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Van Lanschot: strong increase in commission income in first half of 2015

  • Wealth management strategy improves quality of income
  • Net profit works out at €34 million (H1 2014: €49.4 million)
  • Client assets grow to €58.5 billion from €57.4 billion year-end 2014
  • Capital base remains robust at CET I ratio[1] of 14.6%

Van Lanschot today released its 2015 interim results. Karl Guha, Chairman, said: “Our wealth management strategy is showing through in strong results, with our core activities Private Banking, Asset Management and Merchant Banking all making positive contributions to net profit. We are pleased with net profit development: while the first half of 2014 was marked by a substantial capital gain, the comparable period in 2015 saw commission revenue – our main source of income – add 24% and improve the quality of our results. Our capital position remains robust, with the Common Equity Tier I ratio[1] at 14.6%.

Private and institutional client assets grew to over €58 billion, and our Private Banking clients are increasingly opting for discretionary management following the launch of our new personalised wealth planning advice service. Kempen Corporate Finance and Kempen Securities, our Merchant Banking activities, had a very strong first half, doubling their revenues.

We will continue to implement our wealth management strategy and the second half has got off to an excellent start with the announced takeover of MN UK by Kempen Capital Management and the sale of a portfolio of non-performing property loans. We are well on track to achieve our long-term objectives.”

Inflows into asset management and higher commission income at Private Banking

Private client assets grew to €29.6 billion from €29 billion year-end 2014. A favourable climate in the stock markets and inflows in discretionary management made up for the drop in savings in the wake of cuts in savings rates made in keeping with our funding strategy. Evi van Lanschot, our online savings and investment service, performed well and expanded its services by launching a pensions product: Evi Pensioen. Private Banking notched up an increase in total income to €140.8 million (H1 2014: €132.8 million), breaking down into an 18% rise in commission income and more or less constant interest income (-1%).

Private Banking’s loan portfolio, with mortgages accounting for 71%, was virtually unchanged at €8.4 billion (year-end 2014: €8.3 billion). The increase in new mortgages largely makes up for the ongoing trend of clients making extra mortgage repayments. Additions to loan provisions stood at €16.1 million compared with €4.1 million in H1 2014, reflecting stricter provisioning criteria as well as provisions taken on a number of individual loans.

Entrepreneurs make up a key target group for Private Banking and the first six months saw it sharply enhance its proposition and promotional efforts, targeting this particular group in a new campaign. Using its new wealth planning service, Van Lanschot Private Banking helps clients to clarify both their business and private choices, to enhance focus and find the right solutions.

Asset Management lays groundwork for further fiduciary management growth

The upbeat stock market climate pushed up total assets under management at Kempen Capital Management to €28 billion (year-end 2014: €27.5 billion). The credit strategy saw an inflow of – new – clients, thanks not least to its success in securing a Morningstar gold rating for Kempen (Lux) Euro Credit Fund in November 2014. By contrast, a number of its other strategies saw institutional clients leave as they rebalanced their portfolios to reflect market developments and expectations. The changing breakdown in assets under management caused commission income to end up on a par with the first half of last year: €40.6 million compared with €40.8 million.

By acquiring the operations of MN in the United Kingdom, as announced early in July, Kempen Capital Management lays the groundwork for further international growth in fiduciary management. UK institutional investors such as pension funds display a growing interest in fiduciary management, and its existing expertise coupled with a local presence in London should give Asset Management an ideal springboard to leverage opportunities in this market.

Very strong half for Merchant Banking

Merchant Banking enjoyed a very strong six months, with commission income almost doubling to €40.5 million (H1 2014: €20.4 million). Kempen Corporate Finance was party to a large number of deals in its selected niche markets, including an equity issue by Germany’s Deutsche Annington, an equity issue and refinancing deal for Vesteda, the IPO of Biocartis and the public bid for Grontmij. In addition to excellent commission and trading results on increased client trading activity, Kempen Securities again recorded growth in revenue from structured notes.

Smaller contribution of other activities to net profit

Income from securities and associates decreased to €9.3 million from the H1 2014 figure of €41.9 million, which had benefited from a significant capital gain. Result on financial transactions also came down, to €19.2 million from €29.8 million in H1 2014.

Corporate Banking continues vigorous portfolio run-off and sees credit quality improve

Since its formation in 2013, Corporate Banking has been winding down the corporate portfolio of property and SME loans – and, much as in 2014, has remained well ahead of schedule. The loan portfolio wind-down has shaved €0.4 billion off risk-weighted assets, while Corporate Banking also announced the second-half sale of a portfolio of over €400 million of non-performing property loans to Cerberus Capital Management, bringing its total loan portfolio to €2.2 billion (year-end 2014: €3.1 billion) and significantly improving the risk profile of its corporate loan portfolio.

The loan portfolio run-off has pushed down interest income to €30.8 million from €35.1 million in H1 2014, but the downtrend is cushioned by a further uptick in interest margins. Corporate Banking had significantly lower provisions to cover in the first half of this year – down to €13.1 million from €31.3 million in the year-earlier period – as fewer loans were provided for while the quality of other loans actually improved to the extent of triggering a release of a proportion of provisions.

Stable costs, on track to achieve targeted efficiency

Much as expected, Van Lanschot’s costs ended up at comparable levels to last year: €193.9 million to H1 2014’s €195 million. Step-by-step, it continues to simplify products and processes, enhance the efficiency of its IT infrastructure and streamline its back office. The transformation implies a temporary rise in change‑related costs, but lower running costs in the longer term. Coupled with continued marketing efforts to raise revenues, this should help Van Lanschot achieve its targeted efficiency ratio of 60-65% in 2017.

Continued robust capital and funding position

Van Lanschot’s capital position remains robust: a Common Equity Tier I ratio[1] of 14.6% (year-end 2014[2]: 14.6%) and a fully loaded Common Equity Tier I ratio excluding retained earnings on the up from 13.4% at year-end 2014[3] to 13.6%. The fully loaded leverage ratio likewise improved: to 5.7% from 5.3% at year-end 2014. In April, Van Lanschot placed its first Conditional Pass-Through Covered Bond as part of its funding operations, worth €500 million at a coupon of 0.275%.

H1 2015 HIGHLIGHTS

  • Net profit: €34 million (H1 2014: €49.4 million)
  • Earnings per share: €0.75 (H1 2014: €1.14)
  • Income from operating activities: €274.1 million (H1 2014: €294.4 million)
    - Commission income: €141 million (H1 2014: €113.8 million), with recurring commission income[4] accounting for 81% of total securities commission (H1 2014: 82%)
    - Interest income: €102 million (H1 2014: €106.6 million); interest margin constant on 2014 at 1.19%
  • Operating expenses: €193.9 million (H1 2014: €195 million)
  • The efficiency ratio[5] increased to 70.7% (H1 2014: 66.2%)
  • Addition to loan loss provisions down to €31.9 million (H1 2014: €35.5 million)

SOLID BALANCE SHEET RATIOS AT 30 JUNE 2015

  • Strong capital position:
    - Common Equity Tier I-ratio (phase-in, excluding retained earnings): 14.6%
    (year-end 2014[2]: 14.6%)
    - Common Equity Tier I-ratio (fully loaded, excluding retained earnings): 13.6%
    (year-end 2014[3]: 13.4%)
  • Leverage ratio[6] (fully loaded): 5.7% (year-end 2014: 5.3%)
  • Well diversified funding profile: loan portfolio is mainly financed by savings and deposits. Funding ratio[7] at 94.3% (year-end 2014: 95.3%)

SEGMENT INFORMATION

Van Lanschot’s three core activities – Private Banking, Asset Management and Merchant Banking – generate 82% of total income (75% in 2014). Private Banking accounts for the greater proportion of this (51% of total income), with Asset Management and Merchant Banking contributing 15% and 16% respectively. Together, these three core activities account for 98% of commission income (H1 2014: 96%) and 83% of interest income (H1 2014: 80%).

All core activities posted positive net results in H1 2015, to which Corporate Banking also contributed by recording a sizeable reduction in loan loss provisioning.

Notes:
[1] Phase-in Common Equity Tier I ratio, excluding retained earnings.
[2] Phase-in Common Equity Tier I ratio, including retained earnings.
[3] Including retained earnings.
[4] Recurring commissions break down into management, advisory and service fees
[5] Efficiency ratio = operating expenses / income from operating activities.
[6] Leverage ratio = Basel III Tier I capital / (balance sheet total + some off balance items)
[7] Funding ratio = the degree to which the loan portfolio is funded by client savings and deposits.

Press release Halfyear results 2015 (pdf)