Van Lanschot 2008 half-year results: Substantial rise in savings balances; strong pressure on securities commission

  • As a private bank with a low risk profile, the bank has no write-offs due to the credit crisis
  • Investor sentiment translates into a 36% decline in securities commission
  • Income from operating activities totals  283.0 million (-16%); net profit  60.2 million (-41%)
  • Solid capital position; credit ratings reconfirmed in July; ready for growth opportunities
  • Inflow of private banking clients (+2.7%) and savings accounts of private clients (+24%) continues
  • Earnings per ordinary share  1.58 (-44%)
 
Floris Deckers, chairman of Van Lanschot NV's Board of Managing Directors: "The first half of 2008 saw exceptional developments in the financial markets and an inverted yield curve. The consequences of this included a marked reticence among investors and fierce competition on the savings market. I am extremely satisfied with the solidity of the bank; Van Lanschot was one of the few banks able to keep its capital position intact. Our private banking strategy has proven itself, even in this challenging market, judging from the robust inflow of new clients and funds entrusted. This inflow continued in July. The growth in the number of clients increased further in July to 3.5%. In addition, new clients brought over  300 million in savings accounts in July. The investment climate has still not shown any improvement, with a low level of securities transactions again in July. Our funding position is excellent. The funding ratio was above 95% at the end of June, and rose further in July to above 98%. "
 
KEY FIGURES
 

DEVELOPMENTS IN THE FIRST HALF OF 2008
 
Van Lanschot is weathering the current crisis well. The bank's capital base is solid, with a Tier I ratio of 8.8% which is more than twice the minimum requirement of 4%. Van Lanschot's funding position improved further thanks to the inflow of deposits of private clients. The funding ratio (the extent to which the bank's total loans and advances are financed by funds entrusted by clients) climbed further from 91.2% at year-end 2007 to 95.4% at 30 June 2008. In July, the rating agencies Standard & Poor's and Fitch Ratings reconfirmed the bank's credit ratings (A, stable outlook). Thanks to its comfortable liquidity position, the bank made early and scheduled repayments of Floating Rate Notes for an amount of  1 billion in the first half of the year.
 
Van Lanschot does not have any direct or indirect investments in the subprime sector or risky investments such as CDOs and SIVs. However, the credit crunch led to a crisis of confidence among investors, leading to a 29% decline in commission income on the previous year. In the first half of 2008, investors conducted over 15% fewer securities transactions than in the first half of 2007, with the average size of the transactions being 40% lower also. In addition, falling share prices resulted in lower management fees. On 30 June 2008, the AEX index stood at a level of 426, compared with 548 on 30 June 2007.
 
Competition on savings accounts and deposits became more intense in the first half of the year. Despite this, the bank experienced an inflow of funds entrusted, thanks to new clients and clients' conversions of investments into liquidities. Savings accounts and deposits of private clients were up 24% from  7.1 billion at year-end 2007 to  8.8 billion at the end of June 2008. The interest margin fell in the first half of 2008 from 1.37% to 1.34%, due to the higher credit interest rates coupled with slowly rising debit interest rates. On balance, the higher volumes were still good for an 11% increase in interest income.
 
Private banking and asset management
The bank particularly focuses on asset management and advice to high net worth individuals. In the first six months of 2008, the number of private target group clients was up 2.7%. This growth manifested itself in the higher net-worth segments. As the preferred alternative for the large banks, Van Lanschot is benefiting from the consolidation in the Dutch banking industry.
 
Client assets (funds entrusted plus assets under management) of private clients on balance declined by 1.4% or  0.4 billion, from  28.4 billion at year-end 2007 to  28.0 billion at 30 June 2008. The increase in funds entrusted was not sufficient to offset the decline in assets under management, which was largely the result of negative market performance.
 
On balance, total assets under management (inclusive of institutional clients and in-house funds) dropped  1.0 billion in the first half of 2008, from  29.2 billion to  28.2 billion. Assets under discretionary management posted a  0.3 billion decrease, consisting of a net inflow of  1.3 billion and a negative market performance of  1.6 billion. Assets under non-discretionary management were down  0.7 billion on balance.
 
Business banking
The business banking activities, focused on family businesses and their directors / majority shareholders, complement the private banking operations. Loans and advances to corporate clients were up 15% from  4.6 billion at year-end 2007 to  5.3 billion and deposits of corporate clients posted an 11% rise from  1.8 billion at year-end 2007 to  2.0 billion at 30 June 2008.
 
Investing in future growth
The bank continues to invest both in its people and its systems. The employment market currently offers increased opportunities, which allowed the bank to hire tens of experienced private bankers in the first half of 2008. The bank now has approximately 475 private bankers offering high-quality services to the bank's growing client portfolio.
 
In the first half year, approximately 100 employees completed an executive programme at INSEAD, which was tailor-made for Van Lanschot. In addition, the education and training programme for all staff was stepped up.
 
In terms of IT, the focus in 2008 is, as planned, on the replacement of the core banking systems. The new applications are currently being tested, in order that they can be put into use in 2009. We are not satisfied with the progress and are analysing where improvements can be made. It remains our goal to complete the upgrade of the core banking systems in 2009. This is particularly challenging in view of the Payment Services Directive requirements, which are not yet known.
 
Our intention to partially contract out the IT activities, as announced previously, is expected to take effect in the second half of the year.
 
Despite these further investments, operating expenses for this half year were 4% below the level in the same period of 2007.
 
OUTLOOK
 
The bank continues to invest substantially in its private banking activities. Our strategy is based on the long-term trends, i.e. increasing level of prosperity, population ageing and more and more individual responsibility for the old age provision. In addition, many business transfers will take place in the coming years.
 
Current market circumstances are extremely difficult and we therefore expect that the second six months of 2008, as in the first half of the year, will see a decline in revenue. We still do not see any signs of the private investors' confidence returning, which will lead to a low level of securities commission in the second half of the year as well. We expect the competitive battle for savings accounts to become even fiercer, putting continued pressure on the margin. The quality of our loans portfolio is excellent; we therefore do not expect a sharp rise in impairments. In addition, we expect the increased market rates of interest to be gradually reflected in the debit rates, possibly triggering higher interest income levels in the second half of the year than in the first half of the year.
 
PROFIT FOR FIRST HALF OF 2008
 
A net profit of  60.2 million was recorded for the first half of 2008, representing a 41% decline compared with the same period of 2007 ( 101.6 million). Based on continuing operations, the decrease was 39%. In the first half of 2007, Van Lanschot AssurantiĆ«n's net profit of  2.3 million was reported as 'discontinued operations'. Earnings per ordinary share amounted to  1.58.
 
 
Income from operating activities dropped  52.4 million (16%), from  335.4 million in the first half of 2007 to  283.0 million in the same period in 2008, due to declining commission income and lower profit on financial transactions. Interest income and income from securities and associates posted an increase.
 
Commission income shrank considerably (29%) from  159.0 million in the first six months of 2007 to  113.0 million in the same period of 2008, which is fully attributable to the lower securities commission. The bearish sentiment on the stock exchanges produced a sharp decrease in the level of investor activity, causing a drop in transaction commission. Furthermore, the falling share prices adversely affected management fees. On balance, securities commission went down by 36% from  136.4 million in the first half of 2007 to  86.7 million in the first half of 2008. In the first half of 2007, securities commission included  10 million in performance fees, generated by several in-house funds which performed extremely well compared with the benchmark defined in the prospectus. Other commission income (commission on payment transactions and other commission) rose 17% from  22.5 million to  26.4 million, which is attributable to the higher success fees at Corporate Finance.
 
Interest income grew 11% from  131.5 million to  146.3 million due to the positive trend of the underlying volumes and a decline in the interest margin from 1.37% at year-end 2007 to 1.34% by mid 2008. Penalty interest received on account of the early repayment of loans was  1.1 million in the first half of 2008, representing a  1.5 million decline on the first half of 2007, which was brought about by the further rising interest rates. The amortisation of acquired surplus (resulting from the acquisition of CenE Bankiers) totalled  0.4 million in the first half of 2008 and  2.2 million in the first half of 2007.
 
Private client savings accounts and deposits climbed 24% (a  1.7 billion increase) to  8.8 billion. New clients start by transferring liquidity and existing clients currently prefer to hold a larger part of their assets in the form of liquidity.  Loans (mainly mortgage loans) granted to private clients diminished by  0.1 billion to  9.5 billion. In the corporate clients segment, deposits were up  0.2 billion (11%) to  2.0 billion and the volume of corporate loans grew  0.7 billion to  5.3 billion.
 
The item income from securities and associates grew 16% compared with the first half of 2007, from  14.8 million to  17.1 million. This amount includes  4.5 million for the gain on the sale of available-for-sale investments (H1 2007:  5.8 million),  13.5 million in dividend payments (H1 2007:  7.0 million) and a negative revaluation result of  0.9 million (H1 2007:  2.0 million positive). Income from securities and associates also comprises 49% of the net profit of Van Lanschot Chabot for the first half of 2008 ( 0.2 million).
 
Profit on financial transactions was down  23.5 million, dropping 78.1% from  30.1 million in the first half of 2007 to  6.6 million in the corresponding period of 2008. This item contains the realised and unrealised value changes on the trading portfolio, foreign exchange differences and realised and unrealised gains and losses on derivatives. Profit on financial transactions is volatile in nature and depends on the interest rate trend, the sentiment on the stock exchanges and exchange rate movements.
 
Operating expenses decreased 4% in the first half of 2008 compared with the corresponding period of 2007, from  212.5 million to  203.9 million, thanks to declining staff costs and depreciation and amortisation, while the other administrative expenses posted an increase.
 
Staff costs were 11% lower (from  129.4 million to  115.5 million) which can be attributed to lower provisions for healthcare costs and pensions. Compared with the corresponding period in 2007, the number of employees increased 2% to 2,493 employees at 30 June 2008. Further investments were made in high-quality training and education courses. About 100 employees for instance completed an executive programme at INSEAD, which was tailor-made for Van Lanschot.
 
Other administrative expenses increased 13% from  64.0 million to  72.4 million largely due to the rise in IT costs in connection with external staff hired. A major part of the external staff was hired specifically for the IT project. Within the scope of this IT project,  3.5 million was charged to profit in the first half of 2008, of which  1.5 million concerns, as planned, the depreciation of the modules put into use. Investments in marketing and communication also continued, causing an increase in marketing expenses compared with the first half of 2007.
 
Depreciation and amortisation dropped 16% from  19.1 million to  16.0 million. This drop was largely the result of the amortisation of intangible assets due to the takeover of Kempen & Co:  8.2 million in H1 2007 against  5.5 million in H1 2008.
 
The item impairments totalled  6.3 million, while a release of  2.3 million was posted in the first half of 2007. Even though the loans and advances portfolio continues to be of a high quality, an addition was recorded in the first half of 2008, on account of a loan granted to a company that was the victim of fraud. Loans written off totalled  9.1 million in H1 2008, i.e. 6 basis points of risk-weighted assets (H1 2007: 5 basis points). The percentage of non-performing loans covered by the provision for impairments was 114.7% (30 June 2007: 146.5%).
 
Income tax on operating profit for the first half of 2008 was  12.6 million, corresponding with a tax burden of 17.3%, against 20.7% in the first half of 2007.
 
The efficiency ratio, representing the ratio of operating expenses to income from operating activities, rose to 72.1% from 63.3% in H1 2007. This percentage is inclusive of the amortisation of intangible assets that arose on the acquisition of Kempen & Co. Exclusive of this amortisation, the efficiency ratio was 70.1%

EARNINGS PER SHARE
 
Earnings per ordinary share were  1.58 for the first half of 2008, which is 44% lower than in the corresponding period in 2007 ( 2.80).
 
 

BALANCE SHEET
 
* For purposes of comparison, the BIS ratios at 31 December 2007 are in accordance with Basel II
 
 
Total assets at 30 June 2008 came to  21.8 billion, against  21.7 billion at 31 December 2007. Total loans and advances were up 4% from  16.0 billion to  16.7 billion. The bank's funding ratio (the ratio of public and private sector liabilities to total loans and advances to the public and private sectors) grew from 91.2% at the end of December 2007 to 95.4% at 30 June 2008.
 
Return on average shareholders' funds declined from 16.9% at year-end 2007 to 8.2%, which decline was attributable to the lower net profit and more or less stable shareholders' funds.
 
The BIS total capital ratio dropped from 11.8% to 11.3% due to an increase in risk-weighted assets and a decrease in qualifying capital. The 11.3% BIS ratio is well above the standard set by the regulators. Risk-weighted assets rose  0.5 billion from  13.8 billion at the end of 2007 to  14.3 billion at 30 June 2008. In the first six months of 2008 the qualifying capital declined since less lower Tier 2 capital could be allocated to the qualifying capital under the notional phase-out arrangement.
 
ASSETS UNDER MANAGEMENT
 
* Reconciliation of the assets under management of Kempen & Co with those of Van Lanschot showed that the assets under management at year-end 2007 ( 28.1 billion) were understated by  1.1 billion.
 
 
Assets under management came to  28.2 billion at the end of June 2008, dropping  1.0 billion compared with year-end 2007.
 
In the first half of 2008, assets under discretionary management fell by  0.3 billion, from  15.8 billion to  15.5 billion. Net inflow of new funds in assets under discretionary management totalled  1.3 billion in the first half of 2008. This inflow was however absorbed by a  1.6 billion negative market performance due to the gloomy mood on the stock exchanges.
 
Assets under discretionary management for private clients were down  1.0 billion from  6.3 billion to  5.3 billion (-15.9%), as a result of a net outflow of  0.4 billion and a  0.6 billion negative market performance. Assets under discretionary management for institutions increased  0.9 billion from  4.9 billion to  5.8 billion. The net inflow was  1.5 billion against a negative market performance of  0.6 billion. Assets under discretionary management of the in-house funds dropped  0.2 billion from  4.6 billion to  4.4 billion, which decline was made up of a  0.2 billion net inflow and a  0.4 billion negative market performance.
 
Assets under non-discretionary management dropped 5.2% from  13.4 billion at year-end 2007 to  12.7 billion at the end of June 2008, because clients currently prefer to hold a larger part of their assets in the form of liquidity, in particular deposits.
 
DEVELOPMENTS BY SEGMENT
See attached PDF.
 
The method for allocating the interest component to the segments was further improved compared with previous periods, and the comparative figures have been restated accordingly.

PRIVATE BANKING
 
 
 
Within the Private Banking segment, the number of private target group clients was up 2.7%. Savings accounts and deposits also posted a growth in the first half of 2008, rising  1.7 billion (24%) to  8.8 billion. On the other hand, assets under discretionary management fell by  1.0 billion, from  6.3 billion to  5.3 billion. Owing to the bearish sentiment on the stock exchange, clients are holding a larger part of their portfolio in the form of liquidity. Client assets (funds entrusted plus assets under management) on balance declined by 1.4% or  0.4 billion, from  28.4 billion at year-end 2007 to  28.0 billion. The increase in funds entrusted fell just short of absorbing the decrease in assets under management. Loans and advances to private clients diminished by  0.1 billion to  9.5 billion.
 
Income from operating activities was down from  176.9 million to  163.0 million on account of lower securities commission, which dropped 25% (from  76.2 million to  57.1 million). Interest income rose, with the exception of penalty interest, which again declined.
 
Total expenses were up from  107.4 million to  121.3 million, largely as a result of higher other administrative expenses. These grew 22% from  35.8 million to  43.6 million, mainly due to higher IT costs for external staff hired and higher marketing costs for the Private Banking segment. In addition, staff costs increased by 3% from  65.3 million to  67.0 million, directly attributable to the higher number of bankers. In the first half of 2008,  2.3 million was posted for impairments.
 
Operating profit before tax of Private Banking was  41.7 million, representing a 40% decline on the corresponding period in 2007.

Van Lanschot Belgium
Van Lanschot Belgium's gross operating profit for the first half of 2008 was down  2.0 million (50%), from  3.9 million in the first half of 2007 to 1.9 million, and income from operating activities decreased as well, by 12% from  15.8 million to  13.9 million. The decrease in funds entrusted and reticence on the part of our clients to execute securities transactions led to a 22% decline in commission income.  Interest income remained stable. The volume of loans and advances in the first half of 2008 was up 3% from  362 million to  374 million. In this period, savings accounts and deposits were higher as well, posting a 9% increase from  639 million to  695 million. Operating expenses remained nearly stable; they increased slightly (1.0%) to  11.8 million.
 
The number of target group clients of Van Lanschot Belgium increased 3% in the first half of 2008, with the number of Belgian private clients growing by 4%.
 
International Private Banking
Our International Private Banking clients are served from our foreign offices, i.e. Van Lanschot Bankiers Luxembourg, Van Lanschot Bankiers CuraƧao and Van Lanschot Bankiers Schweiz, and the representative office in the South of France.
 
Gross operating profit before tax of International Private Banking declined 25% from  7.5 million in the first half of 2007 to  5.6 million in the reporting period, largely as a result of lower securities commission.
 
ASSET MANAGEMENT
 
 
 
 
The Asset Management business segment comprises the asset management activities of Van Lanschot.
 
This segment's income from operating activities, which is mainly made up of commission, dropped 39% from  35.6 million to  21.6 million. This decline is attributable to the negative sentiment on the stock exchanges.
 
Assets under discretionary management for institutions moved up  0.9 billion from  4.9 billion to  5.8 billion. This rise was generated by a net inflow of  1.5 billion and negative market performance of  0.6 billion. Assets under discretionary management of the in-house funds dropped  0.2 billion from  4.6 billion to  4.4 billion due to a  0.2 billion net inflow and a  0.4 billion negative market performance.
 
Total expenses dropped 24% from  18.5 million to  14.0 million. This decrease was due in particular to the staff costs, which went down 31% from  15.0 million to  10.3 million on account of the lower accruals for bonuses in this segment.
 
The Asset Management segment posted an operating result before tax of  7.6 million, representing a 56% decline.

BUSINESS BANKING
 
 
 
The Business Banking segment also comprises the activities of the Healthcare sub segment (CenE Bankiers).
 
Income from operating activities rose 18% to  78.9 million. Compared with the first half of 2007, interest income moved up 20%. Loans and advances to corporate clients in the first half of 2008 increased by  0.6 billion to  5.3 billion. On the other hand growth in funds entrusted was limited. This volume increase, along with the higher interest rates, positively impacted interest income. The profits on sale and valuation gains on associates and the venture capital unit totalled  6.5 million. The number of business banking clients grew in particular in the family businesses segment, while in the healthcare segment the target group of medical professionals also increased.
 
Total expenses increased 15% to  42.0 million, which increase was mainly driven by impairments. The addition to the provision was  4.0 million for Business Banking, mainly related to two large corporate clients, one of them being the victim of fraud. Other administrative expenses were up 17% to  15.0 million.
 
The operating profit before tax of Business Banking was  36.9 million, representing a 20% rise on the corresponding period in 2007.

CORPORATE FINANCE AND SECURITIES
 
 
 
This segment comprises the corporate finance activities and securities broking to professional investors in Europe and the United States.
 
This segment's income from operating activities declined 37%, from  43.8 million in the first half of 2007 to  27.7 million in the first half of 2008. The operations included in this segment are volatile by nature and depend on stock exchange trends and the number of share issues, mergers and acquisitions led by the bank. Corporate Finance's commission income posted a solid increase thanks to their successful handling of a number of mergers and acquisitions. However, due to the turbulent behaviour of the stock exchanges, commission and trading income levels of the Securities department were under pressure. On balance, commission income dropped 35% compared with the first half of 2007.
 
Total expenses were down 27% from  27.0 million to  19.8 million, mainly as a result of lower accruals for bonuses at Kempen & Co. Other administrative expenses declined 16% from  6.8 million to  5.7 million.
 
Operating profit before tax decreased 53% compared with the first half of 2007.

OTHER ACTIVITIES
 
 
This segment comprises, among other things, proceeds and/or expenses that can at present not be allocated to other segments. We are constantly striving to refine this allocation. In addition, this segment comprises income and expenses arising from interest rate, market and liquidity risk management.
 
Income from operating activities was down 169% at  -8.3 million. Profit on financial transactions declined due to the negative mood on the stock exchanges and the impact of the inverted yield curve on the hedge accounting-related items.
 
Total expenses dropped 38% from  20.9 million to  13.0 million. The amortisation item also comprises the amortisation of intangible assets in connection with the takeover of Kempen & Co of  5.5 million (H1 2007: 8.2 million).
 
Operating profit before tax decreased 139% compared with the first half of 2007.
 
KEY DATES 2008/2009
 
 
 
's-Hertogenbosch, the Netherlands, 15 August 2008
 
 
Van Lanschot press contacts: Etienne te Brake, Corporate Communication spokesperson.
Telephone +31 (0)73 548 3026; Mobile phone +31 (0)6 12 505 110; E-mail e.tebrake@vanlanschot.com
 
Van Lanschot Investor Relations: Geraldine Bakker-Grier, Investor Relations Manager.
Telephone +31 (0)73 548 3350; Mobile phone +31 (0)6 13 976 401; E-mail g.a.m.bakker@vanlanschot.com
 
Van Lanschot NV is the holding company of F. van Lanschot Bankiers NV, the oldest independent bank in the Netherlands with a history dating back to 1737. Van Lanschot focuses on three target groups: high net-worth individuals, medium-sized businesses (including family businesses) and institutional investors. Van Lanschot stands for high-quality services founded on integrated advice, personal service and customised solutions. Van Lanschot NV is listed on the Euronext Amsterdam Stock Market.
 
 
Click the link below to read the complete press release including all tables and annexes:
 
Stock Van Lanschot (AEX): LANS More stock exchange information

The Van Lanschot website uses cookies to enhance the way it functions, for session tracking and for logging statistics. If you continue browsing our site, you agree to our use of cookies. Read more about Van Lanschot and cookies.