AUDIT AND ADOPTION OF THE FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS FOR 2017

The accounting records, annual financial statements together with the Management Report and consolidated financial statements together with the Group Management Report for 2017 were audited by KPMG AG Wirtschaftsprüfungsgesellschaft. KPMG were elected as auditors and Group auditors by the ordinary shareholders‘ meeting held on 18 May 2017. The audits resulted in an unqualified auditor’s certificate with an explanatory note on material uncertainty in connection with the ability to continue as a going concern. In this context, the auditor refers to the discussion in the Group management report in the section entitled “Opportunities and risks resulting from the formal decision in the EU state aid proceedings” as well as to Note 1 to the Group financial statements, “Accounting principles”, in which the management states that the going concern assumption for accounting and measurement purposes, as well as the continued survival of HSH Nordbank and major group companies is based, in particular, on the share purchase agreement concluded on 28 February 2018, in which HSH Beteiligungs Management GmbH sold 94.9 % of the shares in HSH Nordbank AG to various funds of Cerberus European Investments LLC, J.C. Flowers & Co. LLC, Golden Tree Asset Management L.P., Centaurus Capital LP and BAWAG P.S.K. AG (hereinafter referred to as the “bidders”) being closed and implemented.

This is subject, in particular, to the proviso that the necessary approvals are granted by the competent competition authorities, in particular in Germany and Austria, the federal state parliaments in Hamburg and Schleswig-Holstein approve the share purchase agreement, the competent banking supervisory authority (European Central Bank (ECB), German Federal Financial Supervisory Authority (BaFin) and Commission de Surveillance du Secteur Financier (CSSF Luxembourg) grants the necessary approvals, the European Commission grants its approval for the acquisition following a viability assessment of the new corporate structure, the German Savings Banks Association (DSGV) confirms that HSH Nordbank can keep its full membership of the institutional protection scheme of the German Savings Banks Finance Group (SFG) for another three years after the conclusion of the share purchase agreement (closing), hsh finanzfonds AöR submits a final settlement report on the second loss guarantee granted by hsh finanzfonds AöR and the bidders pay the portion of the purchase price attributable to them on the closing date.

If any of the conditions set out above for the closing of the share purchase agreement are not met, and if no agreement can be reached between the parties involved in each case, in particular if the EU Commission reaches the conclusion, in the course of its viability review, that the planned new corporate structure will not lead to a business model that is profitable in the long term, then the Bank will cease new business and manage its assets as far as legally permissible with the aim of a structured winding down of its business. In the event that the Bank is wound down as a result of the above or for other reasons, or if its rating is downgraded or other adverse developments emerge, then this could trigger outflows of short-term funds and fundamentally restrict HSH Nordbank’s funding options. In the case of major unexpected fund outflows, additional measures will need to be taken by the owners and/or third parties to strengthen the liquidity situation.

It is further required that acceptance by market participants and other relevant stakeholders necessary for the successful implementation of HSH Nordbank AG’s future business model is maintained or gained.

As set out in the Group management report in the section entitled “Opportunities and risks resulting from the formal decision in the EU state aid proceedings” as well as in to Note 1 to the Group financial statements, “Accounting principles”, this indicates material uncertainty that may cast significant doubt on the ability of the HSH Nordbank and major Group companies to continue as a going concern, as well as a risk that threatens the company’s survival within the meaning of Sec. 322 (2) sentence 3 HGB. The audit opinions are not modified with regard to this matter.

Further key audit matters in the audit of the consolidated financial statements were the following:

  • Appropriateness of the specific loan loss provisions set up on loans and advances to customers resulting from ship financing
  • Impact of the implementation of structural measures on accounting
  • Impact of privatization on accounting.

Documentation relating to the financial statements and the audit reports together with all attachments were sent to the members of the Supervisory Board. The auditors initially reported on the performance and material findings of their audit at the meeting of the Audit Committee on 24 April 2018. The Audit Committee discussed the results in detail with the auditors on this basis and on the basis of their own review. The Chairman of the Audit Committee reported to the Supervisory Board on the results of the deliberations of the Audit Committee at the Supervisory Board meeting on 25 April 2018. The auditors also took part in the meeting of the Supervisory Board and reported on the material findings of their audit. On the recommendation of the Audit Committee, the Supervisory Board subsequently agreed with the findings of the audits following its own review of the reports of the auditors and an in-depth discussion and determined that, based on the final result of its own reviews, there were also no objections to be raised. The Supervisory Board adopted the 2017 annual financial statements prepared by the Ma­nagement Board and approved the 2017 consolidated financial statements. Furthermore, it adopted the report of the Supervisory Board for the 2017 financial year.

The Management Board also presented its own report on relationships with associated companies (dependence report) in the 2017 financial year to the Supervisory Board and the auditors of the financial statements in a timely manner. The auditors reviewed the dependence report and issued the following unqualified audit opinion:

„In accordance with our duly performed audit and assessment, we confirm that

  1. the factual statements made in the report are correct,
  2. the consideration paid for the transactions listed in the report was not disproportionately high“.

The Audit Committee and Supervisory Board have reviewed the Management Board’s dependence report and audit report of the auditors and discussed these with the Management Board and auditors in the context of the annual financial statements. The Supervisory Board agreed with the findings of the auditors’ report because, in its assessment, no objections can be raised with regard to the Management Board’s declaration regarding the dependence report.