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• Customer business robust
• Administrative expenses down by a further 13% 
• Restructuring expenses of € 158 million included in result 
• Total assets reduced by 16% and RWA by 7% 
• Managing Board presses ahead resolutely with the reorganisation of the Bank
  

WestLB Group posted a profit before income tax of € 50 million in the first half of 2011 (H1 2010: € 114 million). The result was significantly influenced by restructuring expenses in connection with the ongoing transformation of the Bank. WestLB achieved successes in its customer business and on the cost front. The sharp decrease in the impairment charge for credit losses reflects the improved macroeconomic situation and the Bank´s conservative risk profile.

Dietrich Voigtländer, Chairman of the Managing Board, said: “Given the major challenges faced by the Bank, WestLB posted a solid first-half result. Our operations were again profitable in the second quarter. Customer business is robust, notably with corporate clients and in project finance and transaction banking, demonstrating the Bank´s strong corporate finance franchise in Germany and its acknowledged international structuring expertise. The systematic implementation of the Bank´s extensive restructuring programme over the past three years is likewise bearing fruit in this regard.”

Reduced Level of Income due to Transfer Effects

The sharp drop in net interest income to € 565 million (H1 2010: € 946 million) is primarily a consequence of the transfer of portfolios to Erste Abwicklungsanstalt (EAA) on April 30, 2010. Higher refinancing costs also had an adverse impact on net interest income. With net allocations of € 55 million (H1 2010: € 137 million) to the impairment charge for credit losses, the Bank took adequate account of all discernible credit risks.

Net fee and commission income amounted to € 120 million. The result for the first half of 2010 (€ 190 million) included contributions from the portfolios transferred to EAA as well as from our subsidiaries Banque d´Orsay and WestLB International, which were sold in the second half of 2010.

The net trading result amounted to € 26 million, following € -396 million in the previous year. There were positive effects of € 2 million (H1 2010: € -321 million) from increases in value on government bonds and similar assets as well as € 167 million (H1 2010: € 38 million) from the valuation of own liabilities. On the other hand, measurement mismatches resulting from the application of IAS 39 had a negative effect of € 155 million on the net trading result (H1 2010: positive effect of € 158 million). Overall there were positive valuation effects of € 14 million (H1 2010: € -125 million).

The result from financial investments came to € 9 million (H1 2010: € -64 million) and was supported by gains realised on the sale of financial participations. There were impairment charges of € 29 million taken on Greek government bonds held by our subsidiary Westdeutsche ImmobilienBank AG. 

Cost Base Reduced Further

Administrative expenses decreased by 13% to € 480 million (H1 2010: € 549 million) in the first six months of 2011. The number of full-time employees dropped by a further 97 to 4,376 compared with the end of 2010. The net figure for other operating expense and income came to € 23 million, following € 154 million for the same period a year ago. Effects related to the transfer of portfolios to EAA in the previous year drove this decrease. We posted € 158 million in restructuring expenses (H1 2010: € 30 million) in connection with the ongoing transformation process of the Bank. 

Segment Results: Customer Business Robust

In a challenging environment the Bank continued to report conspicuous successes in its customer business. The lower business volume was nevertheless reflected in the pre-tax results of the individual customer segments in the first half of 2011. The biggest contribution once again came from the Corporates & Structured Finance segment, which generated a profit before taxes of € 177 million (H1 2010: € 231 million). The difficult conditions prevailing in the capital market had noticeable consequences for the capital markets segment, which contributed € 13 million (H1 2010: € 63 million). The first-half result before taxes in the Verbund & Mittelstand segment came to € -1 million (H1 2010: € 5 million), which was predominantly attributable to a higher impairment charge for credit losses resulting from a higher exposure compared to the previous year. The Transaction Banking segment reported a profit before income tax of  € 5 million (H1 2010: € 4 million). The Unbundling segment, which captures the results of the subsidiaries due to be sold, reported a result before taxes of € -16 million (H1 2010: € -167 million). The pre-tax result in the Other segment of € -128 million (H1 2010: € -22 million) is largely attributable to the fact that restructuring expenses were allocated to this segment. 

Conservative Risk Profile – Comfortable Capital Ratios

By systematically reducing its total assets and risk-weighted assets, WestLB fulfilled conditions imposed by the European Commission and further improved its risk profile. Risk-weighted assets totalled € 45.4 billion at
June 30, 2011 (31.12.2010: € 48.6 billion). Total assets on the reporting date stood at € 160.4 billion, a drop of 16% from the end of 2010 (€ 191.5 billion). The Bank´s conservative risk profile was reflected in comfortable capital ratios: a core capital ratio of 10.7% and an overall ratio of 16.0% at June 30, 2011. The Core Tier 1 capital ratio, which is relevant for Basel III, climbed to 9.8% (31.12.2010: € 8.7%). The stress test of European banks carried out in July confirmed the adequate capitalisation of the Bank. 

Agreement Reached on Binding Framework for the Restructuring Plan

On June 23, 2011, the owners, the Financial Market Stabilisation Fund of the Federal Republic of Germany, EAA and WestLB reached agreement on a binding framework for the restructuring of the Bank. Under the agreement, a regionally oriented Verbundbank is to be spun off from WestLB by June 30, 2012 and capitalised by the Sparkassen-Finanzgruppe. Up to this date WestLB will resolutely press ahead with the sales process for all business areas which do not form part of the Verbundbank. Portfolios which by then have not been sold or are not part of the Verbundbank will be acquired by EAA. WestLB will continue to write new business during the transition period in accordance with its respective business and risk strategy. As of June 30, 2012 it will operate as a Service and Portfolio Management Bank, providing services for the Verbundbank and EAA but also for third parties. The European Commission has stated that it plans to make a final decision in the state aid proceedings by autumn 2011.

Dietrich Voigtländer added: “The settlement provides strategic clarity for the further development of WestLB. For customers and investors, employees and owners this solution is preferable to other scenarios. In the course of its implementation we will pay particular attention to finding acceptable solutions for preserving the maximum number of skills and jobs. A key factor in this regard will be to sell business areas in a way that maintains the value of franchises for our owners and at the same time makes good economic sense. We are well positioned in attractive business segments and are therefore a clear focus of attention in the market.”

The transformation of WestLB is replete with uncertainty and may entail further substantial restructuring expenses. It is not possible to make a reliable statement about the results for 2011 as a whole at the present time.

Thomas Groß, CFO and CRO of WestLB, believes there is a good business base for the Service and Portfolio Management Bank due to commence operations in the middle of next year. “WestLB offers proven skills, infrastructure and processes, for example in Portfolio Management, Treasury and IT. The tried-and-tested, successful cooperation with EAA confirms this impressively,” he said.