EQS-Adhoc: Varengold Bank AG implements announced restructuring measures and adjusts the earnings forecast for the financial year 2023

Hamburg, 20 June 2023 – As reported in the ad hoc announcement from 02/06/2023, the German Federal Financial Supervisory Authority (BaFin) has announced several supervisory measures as part of the ongoing special audit pursuant to Section 44 Paragraph 1 of the German Banking Act (KWG) at Varengold Bank AG (symbol: VG8) in a hearing procedure after the commissioned auditors have claimed possible compliance violations in the Commercial Banking business division respectively in the payment transaction business as an initial interim result. In addition, Varengold Bank will be imposed on further reporting requirements on liquidity, financial and profit situation as well as on the capital base. The auditing firm KPMG AG shall be responsible to monitor compliance with the supervisory measures and reporting obligations as a special representative.

With the support of external lawyers, Varengold Bank has submitted a statement to the supervisory authority on this interim result. Nevertheless, the bank takes the auditors' findings very seriously and has taken initial measures to validate the alleged deficits and to handle the resulting risks of legal violations. This includes, even without the legally binding administrative act from the supervisory authority, the initiation of its own review of the optimization requirements regarding the bank's procedures for the prevention of money laundering and terrorist financing, which is carried out with external support. The bank has acted in a legally and politically difficult area by processing payments for transactions connected to Iran. This operation is not prohibited by sanction law in Germany and the entire EU, it is rather desired due to humanitarian reasons, given that the payment transactions involve the delivery of food or medical products to Iran - this was exclusively the case at Varengold Bank in the past.

The current situation came very unexpectedly for Varengold Bank, as all business activities in the Commercial Banking business division had been audited regularly and comprehensively by external professionals for several years and certified as permissible. The latest developments lead to a significant loss of commission income and require short-term restructuring measures or the development of restructuring parameters at the overall bank level. The goal is to implement a cost reduction program in 2023, to reorganize the Commercial Banking business division and to secure the stable base of the bank. Therefore, the bank has implemented short-term savings at both the material cost and personnel cost levels - various projects have been stopped until further notice and approx. 22% of the staff will be laid off. The reorganization of the Commercial Banking business is being driven forward with the highest priority - new earnings potential is being explored and the Marketplace Banking business division is being expanded.

As the originally advised result for the financial year 2023 with a pre-tax profit of EUR 40-50 million will not be achieved under these circumstances, Varengold Bank has created a new business planning. In addition to the loss of commission income in Commercial Banking, the bank also expects additional burdens - especially legal and consulting costs as well as audit costs. Compared to the former plan, the pre-tax result for the financial year 2023 will drop to EUR 10-15 million. For the years 2024 to 2026, the bank expects a pre-tax profit level of EUR 5-10 million each.
 

Dr. Bernhard Fuhrmann  
Management Board

Frank Otten
Management Board

Disclaimer

This notification is a mandatory notification according to Art. 17 MAR. The assessments contained are subject to the following caveats.

Disclaimer on forward-looking statements / no duty to update

This communication contains forward-looking statements that are subject to certain risks and uncertainties. Future results may differ materially from those currently expected, namely due to various risk factors and uncertainties such as changes in the business, economic and competitive situation, fluctuations in exchange rates, uncertainties regarding legal disputes or investigations, and the availability of financial resources. The reader should therefore not over-rely on these statements, particularly in connection with contracts or investment decisions. Varengold Bank AG assumes no responsibility for updating the forward-looking statements contained in this communication.

Note

This announcement does not constitute an offer or invitation to subscribe for or purchase any securities of Varengold Bank AG in the United States of America, Germany or any other jurisdiction. This announcement does not constitute a recommendation regarding the placement of the securities described in this announcement.

1661109  20-Jun-2023 CET/CEST