Bundesbank posts €6.3 billion profit in 2008

The Deutsche Bundesbank posted a profit of €6.3 billion in 2008 compared with €4.3 billion in 2007. The distributable profit was paid over to the Federal Government today in full pursuant to section 27 number 2 of the Bundesbank Act.

“Despite the substantial topping-up of provisions, the Bundesbank’s profit is significantly higher than in 2007. This is largely a result of the increase in interest income denominated in euro. Furthermore, unlike in 2007, there was no need to write down foreign exchange assets or securities”, explained Bundesbank President Professor Axel Weber.

Professor Weber continued: “The global financial crisis has highlighted the importance of the stability of the financial system.” For this reason, the Bundesbank intends to leverage its expertise in the field of financial stability in a new Financial Stability Department from 1 May 2009.

With regard to the ongoing course of economic development, however, the Bundesbank President by no means gave the all-clear: “The global economy is currently experiencing a sharp downturn, and the financial market turmoil continues to pose a downside risk.” Professor Weber expects the crisis of confidence to have a more significant and protracted effect on the real economy than anticipated to date. “Due to the decline in export demand, the German economy is particularly hard hit.” Falling inflation rates are currently underpinning consumer purchasing power. “We shall experience some months of negative inflation this year, but this should not be confused with deflation”, he added.

Dr Hans Georg Fabritius, a member of the Bundesbank’s Executive Board pointed out that “owing to the escalation of the financial market crisis and the supporting money market interventions of the Eurosystem, the balance sheet total expanded strongly by €129 billion to €613 billion”. Provisions for monetary policy operations have been set up in accordance with the decision of the Governing Council of the ECB. Dr Fabritius explained that “the Eurosystem’s risk provisions amount to a total of €5.7 billion, €1.7 billion of which is contributed by the Bundesbank.”

The most important source of the Bundesbank’s profit was interest income of €16.9 billion (2007: €13.1 billion), €15.4 billion of which was denominated in euro (2007: €11.7 billion). This was partially offset by interest expense of €8.5 billion (2007: €5.6 billion), resulting in net interest income of €8.4 billion (2007: €7.5 billion). The annual result was also determined by the net result of financial operations, write-downs and risk provisions of +€0.6 billion (2007:
-€1.9 billion due to write-downs on financial positions) and the net result arising from the allocation of monetary income of -€1.8 billion due to the creation of a provision for counterparty risks arising from monetary policy operations in the Eurosystem (2007: -€0.1 billion).

Balance sheet items which are subject to market price fluctuations are valued at market prices. Valuation gains arising from this are not recognised in the profit and loss account but are shown, instead, under the balance sheet liability item “Revaluation accounts”. The valuation gains amounted to €63.1 billion (gold €60.1 billion, foreign currency €1.6 billion and securities €1.4 billion).

For more details of the annual accounts, please see the attachments. The 2008 Annual Report will be published on our website (www.bundesbank.de) in German at 2 pm today and in English shortly.