HRE Group reports pre-tax profit in 4Q 2010

Germany’s HRE Group - which includes its core bank Deutsche Pfandbriefbank - posted a pre-tax profit of EUR268 mln during the fourth quarter of 2010, significantly reducing its loss for the full year, the company announced in a statement on Thursday.

'With the realignment process largely completed, the group now has a clear structure,' said Manuela Better, CEO of HRE and Deutsche Pfandbriefbank. 'Deutsche Pfandbriefbank is now returning to the markets with full force - thus building the basis for a successful re-privatisation,’ she added.

Deutsche Pfandbriefbank, which is one of the biggest Pfandbrief issuers in Germany, is hoping to double its business this year, with the aim of originating up to EUR8bn in new business, up from EUR4.1bn last year. Real estate finance accounted for the lion’s share of new business in 2010 at EUR3.1bn, with public sector finance accounting for EUR1bn. The bank posted a pre-tax profit of EUR98 mln in the fourth quarter of last year.

According to Marcus Lemli, head of capital markets at Jones Lang LaSalle in Germany, the pick-up in activity in recent months suggests that 'maybe there is a valid and sustainable business model’ for the future. ‘Potential investors will look at this news closely,’ he told PropertyEU.

Deutsche Pfandbriefbank returned to profitability in the third quarter of last year and has said that it expects to remain profitable this year. Liquidity support from the Financial Market Stabilisation Fund (SoFFin) is no longer needed and has not been required since October 2010.

However, according to HRE’s consolidated financial statements - which have yet to be approved by the supervisory board - the overall group made a pre-tax loss of EUR859mln last year, largely due to losses in the first half of the year. In 2009, the HRE Group made a pre-tax loss of EUR2.21bn.

Operating revenues totaled EUR89mln for the fourth quarter, down from EUR348mln in the same quarter the year before. Some of the group’s biggest expenses last year were tied to guarantees, with HRE generating expenses of EUR384 mln in connection with the liquidity support provided by SoFFin. Also, HRE’s aggregate payments for guarantees to the German government stand at EUR1.2bn.

In addition, HRE’s results this year could be hampered by a potential one-off payment obligation for the use of FMS-Wertmanagement - the ‘bad bank’ to which it has already transferred EUR173bn of toxic assets - of up to EUR1.59bn.

A report commissioned by the German government and published in February recommended winding down HRE amid concerns that a sale may not generate significantly more capital than a wind-down. However, German finance minister Wolfgang Schäuble said last month that the German government will keep Hypo Real Estate in existence for the time being. Consolidated total assets of HRE Group stood at EUR328.1bn as of 31 December 2010.

Around EUR20bn in Pfandbriefe were issued in the first two months of this year, of which around EUR11bn were jumbo Pfandbriefe, a spokesman for the Association of German Pfandbrief Banks told PropertyEU.