"2006 has seen us build an outstanding position from which to continue our efforts in Germany."
Dear shareholders, business partners and friends of HVB,
Benjamin Disraeli, the celebrated British politician and author, once wrote: “The secret of success is constancy of purpose.” The successful financial year enjoyed by our HypoVereinsbank in 2006 confirms the truth of this saying. This success would not have been possible without the constancy of purpose that our Bank has shown in our operations involving our customers and in the business combination with UniCredit. What had already started to happen in 2005 continued to accelerate throughout last year.
Being folded into the UniCredit Group makes it possible for us to combine local proximity and a focused commitment to our markets with a fast-growing, closely knit, European banking network. This is what makes us the first truly European bank and creates advantages for us on the marketplace. Advantages that our customers are noticing and that have given our team new impetus. In many respects, I am thoroughly proud of what we have achieved over the last year.
We have made a successful return to a sustainable growth path, offering our customers an innovative range of products together with a comprehensive service concept. Furthermore, as an operationally independent member of a European family of banks, we have a business model that demonstrates more powerfully every day how well it fits into a converging Europe. Keeping a regional focus, exploiting differences rather than smoothing them over, and adopting centrality as a complement rather than making it the goal per se: these are thoroughly European principles of collaboration and co-operation. The outcome is an excited sense of new beginnings that can be felt in many areas of our Bank. Although I do not wish to deny in any way that the necessary adjustment process has demanded much of many people over the last few months.
Thus the process of integration, which has run much faster and smoother than anticipated, has entailed considerably more work and a degree of uncertainty for our people. In this situation, our people have done more than just show an impressive willingness to change. They have also ensured that we could make a significant contribution to the overall performance of the UniCredit Group in 2006. For this achievement, I would like to express my heartfelt thanks to each and every one of our people.
The Integrity Charter that was introduced last year has placed the way we deal with each other in the HVB sub-group on a complete new footing in our daily work, in line with the values of the entire UniCredit Group. The Integrity Charter is a written system of values for the UniCredit Group, similar to ethical principles, that every employee as well as our customers and business partners can rely on as a firm foundation. That the Integrity Charter is compulsory throughout the corporate group also expresses our desire to see our corporate cultures converge and a common European identity emerge. Only those who have values can create value. The European identity supplements our roots in the individual domestic markets and underscores the UniCredit Group’s claim to be a truly European banking group. (For more about the Integrity Charter, please refer to the section entitled “Human Resources and Corporate Social Responsibility” elsewhere in the present report.)
For HypoVereinsbank, 2006 was a year dominated by a new organisational structure for our operations. We have tailored the Retail, Corporates & Commercial Real Estating Financing and Wealth Management divisions to meet the demands of our various customer groups more fully. This enables us to provide the right products and services to meet the needs of each customer group and to deliberately refine our performance profile. Moreover, the UniCredit Group is pooling its entire investment banking activities at HypoVereinsbank. Our modified organisational structure in Germany fits into the structure of the UniCredit Group, making it possible for our customers to benefit from this transparent organisation throughout Europe, with clear responsibility structures across the whole UniCredit Group. We have thus put all the pieces in place to be able to exploit cross-border synergies for our Bank and also benefit from best practice solutions without losing time all across the corporate group.
Besides the realignment of our divisions, 2006 was also marked by the preparations to sell our operations in Austria and central and eastern Europe within the corporate group.
Our shareholders approved a resolution to this effect from HVB’s Management Board and Supervisory Board at the Extraordinary Shareholders’ Meeting held on October 25 of last year. The shares we held in Bank Austria Creditanstalt, International Moscow Bank and HVB Bank Latvia were finally transferred in January of this year; the remaining transactions – involving HVB Bank Ukraine and our Baltic offices – will be completed soon, once the outstanding conditions have been met.
As a result of this transaction, HypoVereinsbank enjoys a high degree of financial strength in comparison to our competitors. We intend to use this newly found financial freedom to reinforce our capital base, which will give us the firm footing we need for faster growth – especially inside but also outside Germany.
All the divisions have a clear strategy for boosting their business volumes, their market shares and their profitability with a view to making themselves even more attractive for their respective customer groups. Last year we already made a successful return to the marketplace with a range of product and service promotions. The package of measures we are using to seize the initiative comprises new customer care models and attractive products, like the free Welcome Account for our retail customers. In addition, we are further expanding our regional presence, especially in corporate banking and wealth management. The impressive number of new customers that we succeeded in acquiring last year implies that, here too, we are on the right track.
Turning HypoVereinsbank into the investment banking competence centre for the entire UniCredit Group is opening up tremendous new opportunities for us. The aim is to firmly establish this activity among the leading group of European investment banks. With this decision, HypoVereinsbank is reaping the benefits of its outstanding positioning and sustained performance in this line of business.
But our strategy does not consist solely of organic growth. We also intend to employ the funds at our disposal to strengthen our competitive position – where it makes financial sense – by making targeted acquisitions. However, we will only do this if the target’s activities are a good fit with our strategy, they generate value for our Bank and our corporate group and they represent a sustainable reinforcement of our operations over the long run.
I am convinced that appropriate additions to our business will open up in a rapidly recovering Germany. All the more so, as and when the three-pillar model of the German financial services industry becomes less rigid. But we are just at the start of this process. Misaligned regulatory conditions continue to prevent a wide-reaching consolidation of the German banking sector. Yet this is exactly what is needed if German banks are to close in on the upper ranks of their European peers in terms of profitability as defined by international norms. The development of the UniCredit Group in Italy is an excellent example of the positive outcome of integrating institutions from different banking worlds. Originally resulting from the merger of various formerly public-sector institutions, the UniCredit Group today is one of the biggest and most successful private-sector banking groups in Europe.
The positive developments at HypoVereinsbank within the UniCredit Group have coincided with an unusually strong upturn in the German economy and a favourable capital market environment. The result is that the success of our business model is clearly reflected in our figures for 2006.
Thus last year we were able to build on the constant improvement in our operating result that started some time ago and narrowly beat our financial targets. The net profit posted by the new HVB Group – meaning without the discontinued operations – totalled €1,640 million after a loss of €127 million in the previous year; adjusted for non-recurring effects, we succeeded in increasing our profit by a factor of almost four year-on-year. Adjusted for gains on disposal and extraordinary charges, our return on equity after taxes reached a healthy 15.2%. Moreover, all the divisions reported higher profits than last year, thus making a strong contribution to the good overall results.
Of course we want to share our financial success with you, our shareholders, in an appropriate manner. Hence the Management Board will propose to the Annual General Meeting of Shareholders that the dividend for 2006 be raised to €0.40 per share.
2006 has seen us build an outstanding position from which to continue our efforts in Germany. We aim to exploit this tailwind throughout the current financial year. Back in the 16th century, the French author Michel de Montaigne commented: “No wind serves him who addresses his voyage to no certain port.” In line with this, we have set ourselves highly ambitious financial targets for this and the subsequent years, as outlined at the Capital Markets Day staged by the UniCredit Group at the start of July 2006. We will continue to advance the value-based realignment of our Bank. Thus we are looking to be among the top German banks in terms of profitability.
But above and beyond the financial targets, we have also set ourselves other challenges for 2007. We want to remain one of the players who act on the market rather than react. We want to convince more people of our capabilities and tie them to us as long-term customers. And we want to increase the level of satisfaction in us expressed by our customers. As far as we are concerned, customer satisfaction is the key measure of our success.
And these objectives will be advanced by UniCredit’s decision announced in January of this year to seek to acquire the shares owned by HVB’s minority shareholders. With this step, UniCredit is aiming to simplify the operational processes at HVB with a view to speeding up response times to market changes. The squeeze-out means that UniCredit is increasing its financial commitment on the German market, thus boosting the role played by HVB within the corporate group.
Our vision of helping to build the first truly European banking group is already in large part a reality. I would ask for your trust and your support as we continue down this path towards a successful future for HypoVereinsbank as an integral part of the UniCredit Group. I personally would be delighted if you were to be a UniCredit shareholder in the future – if you are not already – so that you can continue to be involved in the positive development of HypoVereinsbank in a pan-European context.
Best regards,
Wolfgang Sprissler
