OPERATIONS REPORT
GENERAL PERFORMANCE
DZ PRIVATBANK S.A. is publishing its financial statements for the first time in accordance with International Financial Reporting Standards (IFRS). The information on the previous year's figures has also been determined in accordance with these rules and is therefore not comparable with the information provided in the 2019 Annual Report.
DZ PRIVATBANK S.A. reported earnings after tax of EUR 29.2 million for the 2020 financial year (2019: EUR 26.8 million). Total assets decreased by EUR 1.8 billion to EUR 17.0 billion during the financial year.
ASSETS
The cash reserves, which consists of cash on hand and balances with central banks, decreased by EUR 1.9 billion to EUR 6.0 billion.
From loans and advances to banks of EUR 1.6 billion (2019: EUR 1.8 billion), EUR 0.4 billion (2019: EUR 0.5 billion) is attributable to currency loans to cooperative banks.
Loans and advances to clients increased to EUR 5.7 billion (2019: EUR 5.6 billion). EUR 5.2 billion (2019: EUR 5.0 billion) is attributable to loans to clients in Germany.
Financial assets increased by two percent to EUR 3.4 billion (2019: EUR 3.3 billion).
LIABILITIES
Securitised liabilities increased by EUR 0.2 billion to EUR 4.2 billion. Liabilities to banks decreased by EUR 0.2 billion to EUR 2.2 billion.
Liabilities to clients decreased by EUR 1.8 billion to EUR 9.3 billion. Together with securitised liabilities, these deposits represent about 79 percent of total refinancing funds.
The balance sheet equity of EUR 835 million increased by 2% compared to the previous year. The reasons for this increase are the addition to retained earnings in the amount of EUR 16 million and the EUR 2.4 million higher result for the financial year in 2020 of EUR 29.2 million with a market-related reduction of EUR 4 million in the reserve from the result not affecting net income.
STATEMENT OF COMPREHENSIVE INCOME
Net interest income including income from affiliated companies increased by nine percent to EUR 78.0 million (2019: EUR 71.4 million). Income from the receipt of dividends from associated companies decreased by three percent from EUR 8.8 million to EUR 8.5 million.
In terms of net fee and commission income, the Bank recorded an increase of 7.6 percent to EUR 138.2 million (2019: EUR 128.4 million). This development is mainly attributable to increased income from customer order business in the securities and derivatives sector as well as increased income from asset management.
Trade income rose by EUR 5.5 million to EUR 13.0 million as a result of a higher customer-induced transaction volume.
General administrative expenses rose by 7.6 percent to EUR 190.5 million with personnel expenses increasing by 10.1 percent to EUR 117.0 million and other administrative expenses by 3.6 percent to EUR 55.0 million. Depreciations of tangible fixed assets and intangible assets increased by 4.1 percent to EUR 18.5 million.
Earnings before tax amounts to EUR 36.1 million (2019: EUR 31.4 million). After taking into account effective taxes of EUR 5.5 million (2019: EUR 0.4 million) and deferred taxes of EUR 1.5 million (2019: EUR 4.2 million), DZ PRIVATBANK S.A. reported earnings after tax of EUR 29.2 million (2019: EUR 26.8 million).
APPROVAL OF THE ANNUAL FINANCIAL STATEMENTS AND APPROPRIATION OF PROFIT
The Board of Management proposes to the ordinary general meeting that the annual financial statements be approved and that an unchanged dividend of EUR 0.5 per share (totalling EUR 11.4 million) be paid to shareholders from the annual profit.
EMPLOYEES
The Bank had 931 employees on the balance sheet date (2019: 921 employees). This figure corresponds to an FTE figure of 861 (2019: 850 FTE). The employees are spread across the Bank's head office in Luxembourg and eight branches with 10 locations in Germany.
SUSTAINABILITY
Sustainability is part of DZ PRIVATBANK S.A.'s responsibility as a member of the Genossenschaftliche FinanzGruppe (Cooperative Financial Network) and an integral part of its mission statement. As part of the “Sustainability Market Initiative” initiated by the DZ BANK Group, DZ PRIVATBANK S.A. has been integrating sustainable aspects into its corporate activities since 2012. Since 2013, it has recognised the ten principles of the UN Global Compact.
DZ PRIVATBANK S.A. is included in the non-financial group statement of DZ BANK AG (Deutsche Zentral-Genossenschaftsbank AG), Frankfurt am Main, and is therefore exempt from issuing its own non-financial statement. The non-financial group statement is part of DZ BANK's sustainability report and is available in German on the following website:
RISK MANAGEMENT SYSTEM
A key feature of DZ PRIVATBANK's bank management is the established, cross-location risk management system for quantifying and managing all risks, in particular market price, liquidity, counterparty default and operational risks, and for exploiting business opportunities. Risk management should be regarded in particular against the backdrop of overall operations, sophisticated products and multi-layered risk factors.
The methods and procedures used within the risk management system and the stages of the process for identifying, quantifying, analysing, controlling and monitoring risks are regularly updated and validated each year. The Bank has an integrated risk-monitoring and control system to accomplish these tasks. All risk limits and the Bank's risk-bearing capacity are reviewed daily and, if necessary, adjusted in accordance with the risk, capital and liquidity strategy adopted by the Supervisory Board and the implementation measures of the risk, capital and liquidity policy enacted by the Board of Management.
Functioning independently, the Risk Control Department continuously ensures that all the measured risks remain within the limits approved by the Supervisory Board. All forms of risk are monitored and aggregated daily throughout the entire Bank and at Group level. All relevant committees and departments are kept up to date regarding the Bank's risk situation.
In addition to the balance sheet assets and liabilities, the Bank also uses derivative financial instruments to control risk. These essentially comprise currency and interest futures transactions. All these instruments are taken into account in full when controlling and monitoring market price, counterparty default and liquidity risks.
Over the past year, the Bank complied, without exception, with the supervisory regulations relating to equity cover, liquidity and credit limits.
OUTLOOK
No events of particular significance occurred after the balance sheet date.
DZ PRIVATBANK is generally optimistic about the new financial year, despite the continuing challenges posed by the SARS-CoV-2 pandemic. It is expected that the global economic environment will steadily brighten from spring 2021 onwards, given the progress in vaccine development and the ongoing approval processes. Supported by what continues to be a very expansive monetary and fiscal policy, both consumer and investment demand should recover on a broad front. Benefiting from a base effect due to the economic slump in the second quarter of 2020, global growth momentum should be above average. The pre-crisis economic level will not yet be fully reached.
The eurozone should benefit from the brightening of the global economic outlook. The impact of the SARS-CoV-2 pandemic is therefore expected to fade over the course of the first half of the year and GDP growth is expected to be above average. In Germany, significant improvements in foreign trade can be expected to lead to a noticeable acceleration in growth momentum. A strong increase in growth momentum can also be expected in the USA. Given the smaller GDP slump in 2020, the US recovery momentum will lag behind that of the eurozone.
The European Central Bank ECB will leave its key interest rates unchanged well beyond 2021. At the earliest, the monetary authorities could start to formulate an exit strategy towards the end of 2021.
A measured and very cautious approach is to be expected. All in all, the ECB is unlikely to end its extraordinarily expansionary monetary policy towards the end of 2021 either, as long as price pressures in the eurozone remain low.
PRIVATE BANKING
The realignment of Private Banking, which began in 2019 and was implemented in 2020, through the clear focusing, differentiation and orchestration of the service range for cooperative banks active in sales, has been very successful and will be consistently continued and dynamically expanded in market development in 2021.
In total, based on the planning discussions with the cooperative banks, the Private Banking business segment is planning record net inflows of around EUR 2 billion. This planning is based on the numerous optimisation measures that will continue to be implemented in 2020 and will have an impact on clients in 2021. This also results in a significantly increased projected volume for the Volksbanken Raiffeisenbanken in Private Banking for 2021, which is broken down in terms of potential as follows:
In VR Private Banking, the primary objective is to significantly expand client reach with asset management solutions and to intensify the already rapid growth (net inflows of funds of more than 200 percent compared to the previous year) and in doing so achieve further above-average net inflows of funds.
In DZ Private Banking, the main focus in 2021 will be on attracting (existing) clients with an entrepreneurial background (entrepreneurs / shareholders) to the cooperative private banking offering. Private wealth managers with many years of experience and extensive international private banking and capital market expertise will work with the Volksbanken Raiffeisenbanken to further develop this client group for specific target groups and based on potential, thereby achieving a sustained increase in net inflows of funds and market share.
In Wealth Management, which is characterised by international and highly differentiated, individual client needs, growth potential will be leveraged at all locations in Germany, Luxembourg and Switzerland. Significant further increases in net inflows of funds are also planned here.
The optimisation measures that have already been successfully implemented will mainly be supplemented by personnel transformation opportunities, a sustainable improvement in the organisational structure that will be implemented on 1 January 2021 and considerable investments in the digital evolution of customer services.
FUND SERVICES
In 2020 DZ PRIVATBANK's Fund Services business segment was able to continue on the successful growth path of previous years. The strategic focus continues to be on expanding the strong market position with the companies of the Genossenschaftliche FinanzGruppe (Cooperative Financial Network) as well as with the client groups of institutional investors, independent asset managers and family offices. As a reliable partner offering a full range of fund services and specialist expertise that is recognised in the market, the depositary's assets increased by 16 percent year-on-year in 2020. This is exemplified by the close cooperation with Union Investment, the investment company of DZ BANK Group, for which the depositary function is performed in Luxembourg.
The outstanding market position in the business with third-party fund initiators is based on the impressive service portfolio that has been in place for years. DZ PRIVATBANK – together with its IPConcept subsidiaries in Luxembourg and Switzerland – plans to further expand its market leadership among independent asset managers in German-speaking countries. Market development together with DZ BANK as part of the “Fund & Investor Services” initiative got off to an efficient, target group-focused and effective start and the first sales successes were achieved. DZ BANK and DZ PRIVATBANK will continue to expand their market presence under the joint umbrella brand DER FONDSHAFEN.
To ensure competitiveness and future viability, workflows, IT infrastructure and staff expertise are continuously being improved so that clients continue to benefit from high-quality, tailor-made service packages along the entire value chain of fund administration. The challenge remains to meet the different demands of fund initiators in order to secure significant added value and further growth for all clients. Demand for alternative investment strategies remains particularly high among institutional investors. Against this backdrop, the Fund Services business segment achieved impressive successes in the acquisition and administration of alternative investment funds in 2020. Its many years of experience and expertise in the field of alternative investments came into its own.
LOANS
The LuxCredit financing offers for private and corporate clients complement the product ranges of the cooperative banks. Together with DZ PRIVATBANK, the advantages and added value of LuxCredit are analysed for clients and the Bank itself. The topics of flexibility, terms and conditions, simplification of regulatory and lending processes and bank and earnings management are the advantages that come to the fore. This analysis process will be offered to interested Volksbanken Raiffeisenbanken in 2021 in order to identify potential and develop added value.
The entry into the platform business with Genopace and Baufinex has taken place. Following an analysis, DZ PRIVATBANK has decided to focus its offering more strongly on prefinancing and interim financing as part of construction financing, thus increasing its appeal. In addition to the numerous sales approaches and possible applications, the digital “LuxCredit INFORMATION DAYS – DIGITAL & LIVE FOR YOUR REGION2, starting in March 2021, will answer the question of how it is possible to ensure quality of life for the Best Ager 50 plus generation in generational consulting: “Carefree enjoyment” – involving the owner-occupied property, which is usually unencumbered. To this end, the partner banks will be offered a comprehensive range of sales support services in order to be able to successfully implement individual sales campaigns for Best Ager 50 plus in the regions.
The digital events for financial consultants at the partner institutions were very well received in 2020, with a total of over 2,000 participants. The range of webinars for teaching the main sales and technical topics will therefore be continued and expanded in 2021.
THANKS
We would like to thank our employees for their great service and commitment, which significantly contributed to the company’s success and to the achievement of our common goals in 2020. Our sincere thanks also go to the cooperative banks and to our private and institutional clients for their confidence in us.
Luxembourg, 12 March 2021
The Board of Management
Peter Schirmbeck Stefan Bielmeier Ralf Bringmann Dr Frank Müller
Chairman