Dresdner Bank, the leading agent bank in Germany, expects its 2001 profits to fall sharply thanks to increased loan loss provisions and integration costs associated with the Allianz merger. However, the bank says its cost-cutting measures are starting to have an effect.
The Board has published preliminary financial data for the year ended 31 December 2001 which predicts a post-tax profit of just Euro 186 million for the year, against Euro 1.7 billion in 2000. Aggregate net income from loans, commissions and trading activity was down by just 2 percent, though the figures are distorted by the first-time application of IAS 39. The dividend will fall by 25 percent to Euro 0.70 per share.
The Dresdner Board says it is confident that their development program -which was launched in 2001 and focuses on the “Private and Business Clients” and “Corporates & Markets” divisions – as well as ongoing integration with Allianz will lead to a sustained improvement in the Bank’s earnings.
The bank also says it is getting its costs under control. After adjustment for first-time consolidation and other extraordinary factors, administrative expenses increased year-on-year by 5 percent. This compares with an average annual increase in costs of 15 percent in the last five years. “It shows,”saysthe bank, “that the cost-cutting measures introduced in May 2000 and further intensified in 2001 are starting to take effect. The turnaroundhas begun.”
By the end of 2001, roughly 4,000 jobs had been shed as part of the cost-cutting program, which – including the measures announced in May 2000 – will see a total reduction in the workforce of 7,800. 1,700 jobs were cut in the second half of 2001 alone. The number of German branch offices declined by 183 to 803 in 2001.
Loan loss provisions were lifted to total roughly EUR 1.9 billion. Loans to middle-market US companies extended in the mid-nineties play a major role here. Dresdner has been systematically streamlining this portfolio since May 2000, and was able to reduce it by 20 percent in 2001. The pre-tax profit, including net income from investment securities, amounted to EUR 153 million. This includes integration and restructuring costs of around EUR 620 million.
The following table shows the preliminary key financial data for fiscal 2001 (unaudited) in detail:
– in EUR mn. –
2001 2000 in %
y/yNet interest and current income 4,364
+ 1.2Loan loss provisions – 1,893
+ 9.4Net fee and commission income 3,841
– 10.5Net trading income 1,526
+ 14.8Administrative expenses – 8,682
+ 13.5Net income from investment securities 2,101
– 6.9Other income/expense, net – 484
+ 56.1Earnings before extraordinary factors 733
– 70.7Extraordinary expenses for restructuring and integration – 620
-39.,7Pre-tax profit 153
– 90.5Income tax expense 33
– 74.4Profit after taxes 186