investor presentation€¦ · hsh nordbank ag –2017 results at a glance investor presentation...
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Investor Presentation
IFRS Group Result as at 31 December 2017
INVESTOR RELATIONS
HAMBURG, 26 APRIL 2018
HSH Nordbank AG – 2017 results at a glance
226.04.2018INVESTOR PRESENTATION
1 Additional loan loss provisions of EUR -1.1bn and revaluation of hybrid capital of EUR 413mn; 2 Coverage ratio is calculated based on the ratio of loan loss provisions in the portfolio to NPE; 3 Pro-forma, not taking into account the regulatory relief effect of the guarantee; 4 Transaction Banking is not an independent segment
Group
EaD: EUR 72.2bn
Net income before taxes: EUR -453mn – without privatisation effects1 net income before taxes of EUR 238mn
NPE ratio: 10.4% (before portfolio-transaction) – down from 17.5% at the end of 2016
Coverage ratio2: 64%
CET1 ratio without guarantee3: 15.4%
Other and Consolidation
► Overall Bank positions at Group level
► Equity and liquidity portfolio (mainly liquidity reserve)
► Net result from restructuring and privatisation, including revaluation of hybrid capital
EaD: EUR 8.7bn
Net income b.t.: EUR 398mn
NPE ratio: 0%
Coverage ratio: 0%
Non-Core Bank
► Non-strategic and non-performing assets
► Portfolio transaction for an NPE ratio of < 2% on Group level after closing
► Group without Non-Core Bank after closing
► Adequate NPE cover thanks to loan loss provisions and collateral values
EaD: EUR 9.8bn
Net income b.t.: EUR -1,583mn
NPE ratio: 68%
Coverage ratio: 65%
Core Bank
► Strategic lending business
► Main earnings components of the Transaction Banking product division allocated to the market units
EaD: EUR 53.7bn
Net income before taxes: EUR 732mn
NPE ratio: 1.6%
Coverage ratio: 50%
Corporate Clients
EaD: EUR 13.9bn
Real Estate Clients
EaD: EUR 11.8bn
Shipping
EaD: EUR 5.5bn
Treasury & Markets
EaD: EUR 22.5bn
Tra
nsa
ctio
n
Ba
nk
in
g4
Implementation of privatisation burdened with two
significant effects on Group net result for 2017
IFRS Group net result in 2017
26.04.2018INVESTOR PRESENTATION 3
Transition to Group net result before taxes without privatisation effects1
in EUR mn
Privatisation effects
2 3 8
-4 5 3
Net resultbefore taxes 2017
without privatisation effects
Loan loss provisionportfolio-transaction
+1,104
Revaluation ofhybrid capital
-413
Net resultbefore taxes 2017
Other and
Consolidation
Non-Core Bank
1 Adjustments with opposite sign in each case
Negative effect from portfolio-transaction just partially compensated by coupon suspension
► Result from revaluation of hybrid capital of EUR 413mn
► Negative effect of EUR -1,1bn loan loss provision for the portfolio-transaction
► Group net result before taxes 2017 without privatisation effects of EUR 238mn
Core Bank with stable operating performance, solid KPIs –
privatisation effects without any implications
IFRS Group net result in 2017
26.04.2018INVESTOR PRESENTATION 4
Core Bank net result before taxes of EUR 732mn(PY: EUR 667mn)
Total income of the Core Bank of EUR 1,055mn up year-on-year (EUR 1,032mn), also due to the release of hidden reserves
New business of EUR 8.5bn almost on par with the previous year (PY: EUR 8.9bn)
Core Bank NPE ratio of 1.6% (PY: 1.9%)
Administrative expenses of the Core Bank of EUR -302mn further reduced as planned (PY: EUR -358mn), CIR of 28.2% (PY: 34,6%) not representative due to one-off effects
CET1 ratio at a high level: phase-in without guarantee1 15.4%(PY: 12.6%)
Liquidity ratios: LCR 169%, NSFR 114%
2017 funding plan exceeded
1 Pro-forma, without taking into account the regulatory relief effect of the guarantee; 2 2017 new business plus EUR 0.2bn Treasury & Markets (PY: EUR 0.2bn)
Satisfying business development in the Core Bank in the run-up to the change in ownership
Shipping
0.50.3
Real Estate Clients
4.7
3.8
3.1
Corporate Clients
4.6
2016 2017
New business
in EUR bn
Breakdown of new business2
in EUR bn
Thereof almostEUR 2.3bn (27%) with 120 new clients
2017
8.9
2016
8.5
-4%
►►► 1. Privatisation
2. Core business fields
3. Financial key figures for 2017
4. Outlook for 2018
5. Appendix
26.04.2018
Agenda
INVESTOR PRESENTATION 5
p. 6
p. 18
p. 40
p. 53
p. 55
Future owners rank among the world's most experienced
financial investors in the banking sector
Privatisation
26.04.2018INVESTOR PRESENTATION 6
JCF IV NeptunHoldings
S.á.r.l.
GoldenTree Asset Management Lux
S.á.r.l.Chi Centauri LLC
Funds1 initiated byCerberus Capital Management, L.P.
35.0% 12.5% 7.5%
Future ownership structure – private, independent shareholders as of closing
BAWAG P.S.K.
Bank für Arbeitund Wirtschaft und
ÖsterreichischePostsparkasse
Aktiengesellschaft
2.5%
Promontoria Holding 221 B.V.
17.0%
Promontoria Holding 231 B.V.
13.5%
Promontoria Holding 233 B.V.
12.0%
42.5%
Fund initiated byJ.C. Flowers &
Co. LLC
Fund initiated byGoldenTree
Asset
Management LP
Fund initiated byCentaurus
Capital Fund LP
1 Change in share allocation among the funds initiated by Cerberus possible
CEO
Stefan ErmischCRO
Ulrik Lackschewitz
Market
Torsten Temp
CFO
Oliver Gatzke
Management Board of HSH Nordbank
► New, exclusively private, shareholders that are independent of each other: Funds initiated by Cerberus Capital Management, L.P., J.C. Flowers & Co. LLC, GoldenTree Asset Management L.P., Centaurus Capital LP as well as BAWAG P.S.K. AG
► The federal states of Hamburg and Schleswig-Holstein as well as the Savings Banks Association of Schleswig-Holstein have concluded a purchase agreement for all of their indirectly held shares in HSH Nordbank AG (94.9%) – first successful privatisation of a federal state bank in Germany initiated
► Closing of the purchase agreement subject to various conditions: Among other things, ownership control procedure implemented by the banking supervisory authorities, approval by the European Commission and of the federal state parliaments of Hamburg and Schleswig-Holstein; closing expected in the second or third quarter of 2018
► Relief of almost all legacy burdens thanks to the transfer of NPE (portfolio transaction) – mainly ship financing – to funds initiated by Cerberus Capital Management, L.P., J.C. Flowers & Co. LLC, GoldenTree Asset Management L.P. and CentaurusCapital LP
► Portfolio transaction will improve the credit quality significantly, NPE ratio will be reduced to below 2 percent from today's point of view; dissolution of the Non-Core Bank and full termination of the guarantee upon closing
► One-off burdens from portfolio transaction will be digested well due to a very comfortable capital position – after transaction,CET1 capital ratio expected to come to around 15 percent
HSH Nordbank gets experienced private owners,
legacy assets of Non-Core Bank to be carved-out
Privatisation
26.04.2018INVESTOR PRESENTATION 7
2018
Legacy burdens halved – after portfolio transaction
NPE ratio < 2%
Privatisation
26.04.2018INVESTOR PRESENTATION 8
Market value = Sales price
2.5
Additional loan loss provision
-1.1
Carrying amount
3.5
Loan loss provision
already formed
-2.8
31.12.2017
6.3
Implications of the portfolio transaction on
net result2
in EUR bn, EaD
Portfolio quality / NPE ratio in the Group
in EUR bn;
72.2
1.2
2017
64.7
-6.3(-9%)
After closing
64.7
65.9
-7.1 NPE
7.5
2016
83.6
69.0
14.6
PerfomingNPE
10.4%
2017
< 2%
After closing
55% 40%
NPE reduction in 2017 by asset class
in EUR bn, EaD
1.8
14.6
Shipping
4.1
NPE2016
Corporates1 NPE2017
0.17.5
Real Estate Other
1.1
Carrying amount
NPE ratio
► NPE almost halved in 2017 to EUR 7.5bn, thus NPE ratio reduced to 10.4% already before closing
► Continuation of stringent winding-down strategy with the aim of achieving an NPE ratio in line with the German market average
► Balance sheet relief after transfer of the portfolio ofEUR 6.3bn at closing
1 Corporate Clients, Energy & Utilities, Infrastructure & Logistics and Aviation; 2 Rounding differences possible
17.5%
2016
Portfoliotransaction
∑ EUR 7.1bn in NPE winding-down
Sale to anSPV that is independentof HSH Nordbank
Dissolution of Non-Core Bank – legacy assets to be
extracted, Core Bank takes healthy part
Privatisation
26.04.2018INVESTOR PRESENTATION 9
Corporate Clients
4.3
Shipping
0.6
Portfolio transaction – pro-forma presentation
2017, EaD, in EUR bn, without Other & Consolidation
Core Bank Non-Core Bank
Corporate Clients
Real Estate Clients
Shipping Real Estate Divestments
13.7 11.8 4.9
0.30.2 0.0 0.6 1.0
∑ EUR 6.3bn NPE
Portfolio transaction
Aviation
0.1
0.00.8 1.3 1.1 0.0
0.4
Per
form
ing
NP
E
Treasury &Markets
22.5
0.0
∑ EUR 3.6bn (3.2bn PE; 0.4bn NPE)
Transfer to Core Bank
Group without
Non-Core Bank after closing
∑ EUR 52.9bn PE before transfer,∑ EUR 56.1bn PE after transfer
∑ EUR 0.8bn NPE before transfer,∑ EUR 1.2bn NPE after transfer
► Non-Core Bank assets after portfolio transaction of EUR 3.6bn (thereof EUR 0.4bn NPE) will be taken over by the Core Bank in 2018
► NPE ratio of < 2% after portfolio transaction and dissolution of the Non-Core Bank after transfer
New era – focused and agile bank from northern
Germany for medium-sized clients
Privatisation
26.04.2018INVESTOR PRESENTATION 10
2019
► Healthy Bank relieved of the Non-Core Bank and the guarantee; abolition of the previous EU state aid-related restrictions will open up additional business opportunities
► Selective moves to step up international activities in selected business areas in the future: Series of initiatives prepared by the Bank itself; “New Bank” will benefit from the expertise and network of its strong new owners
► Further cost cuts, expansion of product portfolio and strengthening of net commission income to boost profitability
► Focus on improved liability structure and diversified funding base
► Plans for seamless transition from the guarantee scheme from the German Savings Banks Finance Group (SFG) to the Federal Association of German Banks (BdB)
► Sustainable further development of the “New Bank” with solid, competitive key management indicators/KPIs
2018
“New Bank”
–New name, new
brand
Business model for a sustainably profitable Bank
with a healthy balance sheet structure
Privatisation
26.04.2018INVESTOR PRESENTATION 11
Profitability
RoE before taxes
Capital
CET1
Costs
CIR1
Objective for 2022
Credit quality
NPE ratio
Total assets
in EUR bn
1 Including other operating result; 2 Smart Loan Servicing
Transformation of the business model
> 8%
~ 40%
~ 15%
~ 2%
~ 55
► Positive business development in 2017 has made the
Bank much more robust
► Further relief of almost all legacy burdens thanks to the
portfolio transaction - transfer of NPE
► Less organisational complexity: Among other things
thanks to dissolution of the Non-Core Bank and termination of the guarantee, expected in 2018
► Optimised liabilities side thanks to improved deposit
structure, among other things by attracting retail deposits
► Liquidity buffer to be reduced in a targeted manner
► Trend towards higher net margins due to decreasing
liquidity costs and rising interest rate environment
► Rising commission income thanks to initiatives by market
and product units
► Increased efficiency thanks, among other things, to further
measures to reduce complexity
► Normalisation of loan loss provisions
► RWA-friendly business approaches by expanding
syndication activities (for example, SLS2 and debt fund)
Liabilities side to be strengthened: reduced wholesale
deposits, expansion of retail deposits
Privatisation
26.04.2018INVESTOR PRESENTATION 12
Liabilities structure1
– approximated funding volume
in EUR bn
6.6 1.0Cash reserve
► Reduced total assets/liabilities by reducing concentration risks with regard to deposits
► Establishment of retail deposits via online platform "Zinspilot” (Deposit Solutions) successfully launched at the end of 2017, current volume of deposits of EUR 1.3bn
► Pressure on profitability due to planned current high liquidity position; from the end of 2017, active reduction in surplus liquidity by reducing wholesale deposits
► Drop in funding costs as a central and realistic lever for increasing profitability
Progress in the privatisation process has already been resulting in lower refinancing costs since the autumn of 2017
Prospect of funding levels moving closer to competitors’ levels
Equity and subordinated capital2
Repos
ABF
Pfandbriefe
Development banks
Seniorunsecured
Retail deposits
Wholesale deposits
2022
12
21
8
4
12
8
7
2017
70
14
21
9
4
16
0
25
53
Objective for 2022
1 Rounding differences possible; 2 Incl. trading liabilities and provisions
Established, regional business model will be
further developed and diversified
Privatisation
26.04.2018INVESTOR PRESENTATION 13
Portfolio by segment1
EaD in %
1%
3%3%1%
8%
16%
68%
Portfolio by region1
EaD in %
1 EAD as at 31.12.2017; 2Revenue size between EUR 100mn and EUR 1bn
6%
31%
8%
3%
10%16%
12%
14%
Continuity: Business model builds on existing strengths and well established
client relationships
► Stable roots in northern Germany with an in-depth understanding of local markets and strong client loyalty
► Strong position as a bank for corporates with a sector focus
► Long track record as an important partner in specific asset classes (real estate, energy, shipping)
Further development: Strengthening the sector focus on mid-caps2
► Real estate: Focus on new business in German metropolitan regions such as Hamburg,
Frankfurt, Munich, Berlin, Düsseldorf and Stuttgart, as well as gradual expansion of international business in selected countries: Austria, Benelux, France and UK
► Corporate Clients: Continued focus on German medium-sized companies and larger
corporates, as well as project financing in renewable energy (onshore projects) in Germany, Scandinavia, Ireland and the Netherlands, also rail transport, district heating network, data infrastructure
► Shipping: Strategic reduction in ship financing; focus on better credit quality and more
sustainable earnings, particularly in Greece and Singapore
Solid mixture of established market access and further development of the
portfolio provides stability and growth potential
► Portfolio with good levels of regional and sector-related diversification
► Solid risk-return profile with potential in growth markets (e.g. renewable energies)
► Roots in the northern German region as a basis for international activities to be stepped up on a selective basis in Real Estate, Energy & Utilities and Shipping
International organisations
Other
Asia/Pacific
Eastern Europe
Western Europe
Eurozone
Germany
Energy & Utilities
Shipping
Logistics & Infrastructure
Corporates
Real Estate Clients
Non-Core Bank
Other & Consolidation
Treasury &Markets
Transformation based on existing strengths,
supplemented by selected international activities
Privatisation
26.04.2018INVESTOR PRESENTATION 14
Excerpt from asset structure1
– EaD by market departments
in EUR bn
Objective for 2022
2 3
6
1 2
1 4
54
2017
~18
Real Estate Clients
Shipping
Corporate Clients
~4
~18
Treasury & Markets
2022
~12
~53
Expansion in Corporate Clients and Real Estate
Clients segments
► New business in the Corporate Clients and Real Estate segments will balance out the maturity profile of the existing portfolio and result in a stable balance sheet with an attractive yield profile
Risk-return profile in new business
► Focus on the quality of assets rather than on market shares will allow for targeted new business in the core markets, including Corporate Clients and Real Estate, based on strong existing business relationships
► Selective moves to step up international activities, numerous clients operate in selected countries – expand scope of business with existing clients:
Energy and Utilities: Scandinavia, Ireland and the Netherlands
Real Estate Clients: Austria, Benelux, France and UK
Risk-conscious business expansion
► Risk profile remains positive, slight RWA increase will be driven by changes in the balance sheet structure (expansion of the client lending business and reduction in liquidity positions)
27 ~30RWA
1 Rounding differences possible
1 0
8 Project financing
Corporates
18
Well positioned with future business model and
solid KPIs – also in comparison with the competition
Privatisation
26.04.2018INVESTOR PRESENTATION 15
Capital – CET1 ratio (phase in, without guarantee)in %
Credit quality – NPE ratio
in %
Profitability – RoE after taxes3
in %
1 Sources: EBA Risk Dashboard, 2017-Q3; 2 Without the effect of the release of hidden reserves of EUR 356mn and revaluation of hybrid capital of EUR 413mn; 3 RoE for averages for Germany and Europe on the basis of RoE after taxes; 4 Privatisation effects: additional loan loss provisions of EUR 1.1bn and revaluation of hybrid capital of EUR 413mn, adjusted IFRS net result amounts to EUR 238mn
Before taxes
► Following accelerated wind-down of legacy burdens, sale of market portfolio and portfolio transaction, to achieve an NPE ratio of < 2.0%, as well as a significantly reduced shipping exposure
► Adequate capital ratio even without the guarantee, with a comfortable buffer to SREP requirements
After taxes
► Development of CIR to bring it in line with objective by way of efficiency improvements, an increase in revenue and further cost reduction thanks to dissolution of the Non-Core Bank and of the guarantee, as well as a reduced number of employees
► RoE before taxes of 5.1% excluding privatisation effects4 in 2017
► Improvement in profitability by increasing efficiency, reducing costs, increasing income that does not depend on interest rates and balance sheet turnover rate
Objective already achieved upon closing
Pro forma, not taking into account the regulatory relief effect of the guarantee
Net income b. taxes excl. effects of privatisation4
Costs – CIR
in % Adjusted to reflect extraordinary income2
2017
62.4
Objective2022
40.0
GER1
75.9
EU1
61.8
EU1
14.6
GER1
15.8
Objective2022
15.0
2017
15.4
1.8
Objective2022
2.0
2017
10.4
3.7
EU1GER1
~6.0
~8.0
~2.0
2017
5.1
EU1
7.1
Objective2022
3.3
GER1
Moody's and Fitch: Future Bank with improved
financial strength
Privatisation
1 See also last publications by rating agencies on HSH Nordbank homepage: www.hsh-nordbank.de/de/investorrelations/rating/rating.jsp; 2 RuR: Rating under Review; 3 RWN bzw. RWP: Rating Watch Negative / Rating Watch Positive; 4 Includes what are known as complex structured bonds of German banks that are to be given preferential treatment over non-structured bonds in a bail-in under the new German insolvency law as of 2017 (KWG §46f (6) and (7))
26.04.2018INVESTOR PRESENTATION 16
9.06.2017 / 9.03.2018
• “If its privatisation is successful, HSH will emerge as a smaller, financially stronger bank. It would no longer be burdened with high-risk legacy assets and would have fair prospects of sustainable profits”
• "The review for upgrade of HSH's b3 BCA reflects the potential for significant improvement in the bank's solvency profile, and reduced complexity and uncertainty about the bank's future direction, once the required approvals for the announced sale of the bank to a private-sector bidder group are obtained.“
• “After the removal of complexity, HSH can focus on establishing a track record of improving profitability. Following the announced final clean-up of its balance sheet, HSH can be structurally profitable to the extent that its recurring revenue covers its total costs. The clean-up will enable the bank to achieve a major cost relief, considering savings in the areas of risk charges, guarantee fees and the considerable staff costs required for the workout of the nonperforming book.”
• “In our view, efficiency improvements will be paramount for the bank to effectively compete for new lending opportunities while operating with (initially) higher funding costs. We further believe that the bank's new ownership structure will give HSH access to additional process optimisation skills that will help it reposition its cost base."
7.02.2017 /16.03.2018
• “We believe risk reduction efforts over the last two years and stronger impaired coverage had a positive impact on the risk profile of the overall bank, because of measures undertaken in preparation for the sales process, but the viability of its business model remains uncertain”
• “HSH’s VR reflects progress in improving its risk profile in 2017 and Fitch Ratings’ expectation that the agreed sale will allow the bank to continue operating as a commercial bank. We expect further positive VR momentum after the sale closes, reflecting improved asset quality if a removal of bad loans (mainly shipping non performing exposures, NPEs) from the bank proceeds as agreed, and a clearer business model and strategy. HSH’s large, albeit declining, NPE ratio of 11.7% at end-3Q17 remains a negative VR driver.”
• “We expect to upgrade HSH’s VR after the successful privatisation of the bank, subject to receiving the necessary regulatory approvals, if the bank has demonstrated further progress in strengthening its balance sheet. We expect HSH’s VR to remain constrained at or below ‘bb+’ until profitability has improved sustainably, following the privatisation and subject to the development of its business model.”
Moody‘s 1,2
Fitch 1,3
Public-sector Pfandbrief Aa2, RuR, upgrade -
Mortgage Pfandbrief Aa3, RuR, upgrade -
Ship Pfandbrief Baa1, RuR, upgrade -
Long Term Deposits Baa3, RuR, upgrade BBB-, RWN
Senior-senior Unsecured bank debt4 Baa3, RuR, upgrade BBB-, RWN
Senior Unsecured, long term Baa3, RuR, upgrade BBB-, RWN
Short term liabilities P-3, RuR, upgrade F3, RWN
Financial Strength Rating (BCA) / Viability Rating (VR) b3, RuR, upgrade bb-, RWP
►►►
1. Privatisation
2. Core business fields
3. Financial key figures for 2017
4. Outlook for 2018
5. Appendix
26.04.2018
Agenda
INVESTOR PRESENTATION 17
p. 6
p. 18
p. 40
p. 53
p. 55
Good market position as the basis for
further business expansion
Core business fields – Corporate Clients / Project Financing
26.04.2018
► Energy & Utilities – Focus at project and sponsor level on
manufacturers, project developers, general contractors andinvestors. Further expansion of very good positioning in established markets, in particular in Scandinavia, Ireland and the Netherlands. Implementation of first few projects in Canadaand the United States
► Infrastructure & Logistics – Focus on clients and projects
from the field of transport, energy and telecommunications infrastructure (niches and new segments), expand excellent footprint in broadband, focus on priority areas such as rail asset financing (locomotives and freight wagons)
► Profitability to increase through the expansion of new business and receivables portfolio with above-average growth in commission income in the period leading up to 2022
Strategic focus
INVESTOR PRESENTATION 18
Project Financing
► High market penetration in the area of renewable
energy projects (Top 5 of the European financiers) as well as for Infrastructure & Logistics
► Very strong position in our core markets along the value chain
► High level of advisory expertise, comprehensive project and structuring expertise
► Broad range of high-performance solutions:
Structured financing at project and corporate level
Risk hedging and guarantee business
Payment transactions and cash management
Transaction advisory services such as M&A
ENERGY
& UTILITIES
INFRASTRUCTURE
& LOGISTICS
Industry expertise and client-specific
solutions for larger medium-sized companies
Core business fields – Corporate Clients / Corporates
26.04.2018
► Stepping up medium-sized corporates business with the aim of establishing long-term and profitable client relationships on the basis of industry, product and consultancy expertise
► Nationwide expansion in the focal sectors of retail, food, healthcare and industry & services and selective growth with large clients
► Strengthening the profile of the integrated corporate finance bank by expanding consulting capacity
► Sustainable stabilisation of the cross-selling rate by strengthening sales strategies and via the closer integration of product and customer departments
Strategic focus
INVESTOR PRESENTATION 19
Corporates
► Established financing partner in the commercial centre of Hamburg and in the northern German region
► Growth segment of Industry and Services: with individual solutions and locations, close to clients throughout Germany
► Focus sectors include retail, commodities, textiles,
food
► Recognised industry expertise and a strong market position in the healthcare sector
► Competitive differentiation thanks to integrated corporate
finance with consultancy in the areas of structured finance, leveraged buy-out, mergers & acquisitions
FOCUS SECTORS
FOOD
INDUSTRY
TRADE
INDUSTRY &
SERVICES
HEALTHCARE
M & A
STRUCTURED
FINANCE
WEALTH
MANAGEMENT
Challenging environment with negative impact
on net income
Core business fields – Corporate Clients
1 After guarantee effects, foreign exchange result and hedging effect of credit derivative; 2 Represents the ratio of administrative expenses to total income plus “other operating result”
26.04.2018
New business
in EUR bn
Comments
2016 2017
EaD (EUR bn) 14.2 13.9
Total income 251 218
Loan loss provisions in the lending business1
-5 -53
Administrative expenses -149 -124
Net income before taxes 89 41
CIR2
(in %) 58 55
INVESTOR PRESENTATION 20
2017
-19%
3.1
2016
3.8
1.1(36%)
Healthcare0.2
(6%)
Logistics &Infrastructure
Industry &Services
Energy &Utilities
Trade &Food Industry
0.6(19%)
0.8(24%)
0.5(15%)
Overview of key indicators
in EUR mn
New business by priority sector
in %
► Corporate Clients generated net income before taxes of EUR 41mn (PY: EUR 89mn) burdened by loan loss provisions for two single exposures; total income: EUR 218mn (PY: EUR 251mn)
► The drop in income is due to a competitive environment and burdens resulting from the offsetting of earnings in connection with the increase in liquidity resources during the privatisation period
► Focal sector of Trade & Food exceeded the plan with regard to new business
► Energy and Infrastructure increased the receivables volume by approximately EUR 0.4bn to EUR 5.7bn, successfully entered the Dutch and Portuguese markets and strengthened the market position in Ireland
Well diversified in terms of sectors
and very solid portfolio quality
Core business fields – Corporate Clients
26.04.2018
► Project financing in the Energy & Utilities focal area dominates the portfolio at EUR 4.6bn (33%)
► Domestic borrowers account for EUR 9.1bn (66%) and international, mainly European, borrowers for EUR 4.7bn (34%) of the financing transactions
► Good diversification across focus sectors
Portfolio by segment and region
in EUR bn, EaD/ in %
INVESTOR PRESENTATION
13-15
0.020.13
16-18
0.280.18
2-5
0.33
2.74
6.17
6-9
0.11
10-12
0.04
0-1
0.84
2.65
0.39
non-guaranteed
guaranteedPortfolio by rating category
in EUR bn, EaD
Investmentgrade
Non-investment grade Defaultcategories
Other
Regions
Industry & Services
Logistics &Infrastructure
2%
Energy &Utilities
23%
5%
6%
20%
13%
13.9
33%
Segments
1%
66%
7%2%
10%
9%
Healthcare
13.9
Trade & Food Industry
Germany
France
Belgium/Lux.
United Kingdom
SpainItaly
Other Europe
Other
► Corporate Clients portfolio of EUR 13.9bn EaD in total, of which EUR 10.0bn (72%) in investment grade and EUR 13.7bn (99%) in rating categories 0 to 9
► NPE ratio of 1.1% with an NPE of EUR 157mn
► Total loan loss provisions of EUR 113mn equivalent to a coverage ratio of 72%
21
∑ 10.05 ∑ 3.68 ∑ 0.16
3%
Selected business deals in 2017
Core business fields – Corporate Clients / Project Financing
26.04.2018INVESTOR PRESENTATION 22
WIND FARM STEINAU
HINTERSTEINAU
2017
EUR 77,111,200
GermanyProject finance Sole MLA
WIND FARM
RATIPERÄ
2017
WIND FARM
RATIPERÄ
2017
EUR 66,100,000
FinlandProject finance MLA
WIND FARM
NORTHPOLE
2017
EUR 478,922,000
SwedenProject finance Joint MLA
WIND FARM FLEURY
WF LES RENARDIERES
2017
EUR 88,814,000
FranceProject finance Sole MLA
WIND FARM
CARRICKALLEN
2017
EUR 42,528,000
IrelandProject financeMLA
EUR 595,000,000
G+E GETEC HOLDING
GMBH
2017
GermanyAcquisition financingMandated lead arranger
EUR 165,500,000
EDGE CONNEX
2017
IrelandSenior debtMandated lead arrangerFacility agent
EUR 259,000,000
GBP 322,000,000
BEACON RAIL
2017
LuxembourgAcquisition financing Mandated lead arranger
GBP 520,000,000
RIVERSIDE RESOURCE
RECOVERY LTD
2017
UKRefinancingarranger
PROJECT SPEED
2017
EUR 100,000,000
IrelandRefinancingMandated lead arranger
Selected business deals in 2017
Core business fields – Corporate Clients / Corporates
26.04.2018INVESTOR PRESENTATION 23
Advisor to the
seller
2017
Sale of the shares in Kontora
Family Office GmbH
to the management
Advisor to the
seller
2017
Sale of the shares in
Papierfabrik Meldorf
to Certina Production
GmbH
TER HELL & CO. GMBH
2017
EUR 170,000,000
GermanyAcquisition financingMandated lead arranger
MKM MANSFELDER
KUPFER UND MESSING
GMBH
2017
EUR 180,000,000
GermanyRCF & L/G financingMandated lead arranger
FACTORING LIMIT
extended and
temporarily increased to
EUR 120,000,000
Arranger and
sole lender
2017
NRW BUILDING
TECHNOLOGY
EUR 125,000,000
Acquisition financingMandated lead arranger
2017
Advisor to the
seller
2017
Sale of Röpersberg Group
to AMEOS Group
KOEPFER GROUP
2017
EUR 50,000,000
Syndicated financing Mandated lead arranger
2017 2017
AGC INTERPANE
GROUP
EUR 30,000,000
Term loan & RCFCoordinating MLA& bookrunner, facility & security agent
VAPIANO
EUR 200,000,000
Term Loan & RCFMandated lead arranger
Leading provider of real estate finance with good
market penetration and outstanding expertise
Core business fields – Real Estate
26.04.2018
► Intensive efforts to exploit the potential associated with provision of support to international investors seeking to enter the German market
► Growth via international outbound business, proximity to international clients will facilitate rapid implementation, in particular Austria, Benelux, France and UK
► Tailor-made solutions from asset finance including project financing and risk and liquidity management
► Profitability to increase through the further expansion of new business and receivables portfolio with above-average growth in commission income in the period leading up to 2022
Strategic focus
INVESTOR PRESENTATION 24
► Major provider of commercial real estate finance inGerman metropolitan regions with high marketpenetration (at around 50% of the market volume)
► Established, long-standing business relationships with professional real estate investors (national and international), as well as project and propertydevelopers
► Broadening of client base by attracting new clients thatare a good fit for the strategy on an ongoing basis
► Strong range of services including individual financing solutions for existing properties, portfolios, project developments and refurbishments
► Outstanding asset expertise in the front and back office with high level of reliability vis-à-vis investors and swift loan assessment and granting
► Diversified portfolio that is profitable in the long run and offers a very good risk-return profile consisting of residential, office and retail properties
REAL ESTATE
New business expanded and market position
strengthened further
Core business fields – Real Estate Clients
26.04.2018
► Real Estate Clients made a significant contribution to earnings, with EUR 127mn in net income before taxes (PY: EUR 148mn), slightly lower interest margins result in moderate burden
► Approx. EUR 22bn in loan applications in 2017 shows the high level of market penetration
► New business expanded to EUR 4.7bn despite intense competition, market position strengthened further
► Business in the western German metropolitan areas and with international institutional investors continued in Q4 2017
► It was possible to maintain the high market penetration in the core region of northern Germany
+2%
2017
4.7
2016
4.6
New business
in EUR bn
Overview of key indicators
in EUR mn
Comments
2016 2017
EaD (EUR bn) 12.5 11.8
Total income 218 185
Loan loss provisions in the lending business1
0 2
Administrative expenses -57 -54
Net income before taxes 148 127
CIR2
(in %) 26 29
INVESTOR PRESENTATION
Development of existing and new business
in EUR bn
New businessExisting business, EaD
25
1 After effects relating to the guarantee, foreign exchange result and hedging effect of credit derivative; 2 Calculated as the ratio of administrative expenses to total income plus “other operating result”
11.8
+287%
+15%
2017
4.7
2016
4.6
12.5
2015
4.5
12.3
2014
4.1
11.6
2013
2.8
10.4
2012
2.6
10.3
2011
1.2
10.3
Good level of diversification by type of utilisation
and region
Core business fields – Real Estate Clients
26.04.2018
Portfolio by segment and region
in EUR bn, EaD/ in %
INVESTOR PRESENTATION
28%
27%
Düsseldorf / Cologne
13%
3%
13%
4%
Hamburg
Other western Germany
24%
Berlin
Other eastern Germany
Munich
Frankfurt
Schleswig-Holstein
International
Other financings1
Stuttgart
Regions
11.8
28%
11%
9%
8%
3%
12%
7%
4%
3%2%
Type of use
11.8
Residential
Retail
Office
► Real Estate portfolio of EUR 11.8bn EaD in total, of which EUR 6.7bn (56%) investment grade and EUR 11.8bn (100%) in rating categories 0 to 9
► NPE ratio of 0.3% with a fully guaranteed NPE of EUR 35mn
► Total loan loss provisions of EUR 14mn equivalent to a coverage ratio of 39%
► EUR 5.9bn (50%) of the portfolio attributable to financing in western German metropolitan regions – successful strategy of regional presence
► 40% of financing with international investors
► Portfolio shows good diversification in all segments
► Continued expansion of transactions eligible for the cover pool
Portfolio by rating category
in EUR bn, EaDguaranteed
non-guaranteed
Investmentgrade
Non-investment grade Defaultcategories
Operator-runproperties
Othercommercial business
Otherfinancing
1 No regional allocation because no property collateral
26
∑ 6.66 ∑ 5.12 ∑ 0.04
1.68
0.28
0-1
4.41
0.39
2-5
4.70
6-9
0.29
10-12
0.01 0.01
16-18
0.030.02
13-15
Selected business deals in 2017
Core business fields – Real Estate Clients
26.04.2018INVESTOR PRESENTATION 27
RETAIL SHOPPING
CENTRE
2017
EUR 410,000,000
Berlin/DresdenExisting financingArranger
RESIDENTIAL
PORTFOLIOS
2017
EUR 70,000,000
BraunschweigPortfolio financingSole lender
“AM
TAUNUSBRUNNEN”
2017
EUR 45,000,000
KarbenProperty developer financingSole lender
RESIDENTIAL PORTFOLIO
BERLIN LICHTENBERG
2017
EUR 20,000,000
BerlinProject financingSole lender
PORTFOLIO FINANCING
2017
EUR 60,000,000
Munich/FürstenfeldbruckExisting financingSole lender
MARIENKRANKENHAUS
2017
EUR 115,380,000
Frankfurt am MainProperty developer financingSole lender
“STRANDKAI”
2017
EUR 138,700,000
HamburgProject developmentSole lender
“PÖSNA-PARK”
2017
EUR 40,500,000
LeipzigAcquisition financingSole lender
"GREENMAN OPEN”
2017
EUR 173,500,000
GermanyExisting financingArranger
HYATT REGENCY
2017
EUR 38,000,000
MainzExisting financingSole lender
High level of industry expertise and global track record –
portfolio will be developed further on a selective basis
Core business fields – Shipping
26.04.2018
► Selected new business in a recovering market – nevertheless, continued reduction in existing portfolio
► Focus on medium-sized and larger shipping companies with increasing importance of corporate structures in general
► Diversified portfolio of containers, bulkers and tankers with selective involvement in special segments (e.g. car carriers)
► Increase in profitability due to increasing commission business
► Exploit additional business potential resulting from market exit of competitors (market with high barriers to entry)
Strategic focus
INVESTOR PRESENTATION 28
► Good market penetration in target markets and segmentswith long-standing client relationships
► Global expertise with considerable financing and structuringcompetence in a long-term growth market
► Excellent client access in major shipping markets: Hamburg1, Athens1, Singapore1, Hong Kong1, New York and Scandinavia
► Individual solutions: Risk Management, Global Cash Management and M&A Advisory, as well as Underwriting
► Portfolio based on a relatively young fleet (average age 7.2 years) with good profit potential
1 Represented directly on location
SHIPPING
FLEET FINANCE
2017
USD 460,000,000
PiraeusShip FinanceArranger
FLEET FINANCE
2017
USD 75,000,000
GermanyShip FinanceSole lender
New business with shipping companies with good credit
ratings, further reduction in portfolio
Core business fields – Shipping
26.04.2018
► Shipping reports net income before taxes of EUR 94mn, lower
than in the previous year (EUR 104mn) due to a drop in net interest income from declining volume of receivables
► Loan loss provisions of EUR 63mn (PY: EUR 52mn) include reversals of GLLP, in addition, guarantee expense of EUR -18mn put significant pressure on the net result
► In a market environment that remains challenging, selected new business with international shipping companies with good credit ratings of EUR 0.5bn and slightly below plan, but higher than in the previous year (EUR 0.3bn)
+89%
2017
0.5
2016
0.3
New business
in EUR bn
Overview of key indicators
in EUR mn
Comments
2016 2017
EaD (EUR bn) 7.1 5.5
Total income 127 91
Loan loss provisions in the lending business1
52 63
Administrative expenses -53 -40
Net income before taxes 104 94
CIR2
(in %) 41 43
INVESTOR PRESENTATION
Development of existing and new business
in EUR bn
-73%
2017
0.5
5.5
2016
0.3
20.4
0.9
2012
15.3
0.9
2013
16.4
1.5
2014
8.4
0.8
2015
7.1
2011
1.2
18.2
Existing business, EaD New business
29
1 After effects relating to the guarantee, foreign exchange result and hedging effect of credit derivative; 2 Represents the ratio of administrative expenses to total income plus “other operating result”
Before portfolio reallocation After portfolio reallocation
Shipping portfolio reflects slight recovery trends
in the market subject to a time lag
Core business fields – Shipping
1 Incl. working capital finance; 2 Excl. Germany, Scandinavia and Greece
26.04.2018INVESTOR PRESENTATION
non-guaranteed
guaranteedPortfolio by rating category
in EUR bn, EaD
Investmentgrade
Non-investment grade Defaultcategories
Portfolio by segment and region
EUR bn, EaD/ in %
► EUR 3.7bn (66%) of loans attributable to international and EUR 1.8bn (34%) to domestic shipping clients
► Bulkers account for a significant proportion of the Core Bank's shipping portfolio, namely EUR 1.7bn (31%)
► The average age of the ships is 7.2 years
► Number of financed ships comes to 650
► Shipping portfolio of EUR 5.5bn EaD in total, of which EUR 0.7bn (12%) in investment grade and EUR 4.9bn (88%) in rating categories 0 to 9
► NPE ratio of 11.7% with an NPE of EUR 648mn
► Total loan loss provisions of EUR 294mn equivalent to an appropriate coverage ratio of 45%
30
∑ 0.69 ∑ 4.20 ∑ 0.65
15%
Germany
Greece
5%2% 2%
Segments
5.5
31%
30%
19%
4%
16%
18%
20%
34%
5.5
Regions
Middle East/ Africa
5%Americas
Scandinavia
Middle &Eastern Europe
Asia / Pacific
Western Europe2Containers
Bulkers
Tankers
Other ships
Otherfinancing1
0.21
13-15
0.44
0.20
16-18
0.68
10-12
0.37
0.54
6-9
1.56
0.85
2-5
0.40
0.14
0-1
0.080.06
Nearly 90% performing assets and
well-diversified portfolio
Core business fields – Shipping
26.04.2018INVESTOR PRESENTATION
non-performingperforming
1 Incl. working capital finance
31
Portfolio by performing and non-performing exposure
in EUR bn, EaD
Capesize
Panamax
Handymax
Handy
Bulkers
1.7
15%
21%
39%
25%
Chemicals
VLCC
Suezmax
Aframax
Panamax
Handy
Tankers
1.1
11%
25%
19%
17%
5%
23%
Diversification within the three large ship classes
in EUR bn, EaD
7.9 / # 176 6.2 / # 196 7.3 / # 177 7.6 / # 101 n.a.7.2 / # 650
Average age / number of ships
Super-Post-Panamax
Post-Panamax
Panamax
New Post-Panamax
Sub-Panamax
Handymax
Handy
Feeder / Feedermax
Containers
1.9
21%
23%
28%
11%
8%
6%2%1%
Shipping
Core Bank
5.5
0.6(12%)
4.9(88%)
Other financings1
0.2
4% 96%
Other ships
0.8
3%97%
Tankers
1.1
4%
96%
Bulkers
1.7
31%
69%
Containers
1.7
2%
98%
26.04.2018INVESTOR PRESENTATION 32
Differentiated market developments in the ship
categories
Core business fields – Shipping
Portfolio-weighted ACTUAL charter rates & second-hand prices
Lowest value (end of 2015 to date)
Bulkers | Charter rates (in USD/day) and second-hand prices (in USD mn)
Containers | Charter rates (in USD/day) and second-hand prices (in USD mn)
Tankers | Charter rates (in USD/day) and second-hand prices (in USD mn)
► Containers: Recovery continues.
Demand being supported by the upturn in the global economy. Accelerated fleet growth, since scrapping activities are decreasing and deliveries are increasing. Recently higher order levels (particularly for large ships). Due to excess demand, utilisation will continue to improve in 2018 and 2019
► Bulkers: Stabilisation is expected. Asia
supporting sustained increase in demand. Scrapping to decrease significantly in the first instance and will only start to rise again in 2019 as a result of regulatory provisions. Orders remain at a moderate level despite low newbuild prices. Deliveries will be halved in 2018. Increasing utilisation of the existing fleet
► Tankers: Cautious recovery expected as
of 2019. Demand growth on a moderate level: OPEC production cuts will act as a damper until the end of 2018; increasing US crude oil exports will not compensate for this. Fleet growth is slowing down. Utilisation is expected to remain at a low level in 2018 and will pick up slightly in the following years
30
35
40
45
50
12/15 06/16 12/16 06/17 12/17 06/18
12
14
16
18
20
22
12/15 06/16 12/16 06/17 12/17 06/18
15
20
25
30
35
40
12/15 06/16 12/16 06/17 12/17 06/187.500
10.000
12.500
15.000
12/15 06/16 12/16 06/17 12/17 06/18
4.000
6.000
8.000
10.000
12.000
14.000
12/15 06/16 12/16 06/17 12/17 06/18
15.000
17.500
20.000
22.500
25.000
27.500
30.000
12/15 06/16 12/16 06/17 12/17 06/18
Sources - graphics: Clarksons, HSH Nordbank; text/forecasts: Marsoft, MSI
Relationship and strong product expertise as basis
for risk-conscious business expansion
Core business fields – Treasury & Markets
26.04.2018
► Moves to forge ahead with syndication activities (“originate to distribute”) will open up new business opportunities
► Expansion of retail deposits via online platform
► Risk-conscious expansion of trading book activities
► Moves to drive ahead with digital transformation (development of bank products and services that are fit for the future)
► Supporting market segments with capital market products in connection with the implementation of their growth strategy
Strategic focus
INVESTOR PRESENTATION 33
► Long-standing well-established business relationships with institutional investors, companies and municipalities, as well as federal states
► Recognised expertise in capital market products, as well as comprehensive industry expertise for tailor-made products in the area of risk and liquidity management
► Central operational management of liquidity and market price risks of the Bank's positions
► Refinancing of the Bank and implementation of measures to strengthen capital
► Syndicate function: Arranging loans/financing, for example, by means of promissory notes or bonds
► Service provider for all business units
TREASURY & MARKETS
Treasury & Markets – Funding above plan, results
characterised by release of hidden reserves
Core business fields – Treasury & Markets
26.04.2018INVESTOR PRESENTATION 34
Comments
► Treasury & Markets achieved operational successes in banking
book activities and the derivatives business in 2017
► Client business, excluding syndication activities, exceeded the prior-year result, bolstered by a high contribution to earnings from the deposit business with institutional clients
► Raising of funds comfortably above plan. Private placements to institutional investors dominant
► Refinancing diversified further by successful début in attracting retail client deposits
1 After effects relating to the guarantee, foreign exchange result and hedging effect of credit derivative; 2 Represents the ratio of administrative expenses to total income plus “other operating result”; 3 Residual maturity > 1 year; 4 Incl. asset-based funding, repo transactions, and deposits from development banks
Overview of key indicators
in EUR mn
2016 2017
EaD (EUR bn) 18.0 22.5
Total income 436 561
Loan loss provisions in the lending business1
0 1
Administrative expenses -99 -84
Net income before taxes 326 470
CIR2
(in %) 23 15
► Group of institutional investors expanded, underwriting and syndication expanded, debt fund developed to market readiness
► Net income before taxes of EUR 470mn (PY: EUR 326mn). Earnings contribution made by Treasury & Markets above plan, even without special effects of the release of hidden reserves (EUR 356mn)
► Administrative expenses reduced by around 15% year-on-year despite increased requirements, particularly from increase in regulatory requirements and privatisation process
Miscellaneous Secured
funding4
13%
Pfandbriefe 24%
Senior Unsecured
43%
Subordinated
liabilities4%
Silent participations
6%
Share capital
10%
Long-term refinancing structure3
in %
Treasury & Markets – Development of new sources of
refinancing on track for success
Core business fields – Treasury & Markets
26.04.2018INVESTOR PRESENTATION 35
Funding
► Long-term funding through funding mix above plan at year-end
► Further structural optimisation of the ABF platform
► Pfandbrief benchmark program successfully continued with the issue of a public-sector Pfandbrief
► Liquidity ratios well above regulatory requirements: LCR 169%, NSFR of 114% and LiqV of 1.79
► Lower refinancing needs for 2018 thanks to optimisation ofthe high liquidity position
Strengthening of liability structure via retail
deposits
German consumer magazine Stiftung Warentest
recommends the 1-year HSH fixed-term deposit via the
“Zinspilot” portal as a top offer
► Access to targeted “Retail”client segment without theBank’s own distribution infrastructure
► Improvement in liability and deposit structure achieved via retail platform; current portfolio of over EUR 1.3bn
► The deposit market offers potential of approximately EUR 2,000bn in Germany alone
► Reduces total costs (interest rate & operating costs) in the event of an increase in retail deposits
► Dedicated volume management possible via the price-sales function
► Diversification and “inactivity” of deposits reduces the refinancing risk
► Lower volatility has a positive effect on CRR ratios (NSFR and LCR) and rating
Selected business deals in 2017 – Debt Capital Markets
Core business fields – Treasury & Markets
26.04.2018INVESTOR PRESENTATION 36
FEDERAL STATE OF
RHINELAND-
PALATINATE
2017
EUR 250,000,000
Federal state treasury noteJoint lead manager
LÄNDER JUMBO 52
2017
EUR 1,000,000,000
Federal state treasury noteJoint lead manager
HAPAG-LLOYD AG
2017
EUR 450,000,000
High yield bondJoint bookrunner
2017
EUR 250,000,000
High yield bondJoint bookrunner
UNIVERSITÄTSKLINIK
UM EPPENDORF
2017
EUR 19,300,000
Registered bondSole arranger
CITY OF DORTMUND
2017
EUR 30,000,000
Promissory note Sole arranger
CITY OF HAGEN
2017
EUR 45,000,000
Promissory note Sole arranger
NORD/LB
2017
EUR 500,000,000
Public-sector PfandbriefJoint lead manager
FEDERAL STATE OF
BERLIN
2017
EUR 250,000,000
Federal state treasury noteJoint lead manager
HAPAG-LLOYD AG
HAMBURGER
ENERGIENETZE
GMBH
2017
EUR 30,000,000
Registered bondSole arranger
Total new business of EUR 8.5bn has developed in line
with the plan in a challenging environment
Core business fields – New Business
26.04.2018INVESTOR PRESENTATION 37
New business
in EUR bn
-4%
2017
8.5
2016
8.9
Breakdown of new business1
in EUR bn
4.7
Real Estate Clients
0.50.3
Shipping
4.6
Corporate Clients
3.1
3.8
2017
2016
1 New business 2017 plus EUR 0.2bn Treasury & Markets (PY: EUR 0.2bn); 2 Cumulative on-balance sheet new business since 2011 that is still in the Core Bank portfolio
New business / NPE since 20112
Treasury &Markets
0.5
Shipping1.5
Real EstateClients
9.0
Corporate Clients8.5
Total19.6
0.0
99.4
6.5
115.5
221.4
NPE
in EUR mn
1.1%
NPE ratio in new business
1.4%
0.1%
6.5%
► New business of EUR 19.6bn since 20112
► NPE ratio in new business 1.1%
► Shipping main driver with an NPE ratio of 6.5% in new business
0.0%
► The focus is on generating new business with an appropriate risk/return profile in a market environment that remains challenging
New business2
in EUR bnThereof almostEUR 2.3bn (27%) with 120 new clients
Core Bank with solid portfolio quality and good NPE
ratio of 1.6%
Core business fields – Portfolio
26.04.2018
► Core Bank portfolio of EUR 53.7bn EaD1, of which EUR 39.6bn (74%) in investment grade and EUR 52.9bn (98%) in rating categories 0 to 9
► NPE volume of EUR 840mn corresponds to an NPE ratio of 1.6%
► Shipping dominates NPE with a volume of EUR 648mn/77% and corresponds to an NPE ratio of 11.7%
► Increase in NPE in the Corporate Clients segment due to larger individual commitments
► Coverage ratio of 50% in the Core Bank at a solid level
Core Bank portfolio by rating category1
in EUR bn, EaD
INVESTOR PRESENTATION
0.5
13-15
0.40.7
10-12
0.70.7
6-9
9.1
1.6
2-5
14.9
1.3
0-1
21.4
2.0
16-18
0.3
guaranteed non-guaranteed
Investment
grade
Non-investment grade Default
categories
NPE by client divisions2
in EUR mn, EaDnon-guaranteed
guaranteed
38
∑ 39.6 ∑ 13.3 ∑ 0.8
Client business
portfolio
Real EstateClients
CorporateClients
Shipping 18%
38%
44%
∑ EUR 31.2bn EaD
1 Incl. EUR 22.5bn EaD Treasury & Markets; 2 Rounding differences possible
2 05
1 3 2
4 4 3
2 9
NPE Core Bank
Shipping648
Real Estate Clients35 6
Corporate Clients157 24
Other0
59% covered by the guarantee
50% coverage ratio
840
NPL ratio 1.6%Plus EUR 22.5bn EaD
Treasury & Markets
►►►
1. Privatisation
2. Core business fields
3. Financial key figures for 2017
4. Outlook for 2018
5. Appendix
26.04.2018
Agenda
INVESTOR PRESENTATION 39
p. 6
p. 18
p. 40
p. 53
p. 55
Portfolio transaction puts pressure on Group net result
Financial key figures for 2017 – Group
in EUR mn, IFRSCore Bank Non-Core Bank
Other and
Consolidation Group
2016 2017 2016 2017 2016 2017 2016 2017
Net interest income 680 773 15 -9 -88 415 607 1,179
Net commission income 81 77 20 20 -14 -32 87 65
Result from hedging 0 0 0 0 -4 -18 -4 -18
Net trading income 186 154 -53 84 -45 16 88 254
Net income from financial investments1
85 51 54 -23 4 64 143 92
Total income 1,032 1,055 36 72 -147 445 921 1,572
Loan loss provisions in the lending business2
47 13 106 -1,295 3 6 156 -1,276
Administrative expenses -358 -302 -299 -202 23 -11 -634 -515
Other operating income 2 16 62 -22 -6 28 58 22
Expenses for bank levy and deposit guarantee fund
-31 -28 -15 -9 -10 -4 -56 -41
Net income before restructuring and
privatisation692 754 -110 -1,456 -137 464 445 -238
Net income from restructuring and privatisation 0 0 0 0 -110 -66 -110 -66
Expenses for government guarantees3
-25 -22 -189 -127 0 0 -214 -149
Net income before taxes 667 732 -299 -1,583 -247 398 121 -453
Income tax expense -52 -75
Net income after taxes 69 -528
1 Incl. result from the financial investments accounted for under the equity method; 2 After effects relating to the guarantee, foreign exchange result and hedging effect of credit derivative; 3 Base premium and subsequent payments (2016)
26.04.2018 40INVESTOR PRESENTATION
Pro-forma, not taking into account the regulatory relief effect
of the guarantee
Core Bank with operating strength –
CET1 ratio at high level
Financial key figures for 2017 – Group
RWA after guarantee
in EUR bn
► RWA reduced by 22% since the end of 2016 to EUR 22.2bn thanks
to winding down measures, reduction in market price risks and weaker US dollar
26.04.2018
1 Calculated as the ratio of net income before taxes to average reported equity capital
INVESTOR PRESENTATION
CET1 ratio (phase in)
in %
► Core Tier 1 capital ratios improved, largely due to further
RWA reduction
► Pro-forma capital ratio excl. guarantee introduced in preparation for privatisation at a very solid level of 15.4%
41
Group net result and RoE1 before taxes
in EUR mn;
2.5% -9.7%
RoE
-4 5 3
1 2 1
2016 2017
► Group net result before taxes of EUR -453mn (PY: EUR 121mn) characterised, in addition to solid operational development, in
particular by unplanned privatisation effects (additional loan loss provisions of EUR 1.1bn and revaluation of hybrid capital of EUR 413mn). Without these privatisation effects, net income before taxes comes to EUR 238mn. At EUR 356mn, the release of hidden reserves made a positive contribution to the net result as planned (PY: EUR 186mn)
Distribution of net income before taxes
in EUR mn
2016
-23%
Core Bank
2017
22.2
16.5
4.31.3
Non-Core Bank
Other andConsolidation
28.6
1.58.3
18.7
+4.4 PP.
2017
18.5
2016
14.1 15.4
2017
7 3 26 6 7
-2 9 9
3 9 8
-2 4 7
+10%
2017
-1.583
2016
Other and ConsolidationNon-Core BankCore Bank
Systematic deleveraging improves balance sheet
structure – comfortable liquidity ratios
Financial key figures for 2017 – Group
26.04.2018
Leverage ratio3
in %
Bail-in ratio2
in%
► Bail-in ratio of around 10.2% (before senior unsecured) above the
bail-in threshold of 8%
► Maturity of subordinated capital of EUR 0.9bn in Feb. 2017 reduces the bail-in ratio as against 31 December 2016
► Liquidity positions above ECB’s regulatory requirements,
ensure flexibility to respond in the privatisation process
► LiqV: 1.79 (30.9.2017: 1.83)
LCR / NSFR
in %
1 6 91 7 2
1 1 41 1 1
-3 pp
2016
+3 pp
► Leverage ratio comes to a very solid 7.7% and takes into account
the drop in the relevant business volume
INVESTOR PRESENTATION
Total assets1
in EUR bn
► Total assets down due to reduction in non-strategic and non-
performing portfolio in the Non-Core Bank, slight increase in the Core Bank due to expansion of liquidity reserve
2 2
4 84 8
-17%
Other &Consolidation
Non-Core Bank
Core Bank
2017
70
1012
2016
84
14
Guarantee buffer for the residual
reference portfolio
1 Segment assets; 2 If there are 8% bail-in liabilities in relation to total assets before senior unsecured (bail-in threshold), an application for additional support (up to 5% of total assets) can be submitted to the European resolution fund if need be, but there is no legal entitlement to this (see also SAG/SRM Regulation), see also page 49; 3 Not same period: regulatory disclosure pursuant to the CRR
LCR NSFR
42
2017
2017
-0.8 pp
10.2
2016
11.0
10.9
0.1
2017
7.7
+0.8 pp
2016
6.9
Net interest income from operating business of the Core
Bank above plan, other effects having a positive impact
Financial key figures for 2017 – Group
Net interest income
in EUR mn
► Net interest income within the Group of EUR 1,179mn with operating interest income that is slightly higher than expected based on a
lower average interest-bearing receivables volume of EUR 33bn as planned (EUR 37bn as at 31 Dec. 2016)
► Net operating interest income of EUR 486mn in the Core Bank from client business slightly down on the previous year (EUR 499mn);
burdens due to temporary high levels of liquidity position during the privatisation process
► Other effects of EUR 652mn, including release of hidden reserves as planned in the amount of EUR 266mn (effect of EUR 356mn in total,
thereof an additional EUR 39mn in net trading income and EUR 51mn in net income from financial investments) and from the revaluation of hybrid capital of EUR 413mn
► Average interest-bearing receivables volume in the Non-Core Bank has fallen significantly from EUR 7bn in the previous year to
EUR 4bn, with a resulting drop in net operating interest income to EUR 41mn
Net operating interest income generated by
client business
in EUR mn Non-Core BankCore Bank
Σ 585
Total Bank
26.04.2018INVESTOR PRESENTATION 43
Σ 527
4 8 64 9 9
4 18 6
-3%
20172016
6 5 2
5 2 7
+94%
Other effects
Operating interest income in client business
2017
1,179
2016
607
Core Bank makes main contribution to net
commission income
Financial key figures for 2017 – Group
1 Excl. hedge result; 2 Incl. result from financial investments accounted for under the equity method
Net commission income
in EUR mn
Net income from financial
investments2
in EUR mn
Net trading income1
in EUR mn
6 58 7
2016
-25%
2017
9 2
1 4 3-36%
20172016
2 5 4
8 8
+189%
20172016
► Net commission income lower than in the previous year, EUR
77mn contributed by the Core Bank (on par with the previous year)
► Drop due to the fee expenses for the synthetic securitisation transaction executed in Q4 2016
► Cross-selling result showed positive development and exceeds the pro rata plan
26.04.2018INVESTOR PRESENTATION 44
► Net trading income benefited from the positive impact of a USD
that was weaker than in the previous year in the foreign exchange result (EUR 76mn), reversals of impairment losses in the credit investment portfolio (EUR 59mn), the release of hidden reserves (EUR 39mn) and improved credit spreads for client derivatives measured at fair value (EUR 62mn)
► Valuation effects on basis swaps (EUR -24mn) had a negative impact
► Net income from financial investments amounted to EUR
92mn and benefited considerably from sales of non-strategic investments (EUR 57mn), the realisation of hidden reserves (EUR 51mn) and value increases in the credit investment portfolio (EUR 23mn). Previous year contained significant income from the sale of securities
Loan loss provisions driven by the portfolio transaction
Financial key figures for 2017 – Group
26.04.2018INVESTOR PRESENTATION
1 5 6
2016
-1,276
2017
45
Components of loan loss provisions
in EUR mn
Loan loss provisions in the
lending business1
in EUR mn
1 After effects relating to the guarantee, foreign exchange result and hedging effect of credit derivative
► Loan loss provisions after effects of the guarantee and foreign exchange result of EUR -1,276mn (PY: EUR 156mn), of which EUR 13mn is attributable to the Core Bank and EUR -1,295mn is attributable to the Non-Core Bank, and of which EUR 6mn is attributable to Other & Consolidation
► Gross compensation under guarantee of EUR 126mn, of which:
a. compensation/foreign exchange result of EUR -684mn
b. credit derivative of EUR 810mn
► Due to the full balance sheet utilisation of the second loss guarantee in the first quarter of 2017, the loan loss provisions recognised in 2017 were no longer compensated for in full
► Income statement disclosure after guarantee effects of EUR -1,276mn (PY: EUR 156mn)
Thereof EUR 1.1bn for portfoliotransaction
2 6 3
Gross compensation
under guarantee
Net LLP
before guarantee effects
+126-1,276
-1,665
Net loan loss provision
-1,402
Legacy shipping burdens and individual exposures of the
Non-Core Bank dominate loan loss provisions
Financial key figures for 2017 – Group
Loan loss provisions in the lending business1
by business units
in EUR mn
26.04.2018INVESTOR PRESENTATION 46
1 Before effects relating to the guarantee, foreign exchange result and hedging effect of credit derivative
► Loan loss provisions in the lending business before foreign exchange effects and compensation of EUR -1.4bn, of which EUR 1.1bn is for the portfolio transaction
► Loan loss provisions by asset class mainly driven by legacy burdens from shipping loans of EUR -1.1bn and individual exposures relating to the years prior to 2009 in the Corporate Clients - Energy segment (Poland, Italy) in the Non-Core Bank
► Reversals of loan loss provisions in the area of Real Estate Clients of EUR 26mn (of which EUR 23mn Non-Core Bank, EUR 3mn Core Bank)
Thereof EUR 1.1bn for
portfolio transaction
Mainly legacy energy burdens in Poland and Italy
Non-Core Bank
Core Bank
Other &Consolidation
Total Bank
-1,413
5
-1,402
6
6
-1,051
4426
3
Shipping
23
-373-43
Real Estate Clients
-330
-4
1-11
Corporate Clients Other
-1,095
Core BankNon-Core BankOther &Consolidation
Administrative expenses markedly reduced by 19%
Financial key figures for 2017 – Group
1 The cost-income ratio represents the ratio of administrative expenses to total income, plus “other operating result”
26.04.2018INVESTOR PRESENTATION 47
Net income from restructuring and privatisation
in EUR mn
Administrative expenses
in EUR mn, CIR1
► Personnel expenses down further by 10% to EUR -230mn due
to reduction in the number of employees (-238 FTE in 2017)
► Operating expenses reduced by 10% to EUR -249mn,
particularly thanks to savings with regard to IT costs. Strategic projects, as well as continued substantial expenses for the implementation of regulatory and accounting requirements, counteracted the savings
► Depreciation/amortisation came to EUR -36mn (PY: EUR -
100mn), with the previous year hit by burdens due to write-downs to property, plant and equipment at subsidiaries (EUR -66mn)
► CIR1 of 32% (PY: 65%) overstated due to other effects in total
income
-2 3 0-2 5 6
-2 4 9-2 7 8
-1 00
2017
Personnelexpenses
Depreciation /amortisation
Operatingexpenses
-36
-634
-515
2016
► Restructuring result hit by restructuring and privatisation
expenses (inter alia for advisory services, data rooms and audit activities). Considerable provisions were a burden in the previous year
-6 6
-1 1 0
-40%
2016 2017
65% 32%
Employees
Number of full time employees
-55%
2016
1,9262,164
2015
2,384
2014
2,579
2013
2,834
2012
3,123
2011
3,684
2010
3,388
2009
3,610
2008
4,325
2017
NPE reduced by half in 2017, NPE ratio improved
significantly by at least 7 percentage points to 10.4%
Financial key figures for 2017 – Group
1 Rounding differences possible; 2 Loss provisions before compensation, incl. SLLP and GLLP
► Solid coverage ratio in the Group of 64%, 65% in Shipping
► Including collateral, total risk coverage clearly > 100%
► NPE reduced by 49% from EUR 14.6bn (31 December 2016) to EUR 7.5bn (EUR 72.2bn total EaD)
► NPE ratio reduced from 17.5% (31 December 2016) to 10.4%
► NPE ratio in Shipping of 50% in the Group, 100% in the Non-Core Bank and 12% in the Core Bank
► NPE ratio is 1.6% for the Core Bank
26.04.2018INVESTOR PRESENTATION 48
Non-Core Bank
6.7
4.3
1.0
0.9
0.4
Core Bank
0.8
0.6
0.2
Other Real EstateCorporate Clients Shipping
NPE by asset class1
in EUR bn
1.6% 68%
NPE ratio
∑ EUR 7.5bn
Loan loss provisions2 / 64% coverage ratio
Collateral(including Basel II cash flows)
Risk coverage
in EUR bn
Shipping
Real Estate
Corporate Clients
Other0.4
(5%)1.1
(15%)
1.1
(14%)
4.9
(66%)
7.5
NPE total Bank
4.2
4.8
9.0
Risk coverage
50% 65%
Coverage ratio
Risk coverage before senior unsecured
IFRS, in EUR bn, EaD
Receivables from clients
Receivables fromcredit institutions, liquidity buffer, etc.
Total assets
70.4
39.2
31.2
19.7
+163%Liable capital
European resolution fund1
Loan loss provisions/
64% coverage ratio
Collateral values (incl. Basel II cash flows)
Risk coverage
4.8
4.2
7.2
3.5
NPE
7.5
Subordinated capital
Silent participation
Reported equity capital2
Liable capital
Other bail-in eligibleliabilities(incl. senior unsecured)
1 If there are 8% bail-in liabilities in relation to total assets before senior unsecured (bail-in threshold), an application for additional support (up to 5% of total assets) can be submitted to the European resolution fund, but there is no legal entitlement to this (see also SAG/SRM Regulation); 2 Reported equity capital adjusted to reflect “Other Comprehensive Income” items (OCI); NB: This presentation includes assessments and forecasts based on numerous assumptions and subjective valuations both of HSH Nordbank AG and other sources and only represents a non-binding view
► Bail-in ratio of around 10.2% based on reported equity2, silent participations and subordinated capital
► The bail-in ratio is expected to be > 8% in the future, too
► The bail-in ratio is based on the BRRD definition of a threshold (8%) for a drawdown from the resolution fund
26.04.2018 49INVESTOR PRESENTATION
Bail-in ratio10.2%
10.2% bail-in ratio – extensive risk coverage thanks to
loan loss provisions, collateral and liable capital
Financial key figures for 2017 – Group
Liable capital
IFRS, in EUR bn
7.2
1.1
1.7
4.4
Pro-formaexcluding
guarantee2
► Capital ratios characterised by considerable RWA
reduction that is above plan (EUR -6.4bn as against end of
2016) and the active management of foreign currency risks and a
US dollar that is weaker than expected
► Part of the regulatory burden for the federal state guarantee is
reflected as a deduction in regulatory equity capital. There was no
equity capital deduction item as at 31 December 2017 (31
December 2016 approx. EUR 0.6bn)
► SREP requirements in 2018: Regulatory early warning
threshold (P2G) of 11.2% (phase-in), consisting of an SREP
requirement of 10.2% (P2R) and early warning buffer of 1.0%
CET1 ratio at high level of 15.4% without guarantee
Financial key figures for 2017 – Group
26.04.2018
CET1 ratios
in %
INVESTOR PRESENTATION 50
2 01 3 2 01 4 2 01 5 2 01 6 2 01 7
18.1
18.5
13.414.1
11.612.3
11.3
12.611.8
13.1
Capital ratios
Same period1, in %
3 8 4 0 3 7 2 9 2 2
70
2016
84
2015
97
2014
110
2013
109
RWAafter
guarantee
RWA, total assets, CET1 capital
in EUR bn
CET1 ratio (fully loaded)
CET1 ratio (phase in)
30.6
24.8
20.618.719.7
Overall ratio
4.2
Total assets
CET1capital 4.04.64.03.8
2 7
2017
Pro formaRWA before
guarantee
1Same period: ceteris paribus calculation taking full account of the balance sheet amounts as at the reporting date. Not same period: regulatory disclosure pursuant to the CRR, see Annual Report as at 31 December 2017; 2 Pro forma, not taking into account the regulatory relief effect of the guarantee (recognition as a securitisation transaction)
In-period1
Not in-period,acc. to CRR1
SREPrequirement
2018
11.2
10.2
1.0
CET1 ratiophase in
2017
15.4
CET1 ratiophase in
2017
18.7
CET1 ratiofully loaded
2017
18.1
CET1 ratiophase in
2017
18.5
German GAAP (HGB) – Net result of around EUR -754mn
driven by privatisation effects
Financial key figures for 2017 – HSH Nordbank AG
5126.04.2018INVESTOR PRESENTATION
Net income before loss participation
of silent participations
in EUR mn
► In connection with the imminent multi-year transformation phase, which will be characterised by the move from the public-sector to the
private-sector deposit guarantee fund, but also by restructuring measures to create a new and sustainable bank, as well as additional risks i.e. further increasing capital requirements due to stricter regulatory requirements, HSH Nordbank AG expects, from today's perspective, that it will not be possible, contrary to past plans, to make distributions on the issued hybrid capital instruments at the earliest from the 2020 financial year for the 2019 financial year as originally anticipated, but rather that this will only be possible at the earliest from the 2024 financial year for the 2023 financial year
► Net income before loss participation of silent participations amounted to around EUR -1.0bn (HGB) in 2017
► Silent participations shared in the Bank’s losses in the amount of EUR 285mn in the 2017 financial year
► The carrying amounts of the hybrid instruments, which are listed on the capital markets, correspond to 39.7 % of the original nominal amount due to the attributed losses
► Following the substantial loss incurred in 2017, HSH Nordbank AG also expects to report a negative result in 2018 based on the
HGB accounting standards. The loss is expected to be significantly lower than in 2017 and is expected to be attributable, in particular, to
restructuring expenses, the proposed compensation payment made for the termination of the federal state guarantee and deferred tax effects in connection with the implementation of the portfolio transaction
Loss participation of silent participations
in EUR mn Carrying amounts of the listed hybrid instruments
2 8 5
0
20172016
0
-1,039
2016 2017
52.4% 39.7%
►►►
1. Privatisation
2. Core business fields
3. Financial key figures for 2017
4. Outlook for 2018
5. Appendix
26.04.2018
Agenda
INVESTOR PRESENTATION 52
p. 6
p. 18
p. 40
p. 53
p. 55
Loss before taxes of around EUR 100mn forecast for 2018
due to premature termination of the guarantee
Outlook for 2018
The outlook and the assumption of the Bank as a going concern for accounting and measurement purposes are based on assumptions set out in the Annual Report as at 31 December 2017
26.04.2018
► 2018 will be a crucial year of transformation for the Bank, even if it will not yet signal the end of the realignment process. On the one hand, the
coming months will be shaped to a considerable degree by the implementation of the closing conditions to ensure the conclusion of the privatisation process in a manner that can be deemed successful from today's point of view. On the other hand, the operational measures aimed at the realignment of a corporate structure that will be risk-optimised and agile in the future will be defined and implemented as soon as possible. Overall, the Bank is confident, based on its plans, that the efforts made to date and the privatisation process, which the Bank currently believes to have developed in a positive manner, will result in a business model that is sustainable in the long term, provided that the process is completed successfully
► The Bank, which will have been privatised when the share purchase agreement is executed, will develop additional business opportunities in Germany and abroad together with its new international owners, which boast experience in the financial services sector, under a new brand and free from the existing EU restrictions. The focus will remain on medium-sized clients, as well as clients in the real estate, energy, infrastructure and shipping sectors, to which the Bank aims to provide support in all relevant issues relating to financing with a comprehensive product and consultancy approach
► There are, however, also challenges associated with the earnings forecast and the future development of HSH Nordbank. In summary, these relate primarily to risks resulting from adverse developments during the closing process associated with privatisation and, as a result, the fulfilment of the closing conditions agreed as part of the share purchase agreement
► In addition to the specific risks in connection with the privatisation process, the Bank will also face other general challenges.
1. Possible setbacks in the recovery for container vessels and bulkers due to macroeconomic factors and a further deterioration in the tanker segment, a slowdown in the real estate markets, a significantly stronger USD exchange rate, the low level of interest rates, as well as a competitive environment and volatile financial and currency markets (in particular US dollars)
2. Changes in the ratings awarded by the rating agencies, the constant increase in European banking regulatory requirements.
3. It is extremely important that, despite a multitude of influencing factors (e.g. discretionary decisions on the part of the banking supervisory authorities, assumed long-term recovery of the shipping markets), the minimum capital ratios are complied with at both the HSH Nordbank sub-group level and the financial holding company level (HSH Beteiligungs Management GmbH) and liquidity requirements are complied with at all times despite possible adverse developments in the privatisation process or, for instance, in the event of reactions of the rating agencies with a negative impact
► As a result, taking into account the compensation payment of EUR 100mn for the premature termination of the second loss guarantee, a loss before tax of around EUR 100mn is forecast for the 2018 financial year. At the same time, the pro forma CET1 ratio is expected to come in at
around 15 % and the NPE ratio at around 2 %. The earnings forecast is subject to any effects resulting from the closing and the associated change in ownership
INVESTOR PRESENTATION 53
►►►
1. Privatisation
2. Core business fields
3. Financial key figures for 2017
4. Outlook for 2018
5. Appendix
26.04.2018
Agenda
INVESTOR PRESENTATION 54
p. 6
p. 18
p. 40
p. 53
p. 55
Reference portfolio covered by the guarantee reduced
significantly from EUR 28.8bn (PY) to EUR 14.7bn
Exposure breakdown/guarantee
1 Incl. liquidity reserve; 2 Percentage risk coverage provided by the guarantee in relation to total EaD of the respective division
Risk coverage by the guarantee2
in % / in EUR bn, EaD
Distribution of exposure at default (EaD) within the Group
in % / in EUR bn, EaD
Other &Consolidation1
8.60.1
Aviation
0.1 0.2
Divestments
0.2 1.0
Treasury &Markets1
21.2
1.3
Shipping
3.56.3
Real Estate Clients
11.52.6
Corporate Clients
12.53.1
Total Bank
72.2
57.6
14.7
Non-guaranteedGuaranteed
20.3% 20.0% 18.5% 63.9% 5.8% 71.2% 1.1%84.8%
Other &Consolidation1
8.7
Aviation
0.3
Divestments
1.2
Treasury &Markets1
22.5
Shipping
4.35.5
Real Estate Clients
2.311.8
Corporate Clients
1.713.9
Total Bank
72.2
8.79.8
53.7
100.0% 21.6% 19.5% 13.6% 1.7% 0.5% 12.0%31.1%
26.04.2018
Other & ConsolidationNon-Core BankCore Bank
INVESTOR PRESENTATION 55
15.6
14.1
9.8
22.5
1.2 0.38.7
15.6
14.1
9.822.5
1.2 0.38.7
Core Bank with good risk profile – Sale of Non-Core Bank
legacy burdens by way of the portfolio transaction
Loan loss provisions/guarantee
1 Deviations possible due to rounding, portfolio prior to consolidation incl. loan loss provisions for contingent liabilities/securities in the reference portfolio excl. compensation
26.04.2018
Non-Core Bank
Total loan loss provisions1, in EUR bn
EaD distribution, in EUR bn
Core Bank
Total loan loss provisions1, in EUR bn
EaD distribution, in EUR bn
0.010.11 0.000.42 0.29
Total Bank
53.7
6.8(13%)
46.9(87%)
2.8
(51%)2.7
(49%)
Treasury &Markets
22.5
1.3(6%)
21.2(94%)
Shipping
5.5
Real Estate Clients
11.8
1.0
(8%)
10.8
(92%)
Corporate Clients
13.9
1.8
(13%)
12.1
(87%)
Total Non-Core Bank
9.8
7.8(79%)
2.1(21%)
0.2
(15%)1.0
(85%)
Aviation
0.3
0.2
(71%)
0.1
(29%)
Corporate Clients
1.7
1.3
(77%)
0.4
(23%)
Divestments
1.2
Real Estate Clients
2.3
1.6(71%)
0.7(29%)
Shipping
4.3
3.6(83%)
0.7(17%)
4.36 0.52 0.762.91 0.120.06
GuaranteedNon-guaranteed
Non-guaranteed Guaranteed
INVESTOR PRESENTATION 56
Portfolio transaction leads to a substantial negative result
of the Non-Core Bank
Financial key figures for 2017 – Non-Core Bank
26.04.2018
Net income before taxes
in EUR mn
Portfolio by asset class
in %
Asset reduction and NPE ratio
in EUR bn, EaD;
INVESTOR PRESENTATION 57
Portfolio by currency
in %
► Net income before taxes of EUR 1,583mn (PY: EUR -299mn)
is significantly lower than expected. Significant burden in the form of unplanned loan loss provisions for the portfolio transaction of EUR 1.1bn
► Non-Core Bank relieved of almost all non-performing legacy burdens as a result of the portfolio transaction, to be dissolved in the future
► Accelerated wind-down of legacy burdens extremely successful
► Coverage ratio of 65% reflects solid risk coverage
► Coverage ratio of 68% in Shipping
► Portfolio largely denominated in USD (49%)
► Shipping loans account for a large part of the USD exposure
► Shipping dominates the portfolio at 44%/EUR 4.3bn (Average age: 8.5; number of ships: 391)
► Real Estate Clients account for the second-largest share with 23%/EUR 2.3bn
Aviation4%
Corporate Clients
17%
Real Estate Clients
23%
Divestments12%
Shipping
44%
GBP
12%
EUR35% USD49%
Other
4%
67.7%63.6%Transfer of remaining
assets to the Core Bank
-54%
After portfolio transaction/closing
~3.6
2017
9.8
2016
21.4
NPE ratio
-2 9 9
-1,583
2016 2017
Reference portfolio and guarantee components
Guarantee
Core Bank Non-Core Bank Group
Reference portfolio
(in EUR bn, EaD/percentage distribution)6.8 / 46% 7.8 / 53% 14.7
NPE in the reference portfolio
(EUR bn)
0.5 5.4 5.9
Loan loss provisions
1
in the reference portfolio
(EUR bn)0.2 3.8 4.0
RWA after guarantee
(EUR bn/percentage distribution)0.5 / 15% 2.7 / 85% 3.2
Expenses for government guarantees
(in EUR mn/percentage distribution)-22 / 15% -127 / 85% -149
26.04.2018 58INVESTOR PRESENTATION
1 Portfolio prior to consolidation incl. loan loss provisions for contingent liabilities/securities in the reference portfolio excl. compensation
► The vast majority (53%) of the reference portfolio of EUR 14.7bn in total that is covered by the guarantee is attributable to the Non-Core Bank (EUR 7.8bn), with 46% attributable to the Core Bank. The Non-Core Bank will be dissolved after the portfolio transaction and the transfer of the remaining assets to the Core Bank
► 78% of the non-performing exposure of EUR 7.5bn secured by the guarantee
► The portfolio share with the highest risk is in the Non-Core Bank, with RWA of EUR 2.7bn
► The guarantee fees are distributed on the basis of economic capital committed, with 85% attributable to the Non-Core Bank and 15% to the Core Bank
Settled losses
Free capacity for further loss settlement
2017
7.3
2.9
3.0
0.0
Losses to be settled
Guarantee fully utilised – Early termination on
closing expected
Guarantee
1 Incl. credit risks under partial guarantee 2 (credit derivative) and excl. losses to be settled; 2 Regulatory surcharge for foreign currency risks, residual amount and other; 3 Sub-senior
tranche (gross) before reduction in loan loss provisions that have not been compensated for, as at 31 December 2017: regulatory surcharge of EUR 0.5bn (PY: EUR 0.6bn regulatory surcharge ); 4 For details, see the section “Management System” in the 2017 Annual Report
Guarantee structure
in reference portfolio
in EUR bn
Balance sheet breakdown
in EUR bn
Regulatory breakdown
in EUR bn
3.2
Second losstranche:
EUR 10bn
federal state guarantee
13.2
59INVESTOR PRESENTATION
First loss piece
► For regulatory recognition purposes, a sub-senior tranche with a risk weighting of 1,250% is separated from the original senior tranche. The sub-senior tranche is reduced by loan loss provisions that have not been compensated for and is deducted from the regulatory equity capital. As a result of the netting of the sub-senior tranche with loan loss provisions that have not been compensated for, no equity capital deduction item as at the end of 2017 (PY: EUR 0.6bn)
► For the remaining senior tranche, the risk weight currently amounts to around 27%
► CET1 ratio as of March 2018, not taking into account the regulatory RWA relief effect of the second loss guarantee4
Senior tranche
Settled losses
0.1
6.0
1.6
2016
1.0
3.0
2.9
7.3
2017
5.5
Losses to be settled
Loan loss provisionnot compensated for
Grosscompensation,
loan loss provisions1
Losses to be settled
2.4 Expected Loss
0.6
Sub-SeniorTranche3
Senior Tranche
Unexpected Loss
2017
2.9
Settled losses7.3
0.6
1.2
4.8
1.6
0.5
5.5
2016
0.1
Free capacity loan loss
provisionsEquitydeduction item Regulatory
surcharge2
Senior tranche
26.04.2018
HSH Nordbank in the top quarter of
European bank issuers
Sustainability rating / CSR Report
26.04.2018
1 Source: imug Beratungsgesellschaft für sozial-ökologische Innovationen mbH - sustainability rating of bank bonds in 2017, imug rating universe
► The issuer HSH Nordbank ranks 17 (52*) among German banks
► Issuer rating/sustainability rating (uncovered bonds)improved from CC (neutral) to CCC (neutral)
► Rating for ship Pfandbriefe improved further and lifted to CCC (neutral)
INVESTOR PRESENTATION 60
Rank among European financial institutions1
7 5 %
7 0%
6 6 %
5 0%
2 5 %
3 0%
3 3 %
5 0%
HSH ranks 28 out of 901
Public-sectorPfandbriefe
HSH ranks 15 out of 551
HSH ranks 48 out of 1861Issuer rating
Ship Pfandbriefe
Mortgage Pfandbriefe
HSH ranks 2 out of 41
► Rating for mortgage Pfandbriefe maintained at B (positive)
► Rating for public Pfandbriefe back at the level seen in 2015 at BBB (positive)
► With regard to “governance”, HSH Nordbank outperforms the average (around 14%) with performance of around 21%
“Corporate Social
Responsibility” Report
(CSR Report)
► CSR Report publishedfor the first time
► Meets the requirementsof non-financialreporting in accordance withparagraph 289b HGB
► Based on the criteriaof the German Sustainability Code
► Describes non-financial aspects such as environmental, employee-related and social issues, respect for human rights and the fight against corruption and bribery
UNCOVERED BONDSMORTGAGE
PFANDBRIEFEPUBLIC PFANDBRIEFESHIP PFANDBRIEFE
Membership of the guarantee scheme of the
German Savings Banks Finance Group (SFG)
26.04.2018INVESTOR PRESENTATION
STATUS QUO – guarantee scheme of the German Savings Banks Finance Group
Voluntary
institutional
guarantee
The objective of the guarantee scheme is to protect the member institutions and to avert imminent or existing financial difficulties at these institutions. To achieve this, the protection facility can, for example, contribute new liability funds, provide guarantees or sureties vis-à-vis third parties or even satisfy third-party claims. These measures can be combined with each other. This is designed to rectify the problems faced by the institution in question and prevent the liquidation of the institution pursuant to the German Act on the Recovery and Resolution of Credit Institutions (SAG).
The guarantee scheme has set up a risk monitoring system with corresponding organisational structures for preventative purposes. This system helps imminent financial difficulties to be identified early on/to prevent such difficulties from arising in the first place, and allows suitable counter-measures to be taken. The aim is to prevent a compensation case (see item 2) and allow business relationships with clients to be continued in line with the contractual agreements.
All the securities (not of an equity / regulatory capital nature1) that HSH Nordbank AG has issued willtherefore continue to fall under the institutional protection of the guarantee system of the Savings Banks Finance Group (Art. 39 (1) of the statutes).
Statutory deposit
guarantee fund
If the German Federal Financial Supervisory Authority identifies a compensation case pursuant to the Deposit Guarantee Act (e.g. if the voluntary institutional guarantee has not resulted in the continued existence of the credit institution), then the client is entitled to a reimbursement of his/her deposits from the guarantee scheme up to EUR 100,000. This compensation must be provided within seven working days.
More information can be found at https://www.dsgv.de/en/index.html.
1 In particular pursuant to paragraphs 41, 44 of the Communication from the European Commission 2013/C 216/01 of 30 July 2013 (“Banking Communication”)
61
1
2
- Simplified sample presentation -
Seamless transition of guarantee scheme of the
SFG to the BdB deposit guarantee fund planned
26.04.2018INVESTOR PRESENTATION 62
► As of the point at which HSH Nordbank’s membership of the German Savings Bank Association (DSGV) expires, its membership of the guarantee scheme of the German Savings Banks Finance Group (according to section 94 (4) of the Framework Statute) will continue for a further two years. During this period, the institutional protection provided by SFG will remain in force for HSH Nordbank in full
► Target of the bank is to achieve a seamless transition from the SFG guarantee scheme to the BdB deposit guarantee fund with the full protection ceiling of up to 15% of the liable capital of each bank2. If HSH Nordbank had liable capital of approx. EUR 5bn, as it does today, then the protection ceiling would be around EUR 0.75bn per client2
► The statutory deposit guarantee will remain unchanged after the transition to the BdB guarantee scheme
Transition from the SFG guarantee scheme to BdB
SFG guarantee scheme
(DSGV)
Deposit Guarantee Fund
(BdB)
Signing Closing
Statutory deposit
guarantee fund
Membership
… 2018 2019 2020 2021 2022 …
Transitional solutionbeing discussed
Participation in Deposit Guarantee Fund1
Protection ceiling2
1 Membership in BdB necessary for participation in the Deposit Guarantee Fund; 2 Scope of protection depends on admission procedure, up to 15% in accordance with the Framework Statute of the BdB in 2022 of the liable capital of the respective credit institution per client
Admission procedure
- Simplified sample presentation -
For all German banks
(Deposit guarantee of up to EUR 100k)
Protection of unsecured liabilities under guarantee
schemes
26.04.2018INVESTOR PRESENTATION 63
Client
deposits
Registered securities
& promissory notes
Bearer
debentures
German
Savings Banks
Finance Group
Private Banks
Term 18 months
Term >18 months
Statutory deposit guarantee fund
Voluntaryinstitutional protection system*
Statutory deposit guarantee fund
Voluntarydeposit guarantee fund
1. Private individuals, foundations
2. Companies, institutionalinvestors, semi-governmental agencies
3. Governmental agencies2, clients similar to banks3
Protection ceiling under the Statutes1
EUR 100k
EUR 100k
1 Staggered scope of protection in relation to the Tier 1 capital of the respective credit institution: 20% up until 2019/15% up until 2024/8.75% as of 2025, means for example, that with capital of approx. EUR 5bn, the protective effect is EUR 1.0/0.75/0.44bn per client; 2For example, federal government, federal states and municipalities; 3 e.g. financial holding companies, asset management companies, companies with factoring and safe custody business
*All issues of HSH Nordbank AG (excluding equity/instruments with equity characteristics, notably under paragraphs 41, 44 of the EU Commission Communication 2013/C 216/01 of 30 July 2013 (“Banking Communication”)) fall under this voluntary institutional protection of the guarantee fund of the Savings Banks Finance Group (Section 39 (1) of the Framework Statute).
- Simplified sample presentation -
IFRS 9 initial application leaves CET1 ratio
without guarantee1
unchanged
Regulation
As of 1 January 2018, IFRS 9 replaces the provisions set out in IAS 39 on accounting and
measurement of financial instruments
Note: Uncertainties associated with the quantification of the effect on equity, fluctuations of +/-EUR 10mn to be expected; 1 indicative, not taking into account the regulatory relief effect of the guarantee
15.4
1 January 2018 Pro-forma CET1 ratio
excl. guarantee
Impact on
CET1 ratio
Main drivers
–
Initial application
effects
Pro forma CET1 ratio (excl. guarantee)1
almost unchanged,
slight effect of +/- 0.1 percentage points, increase in equity is almost offset by increase in regulatory deduction item
Improvement in CET1 ratio (in-period) of around 1.0 to 1.2 percentage
points due to the difference between nominal values and future market values to be recognised in accordance with IFRS 9 for the transaction portfolio, meaning that the volume and the risk weight of the senior securitisation tranche for the guarantee will be significantly reduced. This leads to a significant decline in RWA and, as a result, to a positive effect
Initial application effects estimated on reported equity to total EUR
109mn before taxes, or EUR 79mn after taxes
Calculation of loan loss provisions - new model is based on expected credit losses instead of losses
incurred (increase in general loan loss provisions), thereby increasing loan loss provisions with regard to lifetime expected loss (Level 2) or full 12-month expected loss (Level 1) and reducing the equity capital by approximately
EUR 136mn to EUR 156mn before taxes
Classification provisions
1. Reclassifications of financial assets (securities and loans) from measurement category amortised cost (AC) to fair value through other comprehensive income (FVOCI) - business model “hold and sell” leads to increase in equity of approximately EUR 165mn before taxes
2. Reclassifications of financial assets (in particular transaction portfolio) from measurement category amortised cost (AC) to fair value through profit and loss (FVPL) - “Other” business model leads to increase in equity of EUR 61mn
- Non-binding assessments -
26.04.2018 64INVESTOR PRESENTATION
Overview of Pfandbrief cover pools
Treasury & Markets
Source: Disclosures in accordance with section 28 of the German Pfandbrief Act (PfandBG), see. https://www.hsh-nordbank.de/de/investoren/funding/funding/#angaben_gemaess_28pfandbg
26.04.2018INVESTOR PRESENTATION 65
Mortgage Pfandbriefe
Benchmark bonds, in EUR mn
0 Over 10 Y
> 5 Y up to 10 Y936
> 4 Y up to 5 Y590
> 3Y up to 4 Y646
> 2 Y up to 3 Y717
> 18 M up to 2 Y641
12 M up to 18 M257
6 M up to 12 M585
Up to 6 M9
5002.9 years
5.3 years 850
4.5 years 500
3.8 years 500
1.5 years 500
0.8 years 500
0.6 years
3.2 years 500
2.6 years 500
500
29
1.914
575
749
709
140
204
277
201
Over 10 Y
624
> 4 Y up to 5 Y
479
> 5 Y up to 10 Y
326
> 3Y up to 4 Y602
> 2 Y up to 3 Y719
> 18 M up to 2 Y9
12 M up to 18 M294
6 M up to 12 M624
Up to 6 M109 77
189
168
1.205
304
421
285
354
1.113
Maturity structure for mortgage Pfandbriefe
in EUR mnOutstanding
Pfandbriefe Cover assets
418
Pfandbrief circulation
4,380
Further coverage
Ordinary coverage
1654,633
Excess coverage
Mortgage Pfandbriefe
Cover pool, in EUR mn
Pfandbrief circulation
331
Excess coverage
4,113
Ordinary coverage
2
Further coverage
3,784
9.5%
8.8%
Public-sector Pfandbriefe
Benchmark bonds, in EUR mnMaturity structure for public-sector Pfandbriefe
in EUR mn
Public-sector Pfandbriefe
Cover pool, in EUR mnOutstanding
Pfandbriefe Cover assets
Overview of the Group income statement
Financial key figures over time
1 Incl. result from the financial investments accounted for under the equity method; 2 After effects relating to the guarantee and hedging effect of credit derivative; 3 Base premium and subsequent payments (2016)
26.04.2018
in EUR mn, IFRS
12M
2017
6M
2017
12M
2016
6M
2016
12M
2015
6M
2015
12M
2014
6M
2014
12M
2013
6M
2013
12M
2012
6M
2012
12M
2011
Net interest income 1,179 557 607 374 1,032 448 586 231 929 480 1,520 453 1,362
Net commission income 65 32 87 50 114 62 130 73 104 52 119 44 120
Result from hedging -18 -9 -4 2 12 8 -40 -12 9 10 6 9 4
Net trading income 254 151 88 40 84 71 61 112 193 114 -238 -210 -173
Net income from financial investments1
92 28 143 75 54 56 171 242 261 153 39 142 23
Total income 1,572 759 921 541 1,296 645 908 646 1,496 809 1,446 438 1,336
Loan loss provisions in the lending business
2 -1,276 -241 156 151 304 127 577 337 -833 -192 -656 -111 389
Administrative expenses -515 -246 -634 -277 -634 -302 -724 -338 -755 -382 -821 -385 -837
Other operating income 22 47 58 43 38 53 123 54 44 53 191 253 36
Expenses for bank levy and deposit guarantee fund
-41 -41 -56 -63 -50 -54 -1 - - - - - -
Net income before restructuring
and privatisation-238 278 445 395 954 469 883 699 -48 288 160 195 924
Net income from restructuring and privatisation
-66 -25 -110 -98 -31 -12 -84 -8 -56 -8 -43 -19 -235
Expenses for government guarantees3
-149 -80 -214 -126 -473 -235 -521 -259 -414 -143 -302 -157 -883
Net income before taxes -453 173 121 171 450 222 278 432 -518 137 -185 19 -194
Income tax expense -75 -15 -52 -11 -352 -75 -118 -131 -251 -7 61 35 -63
Net income after taxes -528 158 69 160 98 147 160 301 -769 130 -124 54 -257
INVESTOR PRESENTATION 66
Contacts
26.04.2018
Oliver Gatzke
CFO
Harald Müller
Head of Bank Steering
Tel. no.: +49 (0)40 3333 13495
Fax: +49 (0)40 3333 613495
Ralf Löwe
Treasury & Markets
Head of Funding / Debt Investor Relations
Tel. no.: +49 (0)431 900 25421
Fax: +49 (0)431 900 625421
Martin Jonas
Head of Investor Relations
Tel. no.: +49 (0)40 3333 11500
Fax: +49 (0)40 3333 611500
HSH Nordbank AGGerhart-Hauptmann-Platz 50D-20095 Hamburg
HSH Nordbank AGGerhart-Hauptmann-Platz 50D-20095 Hamburg
HSH Nordbank AGSchloßgarten 14D-24103 Kiel, Germany
HSH Nordbank AGGerhart-Hauptmann-Platz 50D-20095 Hamburg
INVESTOR PRESENTATION 67
Abbreviations
26.04.2018
ABF Asset-based Funding
AG Aktiengesellschaft [German public limited company]
AöR Anstalt öffentlichen Rechts [German institution under public law]
BRRD Bank Recovery and Resolution Directive
CEO Chief Executive Officer
CET1 Core Equity Tier 1
CFO Chief Financial Officer
CIR Cost-Income Ratio
CRO Chief Risk Officer
EaD Exposure at Default
EinSiG Einlagensicherungsgesetz [German Deposit Guarantee Act]
EL Expected Loss
EU European Union
EUR Euro
EU COM European Commission
SLLP Specific Loan Loss Provision
Excl. Excluding
GBP British pound
P&L Profit and Loss
HSH HSH Nordbank AG
imug Institut für Markt-Umwelt-Gesellschaft
IFRS International Financial Reporting Standards
Incl. Including
KWG Kreditwesengesetz [German Banking Act]
LCR Liquidity Coverage Ratio
LiqV Ratio pursuant to the German Liquidity Regulation
INVESTOR PRESENTATION 68
Lux. Luxembourg
Mn Million
Bn Billion
NPE /NPL Non-Performing Exposure / Loan
NSFR Net Stable Funding Ratio
OCI Other Comprehensive Income
GLLP General Loan Loss Provision
pp percentage point(s)
P2G Pillar 2 Guidance
P2R Pillar 2 Requirements
RP Risk Provision
RWA Risk-Weighted Assets
SAG Sanierungs- und Abwicklungsgesetz [German Act on the Recovery and Resolution of Credit
Institutions]
SFG Sparkassen-Finanzgruppe
SREP Supervisory Review and Evaluation Process
UL Unexpected Loss
Unsec. Unsecured
USD US dollar
PY Previous year
e.g. for example
Ø age Average age
2016 / 2017 Financial year 2016/2017
# Number
§ Paragraph
% Percent (figures in percent)
∑ Total
<20% Less than 20%
Disclaimer
26.04.2018
The market information contained in this presentation is for general informational purposes only. It is not intended to replace own market research or other legal, tax or financial information or advice. The presentation is not an invitation to buy or to sell securities or shares of HSH Nordbank and may not be used for advertising purposes. HSH Nordbank AG points out that the market information presented herein is only intended for financially experienced investors who are able to assess the risksand opportunities of the market / markets discussed and obtain comprehensive information from a number of different sources The statements and data contained in this presentation are based on either information thoroughly researched by HSH Nordbank AG or on generally accessible sources that it regards as reliable but which cannot be verified. Although HSH Nordbank AG regards the sources used as reliable, it cannot assess such reliability with absolute certainty. Individual items of information could only be reviewed with regard to their plausibility; however, their factual accuracy was not checked. Furthermore, this presentation contains estimates and forecasts based on numerous assumptions and subjective assessments made by HSH Nordbank AG as well as outside sources and only represents non-binding views of markets and products at the time of publication. HSH Nordbank AG and its employees and organisational bodies accept no responsibility for the completeness, up-to-datedness and accuracy of the information and forecasts provided despite careful checking. This document may only be distributed in accordance with the legal regulations applicable in the relevant countries and persons in possession of this document should acquaint themselves with the applicable local regulations. This presentation does not contain all material information needed to make important financial decisions and may differ from information and estimates from other sources / market participants. Neither HSH Nordbank AG nor its organisational bodies and employees can be held liable for losses or other damage that may arise from the use of this presentation, its contents or otherwise arise in connection with this presentation.HSH Nordbank AG points out that the distribution of this presentation or information in this presentation to third parties is prohibited. Losses incurred by HSH Nordbank AG as the result of the unauthorised distribution of this presentation or any of its contents to third parties are to be compensated for by the distributor. Such person has to hold HSH Nordbank AG harmless from all claims arising from the unauthorised distribution of this presentation or any of its contents to third parties and all legal costs incurred in connection with such claims. This particularly applies to a distribution of this presentation or information contained therein to persons located in the USA.
Management system and defined management indicators of the IFRS Group
The Bank’s integrated management system is aimed at the management of key value drivers – income, efficiency & profitability, risk, capital and liquidity – on a targeted basis. For this purpose the Bank uses a risk-adjusted key indicator and ratio system that ensures that the Total Bank, Core Bank and Non-Core Bank are managed in a uniform and effective manner. The HSH Nordbank Group is managed mainly on the basis of figures for the Group prepared in accordance with theInternational Financial Reporting Standards (IFRS). Within the framework of management reporting, the Bank focuses on the most important management indicators for the individual value drivers of the IFRS Group. The focus is, on the one hand, on the trend of these indicators during the year to date compared to the same period in the previous year and, on the other hand, on their expected change during the rest of 2017 (forecast, opportunities and risk report section). Further information on the management system and defined management indicators of the HSH Nordbank Group can be found in the HSH Nordbank’s Group Management Report for the 2016 financial year in the “Management system“ subsection in the “Basis of the Group“ section.
INVESTOR PRESENTATION 69