Total assets
The total assets of the full HVB Group amounted to €508.0 billion at December 31, 2006, which represents an increase of €14.4 billion, or 2.9%, over the 2005 year-end total.
The shareholders’ equity shown in the balance sheet amounts to €20.0 billion, including minority interest of €3.3 billion. The €4.6 billion growth in shareholders’ equity essentially stems from the profit of €4.4 billion, of which €3.8 billion is allocated to other retained earnings and €0.6 billion of which is reported as consolidated profit.
The changes in fair values of hedging derivatives in effective cash flow hedges are disclosed in the hedge reserve. The changes in the value of these derivatives are offset by future compensating effects arising from the hedging relationships which are not yet permitted to be recorded in the balance sheet. This explains why the hedge reserve does not have any economic informative value when viewed in isolation. In particular, no shareholders’ equity has been consumed since the negative changes in the value of the derivatives in the balance sheet items are offset cumulative undisclosed reserves. The available-for-sale reserve and the hedge reserve are not included for the purpose of calculating the return on equity.
Compliant with IFRS 5, an enterprise must provide and present information on the balance sheet which enables the persons for whom the annual financial statements are prepared to assess the financial impact of discontinued operations and non-current assets or disposal groups held for sale.
For this reason, the assets and liabilities of discontinued operations have to be shown in the balance sheet as well as non-current assets or disposal groups held for sale and the liabilities of disposal groups held for sale under separate balance sheet items.
Hence, the other balance sheet items (except for shareholders’ equity) in the year under review only include the figures for continued operations without non-current assets or disposal groups held for sale and without the corresponding liabilities. The previous year’s figures have not been adjusted. Consequently, the individual balance sheet items cannot be compared with those of the previous year. To increase transparency and facilitate assessment of the year-on-year financial performance, we have also included a pro forma balance sheet as well as the underlying assumptions in the Note entitled “Pro forma balance sheet” in the notes to the consolidated financial statements. In this context, the continuing operations in both 2006 and the previous year are taken as the basis.
Here we will describe only the development of the individual balance sheet items shown in the pro forma balance sheet of the new HVB Group.
The total assets of HVB Group new increased by €6.6 billion, or 1.9%, to €358.3 billion. In particular, the assets of the new HVB Group increased as a result of rises of €18.6 billion in assets held for trading purposes and of €6.1 billion in placements with, and loans and advances to, other banks, whereas loans and advances to customers decreased by €15.2 billion, partly due to further portfolio disposals, and investments fell by €7.1 billion. The allowances for losses on loans and advances included as a deductible item in the assets fell by €3.2 billion.
Funding was adjusted to reflect the higher volume of lending. The main rise on the liabilities side came in deposits from other banks, up €13.2 billion. By contrast, promissory notes and other liabilities evidenced by paper were down by €6.8 billion. Shareholders’ equity increased by €1.4 billion, largely as a result of the profit generated in the year under review.
Risk assets, key capital ratios and liquidity of the full HVB Group
Compared to the year-end total for 2005, the risk assets of the full HVB Group in accordance with the German Banking Act (without market risks) declined by €13.2 billion to €219.3 billion. Major factors contributing to this included the deconsolidation of Bank BPH S.A. and its subsidiaries, with risk assets totalling €9.4 billion, and the securitisation activities listed below.
The risk assets of the new HVB Group totalled €137.4 billion at year-end.
The full HVB Group continued its securitisation activities in 2006 with two new transactions: Provide A 2006-1 and Promise XXS 2006-1. The corresponding volume of lending newly outplaced totalled €7.0 billion at year-end, serving to reduce risk-weighted assets by €5.7 billion in accordance with the German Banking Act. At the same time, the Amadeus, Lombard Sec. No. 1, Promise A 2000-1, Promise A 2002-1 and Promise Austria 2002-1 transactions expired during 2006 with an aggregate lending volume of €1.8 billion. This resulted in the reversal of a reduction of €1.6 billion in risk-weighted assets compliant with the German Banking Act.
At year-end 2006, the core capital of the full HVB Group compliant with the German Banking Act totalled €18.3 billion and equity capital €27.1 billion. This gives rise to a core capital ratio (excluding market risk positions) of 8.4% and an equity funds ratio of 11.8%.
A bank’s liquidity is evaluated using the liquidity ratio defined in Principle II of the German banking supervisory regulations. This figure is the ratio of cash and cash equivalents available within a month to the payment obligations falling due in this period. Liquidity is considered adequate if the ratio is at least 1.0. At HVB AG, the figure averaged 1.2 in 2006 (2005: 1.2).
Corporate acquisitions and sales
Comments on changes in the group of companies included in the consolidated financial statements are provided under Note 4 called “Companies included in consolidation”.
