize at this point that this does not imply any deterioration for
those customers who do not do so much business with us. On the contrary, we want to
appeal to these customers too, so they make more and more use of our services.
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But we want to attract the 4.6 million or so customers who now handle most of their
banking business through Postbank to even more of our products and services. We
generate around 75% of our added-value in retail banking from this customer group, as
about 70% of these customers buy at least two Postbank products, and 40% of them buy
three or more.
We intend to take greater advantage of the potential value of this customer group with
comprehensive product and support packages. Our almost 10 million other customers with
potential can expect the same high level of service from us in the future also.
A key role in this will of course be played by our multi-channel sales operation – but not
just by this. Quality and service are the keywords with which we intend to win over
customers across the board. And this is not mere lip service; you can see it in the way that
we have made the business of acquiring and retaining core customers part of everybody’s
remit, and in the way we measure progress and include it in personal targets.
That is why we have kicked off a whole series of measures in our branch business in the
form of the “Filiale im Wandel” (Changing Branches) project. In the vanguard are our
employees, who act as “carers” to the customer. Along with rebuilding activities and a
greater stress on the banking services on offer, the issue of waiting times is naturally
crucial. In order to monitor progress in this area, we introduced the branch barometer in
2007 to measure customer satisfaction and customer loyalty for every branch. We should
have the results by the end of this year, which we will then turn into concrete actions.
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Annual General Meeting 2008
Our mobile sales also developed well in 2007. After the successful integration of Postbank
Vermögensberatung (financial consulting) and the BHW sales operation into Postbank
Finanzberatung AG, we had around 4,300 mobile advisers working for us by the end of
the year. A recruitment campaign for additional financial managers in the 4th quarter
proved very successful, attracting a good 1,000 applicants, and allowing us to stand by our
medium-term target of 5,000 mobile advisers by 2010.
Corporate banking: initial success for SME market offensive
We can also look back on a successful year in our dealings with our 30,000 or so
corporate customers. We refined our innovative payment solutions in the field of
transaction banking and also expanded our loan portfolio, always with an eye to risk. In
this way, Postbank reinforced its position as a high-performance and reliable partner for
payment transactions, as well as for investment financing for SMEs, commercial real estate
finance in Germany and abroad, and in leasing and factoring.
The SME market offensive is registering its first successes, with the volume of new business
in loans to corporate customers up to around €1 billion, more than treble the previous
year's figure. The most encouraging aspect is the growth in capital investment loans and
overdraft facilities.
The program of development loans launched during the year, topping off the range of
products for our lending business, is also showing promise. This growth in line with our
strategy still reflects Postbank's tried and tested risk-conscious lending policy. …
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Commercial real estate financing is a second key pillar of our corporate banking business.
At around €3.6 billion, new business in this segment easily surpassed the previous year’s
level. Overall, the volume of commercial real estate financing broke through the €10
billion barrier for the first time, reaching €11.3 billion.
Transaction banking: an eye on Europe
In 2007, Postbank and its subsidiaries processed around 7.4 billion payment transactions,
up from around 6.2 billion in 2006. This increase is largely attributable to our new client
HVB; taking over payment processing for HVB increased our market share in 2007 from
16% to over 20%.
Along with the further possible growth that we see in Germany, we look to the creation of
the Single European Payments Area (SEPA) to open up further potential for growth within
the euro zone. The conditions for this will be created with the introduction of SEPA in
2008. We therefore plan to establish a joint European service together with one or more
partners in the form of cooperation agreements, holdings or joint ventures.
You can find further details of our business over the last fiscal year in the Group
Management Report, which also contains the report on the information to be provided
under section 289 (4) and section 315 (4) of the HGB (German Commercial Code), to
which I would refer you for further information.
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Crisis in the capital markets continues
Triggered by the real estate crisis in the USA, we have been seeing turmoil in the
international financial markets since mid-2007, also affecting Europe and Germany itself. It
all started with American banks mixing low-equity and variable-interest mortgage
loans into so-called structured products, to spread and hence to minimize the risk. But
when interest rates in the US went up, many home-owners could no longer service their
loans and the associated securities lost value. This market then collapsed.
In the wake of the US mortgage crisis, we are now seeing a wider crisis of confidence and
liquidity among the banks, which has taken in almost all types of asset classes – even those
which have absolutely no possible connection to debased subprime real state loans in the
USA, such as prime-rated German mortgage bonds (Pfandbriefe).
Although Postbank could not completely escape the turbulence in the financial markets,
our conservative investment strategy and good risk management processes enabled us to
keep the negative impact on Postbank within relatively narrow bounds compared to what
we saw in other banks.
However, the crisis is not yet over. The negative trend in the capital markets gathered pace
in the first quarter of 2008 and spread beyond the original problems in the US real estate
sector to affect other asset classes.
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Of course we are not immune to this general deterioration in the market environment.
That is why we already indicated at the presentation of our 2007 results in mid-February
that we can expect a financial impact on the income statement and on equity can be
expected.
Q1: positive results despites the capital markets crisis
We experienced a high level of volatility in the first quarter of 2008, which we see as
temporary fluctuations in many areas rather than genuine impairments. Despite the
persisting turbulence in the capital markets and the losses arising from this, Postbank came
through the first quarter of 2008 in very good shape.
In the customer business, Postbank again demonstrated its selling power and its ability to
continue growing even in the face of intense competition. One reason for this is the
implementation of our strategic program “Next Step”, which we kicked off in the first
quarter.
For example, we increased sales of our no-fee checking account by 133,000 units in this
period, or 13.7%. The strategy of a value-driven volume expansion in the savings business
in value terms announced at the end of 2007 also started to bear fruit. In a hotly
contested market, the volume of traditional savings deposits increased by around €0.5
billion compared to the end of 2007 to reach €44.4 billion.
Home savings also grew in a declining overall market. In the first quarter, new contracts
totaled €2.81 billion, 2.4% more than in the first three months of last year. …
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And the Postbank Privatkredit product actually registered its highest volume of new
business since it was launched, climbing almost 73% year –on-year to €380 million.
With regard to our financial results, ladies and gentlemen, the picture is a little more
mixed. Compared to the same quarter last year, we increased our core operating income –
made up of net interest income and net fee and commission income; but the effects of the
turbulence in the markets caused net trading income and net income from investment
securities to fall back.
Profit before tax in the first three months of 2008 was down 25.2% year-on-year to €166
million. The return on equity before taxes decreased accordingly from 17.0% as of March
31, 2007 to 13.2% on March 31, 2008.
The cost/income ratio for the whole bank rose to 73.9% from 69.4% in the first quarter of
last year; in the traditional banking business (excluding transaction banking), the figure
was 71.8%, against 67.3% the previous year.
After adjustment for the financial effects of the capital market crisis, Postbank recorded
substantial year-on-year improvements in profit before tax, return on equity and the
cost/income ratio in the first three months.
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Annual General Meeting 2008
On March 31, 2008, equity stood at €4.8 billion, €0.5 billion below the value at the end
of 2007, and the revaluation reserve dropped from -€523 million at the end of 2007 to -
€1.15 billion as of March 31, 2008.
The reason for this is that, as the crisis in the financial markets intensified significantly in
the reporting period and spilled over to many other asset classes, the massive widening of
margins resulted in a temporary decrease in the present value of financial investment
instruments. As a result of exaggerated speculation, even some European government
bonds and top-rated mortgagee bonds were affected by this, although no permanent
impairments can be expected.
I would like to be able to say at this point that we have weathered the effects of the
turmoil in the capital markets. But as prudent businessmen, we have to anticipate further
losses in the coming quarters, as the capital markets are still very volatile.
Before I come to the outlook, it is my duty to inform you of the issue of profit-participation
certificates – item 9 on today’s agenda.
The AGM on May 26, 2003 authorized the Management Board to issue profit-
participation certificates for a total nominal amount of up to €2.5 billion. Up to December
31, 2007, this authorization had been exercised to the tune of €1.152 billion. This issue
enabled the company to further strengthen its regulatory capital requirements.
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Annual General Meeting 2008
The issued profit participation certificates are structured like debentures, which means that
they are broadly similar to bonds. The profit participation certificates do not therefore
confer any entitlement to a share in the proceeds of liquidation or the profits of the
company, or any other rights similar to those held by shareholders. The issue of profit-
participation certificates therefore does not affect shareholdings. The authorization from
May 26, 2003 expires on May 26, 2008.
Outlook
For the current year, we are assuming that – because of ongoing tough competition in the
German retail market, flat yield curves, and the initial effects of the new savings account
strategy – operational earnings will only increase moderately in comparison with 2007,
while administrative expenses should decline substantially. We expect the allowance for
losses on loans and advances to perform satisfactorily in view of the robust domestic
economy, and despite the planned increase in the volume of lending.
Based on these assumptions, we set our forecast for operating profit before tax for the
current year at €1.1 billion to €1.2 billion at our Capital Markets Day held at the end of
last year. After the first quarter, we are still on track.
Our projection of an overall profit before tax of €1.22 billion includes the operating profit
mentioned and special factors such as sales gains from restructuring our investment
portfolio on the one hand, and negative effects, in particular those resulting from the
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capital market crisis, on the other. It is still too early to make a definite projection in this
regard, not least because not all decisions concerning our equity investments have been
made.
The same applies – as I already mentioned – to any additional financial consequences of
market developments in the coming quarters, during which we must continue to reckon
with high volatility.
Assuming that the market environment does not worsen further, we anticipate that our
Tier 1 ratio will reach 7.5% by the end of 2009.
Postbank is also planning to increase its profit before tax substantially in the period up to
2010 to between €1.40 billion and €1.45 billion, and its profit after tax to between €980
million and €1.015 billion. These projections are based on a moderate but steady rise in
earnings and continued strict cost management. The cost/income ratio (in the Bank's
traditional banking business) should improve to below 58% by 2010.
Summary
Ladies and gentlemen, I hope that this report from the Management Board has also given
you a pleasing overview of the 2007 fiscal year at Postbank.
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We have laid a good foundation for 2008 and the coming years, on which we can
continue to build our unique business model. With “Next Step” we have already set our
course in the right direction: customer-focus, improved quality, expansion of sales
organization, and concentration on our strengths are the key words here.
I am convinced that our business model, our proven knowledge of the retail banking
sector, our products, our unique sales operation, and of course our employees, place us in
an excellent position to win this contest.
This is underlined by the many reports in the media which I am sure you have seen over
the last few months. Although of course I don’t have to read the newspaper every day to
see who is interested in Postbank. But these reports had one thing in common: Postbank
was portrayed as a worthy object of desire. We have had and are having talks, but we
have never been the subject of talk. We can and will play a responsible role in the
consolidation of the German banking sector.
Ladies and gentlemen, thank you for your attention.
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