AUDIT AND ADOPTION OF THE FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS FOR 2016

The accounts, annual financial statements including the status report and the consolidated financial statements including the Group status report for 2016 were audited by KPMG AG Wirtschaftsprüfungsgesellschaft. KPMG were elected as auditors and Group auditors by the shareholders for the 2016 financial year at the Annual General Meeting on 19 July 2016. All audits resulted in an unqualified auditor’s certificate with an explanatory note saying that, without limiting this assessment, the going concern assumption for accounting and valuation as well as the continued existence of HSH Nordbank AG and key group companies is based, in particular, on:

  1. full and on-time conclusion of the agreements required for implementation of the EU Commission’s formal decision in the EU state aid proceedings on replenishment of the second-loss guarantee as well as HSH Nordbank AG and its shareholders implementing the formal decision fully and on time.
  2. a sale of the operational HSH Nordbank AG having taken place by 28 February 2018 by way of an open, discrimination-free, competitive and transparent process at a favourable selling price free of state aid and the EU having approved the new corporate structure following a viability review. Should the selling process not, by the disposal deadline, lead to favourable bids free of state aid or the EU Commission conclude the viability review with the finding that integrating the operating company in the new corporate structure would not result in a business model that is viable in the long term, the operating company would discontinue its new business and manage its assets within the scope of what is legally permissible with the objective of an orderly wind-down. Should the Bank, for this or another reason, enter a wind-down or there were to be a rating downgrade or another adverse development during the privatisation period, this could trigger significant outflows of short-term funds and fundamentally restrict HSH Nordbank’s funding options. In the event of material, unexpected outflows, additional measures by the owners and/or third parties to strengthen the liquidity situation would be required.
  3. a complete disposal, within the framework of the process to privatise HSH Nordbank AG that is under way, of HSH Nordbank AG as an entire Bank, i. e. the sale of the shares in the Bank held by the vendor including all assets and liabilities without material, advance disposals of assets or sub-segments below the carrying amounts in the case of outstanding bids for a complete sale. Should extensive disposals of loan portfolios especially in the Non-Core Bank be necessary, this could require substantial, additional loan loss provisions that would not be offset by the guarantee as well as major write-downs of deferred taxes.
  4. the minimum capital requirements on all regulatory assessment levels according to the corresponding SREP decisions of the European Central Bank as well as the legal requirements being adhered to during the forecast period. Should substantial, additional loan loss provisioning expenses as well as write-downs of deferred taxes be required (e. g. in the scenario described above) or the recovery of the shipping market assumed in the Bank’s planning does not occur, or the material transfer of risk for the second loss guarantee is no longer given from the perspective of the banking supervisory authority, this could result in major strain on the capital ratios. This could in turn require additional measures by the owners and/or third parties to strengthen the capital ratios to be able to adhere to the minimum capital requirements, especially at the level of the financial holding group. A wind-down of HSH Nordbank could ensue if corresponding measures cannot be applied.

Furthermore, it is necessary that the acceptance of market participants and other relevant stakeholders required for the successful implementation of HSH Nordbank’s business model and the stipulations arising from the EU Commission’s formal decision is maintained or gained.

The documentation relating to the financial statements and the audit reports together with all attachments were sent out to the members of the Supervisory Board. The auditor initially reported on the implementation and material results of his audit at the meeting of the Audit Committee on 28 March 2017. The Audit Committee discussed the results in detail with the auditor on this basis and on the basis of its own audit. At the Supervisory Board meeting on 29 March 2017, the Chairman of the Audit Committee reported to the Supervisory Board on the result of the deliberations on the Audit Committee. The auditors took part in the meeting of the Supervisory Board and also reported on the material results of their audit there. On the recommendation of the Audit Committee, the Supervisory Board finally agreed with the findings of the audits follow­ing its own examination of the reports of the auditors and in-depth discussion and established that following the final result of its own inspections there were no objections to be raised. The Supervisory Board adopted the 2016 annual financial statements prepared by the Management Board and approved the 2016 consolidated financial statements. Furthermore, it adopted the report of the Supervisory Board for the 2016 financial year.

The Management Board also presented its own report on relations with associated companies (dependence report) in fiscal year 2016 to the Supervisory Board and the statutory auditor on time. The statutory auditor has reviewed the dependence report and issued the following unqualified auditor’s certificate:

“Following our obligatory examination and evaluation performed in accordance with professional standards, we hereby confirm that

  1. the factual statements of the report are correct; and
  2. the Company’s services with respect to the transactions listed in the report were not disproportionately high.”

The Audit Committee and the Supervisory Board have reviewed the Management Board’s dependence report and the statutory auditor’s audit report and have held discussions with the Management Board and the statuto­ry auditor in the context of the annual financial state­ments. The Supervisory Board agreed with the results of the statutory auditor’s report because, in its assessment, no objections could be raised to the Management Board’s statement on the dependence report.