Preliminary Offering Circular

Convenience Translation
Offering Circular
November 23, 2004
DZ BANK Capital Funding Trust II
Wilmington, State of Delaware, United States of America
(a subsidiary of DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main,
Federal Republic of Germany)
€ 400,000,000
Noncumulative Trust Preferred Securities
(corresponding to a number of 400,000 Trust Preferred Securities)
(Denomination and Liquidation Preference Amount: € 1,000 per Trust Preferred Security;
Offering Price: € 1,000 per Trust Preferred Security)
ISIN: DE000A0DCXA0; German Securities Code (WKN): A0DCXA
The € 400,000,000 registered noncumulative Trust Preferred Securities (Trust Preferred Securities) represent preferred
undivided beneficial ownership interests in the assets of DZ BANK Capital Funding Trust II, a statutory trust formed under the
laws of the State of Delaware, United States of America (Trust). The assets of the Trust consist, subject to an increase of the
Trust Preferred Securities, solely of € 400,001,000 noncumulative Class B Preferred Securities (Company Class B Preferred
Securities) of DZ BANK Capital Funding LLC II, a Delaware limited liability company (Company). The holders of the Company
Class B Preferred Securities have the benefit of a subordinated support undertaking (Subordinated Support Undertaking) issued
by DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (Bank or DZ BANK). For all other capitalized terms,
see "Definitions" beginning on page 4.
The Trust will pass through capital payments and redemption or liquidation proceeds on the Company Class B Preferred Securities
held by it as capital payments and redemption or liquidation payments, respectively, on the Trust Preferred Securities. Capital
payments on the Company Class B Preferred Securities will be payable in accordance with the terms of the Company Class B
Preferred Securities from the Issue Date, on a noncumulative basis, quarterly in arrear on each Class B Payment Date at a floating
rate determined on the basis of the three-month EURIBOR rate plus the margin per annum.
Capital payments on the Company Class B Preferred Securities will be made at the discretion of the Company only
if the Company Operating Profit Test, the Bank Dividend Payment Test, the Group Annual Profit Test, the Group
BIS Tier I Capital Ratio Test and the Regulatory Authority Test are met and even if the Bank were to declare and
pay a dividend on securities ranking junior to the Bank's obligations under the Subordinated Support Undertaking
(such as e.g. the common shares of the Bank) or a distribution were made on Parity Securities, the Company is under
no obligation to declare and make such capital payments.
The Trust Preferred Securities and the Company Class B Preferred Securities have no scheduled maturity date and
will not be redeemable at any time at the option of the holders thereof. The Company Class B Preferred Securities
are redeemable only at the option and in the full discretion of the Company, in whole but not in part, (i) on the
Initial Redemption Date or on any Class B Payment Date thereafter, or (ii) at any time upon the occurrence of certain
special redemption events, in each case provided that various tests set forth herein have been met.
The Trust Preferred Securities have been assigned a rating of BBB- by Standard & Poor's on October 4, 2004 and a rating of Baa2
by Moody’s on November 2, 2004. A rating is not a recommendation to buy, sell, or hold securities, and may be subject to
revision, suspension or withdrawal at any time by the relevant rating agency.
The Trust Preferred Securities are initially evidenced by a single Temporary Global Trust Preferred Certificate, interests in which will be
exchangeable for interests in one or more Permanent Global Trust Preferred Certificates not earlier than 40 days after (i) the Issue
Date or, if later, (ii) the completion of the distribution of the Trust Preferred Securities and upon certification of non-U.S. beneficial
ownership by or on behalf of the holders of such interests. The Global Certificates will be deposited with, and registered in the
name of, Clearstream Frankfurt. Beneficial interests in the Trust Preferred Securities will be shown only on, and transfers thereof
will be effected only through, book-entry records maintained by Clearstream Frankfurt.
The Trust Preferred Securities have been admitted to listing on the official market (Amtlicher Markt) of the Frankfurt Stock
Exchange (Frankfurter Wertpapierbörse) on November 23, 2004.
THESE SECURITIES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED FROM TIME TO TIME, OR ANY SUCCESSOR LEGISLATION (SECURITIES ACT) AND ARE BEING OFFERED AND
SOLD ONLY OUTSIDE THE UNITED STATES OF AMERICA TO NON-U.S. PERSONS IN OFFSHORE TRANSACTIONS IN
RELIANCE ON REGULATION S UNDER THE SECURITIES ACT, AS AMENDED FROM TIME TO TIME, OR ANY SUCCESSOR
LEGISLATION (REGULATION S). FOR A DESCRIPTION OF CERTAIN RESTRICTIONS ON TRANSFER OF THESE SECURITIES,
SEE "SALE – SELLING RESTRICTIONS".
INVESTMENT IN THESE SECURITIES INVOLVES CERTAIN RISKS.
Among others, risks are that Class B Capital Payments as well as a redemption of the Company Class B Preferred
Securities are subject to the fulfillment of various tests and even if all the tests are fulfilled are still in the discretion
of the Company, that the right to receive Capital Payments is non-cumulative, i.e. Capital Payments not declared
and paid will not be made up for or paid at a later time, and that the Trust Preferred Securities are not redeemable
at the option of the holders thereof.
FOR A MORE DETAILED DESCRIPTION OF THE RISKS INVOLVED, PLEASE SEE THE "INVESTMENT CONSIDERATIONS"
SECTION BEGINNING ON PAGE 23 FOR A DESCRIPTION OF THESE RISKS.
The only binding offering document is the German language Börsenzulassungsprospekt (listing prospectus) dated
November 23, 2004.
DZ BANK AG
2
Table of Contents
Definitions .........................................................................................................................................................................
4
Responsibility, Listing and General Information...................................................................................................................
11
Presentation of Financial Information .................................................................................................................................
13
Summary ...........................................................................................................................................................................
14
Investment Considerations/Risk Factors ..............................................................................................................................
23
Use of Proceeds .................................................................................................................................................................
27
Development of the Regulatory Capital of the Bank and the DZ BANK Group......................................................................
28
Bank Distributable Profits, Group Annual Profits and Group BIS Tier I Capital Ratio .............................................................
29
DZ BANK Capital Funding Trust II.......................................................................................................................................
31
DZ BANK Capital Funding LLC II.........................................................................................................................................
33
Description of the Trust Preferred Securities ........................................................................................................................
36
Description of the Company Securities................................................................................................................................
45
Description of the Subordinated Support Undertaking.........................................................................................................
52
Description of the Services Agreement................................................................................................................................
53
Description of the Terms of the Initial Debt Securities..........................................................................................................
54
General Information on the Bank .......................................................................................................................................
56
Business ............................................................................................................................................................................
62
Regulation .........................................................................................................................................................................
66
Taxation ............................................................................................................................................................................
74
Sale ...................................................................................................................................................................................
78
Business Development and Outlook....................................................................................................................................
80
Annex A – Subordinated Support Undertaking....................................................................................................................
83
Index to Financial Statements.............................................................................................................................................
F-1
3
Definitions
Additional Amounts means any additional amounts payable by the Company pursuant to the terms of the Company Class B
Preferred Securities and by the Trust pursuant to the terms of the Trust Preferred Securities as a result of deduction or withholding
on payments thereon.
Additional Company Class B Preferred Securities means additional Company Class B preferred securities with an aggregate
denomination corresponding to the aggregate denomination of the Additional Debt Securities. Upon the issuance of any Additional
Company Class B Preferred Securities, the terms set forth herein which apply or refer to the Company Class B Preferred Securities
shall apply or refer in the same manner to the Additional Company Class B Preferred Securities.
Additional Debt Securities means any subordinated notes due November 22, 2034 issued by the Bank in excess of, and on
the same terms as, the Initial Debt Securities or following the issuance of Substitute Debt Securities any subordinated notes issued
by the issuer of such Substitute Debt Securities in excess of, and on the same terms as, the Substitute Debt Securities. Upon the
issuance of any Additional Debt Securities, the terms set forth herein which apply or refer to the Initial Debt Securities shall apply
or refer in the same manner to such Additional Debt Securities.
Additional Interest Amounts means any additional amounts payable by the obligor of the Debt Securities pursuant to the terms
of the Debt Securities as a result of deduction or withholding on payments thereon.
Additional Trust Preferred Securities means additional trust preferred securities with an aggregate denomination corresponding
to the aggregate denomination of the Additional Debt Securities. Upon the issuance of any Additional Trust Preferred Securities,
the terms set forth herein which apply or refer to the Trust Preferred Securities shall apply or refer in the same manner to the
Additional Trust Preferred Securities.
Administrative Action means any judicial decision, official administrative pronouncement, published or private ruling, regulatory
procedure, notice or announcement (including any notice or announcement of intent to adopt such procedures or regulations) by
any legislative body, court, governmental authority or regulatory body.
Aggregated Financial Information means the comparative financial data as of and for the annual periods ended prior to
December 31, 2001 which is presented on an aggregated basis to reflect the relevant consolidated financial information of the
Predecessor Banks added up from the audited consolidated financial information of (i) the Predecessor Banks as of and for the
annual period ended December 31, 2000 and (ii) DG BANK and the predecessor banks of GZ-Bank, GZB-Bank Genossenschaftliche
Zentralbank AG Stuttgart and SGZ-Bank Südwestdeutsche Genossenschafts-Zentralbank AG, as of and for the annual periods
ended prior to December 31, 2000.
BaFin means the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht).
Bank means DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main, a stock corporation incorporated under
the laws of the Federal Republic of Germany.
Bank Affiliate means any subsidiary of the Bank according to § 290 of the German Commercial Code or other applicable
German law then in effect.
Bank Distributable Profits for any financial year of the Bank means the balance sheet profit (Bilanzgewinn) as of the end of
such financial year, as shown in the audited and determined (festgestellt) unconsolidated financial statements of the Bank as of
the end of such financial year. Such balance sheet profit includes the annual surplus or loss (Jahresüberschuss/Jahresfehlbetrag),
plus any profit carried forward from previous years, minus any loss carried forward from previous years, plus transfers made by
the Bank, in its discretion, from capital reserves and surplus reserves, minus allocations made by the Bank, in its discretion, to
surplus reserves, all as determined in accordance with the provisions of the German Stock Corporation Act and German GAAP as
described in the German Commercial Code and other applicable German law then in effect.
Bank Dividend Payment for any financial year means the aggregate dividend payment paid to the common shareholders of
the Bank in relation to such financial year.
Bank Dividend Payment Test means a test to see whether the Bank has paid a Bank Dividend Payment on or prior to a Class
B Payment Date from the Bank Distributable Profits for the most recent financial year for which the Bank's shareholders' meeting
(Hauptversammlung) has resolved on the appropriation of profits.
Basel Committee means the Basel Committee on Banking Supervision.
BIS means the Bank for International Settlements.
Board of Directors means the board of directors of the Company.
4
Business Day means a day on which TARGET (the Trans-European Automated Real-time Gross settlement Express Transfer
System) is operating credit or transfer instructions in respect of payments in euro and banks are open in Frankfurt am Main,
Federal Republic of Germany.
Calculation Agent means Deutsche Bank Aktiengesellschaft, Frankfurt am Main, Federal Republic of Germany, acting as
calculation agent (i) of the Company in respect of the Company Class B Preferred Securities in accordance with the LLC Agreement,
and (ii) of the Bank in respect of the Debt Securities in accordance with the terms thereof.
Capital Payments means, with respect to the Trust Preferred Securities, the Trust Capital Payments and, with regard to the
Company Class B Preferred Securities, the Class B Capital Payments.
Class B Agio means an agio of € 980 per Company Class B Preferred Security.
Class B Capital Payments means periodic distributions to holders of the Company Class B Preferred Securities declared and paid
in accordance with the LLC Agreement.
Class B Denomination means the denomination of € 1,000 per Company Class B Preferred Security.
Class B Equity Component means the amount corresponding to the Liquidation Ratio multiplied by the Net Assets and divided
by the aggregate number of all outstanding Company Class B Preferred Securities.
Class B LPA means the liquidation preference amount of € 20 per Company Class B Preferred Security.
Class B Payment Date means February 22, May 22, August 22 and November 22 of each year, commencing on February 22,
2005. If any Class B Payment Date would otherwise fall on a day which is not a Business Day, it shall be postponed to the next
day which is a Business Day unless it would thereby fall into the next calendar month, in which event the Class B Payment Date
shall be the immediately preceding Business Day.
Class B Payment Period means, for any Class B Capital Payments payable on a Class B Payment Date, the period from and
including the immediately preceding Class B Payment Date (or the Issue Date, in the case of the first Class B Capital Payment) to
but excluding the relevant Class B Payment Date.
Clearstream Frankfurt means Clearstream Banking AG, Frankfurt am Main, Federal Republic of Germany.
Company means DZ BANK Capital Funding LLC II, a limited liability company formed under the laws of the State of Delaware,
United States of America, or any successor entity.
Company Class A Preferred Security means the noncumulative Class A preferred security of the Company representing an
ownership interest in the Company.
Company Class B Preferred Securities means the € 400,001,000 noncumulative Class B preferred securities of the Company
representing an ownership interest in the Company. Unless the context clearly requires otherwise, references to the Company
Class B Preferred Securities include Additional Company Class B Preferred Securities.
Company Common Security means the voting common security of the Company representing an ownership interest in the
Company.
Company Operating Profits means, for any Class B Payment Period, the excess of the amounts payable (whether or not paid)
to the Company on the (i) Debt Securities or (ii) after the Maturity Date, Permitted Investments that the Company may then hold
in accordance with the LLC Agreement during such Class B Payment Period over any operating expenses of the Company not paid
or reimbursed by the Bank during such Class B Payment Period.
Company Operating Profit Test means a test to see whether there are Company Operating Profits for the Class B Payment
Period ending on the day immediately preceding a Class B Payment Date at least equal to the amount of the Class B Capital
Payments to be paid.
Company Securities means, collectively, the Company Common Security, the Company Class A Preferred Security and the
Company Class B Preferred Securities.
Debt Redemption Date means any date established for redemption pursuant to a notice in accordance with the terms and
conditions of the Initial Debt Securities prior to the Maturity Date.
Debt Securities means the Initial Debt Securities and the Substitute Debt Securities. Unless the context clearly requires otherwise,
references to Debt Securities include Additional Debt Securities.
Defined Retained Earnings in relation to any financial year of the Bank means (i) the Group Annual Profit minus (ii) the Bank
Dividend Payment paid during such financial year to the common shareholders of the Bank in relation to the previous financial year
and minus (iii) the dividends paid to minority shareholders of the fully consolidated subsidiaries of the Bank during such financial
year as published in the statement of structure and movement in equity (Eigenkapitalspiegel) in the audited and approved (gebilligt)
consolidated financial statements of the Group for such financial year.
5
Delaware Trustee means Deutsche Bank Trust Company Delaware or any successor entity in a merger, consolidation or
amalgamation, in its capacity as Delaware trustee of the Trust in accordance with the Trust Agreement.
DG BANK means DG BANK Deutsche Genossenschaftsbank AG, Frankfurt am Main, Federal Republic of Germany.
DZ BANK means the Bank.
DZ BANK Group means the Bank and its consolidated subsidiaries in accordance with § 290 of the German Commercial Code
or other applicable German law then in effect.
EEA means Agreement on the European Economic Area.
EU means countries that are member states of the European Union.
FSMA means the Financial Services and Markets Act 2000 (United Kingdom), as amended from time to time, or any successor
legislation.
German Banking Act means the German Banking Act (Gesetz über das Kreditwesen), as amended from time to time, or any
successor legislation.
German Civil Code means the German Civil Code (Bürgerliches Gesetzbuch), as amended from time to time, or any successor
legislation.
German Commercial Code means the German Commercial Code (Handelsgesetzbuch), as amended from time to time, or any
successor legislation.
German Disbursing Agent means a German bank or a German financial services institution, each as defined in the German
Banking Act (including a German branch of a German or foreign bank or a German or foreign financial services institution but
excluding a foreign branch of a German bank or a German financial services institution), at which the Trust Preferred Securities
are kept in a custodial account maintained by a holder.
German GAAP means German generally accepted accounting principles.
German Stock Corporation Act means the German Stock Corporation Act (Aktiengesetz), as amended from time to time, or
any successor legislation.
Global Certificates means the Temporary Global Trust Preferred Certificate and one or more Permanent Global Trust Preferred
Certificate(s).
Group means the Bank and its consolidated subsidiaries in accordance with § 290 of the German Commercial Code or other
applicable German law then in effect.
Group Annual Profits for any financial year of the Bank means the net income (Jahresüberschuss/Jahresfehlbetrag) as of the
end of such financial year, as shown in the audited and approved (gebilligt) consolidated financial statements of the Group as of
the end of such financial year as determined in accordance with the provisions of the German Stock Corporation Act and German
GAAP as described in the German Commercial Code and other applicable German law then in effect. Such net income is before
deduction of minority interests (Gewinnanteile anderer Gesellschafter).
Group Annual Profit Test means a test to see whether there are Group Annual Profits for the most recent financial year of the
Bank for which the Bank's shareholders' meeting (Hauptversammlung) has resolved on the appropriation of profits at least equal
to the sum of (i) the amount of Class B Capital Payments payable and already paid in such financial year, (ii) capital payments or
dividends or other distributions or payments on Parity Securities already paid in such financial year or payable on the same date,
in each case on the basis of such Group Annual Profits and (iii) the Bank Dividend Payment for such financial year.
Group BIS Tier I Capital Ratio means the Tier I capital ratio for the Bank and its subsidiaries consolidated for bank regulatory
purposes under the applicable rules of BIS.
Group BIS Tier I Capital Ratio Test means a test to see whether the Group BIS Tier I Capital Ratio as of the end of the most
recent financial year of the Bank for which audited and approved (gebilligt) consolidated financial statements are available and as
published in the annual report of the Group equals or exceeds 5%.
GZ-Bank means GZ-Bank AG Frankfurt/Stuttgart.
Independent Enforcement Director means the additional member of the Board of Directors which may be appointed by a
majority of the holders of the Company Class B Preferred Securities if (i) the Company fails to pay Class B Capital Payments (plus
any Additional Amounts thereon, if any) on the Company Class B Preferred Securities at the Stated Rate for four consecutive
Class B Payment Periods even though all requirements for capital payments have been met and capital payments have been
declared, or (ii) a holder of the Company Class B Preferred Securities has notified the Company that the Bank has failed to perform
any obligation under the Subordinated Support Undertaking and such failure continues for 60 days after such notice is given.
Initial Debt Redemption Date means November 22, 2011.
6
Initial Debt Securities means the € 400,003,000 subordinated notes issued by the Bank and due November 22, 2034.
Initial Redemption Date means November 22, 2011.
Interest Payment Date means (in relation to the Initial Debt Securities) February 22, May 22, August 22 and November 22 of
each year, commencing on February 22, 2005. If any Interest Payment Date would otherwise fall on a day which is not a Business
Day, it shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in
which event the Interest Payment Date shall be the immediately preceding Business Day.
Interest Period means each period from and including the immediately preceding Interest Payment Date (or the Issue Date, in
the case of the first Interest Payment Date) to but excluding the relevant Interest Payment Date.
Internal Revenue Code means the U.S. Internal Revenue Code of 1986, as amended from time to time, or any successor
legislation.
Investment Company Act means the U.S. Investment Company Act of 1940, as amended from time to time, or any successor
legislation.
Investment Company Act Event means that the Bank will have requested and received an opinion of a nationally recognized
law firm in the United States of America experienced in such matters to the effect that there is more than an insubstantial risk
that the Company or the Trust is or will be considered an "investment company" within the meaning of the Investment Company
Act as a result of any judicial decision, pronouncement or interpretation (irrespective of the manner made known), the adoption
or amendment of any law, rule or regulation, or any notice or announcement (including any notice or announcement of intent to
adopt such law, rule or regulation) by any United States of America legislative body, court, governmental agency, or regulatory
authority, in each case after the date of the issuance of the Company Class B Preferred Securities and the Trust Preferred
Securities.
IRS means the United States Internal Revenue Service.
Issue Date means November 22, 2004, the date of initial issuance of the Company Class B Preferred Securities or the Trust
Preferred Securities or the Initial Debt Securities, as the case may be.
KWG means the German Banking Act, as defined above.
Lead Manager means DZ BANK.
Liquidation Amount means the sum of (i) the Class B LPA, plus (ii) accrued and unpaid Class B Capital Payments in respect of
the then current Class B Payment Period to but excluding the date of liquidation and Additional Amounts, if any, plus (iii) the
Class B Equity Component, plus (iv) any assets of the Company remaining after distributions have been made under the Company
Class A Preferred Securities, provided that the Company receives amounts under the Subordinated Support Undertaking given by
the Bank to the Company corresponding to the sum of the amounts referred to under (i) to (iii) and provided further that the sum
of (i) and (iii) shall not exceed the Class B Denomination per Company Class B Preferred Security, i.e. € 1,000.
Liquidation Ratio means the (i) aggregate Class B Agio of all outstanding Company Class B Preferred Securities divided by (ii) the
sum of the aggregate Class B Agio of all outstanding Company Class B Preferred Securities, the subscribed capital (gezeichnetes
Kapital), the capital reserves and the surplus reserves of the Bank as determined in the unconsolidated liquidation financial statements (Liquidationseröffnungsbilanz) of the Bank set up by the Bank (which may be unaudited) in connection with the liquidation,
dissolution or winding-up of the Bank.
LLC Act means the Delaware Limited Liability Company Act, as amended from time to time, or any successor legislation.
LLC Agreement means the Amended and Restated Limited Liability Company Agreement of DZ BANK Capital Funding LLC II,
dated as of November 22, 2004 entered into between the Bank and the Company.
Margin means 1.60 per cent.
Maturity Date means November 22, 2034, the scheduled maturity date of the Initial Debt Securities.
Merger means the merger of GZ-Bank into DG BANK which was registered on September 18, 2001 in the commercial register of
DG BANK (which was simultaneously with the merger renamed to DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt
am Main, the current name of the Bank).
Moody’s means Moody’s Investors Service, Inc.
Net Assets means the aggregate amount available for distribution in the liquidation, dissolution or the winding-up of the Bank
after all creditors senior to the holders of common shares of the Bank have been satisfied.
Non-U.S. Holder means a person other than a U.S. Person (as such term is defined in Regulation S).
Offering means the offering by DZ BANK Capital Funding Trust II of up to € 500,000,000 registered noncumulative Trust
Preferred Securities.
7
Offering Price means the initial offering price of € 1,000 per Trust Preferred Security.
Parity Securities means (i) each class of the most senior ranking preference shares of the Bank, if any, and (ii) preference shares or
any other instrument of any Bank Affiliate the distributions on which are linked to (x) a dividend payment by the Bank, or (y) a
balance sheet profit (Bilanzgewinn) or an annual surplus (Jahresüberschuss) test at the level of the Bank on an unconsolidated
basis or at the level of the Group on a consolidated basis, or (z) a capital adequacy test at the level of the Bank on an unconsolidated basis or at the level of the Group on a consolidated basis.
Paying Agents means the Principal Paying Agent or any successor and such other paying agents in relation to the Trust Preferred
Securities as may be appointed from time to time.
Payment Date means (in relation to the Company Securities and the Trust Securities) February 22, May 22, August 22 and
November 22 of each year, commencing on February 22, 2005. If any Payment Date would otherwise fall on a day which is not
a Business Day, it shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar
month, in which event the Payment Date shall be the immediately preceding Business Day.
Payment Period means each period from and including the immediately preceding Payment Date (or the Issue Date, in the case
of the first Capital Payment) up to but excluding the relevant Payment Date.
Permanent Global Trust Preferred Certificate means one or more single global certificate(s) representing the Trust Preferred
Securities for which the Temporary Global Trust Preferred Certificate will be exchanged for after the Restricted Period has ended.
Permitted Investments means any of (i) debt obligations issued by a Qualified Issuer subject to a guarantee or support undertaking by the Bank which guarantee or support undertaking ranks at least pari passu with the Initial Debt Securities, provided
that such guarantee or support undertaking does not affect the quality of the Trust Preferred Securities or the Company Class B
Preferred Securities to be treated as core capital or Tier I regulatory capital (aufsichtsrechtliches Kernkapital) on a consolidated
basis for the Bank or (ii) in the event such an investment is not available, in bonds or notes issued by the Federal Republic of
Germany or another member state of the European Economic and Monetary Union.
Predecessor Banks means DG BANK and GZ-Bank.
Principal Paying Agent means Deutsche Bank Aktiengesellschaft, Frankfurt am Main, Federal Republic of Germany, acting as
principal paying agent in relation to the Trust Preferred Securities.
Property Account means a segregated non-interest and non-commission bearing trust account in the name of, and under the
exclusive control of, the Property Trustee for the benefit of the holders of the Trust Securities to hold all payments in respect of
the Company Class B Preferred Securities.
Property Trustee means Deutsche Bank Trust Company Americas, a New York banking corporation, or any successor entity in a
merger, consolidation or amalgamation, in its capacity as property trustee of the Trust in accordance with the Trust Agreement.
Qualified Issuer means a subsidiary that is consolidated with the Bank for German bank regulatory purposes and of which more
than fifty percent (50%) of the outstanding voting stock or other equity interest entitled ordinarily to vote in the election of the
directors or other governing body (however designated) and more than fifty percent (50%) of the outstanding capital stock or
other equity interest is, at the time, beneficially owned or controlled directly or indirectly by the Bank.
Qualified Subsidiary means a subsidiary of the Bank meeting the definition of "a company controlled by its parent company"
as defined in Rule 3a-5 under the Investment Company Act.
Rate Determination Date is the day falling two Business Days prior to the commencement of the relevant Interest Period (in
relation to the Debt Securities) or the relevant Payment Period (in relation to the Company Securities and the Trust Securities) for
which the Calculation Agent is to determine the Reference Rate.
Redemption Amount means the redemption amount per Company Class B Preferred Security equal to the Class B Denomination,
plus accrued and unpaid Class B Capital Payments for the then current Class B Payment Period up to, but excluding, the Redemption
Date, plus Additional Amounts, if any.
Redemption Date means the date of redemption of the Company Class B Preferred Securities.
Redemption Notice means the notice of any redemption of the Company Class B Preferred Securities given by the Board of
Directors on behalf of the Company and in accordance with the LLC Agreement.
Reference Banks means four banks of the EURIBOR panel chosen by the Calculation Agent on the relevant Rate Determination
Date whose offered rates were used to determine the Reference Rate when such rate last appeared on the Screen Page.
Reference Rate means the three-month EURIBOR rate expressed as a rate per annum.
Registrar means Deutsche Bank Aktiengesellschaft, Frankfurt am Main, Federal Republic of Germany, in its capacity as registrar
for the Company Securities under the LLC Agreement.
Regular Trustee means the Trustees who are employees or officers of, or who are affiliated with, the Bank or a Qualified Subsidiary.
8
Regulation S means Regulation S under the Securities Act, as amended from time to time, or any successor legislation.
Regulatory Authority Test means a test to see that there is in effect no order of BaFin or other relevant regulatory authority
pursuant to the German Banking Act or any other relevant regulatory provision prohibiting the Bank from making distributions
(including to the holders of Parity Securities).
Regulatory Event means that the Bank is notified by a relevant regulatory authority that, as a result of the occurrence of any
amendment to, or change (including any change that has been adopted but not yet become effective) in, the applicable banking
laws of the Federal Republic of Germany (or any rules, regulations or interpretations thereunder, including rulings of the relevant
banking authorities) or the guidelines of the Basel Committee for Banking Supervision after the date of the issuance of the Company
Class B Preferred Securities and the Trust Preferred Securities, the Bank is not, or will not be, allowed to treat the Company Class
B Preferred Securities or the Trust Preferred Securities as core capital or Tier I regulatory capital (aufsichtsrechtliches Kernkapital)
for capital adequacy purposes on a consolidated basis.
Relevant Jurisdiction means the Federal Republic of Germany, the United States of America, any other jurisdiction of residence
of the obligor of the Trust Preferred Securities or the Company Class B Preferred Securities, or the jurisdiction of residence of any
obligor of the Debt Securities (or any jurisdiction from which payments are made).
Repayment Claim means the claim for repayment of the Initial Debt Securities.
Restricted Period means the period of 40 consecutive days beginning on and including the first day after (i) the Issue Date or,
if later, (ii) the completion of the distribution of the Trust Preferred Securities.
Screen Page means page 248 of the Moneyline Telerate (or such other screen page of Moneyline Telerate or such other information
service that is designated as the successor to Moneyline Telerate Page 248 for the purpose of displaying the Reference Rate).
Securities Act means the U.S. Securities Act of 1933, as amended from time to time, or any successor legislation.
Servicer means the Servicer as defined in the Services Agreement.
Services Agreement means the services agreement dated as of November 22, 2004 among the Bank, the Company, the Trust
and the Servicer.
Special Redemption Event means (i) a Regulatory Event, (ii) a Tax Event other than solely with respect to the Trust or (iii) an
Investment Company Act Event other than solely with respect to the Trust.
Standard & Poor's means Standard & Poor's Rating Services, a division of the McGraw Hill Companies, Inc.
Stated Rate means the Reference Rate in effect at the relevant time plus the Margin per annum.
Subordinated Support Undertaking means the subordinated support undertaking dated as of November 22, 2004 between
the Bank and the Company.
Subscription Period means the period from (and including) October 4, 2004 to (and including) November 11, 2004 during
which period the Trust Preferred Securities were offered at the Offering Price.
Substitute Debt Securities means subordinated notes issued by the Bank, a Qualified Issuer or branch of the Bank upon terms
identical to those of the Initial Debt Securities, provided, that (i) such substitution or replacement does not result in a Special
Redemption Event, (ii) the Bank, unless it itself is again the obligor, provides a guarantee or support undertaking with respect to
the obligations of such substitute obligor, which guarantee or support undertaking ranks at least pari passu with the Initial Debt
Securities, provided that such guarantee or support undertaking does not affect the quality of the Trust Preferred Securities or the
Company Class B Preferred Securities to be treated as core capital or Tier I regulatory capital (aufsichtsrechtliches Kernkapital) on
a consolidated basis for the Bank and (iii) the Bank has obtained any required regulatory approval.
Successor Company Securities means other securities issued by a successor entity of the Company having substantially the
same terms as the Company Class B Preferred Securities.
Successor Trust Securities means securities having substantially the same terms as the Trust Preferred Securities and ranking
the same as the Trust Preferred Securities with respect to Trust Capital Payments, distributions and rights upon liquidation,
redemption or otherwise which substitute the Trust Preferred Securities.
Tax Event means the receipt by the Bank of an opinion of a nationally recognized law firm or other tax adviser in a Relevant
Jurisdiction, experienced in such matters, to the effect that, as a result of (i) any amendment to, or clarification of, or change
(including any change that has been adopted but has not yet become effective) in, the laws or treaties (or any regulations
promulgated thereunder) of the Relevant Jurisdiction or any political subdivision or taxing authority thereof or therein affecting
taxation, (ii) any Administrative Action, or (iii) any amendment to, clarification of, or change in the official position or the interpretation of such Administrative Action or any interpretation or pronouncement that provides for a position with respect to such
Administrative Action that differs from the theretofore generally accepted position, in each case, by any legislative body, court,
governmental authority or regulatory body, irrespective of the manner in which such amendment, clarification or change is made
known, which amendment, clarification or change is effective, or which pronouncement or decision is announced, after the date
9
of issuance of the Company Class B Preferred Securities and the Trust Preferred Securities, there is more than an insubstantial risk
that (A) the Trust or the Company is or will be subject to more than a de minimis amount of taxes, duties or other governmental
charges, or (B) the Trust, the Company or an obligor of the Debt Securities would be obligated to pay Additional Amounts or
Additional Interest Amounts or (C) the Bank or any other obligor of the Debt Securities (x) may not for purposes of determining its
taxable income in the context of determining German corporate income tax (Körperschaftsteuer) in any year, deduct in full the
interest payments on the Debt Securities or (y) would, other than in cases where Class B Capital Payments may not be declared by
the Company, be subject to tax on income of the Company under the rules of the German Foreign Taxation Act (Außensteuergesetz).
Temporary Global Trust Preferred Certificate means the single global certificate representing the Trust Preferred Securities
which will be exchangeable for the Permanent Global Trust Preferred Certificate(s) after the Restricted Period has ended.
Transfer Agent means Deutsche Bank Aktiengesellschaft, Frankfurt am Main, Federal Republic of Germany, in its capacity as
transfer agent in relation to the Company Securities under the LLC Agreement.
Treasury Regulations means the income tax regulations, including temporary and proposed regulations, promulgated under
the Internal Revenue Code by the United States Treasury Department, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).
Trust means DZ BANK Capital Funding Trust II, a statutory trust formed under the laws of the State of Delaware, United States of
America, or any successor entity.
Trust Act means the Delaware Statutory Trust Act, as amended from time to time, or any successor legislation.
Trust Agreement means the Amended and Restated Trust Agreement of DZ BANK Capital Funding Trust II dated as of
November 22, 2004 between, inter alia, the Trustees, the Bank and DZ BANK Capital Funding LLC II.
Trust Capital Payments means periodic distributions paid in accordance with the Trust Agreement to holders of the Trust
Preferred Securities.
Trust Common Security means the noncumulative trust common security issued by the Trust.
Trust Denomination means the denomination of € 1,000 per Trust Security.
Trustees means the trustees of the Trust appointed in accordance with the Trust Agreement or any successor entity in a merger,
consolidation, replacement or amalgamation, in such capacity.
Trust Enforcement Event means an enforcement event under the Trust Agreement with respect to the Trust Preferred Securities,
which is the occurrence, at any time, of (i) the non-payment of Capital Payments (plus any Additional Amounts thereon, if any) on
the Trust Preferred Securities or the Company Class B Preferred Securities at the Stated Rate for four consecutive Payment Periods
even though all requirements for capital payments have been met and capital payments have been declared by the Company or
(ii) a default by the Bank in respect of any of its obligations under the Subordinated Support Undertaking.
Trust Payment Date means February 22, May 22, August 22 and November 22 of each year, commencing on February 22, 2005.
If any Trust Payment Date would otherwise fall on a day which is not a Business Day, it shall be postponed to the next day which
is a Business Day unless it would thereby fall into the next calendar month, in which event the Trust Payment Date shall be the
immediately preceding Business Day.
Trust Preferred Securities means the € 400,000,000 (corresponding to a number of 400,000) registered noncumulative Trust
Preferred Securities issued by the Trust. Unless the context clearly requires otherwise, references to the Trust Preferred Securities
shall include Additional Trust Preferred Securities.
Trust Securities means the Trust Common Security and the Trust Preferred Securities.
Trust Special Redemption Event means (i) a Tax Event solely with respect to the Trust, or (ii) an Investment Company Act Event
solely with respect to the Trust.
United States or U.S. means United States of America.
U.S. Person has the meaning given to such term in Regulation S.
Withholding Taxes means any present or future taxes, duties or governmental charges of any nature whatsoever imposed,
levied, deducted, withheld or collected by or on behalf of any Relevant Jurisdiction or by or on behalf of any political subdivision
or authority therein or thereof having the power to tax, whereby, for the avoidance of doubt, German advanced interest income
tax (Zinsabschlagsteuer) and the solidarity surcharge thereon as in effect at the time of the issue of the Initial Debt Securities, the
Company Class B Preferred Securities or the Trust Preferred Securities or a similar tax do not qualify as Withholding Taxes.
10
Responsibility, Listing and General Information
Subject of this Offering Circular
The subject of this Offering Circular are the € 400,000,000 (corresponding to a number of 400,000) registered noncumulative
Trust Preferred Securities issued by the Trust pursuant to the provisions of the Trust Agreement.
Responsibility for the Contents of this Offering Circular
The Trust, the Company, the Bank and the Lead Manager assume responsibility under German law in accordance with Sec. 44 et
seq. of the German Stock Exchange Act (Börsengesetz) and hereby confirm that, to the best of their knowledge, the information
contained in this Offering Circular is correct and no material information has been omitted.
None of the Trust, the Company, the Bank and the Lead Manager has permitted any person to make any disclosures or representations that are not otherwise contained in this Offering Circular, or in other documents agreed upon in connection with the issue
of the Trust Preferred Securities or in other disclosures made by either of them or in publicly available information, and that do not
correspond to the content of any such documents, disclosures or information. Where any such disclosures or representations were
made, the Trust, the Company, the Bank and the Lead Manager do not accept any responsibility.
The delivery of the Offering Circular or the offer, sale or delivery of the Trust Preferred Securities does not mean, under any circumstances, that the information contained in the Offering Circular will continue to apply after the date of this Offering Circular or that
the financial condition of the Trust, the Company or the Bank has not deteriorated since such date.
Listing
The Trust Preferred Securities have been admitted to listing on the official market (Amtlicher Markt) of the Frankfurt Stock
Exchange (Frankfurter Wertpapierbörse) on November 23, 2004 and quotation is expected to commence on November 26, 2004.
Any notices to be made in accordance with the terms and conditions of the Trust Preferred Securities will be published in a German
newspaper designated by the Frankfurt Stock Exchange (which is expected to be the Börsen-Zeitung or the Financial Times
Deutschland).
The Trust will maintain a Principal Paying Agent and the Company will maintain a Transfer Agent and a Registrar in relation to the
Company Securities under the LLC Agreement in Frankfurt am Main, Federal Republic of Germany, for as long as any of the Trust
Preferred Securities are listed on the Frankfurt Stock Exchange. The Trust and the Company reserves the right to vary such appointment in accordance with the terms and conditions of the Trust Preferred Securities and the Company will publish notice of such
change of appointment in a German newspaper (which is expected to be the Börsen-Zeitung or the Financial Times Deutschland).
Clearing Information
The Trust Preferred Securities have been accepted for clearance through the facilities of Clearstream Frankfurt under the following
codes:
ISIN: DE000A0DCXA0
German Securities Code (Wertpapier-Kennnummer): A0DCXA
Common Code: 020140470
Principal Paying Agent, Transfer Agent and Registrar
Deutsche Bank Aktiengesellschaft, Grosse Gallusstraße 10-14, 60272 Frankfurt am Main, Federal Republic of Germany, acts as
Principal Paying Agent, as Transfer Agent and as Registrar.
Availability of Documents
Copies of the LLC Agreement, the Services Agreement, the Trust Agreement and the Subordinated Support Undertaking may be
obtained free of charge at the office of the Transfer Agent and, for so long as the Trust Preferred Securities are listed on the
Frankfurt Stock Exchange and such exchange so requires, at the offices of the Principal Paying Agent during normal business hours.
In addition, for so long as the Trust Preferred Securities are listed on the Frankfurt Stock Exchange and such exchange so requires,
the most recently published, audited and approved (gebilligt) or determined (festgestellt), as the case may be, consolidated and
unconsolidated financial statements and the unaudited consolidated interim financial information of the Bank and the DZ BANK
11
Group and the audited unconsolidated financial statements of the Company as well as the unaudited unconsolidated financial
statements of the Trust will be available free of charge at the offices of the Principal Paying Agent during normal business hours.
Disclosure Regarding Forward-looking Statements
The statements included herein regarding future financial performance and results and other statements that are not historical
facts are forward-looking statements. The words "believes", "expects", "predicts", "estimates" and similar expressions are also
intended to identify forward-looking statements. Such statements are made on the basis of assumptions which, although reasonable
at this time, may prove to be erroneous. The risks and uncertainties which the Trust, the Company and the Bank face with respect
to their future development and the factors that might influence the correctness of such forward-looking statements are considered,
as a general rule, throughout this Offering Circular. Actual results may, however, differ significantly from those contemplated in
the forward-looking statements contained herein if one or more of any such risks and uncertainties materialize or the facts, upon
which these forward-looking statements have been based, prove to be incorrect.
Exchange Rate and Currency Information
In this Offering Circular, references to "euro", "EUR", and "€" are references to the common currency of the member states of
the European Economic and Monetary Union, which as of January 1, 1999 replaced the respective national currencies of the
relevant countries. References to "Deutsche Mark", or "DM" are references to the former national currency of the Federal Republic
of Germany prior to the introduction of the euro. References to "US$", "USD" and "US dollars" are references to the dollar of
the United States of America. The Bank publishes its financial statements in euro.
12
Presentation of Financial Information
After the Merger of GZ-Bank into DG BANK (together with GZ-Bank, Predecessor Banks) with effect from September 18, 2001,
DG BANK was renamed DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (the current name of the Bank)
simultaneously with the Merger. The financial information for the Bank and the DZ BANK Group as of and for the annual periods
ended on December 31, 2001 and December 31, 2002 is the first audited financial information of the Bank and the DZ BANK
Group for financial reporting purposes and give effect to the Merger which was registered with the relevant commercial registers
of the Predecessor Banks on September 18, 2001.
The Bank's consolidated and unconsolidated financial information as of and for the annual periods ended on December 31, 2002
and December 31, 2003 has been prepared in accordance with German GAAP and the financial information as of and for the annual
periods ended (i) December 31, 2002 has been audited by Ernst & Young Deutsche Allgemeine Treuhand AG, Wirtschaftsprüfungsgesellschaft, Eschersheimer Landstraße 14, 60322 Frankfurt am Main, Federal Republic of Germany, and Deloitte & Touche GmbH,
Wirtschaftsprüfungsgesellschaft, Franklinstraße 50, 60486 Frankfurt am Main, Federal Republic of Germany and (ii) December 31,
2003 has been audited by Ernst & Young AG, Wirtschaftsprüfungsgesellschaft, Eschersheimer Landstraße 14, 60322 Frankfurt
am Main, Federal Republic of Germany, and Deloitte & Touche GmbH, Wirtschaftsprüfungsgesellschaft, Franklinstraße 50,
60486 Frankfurt am Main, Federal Republic of Germany. The Bank's consolidated financial information as of and for the six months
period ended June 30, 2004 has been prepared in accordance with German GAAP but has not been audited. All financial information
presented in this Offering Circular is based on the Bank's audited consolidated and unconsolidated financial statements as of and
for the annual periods ended on December 31, 2002 and December 31, 2003 and the Bank's unaudited consolidated financial
information as of and for the six months period ended on June 30, 2004. The comparative financial data as of and for the annual
periods ended prior to December 31, 2001 is presented on an aggregated basis as it reflects the relevant consolidated financial
information of the Predecessor Banks added up from the audited consolidated financial information of (i) the Predecessor Banks
as of and for the annual period ended December 31, 2000 and (ii) DG BANK and the predecessor banks of GZ-Bank, i.e. GZB-Bank
Genossenschaftliche Zentralbank AG Stuttgart and SGZ-Bank Südwestdeutsche Genossenschafts-Zentralbank AG, as of and for
the annual periods ended prior to December 31, 2000 (Aggregated Financial Information).
The Aggregated Financial Information does not purport to be indicative of what the combined financial position or
results or the Bank Distributable Profits or the Group Annual Profits would have been had the Merger been in effect
at the beginning of the financial years to which such financial information relates or of what the Bank's Distributable
Profits might be in the future.
13
Summary
This section contains a summary of the terms of the Trust Preferred Securities and the Company Class B Preferred Securities, as
well as information relating to the Offering. For a more complete description of the terms of the Trust Preferred Securities, the
Company Class B Preferred Securities, the Subordinated Support Undertaking and the Initial Debt Securities, see "Description of
the Trust Preferred Securities", "Description of the Company Securities", "Description of the Subordinated Support Undertaking"
and "Description of the Terms of the Initial Debt Securities" as well as "Bank Distributable Profits, Group Annual Profits and
Group BIS Tier I Capital Ratio". For a description of the Trust, the Company and the Bank, see "DZ BANK Capital Funding Trust II",
"DZ BANK Capital Funding LLC II", "General Information on the Bank" and "Business", respectively. The following summary is
qualified in its entirety by the detailed information and financial data presented elsewhere in this Offering Circular, including the
financial information contained in this Offering Circular.
Summary of the Offering
Securities Offered
The Trust has offered up to € 500,000,000 Trust Preferred Securities during the Subscription
Period.
Securities Issued
The Trust has issued € 400,000,000 Trust Preferred Securities on November 22, 2004.
The Trust
DZ BANK Capital Funding Trust II is a statutory trust consolidated with the Bank which was formed
under the laws of the State of Delaware, United States of America. It exists solely for the purposes
of (i) issuing the registered noncumulative Trust Preferred Securities, Additional Trust Preferred
Securities (if any), and one noncumulative Trust Common Security, (ii) investing the net proceeds of
the sale of these securities in noncumulative Company Class B Preferred Securities issued by the
Company and (iii) engaging in any activities necessary or incidental thereto. The Trust Common
Security is owned by the Bank. The Trust Common Security may be transferred to a Bank Affiliate.
The Company
DZ BANK Capital Funding LLC II, a limited liability company formed under the laws of the State of
Delaware, United States of America, is a wholly-owned subsidiary of the Bank consolidated with
the Bank. The Company has issued the Company Class B Preferred Securities which have been
acquired by the Trust. In addition, the Company has issued one voting Company Common Security
and one noncumulative Company Class A Preferred Security. The Company Securities represent all of
the ownership interests in the Company. The Company Common Security and the Company Class A
Preferred Security are owned by the Bank. The Company Common Security is freely transferable.
The Company Class A Preferred Security may be transferred to a Bank Affiliate. The sole assets of
the Company are the Initial Debt Securities and/or the Substitute Debt Securities. The income
received by the Company from the Debt Securities will be available for distribution to the holders of
the Company Class B Preferred Securities, the Company Class A Preferred Security and the
Company Common Security.
Pass Through
The Class B Capital Payments and redemption payments under the Company Class B Preferred
Securities will be passed through to holders of the Trust Preferred Securities in the form of Trust
Capital Payments and redemption payments under the Trust Preferred Securities.
Use of Proceeds
The net proceeds from the sale of the Trust Securities have been invested by the Trust in the
Company Class B Preferred Securities. The Company has used the funds from the sale of the
Company Class B Preferred Securities, together with funds contributed for the Company Class A
Preferred Security and the Company Common Security, to make an investment in the Initial Debt
Securities. The Bank intends to use the net proceeds from the sale of the Initial Debt Securities for
general corporate purposes of the DZ BANK Group and, for purposes of measuring regulatory capital
adequacy, expects to treat the Company Class B Preferred Securities as Tier I regulatory capital
(aufsichtsrechtliches Kernkapital) on a consolidated basis and the purchase price received from the
Company for the Initial Debt Securities as supplementary regulatory capital on an unconsolidated
basis. For a discussion of regulatory capital and the measurement of its adequacy, see "Regulation".
Subordinated Support
Undertaking
On the Issue Date, the Bank and the Company entered into the Subordinated Support Undertaking
upon the terms set forth in Annex A hereto for the benefit of the holders of the Company Class B
Preferred Securities under which the Bank undertakes to ensure, among other things, that the
Company will at all times be in a position to meet its obligations if and when such obligations are
due and payable, including its obligations to make Class B Capital Payments declared (including
14
Additional Amounts thereon, if any) and to pay (i) the Redemption Amount, and (ii) in the event of
a liquidation, dissolution or winding-up of the Company in the context of a liquidation, dissolution
or winding-up of the Bank, the amounts corresponding to the amounts set forth in (i) to (iii) of the
definition of the Liquidation Amount.
The Subordinated Support Undertaking does not constitute a guarantee or an undertaking of any kind that the Company will at any time have sufficient assets to declare
a Class B Capital Payment or another distribution.
The Bank's obligations under the Subordinated Support Undertaking are subordinated to
all unsubordinated and subordinated debt obligations of the Bank (including profit
participation rights (Genussrechte) and silent participation interests (Stille Beteiligungen))
and rank pari passu with the most senior ranking preference shares of the Bank, if any,
and rank senior to any other preference shares and the common shares of the Bank;
provided, however, that the Bank's obligation to ensure the Company's position to
meet its obligations to pay the Class B Equity Component of the Liquidation Amount
shall rank pari passu with the Bank's obligation to pay liquidation proceeds to its
holders of common stock; as a result, the Bank's obligation to ensure the Company's
position to meet its obligation to pay the Class B Equity Component of the Liquidation
Amount shall only arise after all creditors of the Bank ranking senior to the common
shareholders of the Bank have been satisfied.
The holders of the Company Class B Preferred Securities are third party beneficiaries within the
meaning of Section 328(2) of the German Civil Code under the Subordinated Support Undertaking.
If a holder of the Company Class B Preferred Securities has notified the Company that the Bank has
failed to perform any obligation under the Subordinated Support Undertaking, and such failure continues for 60 days after such notice is given, an Independent Enforcement Director may be appointed
by the majority of the holders of the Company Class B Preferred Securities. The Independent
Enforcement Director will have the sole authority, right and power to enforce the rights of the
Company under the Subordinated Support Undertaking. The Independent Enforcement Director
does not participate in the management of the Company other than in connection with the
enforcement of the Subordinated Support Undertaking.
The following diagram outlines the relationship among the Company, the Trust and the Bank following completion of the
Offering:
DZ BANK AG
Trust Common
Security
Purchase price for the
Initial Debt Securities
Subordinated
Support
Undertaking
Company
Class A Preferred
Security and Company
Common Security
Initial
Debt Securities
DZ BANK
Capital Funding LLC II
Company
Class B
Preferred
Securities
Purchase price for
the Company
Class B Preferred
Securities
DZ BANK
Capital Funding Trust II
Trust
Preferred
Securities
Investors
Purchase price for
the Trust Preferred
Securities
The legal basis for the issue of the Trust Securities is the Trust Agreement. The legal basis for the issue of the Company Securities
is the LLC Agreement.
15
Summary of the Terms of the Trust Preferred Securities and
the Terms of the Company Class B Preferred Securities
Form, Denomination
and Title
The € 400,000,000 Trust Preferred Securities have a denomination of € 1,000 each and are
evidenced by one or more Global Certificate(s) registered in the name of Clearstream Frankfurt.
The Company Class B Preferred Securities have a denomination of € 1,000 each and are evidenced
by a certificate registered in the name of the Trust.
Legal title to the Company Class B Preferred Securities has been recorded in the name of the
Property Trustee for the benefit of the holders or beneficial owners of the Trust Preferred Securities.
Maturity
The Trust Preferred Securities and the Company Class B Preferred Securities have no
maturity date and will not be redeemable at any time at the option of the holders
thereof. A redemption may only occur as set forth below under "– Redemption" and
"– Special Redemption Events" at the option of the Company or in the event of a
liquidation (see below under "– Distributions at Liquidation").
The Bank will procure that the Company Class B Preferred Securities are replaced with similar or
more equity-like securities on the level of the Group prior to their redemption.
Capital Payments
Capital Payments are, with respect to the Trust Preferred Securities, the Trust Capital Payments
and, with regard to the Company Class B Preferred Securities, the Class B Capital Payments.
Trust Capital Payments are paid from the income of the Trust and, therefore, are expected to be
paid out of Class B Capital Payments received by the Trust from the Company. They are payable if,
as and when funds available for payment are held by the Property Trustee in the Property Account.
It is expected that the Trust Capital Payments per Trust Preferred Security in the denomination of
€ 1,000 will correspond to the Class B Capital Payments per Company Class B Preferred Security in
the denomination of € 1,000.
For each Class B Payment Period, Class B Capital Payments shall be calculated and accrue on the Class B
Denomination at the Stated Rate (see below). Any such Capital Payments shall be calculated by applying
the Stated Rate for the relevant Payment Period to the denomination of € 1,000 per Company Class B
Preferred Security, multiplying the product by a fraction, the numerator of which is the actual number of
days elapsed in the relevant Payment Period concerned and the denominator of which is 360 and
rounding the resulting figure to the nearest € 0.01, with € 0.005 being rounded upwards.
Class B Capital Payments are expected to be paid by the Company out of the net income of the
Company which will be derived solely from the amounts received by the Company under the Debt
Securities or Permitted Investments held by the Company from time to time or from payments
received by the Company under the Subordinated Support Undertaking.
If Class B Capital Payments are properly declared in accordance with the provisions of the LLC
Agreement, Class B Capital Payments will be payable by the Company from the Issue Date on a
noncumulative basis, quarterly in arrear on the following Class B Payment Date(s) as provided in
the LLC Agreement.
Class B Capital Payments may be declared and paid only if the Company Operating Profit Test, the
Bank Dividend Payment Test, the Group Annual Profit Test, the Group BIS Tier I Capital Ratio Test
and the Regulatory Authority Test have been met.
For a more detailed description of the events in which Class B Capital Payments may be declared, see
"Description of the Company Securities – Company Class B Preferred Securities – Capital Payments".
If the Company does not declare a Class B Capital Payment in respect of any Class B
Payment Period or if such declaration is not allowed under the provisions of the LLC
Agreement, then holders of the Company Class B Preferred Securities will have no
right to receive a Class B Capital Payment in respect of such Class B Payment Period
and the Company will have no obligation to pay a Class B Capital Payment in respect
of such Class B Payment Period, regardless of whether or not Class B Capital Payments
are declared and paid in respect of any future Class B Payment Period. In such a case,
no corresponding Trust Capital Payments will be made on the Trust Preferred
Securities in relation to such Class B Payment Period.
16
Stated Rate
The Stated Rate equals the Reference Rate plus the Margin per annum.
Reference Rate
The Reference Rate is expressed as a rate per annum and is determined by the Calculation Agent
on the day falling two Business Days prior to the commencement of the relevant Payment Period
(in relation to the Company Securities and the Trust Securities).
The Reference Rate is the three-month EURIBOR rate expressed as a rate per annum published on
the Screen Page on the relevant Rate Determination Date at or about 11:00 a. m. (Brussels time) as
the rate offered in the interbank market in the Euro-Zone for deposits in euro for the relevant
Payment Period.
If the Reference Rate cannot be determined as aforementioned because the Screen Page is not published
and no other agency publishes the interest rate in question, or for any other reason, then the Reference
Rate for the relevant Payment Period shall be the arithmetic mean (rounded, if necessary, to the nearest
one thousandth of a percentage point, with 0.0005 being rounded upwards), determined by the
Calculation Agent of the rates which the Reference Banks selected by the Calculation Agent quote to
prime banks in the interbank market in the Euro-Zone at approximately 11:00 a. m. (Brussels time) on
the relevant Rate Determination Date for deposits in euro for such Payment Period.
Should two or more of the Reference Banks provide the relevant quotation, the arithmetic mean
shall be calculated as described above on the basis of the quotations supplied. If less than two
Reference Banks provide a quotation, then the Reference Rate for the relevant Payment Period
shall be the rate displayed on the Screen Page on the last day preceding the relevant Rate
Determination Date on which such rate was displayed.
Margin
The Margin equals 1.60 per cent.
Principal Paying Agent
Deutsche Bank Aktiengesellschaft, Frankfurt am Main, Federal Republic of Germany
Transfer Agent and
Registrar
Deutsche Bank Aktiengesellschaft, Frankfurt am Main, Federal Republic of Germany
Calculation Agent
Deutsche Bank Aktiengesellschaft, Frankfurt am Main, Federal Republic of Germany
Payments of
Additional Amounts
All payments by the Company and the Trust on the Company Class B Preferred Securities and the
Trust Preferred Securities, as the case may be, will be made without deduction or withholding by
the Company or the Trust, as the case may be, for or on account of Withholding Taxes, unless such
deduction or withholding is required by law. In such event, the Company or the Trust, as the case
may be, shall pay, as additional Capital Payments, such Additional Amounts as may be necessary in
order that the net amounts received by the holders of the Company Class B Preferred Securities and
Trust Preferred Securities, after such deduction or withholding, will equal the amounts that would
have been received had no such deduction or withholding been required.
However, in certain events no such Additional Amounts will be payable in respect of the Company
Class B Preferred Securities and the Trust Preferred Securities. See "Description of the Company
Securities – Payment of Additional Amounts" and "Description of the Trust Preferred Securities –
Payment of Additional Amounts".
Class B LPA and Class B
Agio
Each Company Class B Preferred Security in the denomination of € 1,000 has a liquidation preference
amount (Class B LPA) of € 20. The difference between the Class B LPA and the Class B Denomination
is the Class B Agio, i.e. € 980 per Company Class B Preferred Security, which is relevant for the
amounts paid at redemption in the event of a liquidation, dissolution or winding-up of the
Company in the context of a liquidation, dissolution or winding-up of the Bank and the ranking
under the Subordinated Support Undertaking.
Redemption
On the Initial Redemption Date (i.e. on November 22, 2011) and on any Class B Payment Date
falling after the Initial Redemption Date, the Company Class B Preferred Securities shall be
redeemable, in whole but not in part, at the Redemption Amount if certain conditions are met
and subject to the exercise of the discretion of the Company to redeem the Company
Class B Preferred Securities. For a description of these conditions, see "Description of the
Company Securities – Company Class B Preferred Securities – Redemption". The redemption of the
Company Class B Preferred Securities will lead to a redemption of the Trust Preferred Securities.
Special Redemption
Events
Upon the occurrence of a Trust Special Redemption Event (being either (i) a Tax Event solely with
respect to the Trust or (ii) an Investment Company Act Event solely with respect to the Trust),
holders of the Trust Preferred Securities will be entitled, in accordance with the terms of the Trust
Agreement, to receive a corresponding number of the Company Class B Preferred Securities.
17
Upon the occurrence of a Special Redemption Event (being either (i) a Regulatory Event, (ii) a Tax
Event other than solely with respect to the Trust or (ii) an Investment Company Act Event other
than solely with respect to the Trust), the Company shall have the right to redeem the Company
Class B Preferred Securities at the Redemption Amount at any time, also already prior to the Initial
Redemption Date, in whole but not in part, provided that certain conditions are met. For a
description of these conditions, see "Description of the Company Securities – Company Class B
Preferred Securities – Redemption".
Redemption Amount
The Redemption Amount per Company Class B Preferred Security equals the Class B Denomination
plus accrued and unpaid Class B Capital Payments for the then current Class B Payment Period up
to, but excluding, the redemption date, plus Additional Amounts, if any.
Distributions at
Liquidation
In the event of any liquidation, dissolution, winding-up or termination of the Trust not involving a
redemption of the Company Class B Preferred Securities in whole or the liquidation, dissolution or
winding-up of the Company, the holders of the Trust Preferred Securities will be entitled to receive,
after payment or reasonable provision for payment of the Trust's liabilities to other creditors (if
any), on a pro rata basis Company Class B Preferred Securities. The holders of the Trust Preferred
Securities will have a preference over the holder of the Trust Common Security with respect to
distributions and payments upon liquidation of the Trust.
In the event of any liquidation, dissolution or winding-up of the Company without a liquidation,
dissolution or winding-up of the Bank, the Company Class B Preferred Securities will be redeemed
in which event the holder of each Company Class B Preferred Security shall be entitled to receive
the Redemption Amount, provided that the Company has obtained any required regulatory approvals.
In the event of any liquidation, dissolution or winding-up of the Company in the context of a
liquidation, dissolution or winding-up of the Bank, the holder of the Company Class A Preferred
Security will receive the Debt Securities or Permitted Investments (including accrued and unpaid
interest thereon) as its liquidation distribution. Following such distribution to the holder of the
Company Class A Preferred Security, the Company Class B Preferred Securities will be redeemed in
which event each holder of the Company Class B Preferred Securities will be entitled to receive the
Liquidation Amount.
Liquidation Amount
The Liquidation Amount per Company Class B Preferred Security equals
(i) the Class B LPA, plus
(ii) accrued and unpaid Class B Capital Payments in respect of the then current Class B Payment
Period to but excluding the date of liquidation and Additional Amounts, if any, plus
(iii) the Class B Equity Component, plus
(iv) any assets of the Company remaining after distributions have been made under the Company
Class A Preferred Securities,
provided that the Company receives amounts under the Subordinated Support Undertaking given
by the Bank to the Company corresponding to the sum of the amounts referred to under (i) to (iii)
and provided further that the sum of (i) and (iii) shall not exceed the amount of the Class B
Denomination (i.e. € 1,000).
Ranking
In the event of any liquidation, dissolution or winding-up of the Company, the Company Class B
Preferred Securities will rank junior to the Company Class A Preferred Security, and the Company
Class B Preferred Securities will rank senior to the Company Common Security; provided, however,
that any payments made by the Bank pursuant to the Subordinated Support Undertaking shall be
payable by the Company solely to the holders of the Company Class B Preferred Securities.
Voting Rights
Holders of the Trust Preferred Securities will have no voting rights, except that the holders of a
majority of the outstanding Trust Preferred Securities (excluding Trust Preferred Securities held by
the Bank or any affiliate within the meaning of § 15 of the German Stock Corporation Act
(Aktiengesetz)) will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee under the Trust Agreement. This
includes the right to direct the Property Trustee, as holder of the Company Class B Preferred
Securities, on how to vote the Company Class B Preferred Securities in respect of the matters on
which holders of the Company Class B Preferred Securities are entitled to vote (including certain
matters as to the enforcement of rights under the Company Class B Preferred Securities described
under "– Enforcement Rights" below).
18
The circumstances in which holders of the Company Class B Preferred Securities are entitled to vote
are described under "Description of the Company Securities - Company Class B Preferred Securities
– Voting and Enforcement Rights".
Enforcement Rights
If (i) the Company fails to pay Class B Capital Payments (plus Additional Amounts thereon, if any)
on the Company Class B Preferred Securities at the Stated Rate for four consecutive Class B
Payment Periods even though all requirements for capital payments have been met and capital
payments have been declared, or (ii) a holder of the Company Class B Preferred Securities notifies
the Company that the Bank has failed to perform any obligation under the Subordinated Support
Undertaking and such failure continues for 60 days after such notice is given, then the majority of
the holders of the Company Class B Preferred Securities shall be entitled to appoint an Independent
Enforcement Director as additional member to the Board of Directors who shall have the sole
authority, right and power to enforce and settle any claim of the Company under the Subordinated
Support Undertaking. For further information on the Independent Enforcement Director see
"Description of the Company Securities – Company Class B Preferred Securities – Voting and
Enforcement Rights".
Securityholder
Meetings
Each meeting of the holders of the Trust Securities shall be conducted by the Regular Trustees or by
such other person that the Regular Trustees may designate.
Listing
The Trust Preferred Securities have been admitted to listing on the official market (Amtlicher Markt)
of the Frankfurt Stock Exchange (Frankfurter Wertpapierbörse) on November 23, 2004 and
quotation is expected to commence on November 26, 2004.
Notices
For so long as the Trust Preferred Securities are listed on the Frankfurt Stock Exchange and the
rules of such stock exchange so require, all notices concerning the Trust Preferred Securities will be
published in a German newspaper designated by the Frankfurt Stock Exchange (which is expected
to be the Börsen-Zeitung or the Financial Times Deutschland).
Governing Law
The LLC Agreement, including the terms of the Company Class A Preferred Security and the
Company Class B Preferred Securities, and the Trust Agreement, including the terms of the Trust
Securities, shall be governed by the laws of the State of Delaware, United States of America. The
Subordinated Support Undertaking as well as the Initial Debt Securities shall be governed by the
laws of the Federal Republic of Germany.
Because (i) the sole assets of the Trust are the Company Class B Preferred Securities, (ii) the Class B Capital Payments
are passed through and (iii) the holders of the Trust Preferred Securities may receive the Company Class B Preferred
Securities in certain circumstances, prospective purchasers of the Trust Preferred Securities are also making an investment decision with respect to the Company Class B Preferred Securities and, accordingly, should carefully review all
of the information regarding the Company Class B Preferred Securities. See "Description of the Company Securities –
Company Class B Preferred Securities" and "Investment Considerations – Special Redemption Risks – No Fixed
Redemption Date".
19
Summary of the Terms of the Company Class A Preferred Security
The Company Class A Preferred Security issued by the Company is owned by the Bank. The Company Class A Preferred Security
may be transferred to a Bank Affiliate. The Company Class A Preferred Security is expected to receive capital payments only if:
(i) Class B Capital Payments are not permitted to be declared on the Company Class B Preferred Securities on any Class B
Payment Date at the Stated Rate because either the Company Operating Profit Test, the Bank Dividend Payment Test, the
Group Annual Profit Test, the Group BIS Tier I Capital Ratio Test or the Regulatory Authority Test have not been met; and
(ii) the Company has sufficient Company Operating Profits.
20
Summary of the Terms of the Initial Debt Securities
Maturity Date
November 22, 2034.
Aggregate
Denomination
€ 400,003,000 (equal to the net proceeds from the issuance of the Company Class B Preferred
Securities plus the aggregate amounts contributed for the Company Class A Preferred Security and
the Company Common Security) of an issue of subordinated notes of the Bank.
Interest Payments
Interest shall be payable by the Bank in euro on the denomination of the Initial Debt Securities
quarterly in arrear on each Interest Payment Date (i.e. on February 22, May 22, August 22 and
November 22) at the Stated Rate. If any Interest Payment Date would otherwise fall on a day which
is not a Business Day, it shall be postponed to the next day which is a Business Day unless it would
thereby fall into the next calendar month, in which event the Interest Payment Date shall be the
immediately preceding Business Day.
Ranking
The Repayment Claim will be subordinated in the event of insolvency or liquidation of the Bank to
the claims of all other creditors which are not also subordinated and shall, in such event, only be
satisfied after all claims against the Bank which are not subordinated have been satisfied. Any right
to set-off the Repayment Claim against claims of the Bank shall be excluded. No collateral is or will
be given for the Repayment Claim; collateral that may have been or may in the future be given in
connection with other indebtedness shall not secure the Repayment Claim.
The subordination described above cannot be subsequently restricted, and neither the minimum term
of the Initial Debt Securities nor the notice period for an early redemption can subsequently be
shortened. Pursuant to § 10 (5a) of the German Banking Act, the amount of any repurchase of the
Initial Debt Securities prior to the Initial Debt Redemption Date or other redemption must be
refunded to the Bank, notwithstanding any agreement to the contrary, unless a statutory exemption
(replacement of the denomination of the Initial Debt Securities by contribution of other, at least
equivalent own funds (haftendes Eigenkapital)) or prior approval of BaFin to the early redemption
applies.
Redemption
Prior to the Initial Debt Redemption Date, the Bank may cause any redemption of the Initial Debt
Securities only (i) with at least 32 days notice, upon the occurrence of a Special Redemption Event,
and the election of the Company to redeem the Company Class B Preferred Securities in accordance with the LLC Agreement, or (ii) in the event of replacement with Substitute Debt Securities,
subject, in each case, to having obtained any required regulatory approvals.
On or after the Initial Debt Redemption Date but prior to the Maturity Date, the Bank may cause any
redemption of the Initial Debt Securities only (i) in the events specified above in connection with a
redemption prior to the Initial Debt Redemption Date, or (ii) with at least 32 days notice, upon the
election of the Company to redeem the Company Class B Preferred Securities in accordance with
the LLC Agreement, subject, in each case, to having obtained any required regulatory approvals.
Any such redemption may be made in whole, but not in part, and will be (other than in the event of
a replacement with Substitute Debt Securities) at a redemption amount equal to the denomination of
the Initial Debt Securities, plus accrued and unpaid interest thereon and Additional Interest Amounts,
if any.
If the Maturity Date or a Debt Redemption Date falls on a day that is not a Business Day, payment
of all amounts otherwise payable on such date shall be made on the first following day that is a
Business Day, and there shall be no right to claim payment of any interest or other indemnity in
respect of such delay in payment.
Substitution
At any time, the Bank will have the right to:
(i) substitute as obligor of the Debt Securities a Qualified Issuer or any branch of the Bank; or
(ii) replace the Debt Securities with Substitute Debt Securities,
provided, in each case, that (A) such substitution or replacement does not result in a Special
Redemption Event, (B) the Bank, unless it itself is again the obligor, provides a guarantee or
support undertaking with respect to the obligations of such substitute obligor, which guarantee or
support undertaking ranks at least pari passu with the Initial Debt Securities, provided that such
guarantee or support undertaking does not affect the quality of the Trust Preferred Securities or the
21
Company Class B Preferred Securities to be treated as core capital or Tier I regulatory capital
(aufsichtsrechtliches Kernkapital) on a consolidated basis for the Bank, and (C) the Bank has
obtained any required regulatory approval.
The LLC Agreement provides that after the Maturity Date, if the Company Class B Preferred
Securities have not been redeemed by the Maturity Date, the Company shall invest the net proceeds from the redemption of the Debt Securities in Permitted Investments, provided that such
investment does not result in a Special Redemption Event.
Governing Law
22
The Initial Debt Securities shall be governed by, and construed in accordance with, the laws of the
Federal Republic of Germany.
Investment Considerations/Risk Factors
Before making an investment decision with respect to the Trust Preferred Securities, prospective investors should carefully consider
the risks relating to the legal structures underlying this Offering described below in conjunction with the other information
contained in this Offering Circular. Prospective investors should also carefully consider the information regarding the Bank and
the DZ BANK Group contained in this Offering Circular.
Risks Associated with the Financial Condition of the Bank and the DZ BANK Group
If the financial condition of the Bank or any Bank Affiliate were to deteriorate, then it could result in (i) the Bank not making a
Bank Dividend Payment or having insufficient Group Annual Profits resulting in the Company not being able to declare and pay
Capital Payments on the Company Class B Preferred Securities, or (ii) the Bank not having a sufficient capital ratio to meet the
Group BIS Tier I Capital Ratio Test, which, in turn, could result in the Company not being able to declare and pay Capital Payments
on the Company Class B Preferred Securities. There can be no assurances that the Bank will have either sufficient Distributable
Profits, as shown on its unconsolidated financial statements for the financial year ended December 31, 2003 or any subsequent
year, to make a Bank Dividend Payment or sufficient Group Annual Profits, as shown in the consolidated financial statements for
the financial year ended December 31, 2003, or any subsequent year, for the Company to declare and pay Class B Capital Payments
on the Company Class B Preferred Securities. Further, any payments made on Parity Securities, including the Trust Preferred
Securities with an aggregate liquidation preference amount of EUR 300,000,000 issued by DZ BANK Funding Trust I in November
2003 (WKN 907 833), and any Parity Securities issued in the future, will be deducted from the Group Annual Profits for purposes
of determining whether these are sufficient for Capital Payments on the Company Class B Preferred Securities being made.
In addition, a deterioration of the Bank's financial condition could also result in the Bank not being able to satisfy its payment
obligations in whole or in part to the Company under the Initial Debt Securities or the Subordinated Support Undertaking.
The occurrence of any of these events would have the result that no Class B Capital Payments on the Company Class B Preferred
Securities would be declared or the amounts of such Class B Capital Payments would be reduced (up to zero), which, in turn,
would reduce the amounts available to the Trust for periodic distributions to holders of the Trust Preferred Securities. In addition,
if a liquidation, dissolution, or winding-up of the Bank were to occur, holders of the Trust Preferred Securities could lose
all or part of their investment. In particular, a liquidation, dissolution, or winding-up of the Company in the context of a
liquidation, dissolution or winding-up of the Bank could lead to the holders of the Trust Preferred Securities receiving a redemption
payment that is lower than the Trust Denomination, because the Liquidation Amount to be distributed under the Company Class
B Preferred Securities and, accordingly, to the holders of the Trust Preferred Securities, would be calculated on the basis of the
amount, if any, available for liquidation distributions to the Bank's shareholders, which may in such circumstances be limited.
Accordingly, potential investors in the Trust Preferred Securities should carefully consider the financial and
other information regarding the Bank and the DZ BANK Group contained in this Offering Circular.
No Guaranteed Capital Payments
The Company's ability to declare Class B Capital Payments on the Company Class B Preferred Securities (and, in turn, the Trust's
ability to make Trust Capital Payments on the Trust Preferred Securities) is limited by the terms of the LLC Agreement. Although it
is the Company's intention to distribute the full amount of its Company Operating Profits for each financial year as Class B Capital
Payments to the holders of the Company Class B Preferred Securities to the extent permitted by the LLC Agreement, the Board of
Directors has discretion in declaring and making these payments. See "Description of the Company Securities – Company Class B
Preferred Securities – Capital Payments".
Any Class B Capital Payments will be dependent on the future profits or losses of the Bank and the DZ BANK Group and the manner
in which profits, if any, are allocated by the Bank's management and shareholders. In addition, any Class B Capital Payments will
be dependent on the consolidated regulatory capital ratio of the Bank. Neither the Bank's management nor the shareholders are
under any obligation to approve sufficient Bank Distributable Profits for making a Bank Dividend Payment or Group Annual Profits
for purposes of allowing the Company to declare and make Class B Capital Payments with respect to any financial year. Even if,
for example, the Bank records an annual surplus (Jahresüberschuss) for a financial year, the Bank Distributable Profits may still be
insufficient for making a Bank Dividend Payment if its management and shareholders decide to allocate all of its annual surplus
(Jahresüberschuss) to reserves. Moreover, if the Bank were not to record an annual surplus (Jahresüberschuss) on an unconsolidated
basis in a given financial year, the Bank's management and shareholders would be under no obligation to make up the deficit
from the Bank's reserves to ensure that the Bank has sufficient Bank Distributable Profits for making a Bank Dividend Payment to
allow the Company to declare and make Class B Capital Payments.
Despite sufficient Company Operating Profits, the making of a Bank Dividend Payment, sufficient Group Annual Profits and the
Group BIS Tier I Capital Ratio Test being met, the Company will not be able to make Class B Capital Payments on any Class B
Payment Date if, on such date, the Regulatory Authority Test is not met. If the Company is not permitted to make Class B
23
Capital Payments on any Class B Payment Date, this means that there are no amounts available to the Trust for
Trust Capital Payments on the Trust Preferred Securities. See "Description of the Company Securities – Company Class B
Preferred Securities – Capital Payments" and "Description of the Trust Preferred Securities – Capital Payments".
Discretionary and Noncumulative Capital Payments; No Deemed Declaration of Capital Payments
The declaration by the Company of Class B Capital Payments on the Company Class B Preferred Securities is discretionary, and
under no circumstances will Class B Capital Payments be deemed to have been declared. Thus, even if (i) the Bank were to declare
and pay a dividend on securities ranking junior to the Bank's obligations under the Subordinated Support Undertaking (such as,
e.g., the common shares of the Bank) or (ii) any other issuer of Parity Securities or securities ranking junior thereto were to declare
and pay a distribution thereunder, the Company would be under no obligation to make Class B Capital Payments. Further, the
LLC Agreement provides that it is the Company's intention to distribute all of its Company Operating Profits. However, even if the
Company Operating Profit Test, the Bank Dividend Payment Test, the Group Annual Profit Test, the Group BIS Tier I Capital Ratio
Test and the Regulatory Authority Test have been met, holders of the Company Class B Preferred Securities, and in turn, holders
of the Trust Preferred Securities, will have no right to receive any amounts in respect of a Class B Payment Period unless the
Board of Directors declares Class B Capital Payments for the relevant Class B Payment Period, which would then be available to
the Trust for Trust Capital Payments on the Trust Preferred Securities. See "Description of the Company Securities – Company
Class B Preferred Securities – Capital Payments".
Class B Capital Payments are noncumulative. Class B Capital Payments in subsequent Class B Payment Periods
will not be increased to compensate for any shortfalls in Class B Capital Payments in previous Class B Payment
Periods. In addition, there will be no deemed declarations of Class B Capital Payments in case of distributions
being made on Parity Securities or securities ranking junior thereto.
Relationships between the Bank, the Company and the Trust; No Voting Rights; Certain Conflicts of Interest
The Bank is, and will continue to be, significantly involved in running the Company and the Trust, unless it transfers such duties
to a Bank Affiliate, in which event the following description will apply to the Bank Affiliate instead of the Bank. The Bank will
control the Company through its power, as holder of the Company Common Security, to elect a majority of the Board of Directors.
The Trust, to the extent that it is the holder of the Company Class B Preferred Securities, will generally have no right to vote to
elect members of the Board of Directors. The only exception is that holders of Company Class B Preferred Securities will have the
right to appoint one additional member to the Board of Directors, the Independent Enforcement Director, if:
– the Company fails to make Class B Capital Payments (and Additional Amounts thereon) on the Company Class B Preferred
Securities at the Stated Rate for four consecutive Class B Payment Periods even though all requirements for capital payments
have been met and capital payments have been declared; or
– a holder of the Company Class B Preferred Securities (initially, the sole holder of the Company Class B Preferred Securities is
the Property Trustee) has notified the Company that the Bank has failed to perform any of its obligations under the
Subordinated Support Undertaking and this failure continues for 60 days after the date such notice is given.
The Company expects that all initial and future directors and officers of the Company, as well as the Regular Trustees, will be
officers or employees of, or affiliated with, the Bank or a Qualified Subsidiary. Under the Services Agreement, the Bank will also
provide certain accounting, legal, tax, and other support services to the Company and the Trust. Consequently, conflicts of interest
may arise for officers and employees of the Bank and a Qualified Subsidiary in the discharge of their duties as officers or employees
of the Company or as Regular Trustees of the Trust.
It is the intention of the Bank, the Company, and the Trustees that the terms of any agreements and transactions, and in particular
the LLC Agreement and the Trust Agreement, be fair to all parties and consistent with terms that could be achieved on an arm'slength basis. However, there can be no assurance that such agreements or transactions will be on terms as favorable as those
that could have been obtained from unaffiliated third parties.
Special Redemption Risks
Redemption Upon Occurrence of a Special Redemption Event. The Company Class B Preferred Securities (and, consequently, the
Trust Preferred Securities) will be redeemable at any time at the option of the Company, in whole but not in part, upon the
occurrence of a Special Redemption Event. A Special Redemption Event will arise, for example, if, as a result of changes in the law:
– there are changes in the tax status of the Company or the Bank;
– Additional Amounts or Additional Interest Amounts relating to Withholding Taxes become applicable to payments on the
Company Class B Preferred Securities, the Trust Preferred Securities or the Debt Securities;
– the Bank is not permitted to treat the Company Class B Preferred Securities or the Trust Preferred Securities as core capital or
Tier I regulatory capital (aufsichtsrechtliches Kernkapital) on a consolidated basis; or
24
– the Company qualifies as an "investment company" within the meaning of the Investment Company Act.
(See "Description of the Trust Preferred Securities – Redemption", and "Description of the Company Securities – Company Class B
Preferred Securities – Redemption".)
Liquidation of the Trust Upon Occurrence of a Trust Special Redemption Event. If a Trust Special Redemption Event occurs and is
continuing with respect to the Trust, the Trust will be subject to dissolution and liquidation within 90 days in accordance with the
terms of the Trust Agreement. Upon a dissolution and liquidation, each holder of Trust Preferred Securities will receive a corresponding number of Company Class B Preferred Securities. Holders of these Company Class B Preferred Securities and their nominees
will be subject to the nominee reporting requirements under the Internal Revenue Code, and the Company will report to the IRS,
on Schedule K-1, the pro rata share in the Company's income, gain, loss, deduction, or credit of each holder of Company Class B
Preferred Securities for the then prior calendar year. There can be no assurance as to the market price for the Company Class B
Preferred Securities that are distributed after dissolution and liquidation of the Trust or that a market for these securities will
subsequently develop and be sustained thereafter. Accordingly, the Company Class B Preferred Securities may trade at a discount
to the price of the Trust Preferred Securities for which they were exchanged.
No Fixed Redemption Date
There is no fixed redemption date for the Company Class B Preferred Securities and hence, for the Trust Preferred Securities. Even
though the Company Class B Preferred Securities and the Trust Preferred Securities may be redeemed on the Initial Redemption
Date, there can be no assurance that the Company will opt to redeem the Company Class B Preferred Securities on the Initial
Redemption Date.
In particular, the Company Class B Preferred Securities may only be redeemed if on the Redemption Date the Bank
Dividend Payment Test and the Group Annual Profit Test are met with regard to the accrued and unpaid Capital
Payments, the Company has obtained all necessary regulatory approvals and, in particular, the cumulative Defined
Retained Earnings since the Issue Date equal or exceed 1.5 times the aggregate Class B Agio of all outstanding
Company Class B Preferred Securities. There can therefore be no assurance that at any time the requirements for
the redemption of the Company Class B Preferred Securities will be met.
Even if all the requirements for the redemption of the Company Class B Preferred Securities were met, the decision to redeem
would remain within the discretion of the Company and the Company would be under no obligation to do so. Whether or not the
Company chooses to redeem the Company Class B Preferred Securities will depend on a number of factors (most of which lie
outside the control of the Bank and the Company), including, for example:
– the Bank has procured that the Company Class B Preferred Securities have been replaced with similar or more equity-like
securities on the level of the Group prior to such redemption;
– the regulatory capital and the refinancing options of the Bank at such time;
– the regulatory assessment of the Company Class B Preferred Securities, the Debt Securities, the Permitted Investments and
the remaining term of the Debt Securities or, if applicable, the remaining term of the Permitted Investments;
– whether the required prior consent of BaFin has been obtained; and
– capital market conditions.
No Guarantee Provided by the Subordinated Support Undertaking
The Bank and the Company have entered into the Subordinated Support Undertaking for the benefit of the Company and the holders
of the Company Class B Preferred Securities. However, the Subordinated Support Undertaking does not represent a guarantee or
an undertaking of any kind from the Bank that the Company will at any time have sufficient assets, or be allowed pursuant to the
LLC Agreement, to make a Class B Capital Payment or another distribution. Furthermore, the Bank's obligations under the
Subordinated Support Undertaking constitute obligations that are subordinated to all unsubordinated and subordinated debt
obligations of the Bank (including profit participation rights (Genussrechte) and silent participation interests (Stille Beteiligungen))
and rank pari passu with the most senior ranking preference shares of the Bank, if any, and rank senior only to any other
preference shares and the common shares of the Bank provided that the Bank's obligation to ensure the Company's position to
meet its obligation to pay the Class B Equity Component of the Liquidation Amount ranks pari passu with the Bank's obligation
to pay liquidation proceeds to its holders of common stock. Therefore the Bank's obligation to ensure the Company's position to
meet its obligation to pay the Class B Equity Component of the Liquidation Amount will only arise after all creditors of the Bank
ranking senior to the common shareholders of the Bank have been satisfied. See "Description of the Subordinated Support
Undertaking". The Bank has not entered into any restrictive covenants regarding its ability to incur additional indebtedness ranking
pari passu to its obligations under the Subordinated Support Undertaking.
25
Banking Regulatory Restrictions
The Company is a subsidiary of the Bank, which is subject to German banking regulations. Banking and other regulatory authorities
in the Federal Republic of Germany could make determinations regarding the Bank that could adversely affect the Company's
ability to make Class B Capital Payments in respect of the Company Class B Preferred Securities. In addition, the Bank and its
subsidiaries are active in providing financial products and services throughout Europe and in the United States of America. The
international scope of the Bank's business operations may result in United States of America federal or state authorities, European
Union authorities or authorities in individual European countries exerting regulatory authority over the Bank and its subsidiaries.
These regulatory authorities could make determinations regarding the Bank or its subsidiaries that could adversely affect their
ability to, among other things:
– make distributions to holders of their securities;
–
engage in transactions with subsidiaries;
– purchase or transfer assets and satisfy obligations; or
– make redemption or liquidation payments to holders of securities.
No Prior Public Market and Resale Restrictions
The Trust Preferred Securities are newly issued securities, and there is currently no public market in the Trust Preferred Securities.
The Trust Preferred Securities have been admitted to the official market (Amtlicher Markt) of the Frankfurt Stock Exchange
(Frankfurter Wertpapierbörse) and quotation is expected to commence on November 26, 2004. Prior thereto, there has been no
public market for the Trust Preferred Securities. There is no guarantee that the Offering Price of the Trust Preferred Securities will
correspond to the price at which the securities will actually be traded following the Offering. Moreover, there can be no assurance
that an active trading market for the Trust Preferred Securities will subsequently develop and be sustained thereafter. Investors
should expect liquidity and the market prices for the Trust Preferred Securities to fluctuate with changes in:
– market and economic conditions;
– the financial condition and prospects of the Bank; and
– other factors that generally influence the secondary market prices of securities.
The Trust Preferred Securities have not been registered under the Securities Act and are subject to a number of resale restrictions. See
"Sale – Selling Restrictions".
26
Use of Proceeds
The net proceeds from the sale of the Trust Securities in the amount of € 400,001,000 have been invested by the Trust in the
Company Class B Preferred Securities. The Company has used the net proceeds from the sale of the Company Class B Preferred
Securities, together with funds contributed in relation to the Company Class A Preferred Security and the Company Common
Security, to make an investment in the Initial Debt Securities. The Bank intends that the net proceeds from the sale of the Initial
Debt Securities will be used for DZ BANK Group's general corporate purposes.
For purposes of measuring regulatory capital adequacy, the Bank expects to treat the Company Class B Preferred Securities or the
Trust Preferred Securities as core capital or Tier I regulatory capital (aufsichtsrechtliches Kernkapital) on a consolidated basis and
the proceeds received from the Company under the Initial Debt Securities as supplementary regulatory capital on an unconsolidated
basis. For a discussion of regulatory capital and the measurement of its adequacy, see "Regulation".
27
Development of the Regulatory Capital
of the Bank and the DZ BANK Group
The following table sets out the regulatory capital positions of the Bank and the DZ BANK Group as at June 30, 2004 and
December 31, 2003 as compared to December 31, 2002. The regulatory capital positions have been calculated in accordance
with the rules of the German Banking Act (KWG) and of the Basel Committee at the BIS, respectively.
As at
June 30,
2004
As at
December 31,
2003
As at
December 31,
2002
(unaudited)
(audited)
(audited)
€ million
1. Regulatory capital of the Bank – KWG
Subscribed capital
Capital reserves
Surplus reserves
Fund for general banking risks
(Section 340g German Commercial Code)
Own shares
Core capital (Kernkapital)
Supplementary capital (Ergänzungskapital)
3
Medium/Long-term( )
Reserves for general banking risks
4
(Section 340f German Commercial Code)( )
5
General provisions/ general loan loss reserves( )
Deduction
Total
6
Tier III capital( ) (Drittrangmittel)
Total regulatory capital – Bank
2. Regulatory capital of the DZ BANK Group - BIS
Core capital
Supplementary capital (Ergänzungskapital)
Revaluation Reserves
3
Medium/Long-term( )
Reserves for general banking risks
4
(Section 340f German Commercial Code )( )
5
General provisions/ general loan loss reserves( )
Deduction from equity
Total
6
Tier III capital( ) (Drittrangmittel)
Total regulatory capital – DZ BANK Group
2,879
803
913
2,879
803
1
888( )
2,879
803
2
885( )
1,428
10
6,013
1,428
10
5,988
1,428
10
5,985
4,060
4,388
3,972
811
123
4,748
5
10,766
775
165
4,988
6
10,992
378
183
4,167
123
10,275
7,084
6,970
6,440
376
4,964
400
5,162
454
5,384
1,231
237
547
13,345
26
13,371
1,107
224
551
13,312
26
13,338
478
220
459
12,517
143
12,660
__________
1
( ) According to regulatory reporting, excluding allocations to surplus reserves.
2
( ) According to regulatory reporting, excluding allocations to surplus reserves.
3
( ) Original maturity five years and more.
4
( ) Without maturity.
5
( ) General provisions/general loan loss reserves without maturity which qualifies as Supplementary Capital.
6
( ) Original maturity two years and more.
Save as disclosed in section "Business Development and Outlook", there has been no material change in the development of the
regulatory capital of DZ BANK since June 30, 2004.
28
Bank Distributable Profits, Group Annual Profits and
Group BIS Tier I Capital Ratio
The Company's authority to declare Class B Capital Payments on the Company Class B Preferred Securities for any Class B Payment
Period depends, among other things, on (i) the Bank Distributable Profits and the Group Annual Profits for the most recent financial
year for which audited and determined (festgestellt) unconsolidated and audited and approved (gebilligt) consolidated financial
statements are available and (ii) the Bank having a sufficient capital ratio to meet the Group BIS Tier I Capital Ratio Test.
Bank Distributable Profits for any financial year means the balance sheet profit (Bilanzgewinn) as of the end of such financial year,
as shown in the audited and determined (festgestellt) unconsolidated financial statements of the Bank as of the end of such
financial year. Such balance sheet profit (Bilanzgewinn) includes the annual surplus or loss (Jahresüberschuss/-fehlbetrag), plus
any profit carried forward from previous years, minus any loss carried forward from previous years, plus transfers made by the
Bank, in its discretion, from capital reserves and surplus reserves, minus allocations made by the Bank, in its discretion, to surplus
reserves, all as determined in accordance with the provisions of the German Stock Corporation Act and German GAAP as described
in the German Commercial Code and other applicable German law then in effect.
Group Annual Profits for any financial year means the net income (Jahresüberschuss/Jahresfehlbetrag) as of the end of such
financial year, as shown in the audited and approved (gebilligt) consolidated financial statements of the Group as of the end of
such financial year as determined in accordance with the provisions of the German Stock Corporation Act and German GAAP as
described in the German Commercial Code and other applicable German law then in effect. Such net income is before deduction
of minority interests (Gewinnanteile anderer Gesellschafter).
The Group BIS Tier I Capital Ratio is the Tier I capital ratio for the Bank and its subsidiaries consolidated for bank regulatory purposes
under the applicable rules of BIS (for more information on the regulatory capital requirements relating to the Bank and/or the
DZ Bank Group, see "Regulation – Capital Adequacy Requirements").
The following table sets out (i) the Bank Distributable Profits and the Group Annual Profits for the financial years ended
December 31, 2003, 2002 and 2001, respectively, and (ii) the Group BIS Tier I Capital Ratio as of the end of such financial years.
In addition, the table sets out the individual and the aggregated Distributable Profits of (i) the two Predecessor Banks as of and
for the annual period ended December 31, 2000 and (ii) DG BANK and the predecessor banks of GZ-Bank, GZB Bank Genossenschaftliche Zentralbank AG Stuttgart and SGZ-Bank Südwestdeutsche Genossenschafts-Zentralbank AG, as of and for the annual
periods ended prior to December 31, 2000, respectively. The aggregated Distributable Profits for the financial years ended
December 31, 2000, 1999 and 1998, respectively, is Aggregated Financial Information which is not indicative for the financial
position of the Bank in the future; see "Presentation of Financial Information". In particular, the financial information
presented in the following table is not indicative of (i) what the Bank Distributable Profits or the Group Annual
Profits would have been, had the Merger been in effect at the beginning of the financial years to which such
financial information relates or (ii) the Bank Distributable Profits or the Group Annual Profits or the Group BIS
Tier I Capital Ratio in the future.
29
Bank Distributable Profits
in € million
2003
2002
2001
2000
1999
1998
DZ BANK
55
52
51
X
X
X
DG BANK
X
X
X
46
73
52
GZ-Bank
X
X
X
31
X
X
SGZ-Bank
X
X
X
X
26
26
GZB-Bank
X
X
X
X
14
21
Aggregated(*)
X
X
X
77
113
99
Group Annual Profits
in € million
2003
2002
2001
2000
1999
1998
DZ BANK Group
382
351
114
X
X
X
Group BIS Tier I
Capital Ratio (**)
2003
2002
2001
2000
1999
1998
DZ BANK Group
7.0
5.8
4.9
X
X
X
__________
(*) Aggregated Financial Information is not indicative for the financial position of the Bank in the future; see "Presentation of Financial Information".
(**) Group BIS Tier I Capital Ratio as of December 31 of the relevant year (in %).
30
DZ BANK Capital Funding Trust II
Incorporation
The Trust is a statutory trust formed under the Trust Act according to the laws of the State of Delaware, United States of America,
pursuant to the Trust Agreement executed by the Company, as sponsor, Deutsche Bank Trust Company Americas, as Property Trustee
and Deutsche Bank Trust Company Delaware, as Delaware Trustee and pursuant to the filing of the Certificate of Trust for the Trust
with the Secretary of State of the State of Delaware, United States of America, on August 12, 2004.
Holders of the Trust
The Bank owns the Trust Common Security representing a capital contribution in respect thereof equal to € 1,000. The Trust
Common Security may be transferred to a Bank Affiliate. The Trust Common Security ranks pari passu, and payments thereon will
be made pro rata, with the Trust Preferred Securities, except that in liquidation and in certain circumstances described under
"Description of the Trust Preferred Securities – Subordination of the Trust Common Security", the rights of the holder of the Trust
Common Security to periodic distributions and to payments upon liquidation, redemption and otherwise are subordinated to the
rights of the holders of the Trust Preferred Securities.
The rights of the holders of the Trust Preferred Securities, including economic rights, rights to information and voting rights, are
as set forth in the Trust Agreement and the Trust Act. See "Description of the Trust Preferred Securities". Under the Services
Agreement among the Trust, the Company and the New York branch of the Bank, (Servicer), the Servicer is obligated, among other
things, to provide tax and other general administrative services to the Trust and the Company. The fees and expenses of the
Company and the Trust, including any taxes, duties, assessments or governmental charges of whatsoever nature (other than
Withholding Taxes) imposed by any taxing authority upon the Company or the Trust, and all other obligations of the Company
and the Trust (other than with respect to the Trust Securities or the Company Securities) will be paid by the Bank.
For so long as the Trust Preferred Securities remain outstanding, the Bank has covenanted in the Trust Agreement:
(i) that the Trust Common Security will be held by the Bank or by a Qualified Subsidiary;
(ii) to cause the Trust to remain a statutory trust and not to voluntarily dissolve, wind up, liquidate or be terminated, except as
permitted by the Trust Agreement;
(iii) to use its commercially reasonable efforts to ensure that the Trust will not be treated as a corporation or a partnership for
United States federal income tax purposes; and
(iv) not to permit the dissolution, liquidation, termination or winding-up of the Trust, unless a Trust Special Redemption Event or
a Special Redemption Event occurs, or the Company is itself in liquidation and the regulatory approvals necessary therefore
have been obtained.
Object and Principal Activities
The Trust has used the net proceeds derived from the issuance of the Trust Securities to purchase the Company Class B Preferred
Securities from the Company, and, accordingly, the assets of the Trust consist solely of the Company Class B Preferred Securities. The
business purposes of the Trust are:
(i) issuing the Trust Securities representing undivided beneficial ownership interests in the assets of the Trust;
(ii) investing the net proceeds from the issuance of the Trust Securities, if any, in the Company Class B Preferred Securities; and
(iii) engaging in such other activities which are necessary or incidental thereto.
The Trust may also in the future issue, in one or more transactions, Additional Trust Preferred Securities with an aggregate
denomination corresponding to the aggregate denomination of Additional Debt Securities and in consideration of the receipt of an
equal number of Additional Company Class B Preferred Securities.
Trustees
Pursuant to the Trust Agreement, there are initially five Trustees three of which are Regular Trustees.
Name
Function
Oliver d'Oelsnitz
Regular Trustee
Carl Amendola
Regular Trustee
Markus Schmalhofer
Regular Trustee
31
The three Regular Trustees are employees or officers of, or are affiliated with, the Bank or a Qualified Subsidiary and can be
contacted at the following address: DZ BANK, New York Branch, 609 Fifth Avenue, New York, New York 10017-1021, United
States of America. The fourth Trustee will be the Property Trustee and the fifth Trustee will be the Delaware Trustee. Initially,
Deutsche Bank Trust Company Americas, a New York banking corporation that is unaffiliated with the Bank, acts as Property
Trustee, and Deutsche Bank Trust Company Delaware, a financial institution that is unaffiliated with the Bank, acts as Delaware
Trustee, until, in each case, removed or replaced by the holder of the Trust Common Security.
The Property Trustee holds legal title to the Company Class B Preferred Securities for the benefit of the holders of the Trust
Preferred Securities, and the Property Trustee has the power to exercise all rights, powers and privileges as holder of the
Company Class B Preferred Securities under the LLC Agreement.
In addition, the Property Trustee maintains exclusive control of a Property Account, being a segregated non-interest bearing trust
account to hold all payments made in respect of the Company Class B Preferred Securities for the benefit of the holders of the
Trust Securities. The Bank or a Qualified Subsidiary, as the holder of the Trust Common Security, has the right to appoint, remove or
replace any of the Trustees and to increase or decrease the number of Trustees, provided that at least one Trustee will be the
Delaware Trustee, at least one Trustee will be the Property Trustee and at least one Trustee will be a Regular Trustee.
Principal Office
The principal office of the Trust is c/o DZ BANK, New York Branch, 609 Fifth Avenue, New York, New York 10017-1021, United
States of America.
Financial Year and Accounts
The financial year corresponds to the calendar year. The accounts of the Trust will be prepared on an unaudited basis and will not
be published.
Litigation
The Trust has not been involved in any litigation, administrative proceeding or arbitration relating to claims or amounts which are
material in the context of the issue of the Company Class B Preferred Securities or the Trust Preferred Securities and, so far as the
Company is aware, no such litigation, administrative proceeding or arbitration is pending or threatened.
Material Changes
Unless otherwise stated in this Offering Circular, the financial position of the Trust has not materially changed since August 12, 2004.
Capitalization
The following table sets forth the capitalization of the Trust as of August 12, 2004 on the date of its formation and the
capitalization of the Trust as of November 22, 2004, as adjusted to reflect the issue of the Trust Securities.
Date of Formation
As adjusted
(in € thousands)
(in € thousands)
Securityholders' Interests
Trust Preferred Securities: none issued and outstanding, date of formation
0
400,000 Trust Preferred Securities issued and outstanding, as adjusted
Trust Common Security: none issued and outstanding, date of formation
400,000
0
1 Trust Common Security issued and outstanding, as adjusted
1
Total securityholders' interests
0
400,001
Total Capitalization
0
400,001
32
DZ BANK Capital Funding LLC II
Incorporation and Duration
The Company is a limited liability company that was formed under the LLC Act according to the laws of the State of Delaware,
United States of America, and pursuant to the filing of the Certificate of Formation in respect of the Company with the Secretary
of State of the State of Delaware, United States of America, on August 12, 2004.
Shareholders
Pursuant to the LLC Agreement, the Company has issued two classes of non-voting preferred securities representing limited
liability company interests in the Company, the Company Class A Preferred Security and the Company Class B Preferred Securities,
and one class of common security representing limited liability company interests in the Company, the Company Common Security.
The Property Trustee holds initially 100% of the issued and outstanding Company Class B Preferred Securities. The Bank holds
initially the issued and outstanding Company Common Security and the issued and outstanding Company Class A Preferred
Security. The Company Common Security is freely transferable. The Class A Preferred Security may be transferred to a Bank
Affiliate.
The rights of the holders of the Company Class B Preferred Securities, including economic rights, rights to information and voting
rights, are set forth in the LLC Agreement and the LLC Act. See "Description of the Company Securities – Company Class B
Preferred Securities".
LLC Agreement
For so long as the Company Class B Preferred Securities remain outstanding, the LLC Agreement provides that:
(i) the Company will continue perpetually as a limited liability company unless the Company is dissolved in accordance with the
provisions of the LLC Act and the LLC Agreement; the Company will not be dissolved and its affairs will not be wound up,
except as otherwise permitted by the LLC Agreement, provided that notwithstanding the foregoing, the Company will not, to
the fullest extent permitted by law, be dissolved until all claims under the Subordinated Support Undertaking have been paid
in full pursuant to its terms; and
(ii) the Company shall take all necessary steps to be treated as a partnership for United States federal income tax purposes.
Business Purpose
The business purposes of the Company are:
(a) to issue the Company Class A Preferred Security, the Company Class B Preferred Securities, the Additional Company Class B
Preferred Securities as permitted under the LLC Agreement, and the Company Common Security;
(b) (i) to invest the net proceeds of the Company Class A Preferred Security, the Company Class B Preferred Securities and the
Company Common Security in the Initial Debt Securities and the net proceeds of Additional Company Class B Preferred Securities,
if any as permitted, in the Additional Debt Securities, (ii) upon any redemption of the Initial Debt Securities prior to the
Maturity Date, which does not involve a redemption of the Company Class B Preferred Securities, to reinvest the proceeds in
Substitute Debt Securities, so long as any such reinvestment does not result in a Special Redemption Event, and (iii) after the
Maturity Date, if the Company Class B Preferred Securities have not been redeemed until the Maturity Date, to invest in
Permitted Investments;
(c) in the event of any default on the Debt Securities, to enforce its rights for payment of any overdue amounts;
(d) to enter into and, in certain circumstances, to enforce the Subordinated Support Undertaking for the sole benefit of the
holders of the Company Class B Preferred Securities; and
(e) to engage in such other activities which are necessary or incidental thereto.
The Company may in the future issue, in one or more transactions, Additional Company Class B Preferred Securities in consideration
of receipt of Additional Debt Securities in an aggregate denomination equal to the aggregate Class B Denomination of such
Additional Company Class B Preferred Securities.
The Company will not hold any asset the income from which would be treated as from United States of America sources for United
States federal income tax purposes. Thus, Initial Debt Securities, Additional Debt Securities and Substitute Debt Securities will not
include any obligation issued by a U.S. branch of the Bank or of a Qualified Issuer or by a Qualified Issuer incorporated in the
33
United States of America, or shown as a liability on the books of such a branch or Qualified Issuer, or the proceeds of which are
lent to such a branch or Qualified Issuer except in the ordinary course of the lender's business.
Management
The Company's business and affairs are conducted by its Board of Directors, which initially consists of three members, elected by
the Bank as the initial holder of the Company Common Security:
Name
Function
Markus Schmalhofer
Secretary
Oliver d'Oelsnitz
President
Carl Amendola
Treasurer
The Directors can be contacted at the address of the Company c/o RL&F Service Corp., One Rodney Square, 10th Floor,
Wilmington, New Castle County, Delaware 19801, United States of America.
However, in the event that:
– the Company fails to pay Class B Capital Payments (plus Additional Amounts thereon) on the Company Class B Preferred
Securities at the Stated Rate for four consecutive Class B Payment Periods even though all requirements for capital payments
have been met and capital payments have been declared or
– a holder of the Company Class B Preferred Securities (it is intended that initially the sole holder of the Company Class B
Preferred Securities will be the Property Trustee, who is obligated under the Trust Agreement to enforce its rights as holder)
notifies the Company that the Bank has failed to perform any obligation under the Subordinated Support Undertaking and
such failure continues for 60 days after such notice is given,
then a majority of the holders of the Company Class B Preferred Securities will have the right to appoint the Independent
Enforcement Director. The Independent Enforcement Director's term will end if, in such Independent Enforcement Director's sole
determination, the respective Class B Capital Payments (plus Additional Amounts thereon, if any) have been made at the Stated
Rate by the Company for at least four consecutive Class B Payment Periods and the Bank has complied with its obligations under
the Subordinated Support Undertaking.
Restrictions of the Company
Certain events require the approval of the holders of the Company Class B Preferred Securities and there are different thresholds
for the various events. For more details see "Description of the Company Securities – Company Class B Preferred Securities –
Voting and Enforcement Rights". After the Maturity Date, if the Company Class B Preferred Securities have not been redeemed
until the Maturity Date, the Company will invest the proceeds from the redemption of the Initial Debt Securities in Permitted
Investments. The Company will select for purchase Permitted Investments in the following order of priority, to the extent the
same are available, and within each category on terms that are the best available in relation to providing funds for the payment
of Class B Capital Payments, any Additional Amounts and the Redemption Amount:
– first, debt obligations of a Qualified Issuer subject to a guarantee or support undertaking by the Bank which guarantee or
support undertaking ranks at least pari passu with the Initial Debt Securities, provided that such guarantee or support
undertaking does not affect the quality of the Trust Preferred Securities or the Company Class B Preferred Securities to be
treated as core capital or Tier I regulatory capital (aufsichtsrechtliches Kernkapital) on a consolidated basis for the Bank or
– secondly, in the event such an investment is not available, bonds or notes issued by the Federal Republic of Germany or
another member state of the European Economic and Monetary Union.
Services Agreement
The Company has also entered into the Services Agreement with the Bank, the Trust and the Servicer, under which the Servicer is
obligated, among other things, to provide, tax and other general administrative services to the Company and the Trust. The fees
and expenses of the Trust and the Company, including any taxes, duties, assessments or governmental charges of whatever nature
(other than Withholding Taxes) imposed by any taxing authority upon the Company or the Trust, and all other obligations of the
Company and the Trust (other than with respect to the Trust Securities or the Company Securities) will be paid by the Bank.
34
Subordinated Support Undertaking
The holders of the Company Class B Preferred Securities are third-party beneficiaries of the Subordinated Support Undertaking
within the meaning of Section 328(2) of the German Civil Code. See "Description of the Subordinated Support Undertaking".
Registered Office / Principal Place of Business
The registered office of the Company is c/o RL&F Service Corp., One Rodney Square, 10th Floor, Wilmington, New Castle County,
Delaware, 19801, United States of America. The principal place of business of the Company is at 609 Fifth Avenue, New York,
New York 10017-1021, United States of America.
Financial Year
The financial year corresponds to the calendar year.
Auditors
The auditors of the Company are Deloitte and Touche LLP, Two World Financial Center, New York, New York 10281-1414,
United States of America.
Litigation
The Company is not involved in any litigation, administrative or arbitration proceedings which may have had an impact on the
financial position of the Company's business since its incorporation. Furthermore, the Company is not aware that any such
proceedings or arbitration proceedings are imminent or being threatened.
Material Changes
Unless otherwise stated in this Offering Circular, the financial position of the Company has not materially changed since August 12,
2004.
Capitalization
The following table sets forth the capitalization of the Company as of August 12, 2004 on the date of its formation and the
capitalization of the Company as of November 22, 2004, as adjusted to reflect the issue of the Company Securities.
Date of Formation
As adjusted
(in € thousands)
(in € thousands)
Securityholders' Equity
Member's initial contribution
Company Class B Preferred Securities: none issued and outstanding, date of formation
0.1
0
400,001 Company Class B Preferred Securities issued and outstanding, as adjusted
Company Class A Preferred Securities: none issued and outstanding, date of formation
400,001
0
1 Company Class A Preferred Security issued and outstanding, as adjusted
Company Common Security: none issued and outstanding, date of formation
1
0
1 Company Common Security issued and outstanding, as adjusted
Total securityholders' interests
Total Capitalization
0.1
1
0
400,003
0.1
400,003.1
35
Description of the Trust Preferred Securities
The Trust Preferred Securities have been issued pursuant to the terms of the Trust Agreement. The following describes the material
terms and provisions of the Trust Preferred Securities. This description does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the terms and provisions of the Trust Agreement and the Trust Act.
Form, Denomination and Title
The Trust Preferred Securities have been issued in registered form on the Issue Date (i.e. November 22, 2004), without interest
coupons attached, in minimum denominations of € 1,000 each, or greater integral multiples of € 1,000 in excess thereof.
The Trust Preferred Securities have not been issued in bearer form.
The Trust Agreement authorizes the Regular Trustees of the Trust to issue the Trust Preferred Securities, which represent undivided
beneficial ownership interests in the assets of the Trust. Legal title to the Company Class B Preferred Securities has been recorded in
the name of the Property Trustee for the benefit of the holders or beneficial owners of the Trust Preferred Securities. The Trust
Agreement does not permit the Trust to acquire any assets other than the Company Class B Preferred Securities, issue any securities
other than the Trust Preferred Securities or Additional Trust Preferred Securities (if any) or incur any indebtedness.
Capital Payments
Trust Capital Payments will accrue on the Trust Denomination of € 1,000 per Trust Preferred Security at a rate per annum equal
to the Stated Rate. See "Summary – Summary of the Terms of the Trust Preferred Securities and the Terms of the Company Class
B Preferred Securities-Stated Rate".
Trust Capital Payments will be paid, on a noncumulative basis, quarterly in arrear on each Trust Payment Date (i.e. February 22,
May 22, August 22 and November 22) of each year, commencing on February 22, 2005. If any Trust Payment Date would otherwise
fall on a day which is not a Business Day, it shall be postponed to the next day which is a Business Day unless it would thereby
fall into the next calendar month, in which event the Trust Payment Date shall be the immediately preceding Business Day. See
"Summary – Summary of the Terms of the Trust Preferred Securities and the Terms of the Company Class B Preferred Securities –
Capital Payments".
Trust Capital Payments on the Trust Preferred Securities are expected to be paid out of Class B Capital Payments received by the
Trust from the Company. Class B Capital Payments are expected to be paid by the Company out of the net income of the Company
which is derived from the amounts received by the Company on the Debt Securities or Permitted Investments held by the Company
from time to time or from payments received by the Company under the Subordinated Support Undertaking. See "Description of
the Company Securities – Company Class B Preferred Securities – Capital Payments". Accordingly, if the Company does not
declare a Class B Capital Payment in respect of any Class B Payment Period or if such declaration is not allowed
under the provisions of the LLC Agreement, the holders of the Company Class B Preferred Securities will have
no right to receive a Class B Capital Payment in respect of such Class B Payment Period, and the Company will
have no obligation to pay a Class B Capital Payment in respect of such Class B Payment Period, whether or not
Class B Capital Payments are declared and paid in respect of any future Class B Payment Period. In such a case,
no Trust Capital Payments will be made on the Trust Preferred Securities in respect of the corresponding
Payment Period.
Each declared Trust Capital Payment will be payable to the holders of record of the Trust Preferred Securities as they appear on
the books and records of the Trust at the close of business on the corresponding record date. The record dates for the Trust
Preferred Securities will be
(i) so long as the Trust Preferred Securities remain in book-entry form, one Business Day prior to the relevant Payment Date, and
(ii) in all other cases, the 15th day prior to the relevant Payment Date.
Such Trust Capital Payments will be paid through the Property Trustee who will hold amounts received in respect of the Company
Class B Preferred Securities in the Property Account for the benefit of the holders of the Trust Preferred Securities, subject to any
applicable laws and regulations and the provisions of the Trust Agreement.
The right of the holders of the Trust Preferred Securities to receive Trust Capital Payments is noncumulative which means that Trust
Capital Payments which are not made on a Trust Payment Date will not be made up for or paid at a later time.
Accordingly, if the Trust does not have funds available for payment of a Trust Capital Payment in respect of any Payment Period,
the holders will have no right to receive a Trust Capital Payment in respect of such Payment Period, and the Trust will have no
obligation to pay a Trust Capital Payment in respect of such Payment Period, whether or not Trust Capital Payments are paid in
respect of any future Payment Period.
36
All Trust Capital Payments and other payments to holders of the Trust Preferred Securities will be distributed among holders of
record pro rata, based on the proportion that the aggregate Trust Denomination of the Trust Preferred Securities held by each
holder bears to the aggregate Trust Denomination of all Trust Preferred Securities.
Payments of Additional Amounts
All payments on the Trust Preferred Securities by the Trust will be made without withholding or deduction by the Trust for or on
account of Withholding Taxes unless the Trust is required by law to make such deduction or withholding. In such event, the Trust
will pay, as additional Trust Capital Payments, such Additional Amounts as may be necessary in order that the net amounts
received by the holders of the Trust Preferred Securities will equal the amounts that would have been received had no such
deduction or withholding been required.
However, no such Additional Amounts will be payable in respect of the Trust Preferred Securities:
(i) if the Company is unable to pay corresponding amounts because such payment would exceed the Group Annual Profits for
the most recent financial year for which the Bank's shareholders' meeting (Hauptversammlung) has resolved on the appropriation of profits (after subtracting from such Group Annual Profits the amount of Class B Capital Payments or dividends or
other distributions or payments on Parity Securities already paid or payable on the basis of such Group Annual Profits and the
Bank Dividend Payment for such financial year on or prior to the day on which such Additional Amounts will be payable); or
(ii) with respect to any Withholding Taxes that are payable by reason of a holder or beneficial owner of the Trust Preferred Securities
having some connection with any Relevant Jurisdiction other than by reason only of the mere holding of the Trust Preferred
Securities; or
(iii) where such deduction or withholding can be avoided if the holder or beneficial owner of the Trust Preferred Securities makes
a declaration of non-residence or other similar claim for exemption to the relevant tax authority or complies with any reasonable
certification, documentation, information or other reporting requirement imposed by the relevant tax authority; or
(iv) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to the
European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting
of November 26-27, 2000 on the taxation of savings income implementing or complying with, or introduced in order to
conform to, such Directive.
Trust Enforcement Events
The occurrence, at any time, of:
(i) non-payment of Capital Payments (plus any Additional Amounts thereon, if any) on the Trust Preferred Securities or the
Company Class B Preferred Securities at the Stated Rate for four consecutive Payment Periods even though all requirements
for capital payments have been met and capital payments have been declared by the Company; or
(ii) a default by the Bank in respect of any of its obligations under the Subordinated Support Undertaking
will constitute an enforcement event under the Trust Agreement with respect to the Trust Preferred Securities (Trust Enforcement
Event). Until all Trust Enforcement Events with respect to the Trust Preferred Securities have been cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of the holders of the Trust Preferred Securities and
only the holders of the Trust Preferred Securities will have the right to direct the Property Trustee in the manner provided in the
Trust Agreement. In the case of non-payment of Class B Capital Payments (plus any Additional Amounts thereon, if any) for four
consecutive Payment Periods even though all requirements for capital payments have been met and capital payments have been
declared or the continuation of a failure by the Bank to perform any obligation under the Subordinated Support Undertaking for a
period of 60 days after notice thereof has been given to the Company by the Property Trustee or any holder of the Company Class B
Preferred Securities, the holders of a majority in aggregate Trust Denomination of the Trust Preferred Securities (excluding Trust
Preferred Securities held by the Bank or Bank Affiliates within the meaning of § 15 of the German Stock Corporation Act
(Aktiengesetz)) will have the right to direct the Property Trustee to enforce, on their behalf, the rights of the holders of the
Company Class B Preferred Securities, including:
(i) claims to receive Capital Payments (only if duly declared, plus any Additional Amounts thereon, if any) on the Company Class B
Preferred Securities pursuant to the terms thereof;
(ii) the right to appoint the Independent Enforcement Director (to the extent that such Trust Enforcement Event results from nonpayment of Capital Payments on the Company Class B Preferred Securities for four consecutive Class B Payment Periods even
though all requirements for capital payments have been met and capital payments have been declared or the continuation of
a failure by the Bank to perform any obligation under the Subordinated Support Undertaking for a period of 60 days after notice
thereof has been given to the Company by the Property Trustee or any holder of the Company Class B Preferred Securities); and
(iii) the rights of the holders of the Company Class B Preferred Securities under the Subordinated Support Undertaking.
37
See "Description of the Company Securities – Company Class B Preferred Securities – Voting and Enforcement Rights".
If the Property Trustee fails to enforce its rights under the Company Class B Preferred Securities after a holder of the Trust Preferred
Securities has made a written request, such holder of record of the Trust Preferred Securities may directly institute a legal proceeding
against the Company to enforce the Property Trustee's rights under the Company Class B Preferred Securities without first instituting legal proceeding against the Property Trustee, the Trust or any other person or entity. The holder of record is Clearstream
Frankfurt, in whose name the Global Certificates are registered (see "– Form, Clearing, Transfers and Settlement").
Redemption
The Company Class B Preferred Securities and the Trust Preferred Securities have no scheduled maturity date and are not
redeemable at any time at the option of the holders thereof.
The Company Class B Preferred Securities are redeemable at the option of the Company, in whole but not in part, on the Initial
Redemption Date or on any Class B Payment Date thereafter, at the Redemption Amount subject to the conditions of the LLC
Agreement. The Company will also have a right to redeem the Company Class B Preferred Securities at any time, also already
prior to the Initial Redemption Date, upon at least 31 days' prior notice, in whole but not in part, upon the occurrence of a
Special Redemption Event.
Any redemption, whether upon the occurrence of a Special Redemption Event or on or after the Initial Redemption Date, will be
made at the Redemption Amount. The Company may exercise its right to redeem the Company Class B Preferred Securities only if:
(i) it has given at least 31 days' prior notice (or such longer period as required by the relevant regulatory authorities) to the
holders of the Company Class B Preferred Securities of its intention to redeem the Company Class B Preferred Securities on
the Redemption Date, and
(ii) certain other conditions as set forth under "Description of the Company Securities – Company Class B Preferred Securities –
Redemption" are met.
The Trust Agreement provides that the Property Trustee gives notice to the holders of the Trust Preferred Securities of the
Company's intention to redeem the Company Class B Preferred Securities not fewer than 30 days before the Redemption Date.
Subject to the provisions contained in the Trust Agreement, upon redemption of the Company Class B Preferred Securities, the
Trust must apply the Redemption Amount received in connection therewith to redeem pro rata Trust Securities. Any Company
Class B Preferred Securities or Trust Preferred Securities that are redeemed will be cancelled, and not reissued, following their
redemption.
If, at any time, a Trust Special Redemption Event occurs and is continuing, the Regular Trustees will, within 90 days following the
occurrence of such Trust Special Redemption Event, dissolve the Trust upon not less than 30 nor more than 60 days' notice to the
holders of the Trust Preferred Securities and upon not less than 30 nor more than 60 days' notice to, and consultation with
Clearstream Frankfurt, with the result that, after satisfaction of the claims of creditors of the Trust, if any, the Company Class B
Preferred Securities would be distributed on a pro rata basis to the holders of the Trust Preferred Securities and the holder of the
Trust Common Security in liquidation of such holders' interests in the Trust, provided, however, that, if at such time, the Trust has
the opportunity to eliminate, within such 90-day period, the Trust Special Redemption Event by taking some ministerial action (a
ministerial act is an administrative action (such as filing a form or making an election or pursuing some other similar reasonable
measure) which in the sole judgment of the Bank has or will cause no adverse effect on the Company, the Trust, the Bank or the
holders of the Trust Preferred Securities and will involve no material costs), then the Trust will pursue any such measure in lieu of
dissolution.
On the date fixed for any distribution of the Company Class B Preferred Securities, upon dissolution of the Trust:
(i) the Trust Securities will no longer be deemed to be outstanding, and
(ii) certificates representing Trust Preferred Securities will be deemed to represent the Company Class B Preferred Securities
having a denomination equal to the Trust Denomination of, and bearing accumulated and unpaid Capital Payments equal to
accumulated and unpaid Capital Payments on, such Trust Preferred Securities until such certificates are presented to the
Company or its agent for transfer or re-issuance.
If the Company Class B Preferred Securities are distributed to the holders of the Trust Preferred Securities, the Bank will use its
commercially reasonable efforts to cause the Company Class B Preferred Securities to be eligible for clearing and settlement
through Clearstream Frankfurt or a successor clearing agent.
Redemption Procedures
If the Trust gives a notice of redemption in respect of the Trust Preferred Securities (which notice shall be irrevocable), and if the
Company has paid to the Property Trustee a sufficient amount of cash in connection with the related redemption of the Company
Class B Preferred Securities, then, by 10:00 a.m., Frankfurt am Main time, on the relevant Redemption Date, the Property Trustee
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will irrevocably deposit with Clearstream Frankfurt funds sufficient to pay the amount payable and will give Clearstream Frankfurt
irrevocable instructions and authority to pay such redemption amount to the holders of the Trust Preferred Securities. If notice of
redemption will have been given and funds are deposited as required, then upon the date of such deposit, or the relevant Redemption
Date, as applicable, Capital Payments shall cease to accumulate on the Trust Preferred Securities so called for redemption and all
rights of holders of such Trust Preferred Securities will cease, except the right of the holders of such Trust Preferred Securities to
receive the redemption amount for such Trust Preferred Securities, but without interest thereon.
Purchases of the Trust Preferred Securities
Subject to the foregoing redemption provisions and procedures and applicable law, the Bank may at any time purchase outstanding
Trust Preferred Securities and resell, hold, cancel or otherwise dispose of Trust Preferred Securities so repurchased in the open
market or otherwise.
Subordination of the Trust Common Security
Payment of Trust Capital Payments and other distributions on, and amounts on redemption of, the Trust Preferred Securities will
generally be made pro rata based on the Trust Denomination of the Trust Preferred Securities and the capital contribution in respect
of the Trust Common Security, as the case may be. However, upon the liquidation of the Trust and upon the occurrence and
during the continuance of a default under the Debt Securities or under the Subordinated Support Undertaking, holders of the
Trust Preferred Securities will have a preference over the holder of the Trust Common Security with respect to payments of Trust
Capital Payments and other distributions and amounts upon redemption of Trust Preferred Securities or liquidation of the Trust as
no payment of Trust Capital Payments shall be made to the holder of the Trust Common Security unless payment in full have been
made to the holders of the Trust Preferred Securities.
Liquidation Distribution Procedure upon Dissolution
Subject to the provisions contained in the Trust Agreement, the Trust will dissolve:
(i) upon the insolvency, liquidation, dissolution or winding-up of the Bank;
(ii) upon the dissolution of the Company in accordance with the LLC Agreement;
(iii) upon the consent of at least a majority in aggregate Trust Denomination of the Trust Securities, voting together as a single
class, to dissolve the Trust;
(iv) when all of the Trust Securities shall have been called for redemption and (A) the amounts necessary for redemption thereof
shall have been paid to the holders of the Trust Securities or (B) all of the Company Class B Preferred Securities shall have been
distributed to the holders of the Trust Securities in exchange for all of the Trust Securities; or
(v) upon the distribution of all of the Company Class B Preferred Securities due to the occurrence of a Trust Special Redemption
Event;
provided that, if a claim has been made under the Subordinated Support Undertaking, the Trust shall not, to the fullest extent
permitted by law, dissolve until (A) such claim has been satisfied and the proceeds therefrom have been distributed to the holders
of the Trust Securities or (B) the Company Class B Preferred Securities have been distributed to the holders of the Trust Securities.
In the event of any liquidation, dissolution, winding-up or termination of the Trust not involving a redemption of the Company
Class B Preferred Securities in whole or the liquidation, dissolution or winding-up of the Company, the holders of the Trust Preferred
Securities will be entitled to receive, after payment or reasonable provision for payment of the Trust's liabilities to other creditors
(if any), on a pro rata basis Company Class B Preferred Securities.
Statute of Limitation
The prescription period for claims for the payment of Trust Capital Payments, Additional Amounts and redemption of the Trust
Preferred Securities is three years after the date on which the respective payment has become due and payable.
Voting Rights
Except as expressly required by applicable law or the Delaware Statutory Trust Act, or except as provided for in the Trust Agreement
or the LLC Agreement, the holders of the Trust Preferred Securities will not be entitled to vote on the affairs of the Trust or the
Company. So long as the Trust holds any Company Class B Preferred Securities, the holders of the Trust Preferred Securities will
have the right, subject to the provisions contained in the Trust Agreement, to direct the Property Trustee to enforce the voting
rights attributable to such Company Class B Preferred Securities. These voting rights may be waived by the holders of the Trust
Preferred Securities by written notice to the Property Trustee and in accordance with applicable laws.
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Subject to the requirement of the Property Trustee obtaining a tax opinion as set forth in the last sentence of this paragraph, the
holders of a majority of the outstanding Trust Preferred Securities (excluding Trust Preferred Securities held by the Bank or its
affiliates within the meaning of § 15 of the German Stock Corporation Act (Aktiengesetz)) have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the Property Trustee, and to direct the exercise of
any trust or power conferred upon the Property Trustee under the Trust Agreement, including the right to direct the Property
Trustee, as holder of the Company Class B Preferred Securities, to:
(i) exercise the remedies available to it under the LLC Agreement as a holder of the Company Class B Preferred Securities; or
(ii) consent to any amendment, modification or termination of the LLC Agreement or the Company Class B Preferred Securities
where such consent will be required;
provided, however, that where a consent or action under the LLC Agreement would require the consent or act of the holders of
more than a majority of the Company Class B Preferred Securities affected thereby, only the holders of the percentage of the
aggregate Trust Denomination of the Trust Preferred Securities which is at least equal to the percentage of the Company Class B
Preferred Securities required to so consent or act under the LLC Agreement, may direct the Property Trustee to give such consent
or take such action on behalf of the Trust; see "Description of the Company Securities – Company Class B Preferred Securities –
Voting and Enforcement Rights". Except with respect to directing the time, method and place of conducting a proceeding for a
remedy as described above, the Property Trustee will be under no obligation to take any of the actions described in clause (i) or
(ii) above unless, inter alia, the Property Trustee has obtained an opinion of independent tax counsel in the United States of
America to the effect that following such action the Trust will not be treated as a corporation or a partnership for United States
federal income tax purposes.
Any required approval or direction of holders of the Trust Preferred Securities may be given at a separate meeting of holders of
the Trust Preferred Securities convened for such purpose, at a meeting of all of the holders of the Trust Preferred Securities or
pursuant to a written consent. The Regular Trustees will cause a notice of any meeting at which holders of the Trust Preferred
Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be made
in the manner described below under "– Notices". Each such notice will include a statement setting forth the following
information:
(i) the date of such meeting or the date by which such action is to be taken;
(ii) a description of any resolution proposed for adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents.
No vote or consent of the holders of the Trust Preferred Securities will be required for the Trust to redeem and cancel Trust Preferred
Securities or distribute Company Class B Preferred Securities in accordance with the Trust Agreement and the terms of the Trust
Securities.
Notwithstanding that holders of the Trust Preferred Securities are entitled to vote or consent under the circumstances described
above, none of the Trust Preferred Securities that are beneficially owned at the time of such vote or consent by the Bank or its
affiliates within the meaning of § 15 of the German Stock Corporation Act (Aktiengesetz) will be entitled to vote or consent and
will, for purposes of such vote or consent, be treated as if such Trust Preferred Securities were not outstanding, except for the Trust
Preferred Securities purchased or acquired by the Bank or its affiliates within the meaning of § 15 of the German Stock Corporation
Act (Aktiengesetz) in connection with transactions effected by or for the account of customers of the Bank or customers of any of
its affiliates within the meaning of § 15 of the German Stock Corporation Act (Aktiengesetz) or in connection with distribution or
trading or market-making activities in connection with such Trust Preferred Securities in the ordinary course of business; provided,
however, that persons (other than affiliates of the Bank within the meaning of § 15 of the German Stock Corporation Act (Aktiengesetz)) to whom the Bank or any of its affiliates within the meaning of § 15 of the German Stock Corporation Act (Aktiengesetz)
have pledged Trust Preferred Securities may vote or consent with respect to such pledged Trust Preferred Securities pursuant to
the terms of such pledge.
Holders of the Trust Preferred Securities will have no rights to appoint or remove the Regular Trustees, who may be appointed,
removed or replaced solely by the holder of the Trust Common Security, which will be the Bank or a Qualified Subsidiary.
Securityholder Meetings
Meetings of the holders of any class of Trust Securities may be called at any time by the Regular Trustees to consider and act on
any matter on which holders of such class of Trust Securities are entitled to act under the terms of the Trust Agreement, the terms
of the Trust Securities, the LLC Agreement, the Delaware Statutory Trust Act or other applicable law. The Regular Trustees shall
call a meeting of the holders of a class if directed to do so by the holders of at least 10% in aggregate Trust Denomination of such
class of Trust Securities. Such direction must be given by delivering to the Regular Trustees one or more calls in writing stating that
the signing holders of the Trust Securities wish to call a meeting and indicating the general or specific purpose for which the meeting
is to be called. Any holders of the Trust Securities calling a meeting shall specify in writing the certificates (i.e. representing the
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Trust Common Security or the Trust Preferred Securities) held by the holders of the Trust Securities exercising the right to call a
meeting and only those Trust Securities specified shall be counted for purposes of determining whether the required percentage
set forth in the second sentence of this paragraph has been met.
Except to the extent otherwise provided in the terms of the Trust Securities, the following provisions shall apply to meetings of
holders of the Trust Securities:
– Notice of any meeting shall be given to all the holders of the Trust Securities having a right to vote thereat at least 7 days
and not more than 60 days before the date of such meeting. Any action that may be taken at a meeting of the holders may
be taken without a meeting if a consent in writing setting forth the action so taken is signed by the holders owning not less
than the minimum amount of Trust Securities in aggregate Trust Denomination that would be necessary to authorize or take
such action at a meeting at which all holders having a right to vote thereon were present and voting. Prompt notice of the
taking of action without a meeting will be given to the holders of the Trust Securities entitled to vote who have not consented in
writing. The Regular Trustees may specify that any written ballot submitted to the holder for the purpose of taking any action
without a meeting shall be returned to the Trust within the time specified by the Regular Trustees.
– Subject to the terms of the Trust Agreement, each holder of a Trust Security may authorize any person to act for it by proxy
on all matters in which a holder is entitled to participate, including waiving notice of any meeting, or voting or participating
at a meeting.
– Each meeting of the holders of the Trust Securities shall be conducted by the Regular Trustees or by such other Person that
the Regular Trustees may designate.
Merger, Consolidation, Amalgamation, Conversion or Replacement of the Trust
The Trust may not consolidate, amalgamate, convert, merge with or into, or be replaced by, or convey, transfer or lease substantially
all of its properties and assets to any corporation or other entity, except as described below. The Trust may, with the consent of
the Regular Trustees (or, if there are more than two Regular Trustees, a majority of the Regular Trustees) and without the consent
of the holders of the Trust Securities, the Property Trustee or the Delaware Trustee, consolidate, amalgamate, convert, merge with or
into, or be replaced by a trust organized as such under the laws of any State of the United States of America or any entity organized
under any laws other than the laws of any State of the United States of America, to the extent legally permitted under applicable
law and provided, that:
(i) if the Trust is not the survivor, such successor entity either
(A) expressly assumes all of the obligations of the Trust to the holders of the Trust Securities, or
(B) substitutes Successor Trust Securities for the Trust Preferred Securities,
(ii) the Company expressly acknowledges a trustee or another representative of such successor entity possessing substantially
equivalent powers and duties as the Property Trustee as the holder of the Company Class B Preferred Securities,
(iii) such merger, consolidation, amalgamation, conversion or replacement does not cause the Trust Preferred Securities (including
the Successor Trust Securities) to be downgraded by any internationally recognized rating organization,
(iv) such merger, consolidation, amalgamation, conversion or replacement does not adversely affect the rights, preferences and
privileges of the holders of the Trust Preferred Securities (including any Successor Trust Securities) in any material respect,
(v) such successor entity has purposes substantially identical to that of the Trust,
(vi) the obligations of the Bank pursuant to the Subordinated Support Undertaking will continue in full force and effect, and
(vii) prior to such merger, consolidation, amalgamation, conversion or replacement, the Bank has received an opinion of a
nationally recognized law firm in the United States of America experienced in such matters to the effect that:
(A) such merger, consolidation, amalgamation, conversion or replacement will not adversely affect the rights, preferences
and privileges of the holders of the Trust Preferred Securities (including the Successor Trust Securities) in any material
respect,
(B) following such merger, consolidation, amalgamation, conversion or replacement, neither the Trust nor such successor
entity will be required to register under the Investment Company Act,
(C) following such merger, consolidation, amalgamation, conversion or replacement, the Trust (or such successor trust) will
not be treated as a corporation or a partnership for United States federal income tax purposes, and
(D) following such merger, consolidation, amalgamation, conversion or replacement, the Company will not be treated as a
corporation for United States federal income tax purposes.
Notwithstanding the foregoing, the Trust will not, except with the consent of the holders of 100% of the outstanding Trust
Preferred Securities (excluding Trust Preferred Securities held by the Bank and any affiliate within the meaning of § 15 of the
41
German Stock Corporation Act (Aktiengesetz)), consolidate, amalgamate, convert, merge with or into, or be replaced by any
other entity or permit any other entity to consolidate, amalgamate, convert, merge with or into, or replace it, if such consolidation,
amalgamation, conversion, merger or replacement would cause the Trust or the successor entity to be treated as a corporation or
a partnership for United States federal income tax purposes.
Any such merger, consolidation, amalgamation, conversion or replacement shall be notified to the holders of the Trust Securities.
Upon any replacement, any reference to the Trust shall forthwith be deemed to be a reference to the successor entity and any
reference to the country of residence of the Trust shall forthwith be deemed to be a reference to the country of residence of the
successor entity; in each case with effect from the replacement date.
Modification of the Trust Agreement
Subject to the terms of the Trust Agreement and the Trust Securities, the Trust Agreement may be modified or amended in writing
if approved by the Regular Trustees (or, if there are more than two Regular Trustees, a majority of the Regular Trustees) (and in
certain circumstances the Property Trustee and the Delaware Trustee), provided, that, if any proposed amendment provides for, or
the Regular Trustees otherwise propose to effect:
(i) any action that would materially adversely affect the powers, preferences or special rights of the Trust Securities, whether by
way of amendment to the Trust Agreement or otherwise, or
(ii) the dissolution, winding-up or termination of the Trust other than pursuant to the terms of the Trust Agreement,
then such amendment or proposal will not be effective except with the approval of at least a majority in aggregate Trust Denomination
of the Trust Securities affected thereby; provided, further that, if any amendment or proposal referred to in clause (i) above would
adversely affect only the Trust Preferred Securities or the Trust Common Security, then only the affected class will be entitled to
vote on such amendment or proposal and such amendment or proposal will not be effective except with the approval of a majority in
such Trust Denomination of such class of the Trust Securities outstanding.
The Trust Agreement may be amended without the consent of the holders of the Trust Securities to:
(i) cure any ambiguity,
(ii) correct or supplement any provision in the Trust Agreement that may be defective or inconsistent with any other provision of
the Trust Agreement,
(iii) add to the covenants, restrictions or obligations of the Bank,
(iv) conform to any change in the Investment Company Act or the rules or regulations thereunder, or
(v) modify, eliminate and add to any provision of the Trust Agreement to such extent as may be necessary or desirable;
provided, that such amendments do not have a material adverse effect on the rights, preferences or privileges of the holders
of the Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to the Trust Agreement if such amendment or modification would:
(i) cause the Trust to be treated as a corporation or a partnership for United States federal income tax purposes,
(ii) cause the Company to be treated as a corporation for such purposes,
(iii) reduce or otherwise adversely affect the powers of the Property Trustee, or
(iv) cause the Trust or the Company to be required to register under the Investment Company Act.
Form, Clearing, Transfers and Settlement
Trust Preferred Securities have been issued initially in the form of a single Temporary Global Trust Preferred Certificate. Beneficial
interests in the Temporary Global Trust Preferred Certificate will be exchanged for beneficial interests in one or more Permanent
Global Trust Preferred Certificates not earlier than following the Restricted Period, i.e. 40 consecutive days beginning on and
including the first day after (i) the Issue Date or, if later, (ii) the completion of the distribution of the Trust Preferred Securities, and
upon certification of non-U.S. beneficial ownership by or on behalf of the holders of such interests.
The Global Certificates are deposited upon issuance with, and registered in the name of, Clearstream Frankfurt for credit to accountholders in Clearstream Frankfurt.
Beneficial interests in the Trust Preferred Securities will be shown only on, and transfers thereof will be effected only through, bookentry records maintained by Clearstream Frankfurt and its participants. Trust Preferred Securities in definitive form will not be
issued. Holders of beneficial interests in the Global Certificates must rely upon the procedures of Clearstream Frankfurt and its
42
participants to exercise any rights of a holder under the Global Certificates. Transfers and payments in respect of the Trust
Preferred Securities may be effected through the Paying Agents subject to the terms of the Trust Preferred Securities and the
operating procedures of Clearstream Frankfurt. None of the Bank, the Company or the Trust will have any responsibility or liability
for any aspect of the records relating to the payments made on account of beneficial interests in the Global Certificates or for
maintaining, supervising or reviewing any records relating to such beneficial interests.
Certifications by Holders of the Temporary Global Trust Preferred Certificate
On or after the expiration of the Restricted Period, a certificate must be provided by or on behalf of a holder of a beneficial interest
in the Temporary Global Trust Preferred Certificate to the Principal Paying Agent, certifying that the beneficial owner of the
interest in the Temporary Global Trust Preferred Certificate is not a U.S. Person. Unless such certificate is provided:
(i) the holder of such beneficial interest will not receive any payments of dividends, redemption amount or any other payment
with respect to such holder's beneficial interest in the Temporary Global Trust Preferred Certificate,
(ii) such beneficial interest may not be exchanged for a beneficial interest in the Permanent Global Trust Preferred Certificate,
and
(iii) settlement of trades with respect to such beneficial interest will be suspended.
In the event that any holder of a beneficial interest in the Temporary Global Trust Preferred Certificate fails to provide such certification,
exchanges of interests in the Temporary Global Trust Preferred Certificate for interests in the Permanent Global Trust Preferred
Certificate and settlements of trades of all beneficial interests in the Temporary Global Trust Preferred Certificate may be
temporarily suspended.
Paying Agent and Payments
Deutsche Bank Aktiengesellschaft, Frankfurt am Main, Federal Republic of Germany, acts as Principal Paying Agent for the Trust
Preferred Securities. Payments in respect of the Trust Preferred Securities will be made to or as directed by Clearstream Frankfurt as
the registered holder of the Global Certificate representing the Trust Preferred Securities. Payments made to Clearstream Frankfurt
shall be made by wire transfer, and Clearstream Frankfurt will credit the relevant accounts of its participants on the relevant
dates.
Registration of transfers of the Trust Preferred Securities will be effected without charge by or on behalf of the Trust, but upon
payment (with the giving of such indemnity as the Property Trustee may require) in respect of any tax or other governmental charges
that may be imposed in relation to it; provided, that no transfer or exchange of the Trust Preferred Securities (other than a transfer of
the Trust Preferred Securities as a whole by the common depositary for Clearstream Frankfurt to another common depositary of
Clearstream Frankfurt or to another nominee of Clearstream Frankfurt) may be registered except in limited circumstances. The
Property Trustee will not be required to register or cause to be registered the transfer of the Trust Preferred Securities after such
Trust Preferred Securities have been called for redemption.
Information Concerning the Property Trustee
The Property Trustee, prior to the occurrence of a Trust Enforcement Event, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, in case a Trust Enforcement Event has occurred (that has not been cured or waived), will
exercise the same degree of care and skill as a prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs. Subject to the provisions of the Trust Agreement, the Property Trustee is under no obligation to exercise
any of the powers vested in it by the Trust Agreement, though it may do so at its discretion or at the request of any holder of the
Trust Preferred Securities if it is satisfied, in its sole discretion, that the repayment of funds or cover for liability is assured to it, by
way of indemnity or otherwise. Notwithstanding the foregoing, the Property Trustee is obliged to exercise its rights or powers at
the request or discretion of any holder of the Trust Preferred Securities if such holder has provided sufficient security and indemnity to
the Property Trustee in accordance with the Trust Agreement and the Property Trustee has obtained any necessary legal opinions
as described in the Trust Agreement.
Notices
For so long as the Trust Preferred Securities are listed on the Frankfurt Stock Exchange and the rules of such stock exchange so
require, all notices concerning the Trust Preferred Securities will be published in a German newspaper designated by the Frankfurt
Stock Exchange (which is expected to be the Börsen-Zeitung or the Financial Times Deutschland).
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Governing Law
The Trust Agreement and the Trust Securities shall be governed by, and construed in accordance with, the laws of the State of
Delaware, United States of America.
Miscellaneous
The Regular Trustees are authorized and directed to conduct the affairs of and to operate the Trust in such a way that the Trust
will not be required to register under the Investment Company Act.
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Description of the Company Securities
The following describes the material terms and provisions of the Company Securities, including the Company Class B Preferred
Securities. This description is qualified in its entirety by reference to the terms and provisions of the LLC Agreement.
Upon the execution of the LLC Agreement, the Company has issued Company Securities consisting of the Company Common
Security, the Company Class A Preferred Security and Company Class B Preferred Securities. For so long as the Company Class B
Preferred Securities remain outstanding, the Company Common Security will be owned directly or indirectly by the Bank and
the Company Class A Preferred Security will be owned directly or indirectly by the Bank.
The Company Class B Preferred Securities are initially held by the Property Trustee.
Company Common Security
Subject to the rights of the holders of the Company Class B Preferred Securities to appoint the Independent Enforcement Director
and the terms of the LLC Agreement and the LLC Act, all voting rights are vested in the holder of the Company Common Security.
The Company Common Security is entitled to one vote per security. The Company Common Security is initially held by the Bank.
Capital payments may be declared and paid on the Company Common Security only if all Class B Capital Payments and Additional
Amounts thereon, if any, on the Company Class B Preferred Securities in respect of the relevant Class B Payment Period have been
declared and paid in full at the Stated Rate. Following the allocation of profits and losses in accordance with the LLC Agreement,
a distribution of any profits to a holder of a Company Common Security shall require an unanimous resolution of all holders of a
Company Common Security. If at the time of such resolution there is more than one Company Common Security, the profits shall
be distributed in proportion to the paid-in capital with respect to each such Company Common Security. The Company does not
expect to pay dividends on the Company Common Security.
In the event of the liquidation, dissolution, termination or winding-up of the Company, after the payment of all debts and liabilities
and after there have been paid or set aside for the holders of all the Company Class A Preferred Securities and the Company
Class B Preferred Securities the full preferential amounts to which such holders are entitled, the holder of the Company Common
Security will be entitled to share in any remaining assets.
Company Class A Preferred Security
The Company Class A Preferred Security is non-voting, other than as provided in the LLC Agreement. Capital payments on the
Company Class A Preferred Security will be payable, as and if duly declared by the Board of Directors, out of the assets of the
Company legally available therefor; such a declaration will occur only if the Board of Directors does not declare Class B Capital
Payments on the Company Class B Preferred Securities at the Stated Rate on any Class B Payment Date.
It is expected that the holder of the Company Class A Preferred Security will receive capital payments only if:
(i) Class B Capital Payments are not permitted to be declared on the Company Class B Preferred Securities on any Class B
Payment Date at the Stated Rate because either the Company Operating Profit Test, the Bank Dividend Payment Test, the
Group Annual Profit Test, the Group BIS Tier I Capital Ratio Test or the Regulatory Authority Test have not been met, and
(ii) the Company has sufficient Company Operating Profits.
The Company does not intend to pay capital payments on the Company Class A Preferred Security. The payment of capital payments
on the Company Class A Preferred Security is not a condition to the payment of Class B Capital Payments on the Company Class B
Preferred Securities.
In the event of any liquidation, dissolution or winding-up of the Company, the Company Class B Preferred Securities will rank
junior to the Company Class A Preferred Security, and the Company Class B Preferred Securities will rank senior to the Company
Common Security; provided, however, that any payments made by the Bank pursuant to the Subordinated Support Undertaking
will be payable by the Company solely to the holders of the Company Class B Preferred Securities. Accordingly, upon liquidation
of the Company, the holder of the Company Class A Preferred Security will be entitled to receive a liquidation distribution of the
Debt Securities or Permitted Investments. In the event of the liquidation of the Company and to the extent an Independent
Enforcement Director has been appointed, the Independent Enforcement Director will enforce the Subordinated Support Undertaking
solely on behalf of the holders of the Company Class B Preferred Securities. With respect to the Company's rights under the
Subordinated Support Undertaking, the Company Class B Preferred Securities will rank senior to the Company Class A Preferred
Security and payments thereunder will be distributed by the Company solely to the holders of the Company Class B Preferred
Securities. For a description of the circumstances under which an Independent Enforcement Director may be elected, see
"– Company Class B Preferred Securities – Voting Rights".
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Company Class B Preferred Securities
General
The Company will observe all corporate formalities necessary to issue the Company Class B Preferred Securities under the laws of
the State of Delaware, United States of America, and the Company Class B Preferred Securities are deemed to be validly issued,
fully paid and non-assessable when they are issued. The holders of the Company Class B Preferred Securities will have no preemptive rights with respect to any part of any new or additional issue of Company Class B Preferred Securities (i. e., will have no
rights to acquire any Additional Company Class B Preferred Securities on a preferential basis). The Company Class B Preferred
Securities will not have any scheduled maturity date, will not be redeemable at any time at the option of the holders thereof and
will not be subject to any other obligation of the Company for their repurchase or redemption.
The Bank will procure that the Company Class B Preferred Securities are replaced with similar or more equity-like securities on the
level of the Group prior to their redemption.
Capital Payments
Class B Capital Payments will accrue on the Class B Denomination of € 1,000 per Company Class B Preferred Security at the Stated
Rate. See "Summary – Summary of the Terms of the Trust Preferred Securities and the Terms of the Company Class B Preferred
Securities – Capital Payments, – Stated Rate, – Reference Rate and – Margin".
Class B Capital Payments on the Company Class B Preferred Securities will be paid by the Company out of the net income of the
Company which is derived from amounts received on the Debt Securities or Permitted Investments held by the Company from time to
time or from payments received by the Company under the Subordinated Support Undertaking. If the Board of Directors does not
declare a Class B Capital Payment on the Company Class B Preferred Securities in respect of any Class B Payment Period, the
holders of the Company Class B Preferred Securities will have no right to receive a Class B Capital Payment on the Company
Class B Preferred Securities in respect of such Class B Payment Period, and the Company will have no obligation to pay a Class B
Capital Payment on the Company Class B Preferred Securities in respect of such Class B Payment Period, whether or not Class B
Capital Payments are declared and paid on the Company Class B Preferred Securities in respect of any future Class B Payment Period.
Class B Capital Payments on the Company Class B Preferred Securities may be declared and paid on any Class B Payment Date only if:
(i) there are Company Operating Profits for the Class B Payment Period ending on the day immediately preceding such Class B
Payment Date at least equal to the amount of such Class B Capital Payments (Company Operating Profit Test), and
(ii) on or prior to such Class B Payment Date the Bank paid a Bank Dividend Payment from the Bank Distributable Profits for the
most recent financial year of the Bank for which the Bank's shareholders' meeting (Hauptversammlung) has resolved on the
appropriation of profits (Bank Dividend Payment Test), and
(iii) there are Group Annual Profits for the most recent financial year of the Bank for which the Bank's shareholders' meeting
(Hauptversammlung) has resolved on the appropriation of profits at least equal to the sum of (x) the amount of Class B Capital
Payments payable and already paid in such financial year, (y) capital payments or dividends or other distributions or payments
on Parity Securities already paid in such financial year or payable on the same date, in each case on the basis of such Group
Annual Profits and (z) the Bank Dividend Payment for such financial year (collectively, Group Annual Profit Test), and
(iv) the Group BIS Tier I Capital Ratio as of the end of the most recent financial year of the Bank for which audited and approved
(gebilligt) consolidated financial statements are available and as published in the annual report of the Group equals or exceeds
5% (Group BIS Tier I Capital Ratio Test), and
(v) there is in effect no order of BaFin or other relevant regulatory authority pursuant to the German Banking Act or any other
relevant regulatory provision prohibiting the Bank from making any distributions (including to the holders of Parity Securities)
(Regulatory Authority Test).
The Company will have no obligation to make up, at any time, any Class B Capital Payments not paid in full by
the Company as a result of non-fulfillment of the above-listed conditions (i) to (v).
If Class B Capital Payments are duly declared, Class B Capital Payments will be paid, on a noncumulative basis, quarterly in arrear
on each Class B Payment Date.
Each duly declared Class B Capital Payment will be payable to the holders of record of the Company Class B Preferred Securities
as they appear on the books and records of the Company on the relevant record date which shall be one Business Day prior to
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the Class B Payment Date. The relevant record date for the Company Class B Preferred Securities will be the 15 day prior to the
relevant Class B Payment Date if the Trust Preferred Securities (or, if the Trust is liquidated, the Company Class B Preferred Securities)
are not in book-entry form.
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Payment of Additional Amounts
The payment of the Class B Capital Payments on the Company Class B Preferred Securities, and any amount payable in liquidation or
upon redemption thereof will be made without any deduction or withholding by the Company for or on account of Withholding
Taxes, unless the Company is required by law to make such deduction or withholding. The Company will pay, as additional Class
B Capital Payments, such Additional Amounts as may be necessary in order that the net amounts received by the holders of the
Company Class B Preferred Securities on the Company Class B Preferred Securities and by the holders of the Trust Preferred
Securities on the Trust Preferred Securities, after any deduction or withholding for or on account of Withholding Taxes, will equal
the amounts that would otherwise have been received in respect of the Company Class B Preferred Securities and the Trust
Preferred Securities, respectively, in the absence of such withholding or deduction.
No such Additional Amounts, however, will be payable in respect of the Company Class B Preferred Securities:
(i) if the Company is unable to pay such Additional Amounts because such payment would exceed the Group Annual Profits for
the most recent financial year for which the Bank's shareholders' meeting (Hauptversammlung) has resolved on the appropriation of profits (after subtracting from such Group Annual Profits the amount of Class B Capital Payments, capital payments or
dividends or other distributions or payments on Parity Securities already paid or payable on the basis of such Group Annual
Profits, and the Bank Dividend Payment for such financial year on or prior to the date on which such Additional Amounts will
be payable); or
(ii) with respect to any Withholding Taxes that are payable by reason of a holder or beneficial owner of the Company Class B
Preferred Securities (other than the Trust) or the Trust Preferred Securities having some connection with any Relevant Jurisdiction
other than by reason only of the mere holding of the Company Class B Preferred Securities or the Trust Preferred Securities; or
(iii) where such deduction or withholding can be avoided if the holder or beneficial owner of the Company Class B Preferred
Securities (other than the Trust) or the Trust Preferred Securities makes a declaration of non-residence or other similar claim
for exemption to the relevant tax authority or complies with any reasonable certification, documentation, information or other
reporting requirement imposed by the relevant tax authority; or
(iv) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to the
European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council meeting
of November 26-27, 2000 on the taxation of savings income or any law implementing or complying with, or introduced in
order to conform to, such Directive.
Voting and Enforcement Rights
The Company Class B Preferred Securities will have no voting rights except as expressly required by the LLC Act or other applicable
law or except as indicated below. In the event the holders of the Company Class B Preferred Securities are entitled to vote as
indicated below, each Company Class B Preferred Security shall be entitled to one vote on matters on which holders of the
Company Class B Preferred Securities are entitled to vote. In the event that:
(i) the Company fails to pay Class B Capital Payments (plus Additional Amounts thereon, if any) on the Company Class B
Preferred Securities at the Stated Rate for four consecutive Class B Payment Periods even though all requirements for capital
payments have been met and capital payments have been declared or
(ii) a holder of the Company Class B Preferred Securities notifies the Company that the Bank has failed to perform any obligation
under the Subordinated Support Undertaking and such failure continues for 60 days after such notice is given,
then the majority of the holders of the Company Class B Preferred Securities will have the right to appoint an Independent Enforcement
Director, who will be an additional member of the Board of Directors.
The Independent Enforcement Director will have the sole authority, right and power to enforce and settle any claim of the Company
under the Subordinated Support Undertaking. However, the Independent Enforcement Director will have no right, power or
authority to participate in the management of the business and affairs of the Company by the Board of Directors except for:
– actions related to the enforcement of the Subordinated Support Undertaking on behalf of the holders of the Company Class B
Preferred Securities, and
– the distribution of amounts paid pursuant to the Subordinated Support Undertaking to the holders of the Company Class B
Preferred Securities.
The Independent Enforcement Director will be appointed by resolution passed by a majority of the holders of the Company Class
B Preferred Securities entitled to vote thereon, as described in the LLC Agreement, present in person or by proxy at a separate
general meeting of the holders of the Company Class B Preferred Securities convened for that purpose (which will be called at the
request of any holder of a Company Class B Preferred Security entitled to vote thereon) or by a consent in writing adopted by a
majority of the holders of the Company Class B Preferred Securities entitled to vote thereon. Any Independent Enforcement Director
so appointed will vacate office if, in such Independent Enforcement Director's sole determination:
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(i) the respective Class B Capital Payments (plus Additional Amounts thereon, if any) have been made at the Stated Rate by the
Company for four consecutive Class B Payment Periods, and
(ii) the Bank has complied with all of its obligations under the Subordinated Support Undertaking.
Any such Independent Enforcement Director may be removed at any time, with or without cause by (and will not be removed
except by) the vote of a majority of the holders of the outstanding Company Class B Preferred Securities entitled to vote, at a meeting
of the Company's securityholders, or of holders of the Company Class B Preferred Securities entitled to vote thereon, called for
that purpose. If the office of Independent Enforcement Director becomes vacant at any time during which the holders of the
Company Class B Preferred Securities are entitled to appoint an Independent Enforcement Director, the holders of the Company
Class B Preferred Securities will appoint an Independent Enforcement Director as provided above.
No director, including the Independent Enforcement Director, will be a resident of the Federal Republic of Germany.
So long as any Company Class B Preferred Securities are outstanding, the Company will not, without the affirmative vote of the
holders of at least 66 2/3% in aggregate denomination of the Company Class B Preferred Securities, voting separately as a class:
(i) amend, alter, repeal or change any provision of the LLC Agreement (including the terms of the Company Class B Preferred
Securities) if such amendment, alteration, repeal or change would materially adversely affect the rights, preferences, powers
or privileges of the Company Class B Preferred Securities; or
(ii) agree to modify or amend any provision of, or waive any default in the payment of any amount under the Debt Securities in
any manner that would materially affect the interests of the holders of the Company Class B Preferred Securities; or
(iii) effect any merger, consolidation, or business combination involving the Company, or any sale of all or substantially all of the
assets of the Company, provided, that any such merger, consolidation, or business combination involving the Company, or
any sale of all or substantially all of the assets of the Company also must comply with the requirements set forth under
"– Mergers, Consolidations and Sales"; or
(iv) change the legal form of the Company (other than in connection with a merger, consolidation, amalgamation, conversion or
replacement permitted under the LLC Agreement without a consent of the holders of the Company Class B Preferred
Securities).
The Company will not, without the unanimous consent of all the holders of the Company Class B Preferred Securities, issue any
additional equity securities of the Company ranking senior to or pari passu with the Company Class B Preferred Securities as to
periodic distribution rights or rights on liquidation or dissolution of the Company except for Additional Company Class B Preferred
Securities in consideration of receipt of Additional Debt Securities in an aggregate denomination corresponding to the aggregate
Class B Denomination of such Additional Company Class B Preferred Securities.
Notwithstanding that holders of the Company Class A Preferred Security or Company Class B Preferred Securities may become
entitled to vote or consent under any of the circumstances described in the LLC Agreement or in the by-laws of the Company, any
Company Class A Preferred Security or any of the Company Class B Preferred Securities that are owned by the Bank or any of its
affiliates within the meaning of § 15 of the German Stock Corporation Act (Aktiengesetz) (other than the Trust), the Company or
any of its affiliates within the meaning of § 15 of the German Stock Corporation Act (Aktiengesetz) (other than the Trust), either
directly or indirectly, will in such case not be entitled to vote or consent and will, for the purposes of such vote or consent, be
treated as if they were not outstanding, except for a Company Class A Preferred Security or Company Class B Preferred Securities
purchased or acquired by the Bank or its affiliate in connection with transactions effected by or for the account of customers of
the Bank or customers of its affiliates within the meaning of § 15 of the German Stock Corporation Act (Aktiengesetz) or in
connection with the distribution or trading of or market-making in connection with such Company Class A Preferred Security or
Company Class B Preferred Securities in the ordinary course of business. However, certain persons (other than affiliates of the
Bank within the meaning of § 15 of the German Stock Corporation Act (Aktiengesetz) excluding the Trust) to whom the Bank or
any of its affiliates within the meaning of § 15 of the German Stock Corporation Act (Aktiengesetz) have pledged a Company
Class A Preferred Security or Company Class B Preferred Securities may vote or consent with respect to such pledged Company
Class A Preferred Security or Company Class B Preferred Securities pursuant to the terms of such pledge.
Redemption
The Company Class B Preferred Securities have no scheduled maturity date and are at no time redeemable at the option of the
holders thereof. The Company Class B Preferred Securities are redeemable at the option of the Company, in whole but not in
part, on the Initial Redemption Date or any Class B Payment Date thereafter at the Redemption Amount, provided that:
(i) the Company has given at least 31 days' prior notice (or such longer period as may be required by the relevant regulatory
authorities) to the holders of the Company Class B Preferred Securities of its intention to redeem the Company Class B
Preferred Securities on the Redemption Date, and
(ii) the cumulative Defined Retained Earnings for (x) the financial year during which the Issue Date occurs and (y) each of the
financial years thereafter up to (and including) the most recent financial year for which there are audited and approved (gebilligt)
48
consolidated financial statements of the Group available, equal or exceed 1.5 times the aggregate Class B Agio of all outstanding Company Class B Preferred Securities, and
(iii) the Bank Dividend Payment Test as well as the Group Annual Profit Test are met with regard to the accrued and unpaid
Class B Capital Payments for the then current Class B Payment Period to, but excluding, the Redemption Date, plus Additional
Amounts, if any, and
(iv) the Company has obtained any required regulatory approvals, and
(v) the following other conditions are met on the relevant Redemption Date: (x) the Company has sufficient funds (by reason of
the Debt Securities, Permitted Investments or the Subordinated Support Undertaking) to pay the Redemption Amount, and
(y) the Regulatory Authority Test is met.
In addition, the Company will have a right to redeem the Company Class B Preferred Securities at any time, also already prior to the
Initial Redemption Date, in whole but not in part, at the Redemption Amount upon the occurrence of a Special Redemption Event,
provided that
(i) it has given at least 31 days' prior notice (or such longer period as may be required by the relevant regulatory authorities) to
the holders of the Company Class B Preferred Securities of its intention to redeem the Company Class B Preferred Securities, and
(ii) it has obtained any required regulatory approvals, and
(iii) the following other conditions are met on the relevant Redemption Date: (x) the Company has sufficient funds (by reason of
the Debt Securities, Permitted Investments or the Subordinated Support Undertaking) to pay the Redemption Amount, and
(y) the Regulatory Authority Test is met.
Any redemption, whether upon the occurrence of a Special Redemption Event or on or after the Initial Redemption Date, will be
made at the Redemption Amount.
The Redemption Amount equals the Class B Denomination, plus accrued and unpaid Class B Capital Payments for the then current
Class B Payment Period to, but excluding, the redemption date, plus Additional Amounts, if any.
Subject to the provisions contained in the Trust Agreement, upon redemption of the Company Class B Preferred Securities, the
Trust must apply the Redemption Amount received in connection therewith to redeem the Trust Securities pro rata.
In the event that payment of the Redemption Amount in respect of any Company Class B Preferred Securities is improperly withheld or refused and not paid, Class B Capital Payments will continue to accrue from the Redemption Date up to but excluding the
date of actual payment of such Redemption Amount at the Stated Rate.
Any redemption of the Company Class B Preferred Securities, whether on a Class B Payment Date on or after the Initial Redemption
Date or upon the occurrence of a Special Redemption Event, will not require the vote or consent of any of the holders of the
Company Class B Preferred Securities.
Redemption Procedures
Notice of any redemption of the Company Class B Preferred Securities will be given by the Board of Directors on behalf of the Company by mail to the record holder of each Company Class B Preferred Security in accordance with the LLC Agreement not less than
31 days prior to the date fixed for redemption, or such other time period as may be required by the relevant regulatory authorities.
For purposes of the calculation of the Redemption Date and the dates on which notices are given pursuant to the LLC Agreement,
a Redemption Notice will be deemed to be given on the day such notice is first mailed, by first-class mail, postage prepaid, to
holders of the Company Class B Preferred Securities. Each Redemption Notice will be addressed to the holders of the Company
Class B Preferred Securities at the address of each such holder appearing in the books and records of the Company.
No defect in the Redemption Notice or in the mailing thereof with respect to any holder will affect the validity of the redemption
proceedings with respect to any other holder.
If the Company has given a Redemption Notice (which notice will be irrevocable) and, if the Company Class B Preferred Securities
are held in certificated form, the Company, on the Redemption Date, will deposit irrevocably with the Principal Paying Agent funds
sufficient to pay the applicable Redemption Amount as and when it becomes due and will give to the Principal Paying Agent
irrevocable instructions and authority to pay such amounts to the holders of the Company Class B Preferred Securities to be
redeemed, upon surrender of their certificates, by check, mailed to the address of the relevant holder of the Company Class B
Preferred Securities appearing on the books and records of the Company on the Redemption Date, provided that for so long as
the Company Class B Preferred Securities are held by the Property Trustee on behalf of the Trust, payment will be made by wire
transfer in same day funds to the holder of the Company Class B Preferred Securities by 10:00 a.m., Frankfurt am Main time, on
the Redemption Date.
Upon satisfaction of the foregoing conditions, then immediately prior to the close of business on the date of payment, all rights of
the holders of the Company Class B Preferred Securities so called for redemption, except the right of the holders to receive the
49
Redemption Amount, will cease, and from and after the date fixed for redemption such Company Class B Preferred Securities will
not accrue Class B Capital Payments or bear interest.
Liquidation and Liquidation Distribution
Upon liquidation, dissolution or winding-up of the Company, the holder of the Company Class A Preferred Security has a claim to
receive its liquidation distribution senior to that of the holders of the Company Class B Preferred Securities, and the holders of the
Company Class B Preferred Securities have a claim to receive their liquidation distribution senior to the claim of the holder of the
Company Common Security to receive any distribution of assets; provided, however, that any payments made by the Bank pursuant
to the Subordinated Support Undertaking will be distributed by the Company pro rata to the holders of the Company Class B
Preferred Securities until the holders of the Company Class B Preferred Securities have received the full amount payable under the
Subordinated Support Undertaking. The holder of the Company Class A Preferred Security will be entitled to receive the Debt
Securities or Permitted Investments, as the case may be, (including accrued and unpaid interest thereon) as its liquidation distribution.
In the event of any liquidation, dissolution or winding-up of the Company in the context of a liquidation, dissolution or windingup of the Bank, the Company Class B Preferred Securities will be redeemed in which event each holder of the Company Class B
Preferred Securities will, subject to the limitations described below, be entitled to receive the Liquidation Amount being
(i) the Class B LPA, plus
(ii) accrued and unpaid Class B Capital Payments in respect of the then current Class B Payment Period to but excluding the date
of liquidation and Additional Amounts, if any, plus
(iii) the Class B Equity Component, plus
(iv) any assets of the Company remaining after distributions have been made under the Company Class A Preferred Securities,
provided that the Company receives amounts under the Subordinated Support Undertaking corresponding to the sum of the
amounts referred to under (i) to (iii) and provided further that the sum of (i) and (iii) shall not exceed the Class B Denomination,
i.e. € 1,000.
In the event of any liquidation, dissolution or winding-up of the Company without a liquidation, dissolution or winding-up of the
Bank, the Company Class B Preferred Securities will be redeemed in which event each holder of Company Class B Preferred Securities
shall be entitled to receive the Redemption Amount provided that the Company has obtained any required regulatory approvals.
Under the terms of the LLC Agreement the Company may be liquidated, dissolved or wound-up only in limited events specified in
the LLC Agreement (e.g., relating to a bankruptcy or insolvency of the Company or the Bank, judicial dissolution of the Company
under the LLC Act, redemption, repurchase or exchange of all outstanding Company Class B Preferred Securities or with the written
consent of the holders of all interests in the Company). Notwithstanding the foregoing, the Company will not be dissolved
pursuant to the terms of the LLC Agreement until all obligations under the Subordinated Support Undertaking have been paid in
full pursuant to its terms and to the fullest extent permitted by law.
Mergers, Consolidations, Replacements and Sales
Subject to the terms of the LLC Agreement, the Company may not consolidate, amalgamate, merge with or into, or be replaced
by, or convey, transfer or lease substantially all of its properties and assets to any corporation or other body, except as described
below.
The Company may, without the consent of the holders of the Company Class B Preferred Securities, consolidate, amalgamate,
merge with or into, or be replaced by a limited partnership, limited liability company or trust organized as such under the laws of
any State of the United States of America or any entity organized under any laws other than the laws of any State of the United
States of America, to the extent legally permitted under applicable law and provided, that:
(i) such successor entity either expressly assumes all of the obligations of the Company under the Company Class B Preferred
Securities or substitutes Successor Company Securities for the Company Class B Preferred Securities so long as the Successor
Company Securities are not junior to any equity securities of the successor entity, with respect to participation in the profits,
distributions and assets of the successor entity, except that they may rank junior to the Company Class A Preferred Security or
any successor Company Class A Preferred Security to the same extent that the Company Class B Preferred Securities rank
junior to the Company Class A Preferred Security;
(ii) the Bank expressly acknowledges such successor entity as the holder of the Debt Securities and holds, directly or indirectly, all
of the voting securities (within the meaning of Rule 3a-5 under the Investment Company Act) of such successor entity;
(iii) such consolidation, amalgamation, merger or replacement does not cause the Trust Preferred Securities (or, in the event that
the Trust is liquidated, the Company Class B Preferred Securities (including any Successor Company Securities)) to be downgraded by any internationally recognized rating organization;
50
(iv) such consolidation, amalgamation, merger or replacement does not adversely affect the powers, preferences and other special
rights of the holders of the Trust Preferred Securities or Company Class B Preferred Securities (including any Successor Company
Securities) in any material respect;
(v) such successor entity has a purpose substantially identical to that of the Company;
(vi) prior to such consolidation, amalgamation, merger or replacement, the Company has received an opinion of a nationally
recognized law firm in the United States of America experienced in such matters to the effect that:
(A) such successor entity will not be treated as a corporation for United States federal income tax purposes,
(B) such consolidation, amalgamation, merger or replacement would not cause the Trust to be treated as a corporation or a
partnership for United States federal income tax purposes,
(C) following such consolidation, amalgamation, merger or replacement, such successor entity will not be required to register
under the Investment Company Act, and
(D) such consolidation, amalgamation, merger or replacement will not adversely affect the limited liability of the holders of
the Company Class B Preferred Securities; and
(vii) the Bank provides an undertaking to the successor entity under the Successor Company Securities equivalent to that provided
by the Subordinated Support Undertaking with respect to the Company Class B Preferred Securities.
Any such merger, consolidation, amalgamation, conversion or replacement shall be notified to the holders of the Company Class B
Preferred Securities.
Upon any replacement, any reference to the Company shall forthwith be deemed to be a reference to the successor entity and any
reference to the country of residence of the Company shall forthwith be deemed to be a reference to the country of residence of
the successor entity; in each case with effect from the replacement date.
Book-Entry and Settlement
If the Company Class B Preferred Securities are distributed to holders of the Trust Preferred Securities in connection with the
liquidation, dissolution, winding-up or termination of the Trust, the Bank will use its commercially reasonable efforts to cause the
Company Class B Preferred Securities to be eligible for clearing and settlement through Clearstream Frankfurt or a successor
clearing agent.
Transfer Agent, Registrar and Calculation Agent
Deutsche Bank Aktiengesellschaft, Frankfurt am Main, Federal Republic of Germany, acts as Transfer Agent, Registrar and
Calculation Agent for the Company Class B Preferred Securities. Registration of transfers or exchanges of the Company Class B
Preferred Securities will be effected without charge by or on behalf of the Company but the Registrar may require payment of
a sum sufficient to cover (with the giving of such indemnity as may be required) any tax or other governmental charges that
may be imposed in relation to any transfer or exchange. The Company will not be required to register or cause to be registered
the transfer of the Company Class B Preferred Securities after such Company Class B Preferred Securities have been called for
redemption.
Governing Law
The LLC Agreement and the Company Class B Preferred Securities shall be governed by, and construed in accordance with, the
laws of the State of Delaware, United States of America.
Miscellaneous
The Board of Directors is authorized and directed to conduct the affairs of the Company in such a way that:
(i) the Company will not be required to register under the Investment Company Act, and
(ii) the Company will not be treated as a corporation for United States federal income tax purposes.
In this connection, the Board of Directors is authorized to take any action, not inconsistent with applicable law or the LLC
Agreement, that the Board of Directors determines in its discretion to be necessary or desirable for such purposes.
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Description of the Subordinated Support Undertaking
The following describes the material terms and provisions of the Subordinated Support Undertaking. This description is qualified
in its entirety by reference to the terms and provisions of such agreement, which is attached hereto as Appendix A.
The Bank and the Company have entered into the Subordinated Support Undertaking prior to the issuance of the Company Class B
Preferred Securities, pursuant to which the Bank undertakes to ensure that the Company will at all times be in a position to meet
its obligations if and when such obligations are due and payable, including its obligation to make Class B Capital Payments declared
(plus Additional Amounts thereon, if any) and to pay the Redemption Amount, and, in the event of a liquidation, dissolution or
winding-up of the Bank, the amounts corresponding to the amounts set forth in (i) to (iii) of the definition of the Liquidation
Amount, i.e. (i) the Class B LPA, (ii) accrued and unpaid Class B Capital Payments in respect of the then current Class B Payment
Period to but excluding the date of liquidation and Additional Amounts, if any, plus (iii) the Class B Equity Component.
In the Subordinated Support Undertaking, the Bank also undertakes not to give any guarantee or similar undertaking with respect
to, or enter into any other agreement relating to the support or payment of any amounts in respect of, any other preference securities
(or instruments ranking pari passu with or junior to such preference securities) of any other Bank Affiliate that would in any regard
rank senior to the most senior obligations of the Bank under the Subordinated Support Undertaking, unless the Subordinated
Support Undertaking is amended so that it ranks at least pari passu with and contains substantially equivalent rights of priority
as to payment as any such other guarantee or similar undertaking.
So long as any Company Class B Preferred Securities remain outstanding, the Subordinated Support Undertaking may not be
modified or terminated without the consent of 100% of the holders of the Company Class B Preferred Securities as provided in
the LLC Agreement, except for such modifications that are not adverse to the interests of the holders of the Company Class B
Preferred Securities.
The Subordinated Support Undertaking does not represent a guarantee or an undertaking of any kind that the Company will at
any time have sufficient assets to declare a Class B Capital Payment or other distributions.
The Bank's obligations under the Subordinated Support Undertaking are subordinated to all unsubordinated and subordinated
debt obligations of the Bank (including profit participation rights (Genussrechte) and silent partnership interests (Stille Beteiligungen),
rank pari passu with the most senior ranking preference shares of the Bank, if any, and rank senior to any other preference shares
and the common shares of the Bank; provided that the Bank's obligation to ensure the Company's position to meet its obligations
to pay the Class B Equity Component of the Liquidation Amount rank pari passu with the Bank's obligation to pay liquidation
proceeds to its holders of common stock; therefore, the Bank's obligation to ensure the Company's position to meet its obligation
to pay the Class B Equity Component of the Liquidation Amount will only arise after all creditors of the Bank ranking senior to the
common shareholders of the Bank have been satisfied.
The holders of the Company Class B Preferred Securities are third-party beneficiaries of the Subordinated Support Undertaking
within the meaning of Section 328(2) of the German Civil Code. As titleholder of the Company Class B Preferred Securities for the
benefit of the holders of the Trust Securities, the Property Trustee has the power to exercise all rights, powers and privileges with
respect to the Company Class B Preferred Securities under the Subordinated Support Undertaking. If a holder of the Company Class B
Preferred Securities has notified the Company that the Bank has failed to perform any obligation under the Subordinated Support
Undertaking, and such failure continues for 60 days after such notice is given, the holders of the Company Class B Preferred
Securities (and, accordingly, the holders of Trust Preferred Securities acting through the Property Trustee) will have the right to
appoint the Independent Enforcement Director, who will have the sole authority, right and power to enforce the rights and settle
any claim of the Company under the Subordinated Support Undertaking.
All payments under the Subordinated Support Undertaking will be distributed by the Company pro rata to holders of the Company
Class B Preferred Securities until the holders of the Company Class B Preferred Securities receive the full amount payable in
respect of the Company's obligations under the Company Class B Preferred Securities. So long as the Trust holds the Company
Class B Preferred Securities, the Property Trustee will distribute such payments received by the Trust to the holders of the Trust
Preferred Securities pro rata.
The Subordinated Support Undertaking shall be governed by, and construed in accordance with, the laws of the Federal Republic
of Germany.
52
Description of the Services Agreement
The following describes the material terms and provisions of the Services Agreement. This description is qualified in its entirety by
reference to the terms and provisions of such agreement.
Under the Services Agreement, the Servicer is obligated, among other things, to provide tax and other administrative services to
the Trust and the Company. The fees and expenses of the Company and the Trust, including any taxes, duties, assessments or
governmental charges of whatsoever nature (other than Withholding Taxes) imposed by any taxing authority upon the Company
or the Trust, and all other obligations of the Company and the Trust (other than with respect to the Trust Securities or the Company
Securities), will be paid by the Bank in accordance with the LLC Agreement.
The Services Agreement does not prevent the Bank or any of its Bank Affiliates or employees from engaging in any other activities.
The Services Agreement may be terminated by the Bank, the Trust or the Company at any time upon 90 days' prior notice.
53
Description of the Terms of the Initial Debt Securities
The following describes the material terms and provisions of the Initial Debt Securities. This description is qualified in its entirety
by reference to the terms and provisions of the Initial Debt Securities.
General
The aggregate denomination of the Initial Debt Securities amounts to € 400,003,000 and is equal to the sum of the aggregate Class
B Denomination plus the aggregate amounts contributed for the Company Class A Preferred Security and the Company Common
Security. All of the proceeds from the issuance of the Company Class B Preferred Securities, together with the funds contributed
for the Company Class A Preferred Security and the Company Common Security, have been used by the Company to purchase the
Initial Debt Securities. The aggregate denomination of the purchased Initial Debt Securities is such that the aggregate interest
income paid on the Initial Debt Securities on any Interest Payment Date will be sufficient to make the aggregate Class B Capital
Payments on a corresponding Class B Payment Date. The purchase of the Initial Debt Securities occurred contemporaneously with
the issuance of the Company Class B Preferred Securities.
The Initial Debt Securities consist of an issue of registered subordinated notes issued by the Bank which will mature on the Maturity
Date. Interest will be payable by the Bank in euro on the outstanding denomination of the Initial Debt Securities at a rate per annum
equal to the Stated Rate.
Interest will be payable by the Bank in euro on the denomination of the Initial Debt Securities quarterly in arrear on the Interest
Payment Dates.
Payments on the Initial Debt Securities will be made by the Bank free and clear of, and without deduction or withholding by the Bank
for Withholding Taxes imposed by the Federal Republic of Germany, the United States of America, the jurisdiction of residence of any
issuer substituted for the Bank in accordance with the terms of the Initial Debt Securities or any political subdivision of any of these
or any other jurisdiction from which such payment is made unless the Bank is required by operation of law or otherwise to make
such deduction or withholding. If, by operation of law or otherwise, the Bank is required to make such deduction or withholding
for Withholding Taxes from any payments on the Initial Debt Securities, the Bank will, in accordance with the terms of the Initial
Debt Securities, pay Additional Interest Amounts. Additional Interest Amounts will be paid to the extent necessary in order that
the net amounts actually received by the Company on the Initial Debt Securities will equal the amounts the Company would have
received had no such deduction or withholding for Withholding Taxes been required. However, no such Additional Interest Amounts
shall be payable in respect of the Initial Debt Securities relating to any Withholding Taxes:
(i) that are payable by reason of the holder or beneficial owner of the Initial Debt Securities having some connection with the
jurisdiction imposing such tax other than by reason only of the mere holding of the Initial Debt Securities; or
(ii) where such deduction or withholding can be avoided if the holder or beneficial owner of the Initial Debt Securities makes a
declaration of non-residence or other similar claim for exemption to the relevant tax authority or complies with any reasonable
certification, documentation, information or other reporting requirement imposed by the relevant tax authority; or
(iii) where such withholding or deduction is imposed on a payment to or for an individual and is required to be made pursuant to
the European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council Meeting
of November 26-27, 2000 on the taxation of savings income or any law implementing or complying with, or introduced in
order to conform to, such Directive.
Prior to the Initial Debt Redemption Date, the Bank may cause any redemption of the Initial Debt Securities only:
(i) with at least 32 days' notice, upon the occurrence of a Special Redemption Event and the election of the Company to redeem
the Company Class B Preferred Securities in accordance with the LLC Agreement; or
(ii) in the event of replacement with Substitute Debt Securities;
subject, in each such case, to having obtained any required regulatory approvals.
On or after the Initial Debt Redemption Date but prior to the Maturity Date, the Bank may cause any redemption of the Initial Debt
Securities only:
(i) in the events specified above in connection with a redemption prior to the Initial Debt Redemption Date; or
(ii) with at least 32 days' notice, upon the election of the Company to redeem the Company Class B Preferred Securities in
accordance with the LLC Agreement;
subject, in each such case, to having obtained any required regulatory approvals.
54
Any such redemption may be made only in whole, but not in part, and will be (other than in the event of a replacement with
Substitute Debt Securities) at a redemption amount equal to the denomination of the Initial Debt Securities plus accrued and
unpaid interest thereon, and Additional Interest Amounts, if any.
The Company will not be able to accelerate payment of the Initial Debt Securities in the case of a default in the payment of the
principal of, interest on, or other amounts owing under, the Initial Debt Securities.
If the Maturity Date or any Debt Redemption Date falls on a day that is not a Business Day, payment of all amounts otherwise
payable on such date shall be made on the first following day that is a Business Day, and there shall be no right to claim payment
of any interest or other indemnity in respect of such delay in payment.
The Repayment Claim will be subordinated in the event of insolvency or liquidation of the Bank to the claims of all other creditors
which are not also subordinated and will, in any such event, only be satisfied after all claims against the Bank which are not subordinated have been satisfied. Any right to set-off the Repayment Claim against claims of the Bank will be excluded. No collateral
is or will be given for the Repayment Claim; collateral that may have been or may in the future be given in connection with other
indebtedness shall not secure the Repayment Claim.
The subordination described above cannot be subsequently restricted, and the minimum term of the Initial Debt Securities cannot
subsequently be shortened. Pursuant to § 10 (5a) of the German Banking Act, the amount of any repurchase of the Initial Debt
Securities prior to the Initial Debt Redemption Date or other redemption must be refunded to the Bank, notwithstanding any
agreement to the contrary, unless a statutory exemption (replacement of the denomination of the Initial Debt Securities by contribution of other, at least equivalent own funds (haftendes Eigenkapital)) or prior approval of BaFin to the early redemption applies.
Substitution, Redemption and Reinvesting of Proceeds
At any time, the Bank will have the right to replace the Debt Securities with Substitute Debt Securities issued by the Bank, a
Qualified Issuer or any branch of the Bank upon identical terms to those of the Initial Debt Securities, provided, that (i) such
substitution or replacement does not result in a Special Redemption Event, (ii) the Bank, unless it itself is again the obligor,
provides a guarantee or support undertaking with respect to the obligations of such substitute obligor, which guarantee or
support undertaking ranks at least pari passu with the Initial Debt Securities, provided that such guarantee or support undertaking does not affect the quality of the Trust Preferred Securities or the Company Class B Preferred Securities to be treated as
core capital or Tier I regulatory capital (aufsichtsrechtliches Kernkapital) on a consolidated basis for the Bank and (iii) the Bank
has obtained any required regulatory approval.
After the Maturity Date, if the Company Class B Preferred Securities have not been redeemed until the Maturity Date, the Company
will invest the net proceeds from the repayment of the Debt Securities in Permitted Investments. The Company will attempt to
purchase Permitted Investments in the following order of priority, to the extent the same are available (and within each category
on terms that are the best available in relation to providing funds for the payment of Class B Capital Payments and the redemption
of the Company Class B Preferred Securities):
–
first, debt obligations issued by a Qualified Issuer subject to a guarantee or support undertaking by the Bank which guarantee
or support undertaking ranks at least pari passu with the Initial Debt Securities, provided that such guarantee or support
undertaking does not affect the quality of the Trust Preferred Securities or the Company Class B Preferred Securities to be
treated as core capital or Tier I regulatory capital (aufsichtsrechtliches Kernkapital) on a consolidated basis for the Bank; or
– second, in the event such investments are not available, in bonds or notes issued by the Federal Republic of Germany or
another member state of the European Economic and Monetary Union.
Additional Debt Securities
Upon the issuance of any subordinated notes due November 22, 2034 issued by the Bank in excess of, and on the same terms as,
the Initial Debt Securities or following the issuance of Substitute Debt Securities any subordinated notes issued by the issuer of
such Substitute Debt Securities in excess of, and on the same terms as, the Substitute Debt Securities (Additional Debt Securities),
the terms contained herein which apply or refer to the Initial Debt Securities shall apply or refer in the same manner to such
Additional Debt Securities.
Governing Law
The Initial Debt Securities shall be governed by, and construed in accordance with, the laws of the Federal Republic of Germany.
55
General Information on the Bank
Registered Office, Incorporation and Object
DZ BANK is a German law stock corporation registered with the commercial register of the local court (Amtsgericht) in Frankfurt
am Main under registration number HRB 45651. Its head office is located at Platz der Republik, D-60265 Frankfurt am Main,
Federal Republic of Germany. On August 16, 2001, the shareholders of GZ-Bank AG Frankfurt/Stuttgart (GZ-Bank) and DG BANK
Deutsche Genossenschaftsbank AG (DG BANK) approved the merger of both institutions into DZ BANK AG Deutsche ZentralGenossenschaftsbank, Frankfurt am Main, in separate general meetings. Upon the recording of GZ-Bank's merger into DG BANK
with the commercial register of the local court (Amtsgericht) in Frankfurt am Main (under registration number HRB 45651) on
September 18, 2001, DG BANK became the successor of all rights and duties of GZ-Bank. Simultaneously with the merger,
DG BANK was renamed DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main.
Former DG BANK acted as the central bank for the cooperative banks in Bavaria, Northern Germany, parts of Hesse and the new
(Eastern German) federal states, as a commercial bank and, moreover, as a central credit institution to promote the cooperative
system. The original precursor to it as a credit cooperative was Preussische Central-Genossenschaftskasse, which was founded in
Berlin in 1895. With the Act governing the Transformation of Deutsche Genossenschaftsbank (Gesetz zur Umwandlung der
Deutsche Genossenschaftsbank) of August 18, 1998, DG BANK was transformed with retroactive effect as of January 1, 1998,
from a corporation under public law into a public limited company.
Former GZ-Bank – the central bank for the Volksbanken and Raiffeisenbanken (the local cooperative banks, together, the
cooperative banks) in Baden-Wurttemberg, Hesse, Rhineland-Palatinate and Saarland – was formed in 2000 from the merger
of SGZ-Bank Südwestdeutsche Genossenschafts-Zentralbank AG, Frankfurt/Karlsruhe, and GZB-Bank Genossenschaftliche
Zentralbank AG Stuttgart, Stuttgart. The origins of SGZ-Bank trace back to 1883; the oldest predecessor institute of GZB-Bank
was founded in 1893.
According to its articles of association, DZ BANK's corporate purpose is to function as a central bank in promoting the entire
cooperative system. A key part of its statutory responsibility of promotion is to support the primary level cooperatives and central
banks. It also participates in promoting the cooperative housing industry. A mandatory guideline of the business policy is the
economic support of the shareholders. This corresponds to the obligation of the shareholders to support DZ BANK in discharging
its duties. DZ BANK may not merge with primary level cooperative banks.
The Bank engages in any and all types of standard banking business and any related complementary businesses such as equity
investments. It may also pursue its purpose indirectly.
DZ BANK also operates as a central bank in providing balanced liquidity to the primary level member cooperatives and the integrated cooperative specialist service providers (Verbundinstitute).
In exceptional cases, the Bank may - for the purpose of promoting the cooperative system and the cooperative housing industry deviate from the standard banking principles when granting loans. In evaluating whether a loan may be granted, the liability of
the cooperatives may be reasonably taken into account.
DZ BANK has six domestic and five international branches. And additionally three offices are allocated to the six domestic branches.
Capital Structure
At an extraordinary general meeting of shareholders of DG BANK held on August 16, 2001, the DG BANK shareholders voted to
increase the company's registered share capital of EUR 1,473,638,400 by up to EUR 1,200,681,440.40 by issuing up to 461,800,554
registered no par shares. The purpose of this capital increase was to implement the merger with GZ-Bank.
As consideration for transferring the assets of GZ-Bank by way of a merger into DG BANK, the new shares were issued to GZ-Bank
shareholders in a ratio of 92.4072 no par shares of DG BANK with a notional par value of EUR 2.60 for each 1 (one) share of
GZ-Bank no par stock with a notional par value of approximately EUR 51.13. At the time the shareholders resolved the increase
of capital for purposes of carrying out the merger, the capital increase figure, which was applied, was slightly higher than was
ultimately used. There was a possibility that any realignments in the shareholder structure at GZ-Bank (e. g. as a result of mergers
among shareholders) could have had a direct effect on the number of new shares issued at the time. In order to cover any such
potential discrepancies with shares, a capital increase of up to EUR 1,200,681,440.40 was resolved. After the merger was registered
with the commercial register on September 18, 2001, DZ BANK's registered share capital equalled EUR 2,647,317,989.20 and
was divided into 1,028,583,842 no par shares.
On June 25, 2002, the shareholders of DZ BANK resolved to increase DZ BANK's existing registered share capital of EUR
2,674,317,989.20 by EUR 204,109,250.80 to EUR 2,878,427,240. The capital increase was recorded in the Commercial Register
on November 19, 2002. Since November 19, 2002, the registered share capital has equaled EUR 2,878,427,240 and is divided
56
into 1,107,087,400 no par shares with a notional share in the registered share capital of EUR 2.60 per no par share. These
shares are fully paid in, registered and subject to restrictions on transferability.
There are currently no securities outstanding which give creditors the right to convert or otherwise subscribe DZ BANK shares.
The board of managing directors is authorized, with the consent of the supervisory board, to increase the share capital of DZ BANK
by up to EUR 50,000,000 in total by issuing shares against cash contributions or contributions in kind on one or more occasions
through to July 31, 2006. Provided the supervisory board agrees, the board of managing directors may exclude the right of
existing shareholders to subscribe to either a capital increase against cash contributions or a capital increase against contributions
in kind where the capital increase is intended to finance the issue of new staff shares, the acquisition of companies or equity
stakes in companies, or to make available equity interests in DZ BANK to underpin strategic partnerships. Furthermore the board
of managing directors is empowered, with the consent of the supervisory board, to exclude the right of existing shareholders to
subscribe in relation to fractional amounts (Authorized Capital I).
The general meeting of shareholders also authorized the board of managing directors, with the consent of the supervisory board,
to increase the share capital of DZ BANK by up to EUR 100,000,000 in total by issuing shares against cash contributions on one
or more occasions through July 31, 2006 (Authorized Capital II). The board of managing directors may, with the consent of
the supervisory board, exclude the right of existing shareholders to subscribe in relation to fractional amounts.
The Authorized Capital I and II were registered with the commercial register of the local court (Amtsgericht) in Frankfurt am Main
on September 18, 2001.
The general meeting of shareholders held on May 25, 2004 also authorized the board of managing directors to issue guarantees
and letters of comfort on one or more occasions through December 31, 2008 to secure the creditor against financing instruments
issued by subsidiaries of the company (with the exception of convertible bonds). As a result of the collateralization at DZ BANK
level, these are to be viewed as profit-sharing rights or income bonds. Such guarantees and letters of comfort can refer to all
payment obligations of the issuing subsidiaries arising from the financing instruments. However, the redemption claims, which
are secured by DZ BANK, of creditors of the financing instruments should not exceed the amount of EUR 1,000,000,000. The
funds raised by the issuing subsidiaries should correspond to the recognized components of the liable capital in accordance with
§ 10 KWG (German Banking Act), so that these funds constitute liable capital of the DZ BANK institution group. The board of
managing directors is authorized to exclude the legal subscription right under the premises mentioned in the general meeting
resolution.
57
Capitalization of DZ BANK AG (as of June 30, 2004 – unaudited)
(in EUR million)
June 30, 2004
Dec. 31, 2003
Dec. 31, 2002
111,092
24,588
86,504
29,893
26,093
24,545
1,548
1,816
3,914
515
1,170
2,543
2,108
1,428
4,595
2,879
803
913
n/a
185,167
97,912
25,810
72,102
30,451
26,051
23,936
2,115
1,824
3,190
324
1,240
2,722
2,178
1,428
4,650
2,879
803
913
55
171,970
106,647
28,093
78,554
29,584
31,113
27,914
3,199
1,857
3,093
350
1,214
2,649
2,205
1,428
4,622
2,879
803
888
52
184,762
3,020
11,391
3,188
11,277
4,921
12,881
1.
Deposits from other banks
a) Repayable on demand
b) Fixed-term or agreed notice
2. Amounts owed to other depositors
3. Liabilities in certificate form
a) Issued bonds
b) Other certificated liabilities
4. Liabilities arising from trust operations
5. Other liabilities
6. Accrued expenses and deferred income
7. Provisions
8. Subordinated liabilities
9. Participatory capital
10. Fund for general banking risks
11. Capital and reserves
a) Subscribed capital
b) Capital reserve
c) Surplus reserve
d) Cumulative profit
Total
1.
2.
Contingent liabilities
Other liabilities
No information relating to partial amounts of outstanding bonds and other borrowings and liabilities for which a guarantee
obligation exists is collected within any financial year. Information as of the accounting dates December 31, 2002 and December 31,
2003 are included in Note 10 of the Notes to the financial statements of DZ BANK AG for the financial year 2003 on page F-174
of this Offering Circular.
Save as disclosed in section "Business Development and Outlook", there has been no material change in the capitalization of
DZ BANK since June 30, 2004.
Shareholders
Approximately 92 per cent of DZ BANK's share capital is held by cooperative societies, the cooperative central institutions and
other corporate entities and trading companies.
Governing Bodies of DZ BANK
DZ BANK's governing bodies are the board of managing directors, the supervisory board and the general meeting of shareholders.
The responsibilities of these various governing bodies are prescribed in the German Stock Corporation Act (Aktiengesetz) and in
DZ BANK's articles of association.
Board of Managing Directors
Pursuant to the articles of association, the board of managing directors consists of at least three members. The supervisory board
is responsible for determining the number of members of the board of managing directors, their appointment and their dismissal.
The supervisory board may designate one chairman of the board of managing directors and up to two deputy chairmen.
The board of managing directors currently consists of the following persons:
Dr. Ulrich Brixner, Frankfurt am Main -ChairmanDr. Thomas Duhnkrack, Frankfurt am Main
Heinz Hilgert, Frankfurt am Main
Wolfgang Kirsch, Frankfurt am Main
58
Albrecht Merz, Frankfurt am Main
Dietrich Voigtländer, Frankfurt am Main
DZ BANK is represented by two members of the board of managing directors or by one member of the board of managing directors
acting jointly with a commercial attorney-in-fact (Prokurist).
Supervisory Board
Pursuant to the DZ BANK's articles of association, the supervisory board consists of 20 members. Of these members, nine members
are elected by the shareholders and ten members by the employees under the terms of the Co-Determination Act of 1976
(Mitbestimmungsgesetz 1976). The German cooperative banking industry association (Bundesverband der Deutschen Volksbanken
und Raiffeisenbanken e.V.) has the right to delegate a member of its board of managing directors to the supervisory board.
The supervisory board currently consists of the following persons:
Dr. Christopher Pleister, President of Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V.
(German cooperative banking industry association) - Chairman Helga Preußer, Employee, DZ BANK – First Deputy Chairwoman Rolf Hildner, Chairman of the board of managing directors of Wiesbadener Volksbank eG – Second Deputy Chairman -MembersWolfgang Apitzsch, Attorney at law
Rüdiger Beins, Employee, DZ BANK
Werner Böhnke, Chairman of the board of managing directors of WGZ-Bank Westdeutsche Genossenschafts-Zentralbank eG
Gerhard Bramlage, Chairman of the board of managing directors of Emsländische Volksbank eG
Carl-Christian Ehlers, Chairman of the board of managing directors of Kieler Volksbank eG
Helmut Gottschalk, Chairman of the board of managing directors of Volksbank Herrenberg- Rottenburg eG
Michael Groll, Management Employee, DZ BANK
Siegfried Hägele, Employee, VR Kreditwerk Hamburg- Schwäbisch Hall AG
Hans-Josef Hoffmann, Chairman of the board of managing directors of Bank 1 Saar eG
Walter Kaufmann, Secretary of ver.di, the German services industry union
Sigmar Kleinert, Employee, DZ BANK
Willy Köhler, Chairman of the board of managing directors of Volksbank Rhein-Neckar eG
Walter Müller, Chairman of the board of managing directors of Volksbank Raiffeisenbank Fürstenfeldbruck eG
Adolf Rückl, Operations Manager, Schwäbisch Hall Facility Management GmbH
Gudrun Schmidt, Regional Group Director, ver.di
Winfried Willer, Employee, VR Kreditwerk Hamburg-Schwäbisch Hall AG
Dr. h.c. Uwe Zimpelmann, Member of the board of managing directors of Landwirtschaftliche Rentenbank
The term of office for members of the supervisory board shall end at the latest upon the conclusion of the general meeting of shareholders at which a resolution is adopted concerning the discharge of the relevant members of the supervisory board for the fourth
financial year following the commencement of the term of office. The financial year during which the term of office commenced
will not be included in this calculation. Re-elections are permissible.
At the time of election of members of the supervisory board, alternate members may be appointed as substitutes for those supervisory board members, who were elected by the shareholders but who leave before their term of office has expired. The number
of alternate members to be elected by the general meeting of shareholders is limited to five.
The supervisory board will be paid a fixed remuneration, which is unrelated to profits and will be set by the general meeting of
shareholders. The supervisory board will determine how such remuneration will be distributed among its individual members. In
addition, any expenditures and any turnover tax charged on the remuneration will be reimbursed.
The supervisory board and the board of managing directors may be contacted at DZ BANK's business address: DZ BANK AG
Deutsche Zentral-Genossenschaftsbank, Platz der Republik, 60265 Frankfurt am Main.
59
General Meeting of Shareholders
The general meeting is held at the official location of the corporation or – upon resolution of the Supervisory Board – at other
locations in the Federal Republic of Germany where the corporation maintains branches or offices or at the official location of one
of the corporation's affiliated national enterprises.
Notice of the general meeting of shareholders shall be made by the board of managing directors or, in certain cases stipulated by
law, by the supervisory board through publication in the Electronic German Federal Official Gazette (Bundesanzeiger). Notice must
be made at least one month prior to the last day stipulated for the shareholders to register their participation in the general meeting
of shareholders and must include the meeting agenda. In determining whether this notice period is met, the aforementioned date
and the date of publication will not be included. If the Bank knows the names of the shareholders, then notice of the general
meeting of shareholders may be sent via registered mail, telecopy or e-mail. The date on which notice is dispatched will be deemed
the date of notice. Any other forms of notice for the general meeting of shareholders as recognized by law are permissible.
The ordinary general meeting of shareholders shall be held within the first six months of each financial year.
Any shareholders, who are recorded in the shareholders' register (Aktienregister) and who register in time, will be entitled to
attend the general meeting of shareholders.
Registration must be made with the board of managing directors at the Bank's registered office either in writing, by telecopier or
electronically in a manner to be specified by the Bank. There must be at least one business day between the date of registration
and the date of the general meeting of shareholders. Details regarding the registration will be enclosed with a notice of the
general meeting of shareholders.
Only shareholders who are themselves entitled to attend the general meeting of shareholders may act as representatives (proxies)
at the general meeting of shareholders. If the shareholder is a legal entity, then the power of attorney (for its own shares and/or
that of a third party) may be issued to a member of a governing body or an employee of the legal entity. The power of attorney
shall be issued either in writing or electronically in a manner to be specified by the Bank. Details regarding the granting of powers
of attorney will be announced in the notice.
The person chairing the meeting may allow attendance at and voting in the general meeting of shareholders as well as the transmission of the general meeting of shareholders via electronic media, provided such procedure is provided for in the notice of the
general meeting of shareholders and is otherwise permitted by law.
Each no par share represents one vote.
Cover Assets Trustee
The following persons are currently appointed to act as cover assets trustee (Treuhänder der Deckungswerte):
Trustee:
Dr. Dieter Eschke, Presiding Judge of the superior provincial court (Oberlandesgericht) of Frankfurt am Main (retd.)
Deputy Trustee:
Klaus Schlitz, Vice-President of the district court (Landgericht) of Frankfurt am Main (retd.)
Financial Year and Notices
The financial year of DZ BANK is the calendar year.
Any notices made by DZ BANK shall be published in the electronic German Federal Official Gazette (elektronischer Bundesanzeiger).
Use of Balance Sheet Profits
The general meeting of shareholders shall decide how to use the balance sheet profits (Bilanzgewinn) shown in the approved
annual financial statement.
Litigation
DZ BANK is not involved in any litigation or arbitration, which could have, or in the last two financial years has had, a material
effect on its financial condition, nor is DZ BANK aware that any such proceedings are pending or threatened.
60
Auditors
The joint auditors of DZ BANK for the financial year 2002 were Ernst & Young Deutsche Allgemeine Treuhand AG, Wirtschaftsprüfungsgesellschaft, Eschersheimer Landstraße 14, 60322 Frankfurt am Main, Federal Republic of Germany and Deloitte & Touche
GmbH Wirtschaftsprüfungsgesellschaft, Franklinstraße 50, 60486 Frankfurt am Main, Federal Republic of Germany.
The joint auditors of DZ BANK for the financial year 2003 were Ernst & Young AG, Wirtschaftsprüfungsgesellschaft, Eschersheimer
Landstraße 14, 60322 Frankfurt am Main, Federal Republic of Germany and Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Franklinstraße 50, 60486 Frankfurt am Main, Federal Republic of Germany.
The non-consolidated financial statements and consolidated financial statements as of December 31, 2002 and 2003 were jointly
audited and certified with an unqualified audit opinion.
On May 25, 2004 the general meeting of shareholders of DZ BANK, on proposal of the supervisory board, has elected Ernst &
Young AG, Wirtschaftsprüfungsgesellschaft, Eschersheimer Landstraße 14, 60322 Frankfurt am Main, Federal Republic of Germany,
as auditor and group auditor for the financial year 2004.
61
Business
Business Activities
In 2001, DZ BANK emerged as a new lead institution of the cooperative FinanzVerbund (Cooperative Banking Group) and as
a central bank for approximately 1,150 cooperative banks. In its central bank function, DZ BANK regards itself expressly as a
subsidiary partner of the local and regional cooperative banks developing a range of services or strengthening the position of the
Cooperative Banking Group through joint marketing efforts with the local and regional cooperative banks and with the specialist
service providers. DZ BANK assists the cooperative banks in all the product and service segments that are relevant to their corporate
and private clients and helps develop – if necessary or requested – innovative sales strategies for their regional markets. In addition,
DZ BANK is responsible for providing a balance of liquidity among the cooperative banks and provides such banks with refinancing
funds, both in the form of global loans or - as an intermediary - by passing on financing granted from public development institutes.
Payment Systems
As a central bank and clearing office, DZ BANK is responsible for the payment systems of the cooperative banks. As a result of
the merger of GZ-Bank and DG BANK, within DZ BANK a payment systems department was created, which enjoys a sustainable
market position as a service provider for the cooperative banks and other customers with a 17 per cent market share in the
Federal Republic of Germany and 5 per cent market share in Europe. As a result of this market situation, DZ BANK took the
necessary steps for a forward-looking positioning of the cooperative sector in European payment transactions by creating a
transaction bank in April 2003. On September 1, 2003, the Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG (TAI)
was launched in a field of business that is dominated by segment-wide downsizing pressures with regard to the pricing of
services in national and cross-border payment transactions and increasing cost pressures in the respective business lines. As an
independent entity, the transaction bank also opens its already market-proven processes and systems to banks outside the
cooperative sector. As a result of the creation of the transaction bank, the cooperative sector becomes a market mover in the
German segment-wide payment transactions market.
SME Corporate Clients and Large Corporate Customer Business
DZ BANK's activities in the SME Corporate Clients business line are concentrated primarily on joint lending ("metacredits")
together with primary cooperative banks. As a partner of the primary level banks, DZ BANK supports their corporate customer
business by providing all relevant products and services. In direct business, where DZ BANK has responsibility for initiative and
control depending upon the sales volume of the corporate customers to be supported, DZ BANK provides a complete range of
products and offers the services of its specialist banks. In addition to the lending business, other areas of specialization are
corporate finance and investment banking. In the large corporate client business sector, DZ BANK provides German and selected
European companies specialized consulting know-how on financing issues and meets any resulting product needs through
product solutions, primarily in the capital markets and structured financing segments. In export trade financing, its product range
encompasses both short-term commercial export transactions, including core products such as letters of credit and collection, and
long-term financing forms such as Hermes-/ECA covered buyer's credit.
Money Market and Capital Market Business
In the money market and capital market business sector, DZ BANK provides services for enterprises of the Cooperative Banking
Group and their corporate customers. In the fixed income segment, DZ BANK acts as a platform for managing interest rate,
exchange rate and credit risks within the Cooperative Banking Group. The fixed income segment covers all steps in the process:
from initial public offerings, structuring, risk management and trading, to consulting and sale. DZ BANK acts on behalf of the
Cooperative Banking Group as a centre of expertise in the areas of hedging, diversification and the securitisation of interest rate,
credit and currency risks. In advising the cooperative banks on their own account investment business, the focus is on managing
their strategic own-account and bank-wide business as well as on investment and refinancing. DZ BANK provides comprehensive
services and consulting for the private investment business of the cooperative banks. DZ BANK's very solid placement strength
among customers of the cooperative banks as well as among institutional investors ensures that DZ BANK is represented in
prominent positions on a number of national and international syndicates and is a leading investment bank on stock offerings
and other capital market transactions of important stock corporations. On the secondary markets, inter alia equities and equity
derivatives are traded, warrants and other derivative products are issued, and risk and bank limits are managed. Sales and
brokerage services (inter alia stock selling, trading in futures and spot products) round out DZ BANK's range of services.
62
International Business
DZ BANK acts as the international platform for cooperative banks in the international business sector. DZ BANK provides the
cooperative banks with an opportunity to participate in the entire range of international transactions on behalf of their customers,
execute export financing, undertake foreign exchange hedging, and produce both domestic and export contracts. The support
network operates in all time zones and is primarily Cooperative Banking Group-centered and capital markets-oriented. Cooperation
agreements are in place with numerous cooperative partners in Europe, and these agreements supplement DZ BANK's direct
presence in financial centres where no national cooperative banks or banking groups exist.
Group Business Sectors
Through its substantial interests in specialized institutions, DZ BANK has at its disposal a group platform, which allows for an
intensive and efficient joint working relationship among the cooperative service providers. This applies in particular to the areas
of real estate finance, insurance and asset management/private banking; sectors in which the relevant companies have leading
market positions. Moreover, through one of its own specialized institutions, DZ BANK provides processing services for securities
transactions. These services include securities administration and custody services, as well as settlement of securities transactions.
DZ BANK, which is already the current market leader, takes on settlement and clearing responsibilities for institutes of the savings
banks organization (Institute der Sparkassenorganisation) through Deutsche WertpapierService Bank AG following the first crosssector merger in the German banking industry.
Table 1: DZ BANK in figures – financial years 2003 and 2002
DZ BANK AG
Employees (year´s average)
General and Administrative expenses (€ million)
1
Cost-income ratio (in %)
Loans and advances to non-bank customers (€ billion)
Weighted risk assets (€ billion)
Regulatory capital ratios (KWG) at year end (in %)
Tier 1 capital ratio
Total capital ratio
DZ BANK Group
Employees (year´s average)
General and Administrative expenses (€ million)
2
Cost-income ratio (in %)
Loans and advances to non-bank customers (€ billion)
Weighted risk assets (€ billion)
Regulatory capital ratios (BIS) at year end (in %)
Tier 1 capital ratio
Total capital ratio
_________
1
2
2003
4,562
922
64.0
26.0
64.8
2002
5,300
951
85.4
32.3
70.8
Change
-13.9%
-3.0%
-21.4 percentage points
-19.5%
-21.1%
12.2
17.0
2003
25,313
2,403
65.0
102.5
114.4
10.5
14.5
2002
25,247
2,502
71.9
106.9
120.9
+1.7 percentage points
+2.5 percentage points
Change
+0.3%
-4.0%
-6.9 percentage points
-4.1%
-16.1%
7.0
11.7
5.8
10.5
+1.2 percentage points
+1.2 percentage points
2002 figures include comparable operating income.
2002 figures include comparable operating income.
63
Table 2: Extract from the Income Statement (€ million) - Financial years 2003 and 2002
DZ BANK AG
Net interest income
Net commission income
Net income from financial transactions
General and Administrative expenses
Operating result before risk provisioning
Risk provisioning
1
Operating result
Net income for the year
DZ BANK Group
Net interest income
Net commission income
Net income from financial transactions
Result of insurance operations
General and Administrative expenses
Operating result before risk provisioning
Risk provisioning
2
Operating result
Net income for the year
_________
1
2
2003
753
285
322
922
518
371
147
80
2003
1,965
773
335
182
2,403
1,293
326
967
382
2002
1,223
254
205
951
932
1,709
-777
55
2002
1,937
853
216
591
2,502
1,498
2,307
-809
351
Change in %
-38.4%
+12.2%
+57.1%
-3.0%
-44.4%
-78.3%
>100%
+45.5%
Change in %
+1.4%
-9.4%
+55.1%
-69.2%
-4.0%
-13.7%
-85.9%
>100 %
+8.8%
Net interest income and net commission income and net income from financial transactions and other operating income less general administrative
expenses, depreciation and write-downs on tangible and intangible assets, other operating expenses and depreciation and write-downs on loans and
advances and certain securities, plus additions to provisions on lending business
Net interest income and net commission income and net income from financial transactions and net income from insurance operations and other
operating income less general administrative expenses, depreciation and write-downs on tangible and intangible assets, other operating expenses and
depreciation and write-downs on loans and advances and certain securities, plus additions to provisions on lending business
Table 3: Extract from the balance sheet as of December 31 (€ million)
DZ BANK AG
ASSETS
Loans and advances to
other banks
of which: to affiliated
banks
Loans and advances to
non-bank customers
Securities *)
Other assets
Balance sheet total
64
2003
75,948
2002 LIABILITIES
80,364 Liabilities to banks
2003
97,912
2002
106,647
37,252
37,419 of which: to affiliated banks
36,351
39,619
26,044
32,278 Liabilities to non-bank customers
30,451
29,584
26,051
11,533
6,023
31,113
11,420
5,998
171,970
184,762
54,767
15,211
171,970
58,217 Certificated liabilities
13,903 Other liabilities
Proprietary capital according to balance
sheet **)
184,762 Balance sheet total
DZ BANK Group
ASSETS
Loans and advances to
banks
of which: to affiliated
banks
Loans and advances to
non-bank customers
Securities *)
Insurance related
investments
Balance sheet total
2003
89,264
2002 LIABILITIES
93,637 Liabilities to banks
41,455
42,505 of which: to affiliated banks
102,462
85,944
35,715
331,723
2003
115,417
2002
122,922
39,716
43,631
106,935 Liabilities to non-bank customers
78,521
72,649
85,888 Certificated liabilities
33,776 Actuarial reserves
Other insurance-specific liabilities
Other liabilities
Proprietary capital according to balance
sheet **)
338,255 Balance sheet total
75,612
32,540
4,380
18,543
6,710
83,035
30,838
4,141
18,285
6,385
331,723
338,255
___________
*) Bonds and other fixed-interest securities and equity shares and other valuable-yield securities.
**) Balance sheet equity, less cumulative profit (group: less consolidated profit and other profit owing to shareholders) including fund for general
banking risks.
65
Regulation
The following explains certain regulatory matters which are of significance for the business of the DZ BANK Group.
Overview
The DZ BANK Group's operations throughout the world are subject to the banking supervisory regimes of the various jurisdictions
in which the DZ BANK Group conducts business. Banking supervisory regulations contain, inter alia, restrictions on DZ BANK's
banking and non-banking activities, capital adequacy requirements, limitations of large exposures, conduct of business rules,
requirements as to DZ BANK's organisational structure and numerous reporting requirements. Furthermore, they provide various
regulatory authorities with investigative and enforcement powers with respect to the DZ BANK Group. In addition, a number of
countries in which DZ BANK operates impose limitations on (or which affect) foreign or foreign-owned or controlled banks and
financial services institutions, which have an impact on its business activities including:
•
restrictions on the opening of local offices, branches or subsidiaries and the types of banking and non-banking activities
that may be conducted by those local offices, branches or subsidiaries;
•
restrictions on the acquisition of local banks or requirements of specified percentages of local ownership or specified
numbers of local management personnel; and
•
restrictions on investment and other financial flows in and out of the country.
Changes in the regulatory and supervisory regimes of the countries in which the DZ BANK Group operates determine, to some
degree, its ability to expand into new markets, the services and products that it is able to offer in those markets, the costs of
providing such services and products and how DZ BANK structures its specific operations.
The DZ BANK Group's principal supervisor in the Federal Republic of Germany is the BaFin. In addition, many of DZ BANK's operations
outside the Federal Republic of Germany are regulated by local supervisors. Within the EU or other contracting states of the EEA ,
DZ BANK's branches generally conduct regulated business under the "European Passport". The European Passport is a single
banking license that permits DZ BANK to spread its activities throughout the EU, either via branches or by offering products and
services in other member states. Under the European Passport, DZ BANK's EU and EEA branches are subject to supervision primarily
by BaFin. When DZ BANK opens a branch in another member state, DZ BANK is required to notify BaFin and the German Central
Bank (Deutsche Bundesbank), and BaFin will, upon receipt of the complete documents, inform the competent authorities of the host
country. The host country regulator is entitled to impose certain restrictions on DZ BANK in the public interest. When DZ BANK
forms a subsidiary in another member state of the EU or the EEA, it must obtain a separate authorization from the relevant local
bank regulator. In the United States of America, DZ BANK's New York branch is supervised mainly by the New York Banking
Department and the Board of Prime Ministers of the Federal Reserve System.
The following sections provide a description of the regulatory framework applicable to DZ BANK in the Federal Republic of Germany,
which DZ BANK views as the most significant jurisdiction in which it does business.
Outside the Federal Republic of Germany and the EEA member states, where, as noted, DZ BANK conducts business on the basis
of the European Passport, local country regulations generally have a limited impact on DZ BANK's operations.
Principal Laws and Regulators
DZ BANK is authorized to conduct general banking business and to provide financial services under and, subject to the requirements
set forth in, the German Banking Act.
DZ BANK, as well as those of its German subsidiaries that engage in the banking or financial services business and those that have
banking or financial service related operations, are subject to comprehensive supervision by the German Central Bank and BaFin.
The European Central Bank regulates DZ BANK in relation to minimum reserves on deposits and issued bonds.
The German Banking Act
The German Banking Act contains the basic set of rules applicable to German banks, including the requirement for a banking license,
and regulates the business activities of German banks. The German Banking Act defines a "banking institution" (Kreditinstitut) as
an enterprise that engages in one or more of the activities defined in the Act as "banking business". The German Banking Act
also applies to "financial services institutions" (Finanzdienstleistungsinstitute). Banking institutions and financial services institutions
are subject to the licensing requirements and other provisions of the German Banking Act.
The German Banking Act and the rules and regulations adopted thereunder implement certain EU directives relating to banks which,
in turn, implement recommendations of the Basel Committee at the BIS. These European directives address issues such as accounting
66
standards, regulatory capital, capital adequacy, consolidated supervision, the monitoring and control of large exposures, the
establishment of branches within the EU and the creation of a single EU-wide banking market with no internal barriers to crossborder banking services.
Supervision by BaFin
BaFin is a federal public law institution with legal capacity supervised by the German Federal Minister of Finance. It has the power to
adopt administrative acts (Verwaltungsakte), regulations (Verordnungen) and guidelines (Verlautbarungen und Rundschreiben)
that implement or interprete German banking laws and other laws affecting German banks.
BaFin supervises the operations of German banks to ensure that they are in compliance with the German Banking Act and other
applicable German laws and regulations. It places particular emphasis on compliance with capital adequacy and liquidity requirements,
large exposure limits and restrictions on certain activities imposed by the German Banking Act and related regulations.
Regulation by the German Central Bank
BaFin carries out its supervisory role in close cooperation with the German Central Bank. Nevertheless, these two institutions have
distinct functions. BaFin has the authority to issue administrative orders; before it issues general regulations, it is required to
consult with the German Central Bank. In addition, BaFin must obtain the German Central Bank's consent before it issues any
general regulations that would affect the German Central Bank's operations, such as the Principles on Own Funds and Liquidity
of Institutions (Grundsätze über die Eigenmittel und Liquidität der Institute), which consist of two regulations (Grundsätze I und II
or "Principles I and II") on capital adequacy and liquidity requirements. The Principles I and II will soon be restated in the form of
regulations whereby Principle I will be replaced with the Solvability Regulation (Solvabilitätsverordnung) and Principle II will be
replaced with the Liquidity Regulation (Liquiditätsverordnung). The German Central Bank is responsible for the collection and
analysis of statistics and reports from German banks and the execution of audits for the evaluation of solvability and risk management of German banks. The German Central Bank has nine regional offices (Hauptverwaltungen). These regional offices analyze
the statistics and reports of all German banks that have their corporate seat in the federal states they are responsible for.
Securities Regulation by BaFin
Under the German Securities Trading Act (Wertpapierhandelsgesetz), BaFin regulates and supervises securities trading in the
Federal Republic of Germany. The German Securities Trading Act prohibits, among other things, insider trading with respect to
securities admitted to trading or included in the over-the-counter market at a German exchange or the exchange in another country
that is a member state of the EU or another contracting state of the Agreement on the EEA.
To enable BaFin to carry out its supervisory functions, banking institutions are subject to comprehensive reporting requirements
with respect to securities and derivatives transactions. The reporting requirements apply to transactions for the banking
institution's own account as well as for the account of its customers. The German Securities Trading Act also contains rules of
business conduct. These rules apply to all businesses that provide securities services. Security services include, in particular, the
purchase and sale of securities or derivatives for others and the intermediation of transactions in securities or derivatives. BaFin
has broad powers to investigate businesses providing securities services to monitor their compliance with the rules of conduct
and the reporting requirements. In addition, the German Securities Trading Act requires an independent auditor to perform an
annual audit of the securities services provider's compliance with its obligations under the German Securities Trading Act.
The European Central Bank
The European Central Bank sets the minimum reserve requirements for institutions that engage in the customer deposit and
lending business. These minimum reserves must equal a certain percentage of the institutions' liabilities resulting from certain
deposits, plus the issuance of bonds.
Capital Adequacy Requirements
German capital adequacy principles are based on the principle of risk adjustment. German capital adequacy principles, as set forth in
Principle I, mainly address capital adequacy requirements for both counterparty risks (Adressenausfallrisiken) and market risks
(Marktrisiken). German banks are required to cover counterparty and market risks with Tier I capital (Kernkapital or "core capital")
and Tier II capital (Ergänzungskapital or "supplementary capital") (together, haftendes Eigenkapital or "regulatory banking
capital"). They may also cover market risk with Tier III capital (Drittrangmittel) and (to the extent not required to cover counterparty risk) with regulatory banking capital. The calculation of regulatory banking capital and Tier III capital is set forth below.
Principle I requires each German bank to maintain a solvency ratio (Eigenkapitalquote) of regulatory banking capital to risk-weighted
assets (gewichtete Risikoaktiva) of at least 8%. The calculation of risk-weighted assets is explained below. The solvency ratio
rules implement the European Banking directive, which in turn, is based on the recommendations of the Basel Committee on
67
Banking Supervision. See "–The Basel II Capital Accord" as to proposed changes to the current recommendation of the Basel
Committee.
Regulatory Banking Capital
Under the German Banking Act and in the case of the relevant bank being a stock corporation such as DZ BANK, regulatory
banking capital (Eigenkapital), the numerator of the solvency ratio, consists of:
Tier I (core) capital:
•
Paid-in share capital.
•
Capital reserves and surplus reserves.
•
Special fund for general banking risks. A bank may record this fund on the liability side of its balance sheet to secure
general risks inherent in the banking business. A bank must use its reasonable commercial judgment in making this
determination.
•
Silent partnership interests (stille Beteiligungen). Silent partnership interests are participations in the business of a bank
which fulfill the criteria of equity instruments within the meaning of the German Banking Act. Under the German Banking
Act, the qualification of silent partnership interests as regulatory banking capital is subject to certain conditions,
including a minimum term of five years, limitations of the cumulative payment of interest, participation in the bank's
losses and subordination to the rights of all creditors in the event of insolvency or liquidation of the bank. In the case
of banks which are active on an international basis, such as DZ BANK, additional requirements apply; notably the
instruments must not be callable by the investor, must have a maturity of at least 10 years and interest payments must
not be cumulative.
Treasury shares held by the bank, losses, certain intangible assets and, subject to certain conditions, loans to shareholders and
silent partners are subtracted from the Tier I capital calculation.
Tier II capital (limited to the amount of Tier I capital) includes:
•
Participation rights (Genussrechte). These rights are subject to certain conditions, including a minimum term of five
years, participation in the bank's losses and subordination to the rights of all unsubordinated creditors in the event of
insolvency or liquidation of the bank.
•
Preference shares with cumulative dividend rights (Vorzugsaktien).
•
Longer-term subordinated debt (limited to 50% of the amount of Tier I capital). This debt is subject to certain criteria,
including a minimum term of five years and subordination to the rights of all unsubordinated creditors in the event of
insolvency or liquidation of the bank.
•
Reserves pursuant to Section 6b of the German Income Tax Law (Einkommensteuergesetz). A bank may include 45%
of these reserves in regulatory banking capital. However, any reserves included in regulatory banking capital must have
been created from the proceeds of the sale of real property, property rights equivalent to real property or buildings.
•
Reserves for general banking risks. A bank may record certain receivables on its balance sheet at a lower value than
would be permitted for industrial and other non-banking entities. Such receivables include loans and securities that are
neither considered investment securities under the German Commercial Code nor part of the trading portfolio. The bank
may record these receivables at a lower value if the use of a lower value is advisable, in its reasonable commercial
judgment, to safeguard against the special risks inherent in the banking business. Reserves for general banking risks
may not exceed 4% of the book value of the receivables and securities recorded.
•
Certain unrealised reserves. These may include up to 45% of the difference between the book value and the lending
value (Beleihungswert) of land and buildings, and up to 35% of the difference between the book value of unrealised
reserves (including provisioning reserves) and the sum of the market value of securities listed on a stock exchange, the
value of non-listed securities issued by corporate members of the cooperative banks or savings banks association and
the published redemption price of shares issued by certain investment funds. A bank may include these unrealised
reserves in Tier II capital only if its Tier I capital amounts to at least 4.4% of its risk-weighted assets. Unrealised
reserves may be included in Tier II capital only up to a maximum amount of 1.4% of risk-weighted assets.
Capital components that meet the above criteria and which a bank has provided to another bank, financial services institution or
financial enterprise which is not consolidated with the bank for regulatory purposes, are subtracted from the bank's regulatory
banking capital if the bank holds more than 10% of the capital of such other bank, financial services institution or financial enterprise. In addition, to the extent the aggregate book value of investments and components of own funds constituting, in each case, up
to 10% of the capital of another bank, financial services institution or financial enterprise exceeds 10% of the regulatory banking
capital of the bank which has granted the capital components, such exceeding aggregate amount will also be deducted from the
bank's regulatory banking capital.
68
Risk-weighted Assets
For a bank's investment book, the calculation of risk-weighted assets, the denominator of the solvency ratio, is set forth in Principle I.
Assets are assigned to one of six basic categories of relative credit risk based on the debtor and the type of collateral, if any,
securing the respective assets. Each category has a risk-classification multiplier (0%, 10%, 20%, 50%, 70% and 100%). The
value of each asset as determined pursuant to Principle I is then multiplied by the risk-classification multiplier for the asset's
category. The resulting figure is the risk-weighted value of the asset.
Traditional off-balance sheet items attributable to a bank's investment book, such as financial guarantees and letters of credit are
subject to a two-tier adjustment. First, the value of each item is determined. The value of each item is multiplied by one of four riskclassification multipliers (0%, 20%, 50% and 100%) depending on the type of instrument. In the second step, the off-balance
sheet item is assigned to one of the six credit risk categories set forth above for balance sheet items. Selection of an appropriate
risk multiplier is based on the type of counterparty or debtor and the type of collateral, if any, securing the asset. The adjusted
value of the off-balance sheet item is then multiplied by the risk multiplier to arrive at the risk-weighted value of the off-balance
sheet item.
Tier III Capital and Market Risk
Principle I also sets forth the principles governing capital adequacy requirements for market risk. The market risk positions of a
bank include the following:
•
foreign exchange positions;
•
commodities positions;
•
certain trading book positions, including those involving counterparty risk of the trading book, interest rate risk and
share price risk; and
•
options positions.
The net positions must be covered by own funds (Eigenmittel) that are not required to cover counterparty risk. Own funds consist
of regulatory banking capital (Tier I plus Tier II capital) and Tier III capital. The calculation of net positions must be made in accordance with specific rules set forth in Principle I or, at the request of a bank, in whole or in part in accordance with the bank's
internal risk rating models approved by BaFin. As a trading book institution (Handelsbuchinstitut), DZ BANK operates an internal
risk rating model which has been approved by the BaFin and pursuant to which most of the bank's market risk positions are
calculated.
At the close of each business day, a bank's total amount counted for market risk positions must not exceed the sum of:
•
the difference between the bank's regulatory banking capital and 8% of its aggregate amount of riskweighted risk
assets; and
•
the bank's Tier III capital.
Tier III capital consists of the following items:
•
Net profits. Net profits are defined as the proportionate profit of a bank which would result from closing all trading
book positions at the end of a given day minus all foreseeable expenses and distributions and minus losses resulting
from the investment book which would likely arise upon a liquidation of the bank.
•
Short-term subordinated debt. This debt must meet certain criteria, including a minimum term of two years, subordination to the rights of all unsubordinated creditors in the event of insolvency or liquidation of the bank and suspension
of the payment of interest and principal if such payment would result in a breach of the own funds requirements
applicable to the bank.
Net profits and short-term subordinated debt qualify as Tier III capital only up to an amount which, together with the Tier II capital
not required to cover risks arising from the investment book (as described below), does not exceed 250% of the core capital
required to cover risks arising from the investment book.
The German Banking Act defines the investment book as all positions and transactions, which are not part of the trading book.
The trading book is defined as consisting primarily of the following:
•
financial instruments (such as securities and derivatives) that a bank holds in its portfolio for resale or that a bank
acquires to exploit existing or expected spreads between the purchase and sale price or price and interest rate
movements;
•
positions and transactions for the purpose of hedging market risks arising from the trading book and related
refinancing transactions;
•
transactions subject to the designation of the counterparty (Aufgabegeschäfte);
69
•
payment claims in the form of fees, commissions, interest, dividends and margins directly linked to trading book
positions; and
•
repurchase, lending and similar transactions related to trading book positions.
The Basel II Capital Accord
The capital adequacy requirements applicable to DZ BANK are based upon the 1988 capital accord of the Basel Committee at the
BIS. The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries
that develops broad policy guidelines that each country's supervisors can use to determine the supervisory policies they apply. In
January 2001, the BIS released a proposal to replace the 1988 capital accord with a new capital accord. In January 2001, the
Basel Committee published proposals for an overhaul of the existing international capital adequacy standards. The two principal
goals of the proposals were: (i) to align capital requirements more closely with the underlying risks; and (ii) to introduce a capital
charge for operational risk (comprising, among other things, risks related to certain external factors, as well as to technical errors
and errors of employees). Following extensive negotiations the proposals have been adopted by the Basel Committee in June 2004
and are expected to become effective as of year-end 2006 or with regard to the most advanced approaches for risk evaluation as
of year-end 2007. The Basel II Framework comprises three pillars. The first pillar represents a significant amendment of the
minimum requirements under the 1988 Accord. It requires higher levels of capital for those borrowers which present higher levels
of credit risk, and vice versa. Moreover, an explicit capital charge for a bank's exposure to the risk of losses caused by failures in
systems, processes or staff or by external disasters is established. Capital charges are aligned more closely to a bank's own
measures of its exposures to credit and operational risk. The second pillar provides for a supervisory review of bank's internal
assessments of their overall risks to ensure that the management is exercising sound judgement and has set aside adequate
capital for its risks. The third pillar shall enhance the degree of transparency in banks' public reporting. In July 2004, the
European Commission has issued its proposed revisions to the Banking Directive 2000/12/EC which shall implement the Basel II
Framework in a coherent manner throughout the EU. DZ BANK may need to maintain higher levels of capital for bank regulatory
purposes, which could increase its financing costs.
Regulation of financial conglomerates
In the future, financial groups which offer services and products in various financial sectors will be subject to supplementary supervision. At present, a group-wide supervision does not exist for credit institutions, insurance firms and investment firms which
belong to such a conglomerate. In order to ensure a supplementary supervision of financial groups engaging in cross-sector
financial activities, the directive 2002/87/EC of the European Parliament and of the Council of 16 December 2002 on the supplementary supervision of credit institutions, insurance and investment firms in a financial conglomerate has been released which
has to be implemented by the EU Member States. Provided that certain thresholds have been exceeded, the supplementary
supervision will apply to conglomerates which engage in substantial cross-sector activities. The supervision on the level of the
conglomerate will comprise requirements regarding solvability, risk concentration, transactions within the group, internal risk
management and the reliability and professional suitability of the management. Due to its structure the DZ BANK Group might be
considered a financial conglomerate which will be subject to the future supplementary supervision.
Consolidated Regulation and Supervision
The German Banking Act's provisions on consolidated supervision require that each group of institutions (Institutsgruppe) taken
as a whole meets the own funds requirements. Under the German Banking Act, a group of institutions consists of a credit
institution or financial services institution, having its corporate seat in the Federal Republic of Germany as the parent company,
and all other credit institutions, financial services institutions, financial enterprises and ancillary bank service enterprises in which
the parent company holds more than 50% of the capital or voting rights or on which the parent company can otherwise exert a
controlling influence. Special rules apply to so-called qualified minority participations in another credit institution, financial services
institution, financial enterprise or ancillary bank service enterprise. Moreover, banks are authorized to consolidate entities which
would not be subject to consolidation upon application of the rules described above, on a voluntary basis.
The consolidation of the DZ BANK Group according to the guidelines of the Basel Committee (BIS) comprises only subsidiaries
which are institutions, financial enterprises or ancillary bank service enterprises.
Liquidity Requirements
The German Banking Act requires German banks and certain financial services institutions to invest their funds so as to maintain
adequate liquidity at all times. Principle II prescribes these specific liquidity requirements applicable to banks and to certain
financial services institutions. The liquidity requirements set forth in Principle II are based on a comparison of the remaining terms
of certain assets and liabilities. Principle II requires maintenance of a ratio (Liquiditätskennzahl or "one-month liquidity ratio") of
liquid assets to liquidity reductions falling due during the month following the date on which the ratio is determined of at least
one. German banks and certain financial services institutions are required to report the one-month liquidity ratio and estimated
70
liquidity ratios for the next eleven months to BaFin and the German Central Bank on a monthly basis. The liquidity requirements
set forth in Principle II do not apply on a consolidated basis.
Limitations on Large Exposures
The German Banking Act and the Large Exposure Regulation (Grosskredit- und Millionenkreditverordnung) limit a bank's concentration of credit risks on an unconsolidated and a consolidated basis through restrictions on large exposures (Grosskredite).
DZ BANK is subject to the large exposure rules applicable to trading book institutions. These rules contain separate restrictions
for large exposures related to the investment book (investment book large exposures) and aggregate large exposures (aggregate
book large exposures) of a bank or group of institutions.
Investment book large exposures are exposures incurred in the investment book and related to a single client (and persons affiliated
with it) that equal or exceed 10% of a bank's or group's regulatory banking capital.
Individual investment book large exposures must not exceed 25% of the bank's or group's regulatory banking capital (20% in
the case of exposures to affiliates of the bank that are not consolidated for regulatory purposes).
Aggregate book large exposures are created when the sum of investment book large exposures and the exposures incurred in the
trading book related to a client (and persons affiliated with it) (trading book large exposures) equals or exceeds 10% of the bank's or
group's own funds. The 25% limit (20% in the case of unconsolidated affiliates), calculated by reference to a bank's or group's
own funds, also applies to aggregate book large exposures. Exposures incurred in the trading book include:
•
the net amount of long and short positions in financial instruments involving interest rate risk (interest net positions);
•
the net amount of long and short positions in financial instruments involving equity price risk (equity net positions);
and
•
the counterparty risk arising from positions in the trading book.
In addition to the above limits, the total investment book large exposures must not exceed eight times the bank's or group's
regulatory banking capital, and the aggregate book large exposures must not exceed in the aggregate eight times the bank's or
group's own funds.
A bank or group of institutions may exceed these ceilings only with the prior approval of BaFin. In such a case, the bank or group
is required to support the amount of the large exposure that exceeds the ceiling with regulatory banking capital (in the case of
ceilings calculated with respect to regulatory banking capital) or with own funds (in the case of ceilings calculated with respect to
own funds) on a one-to-one basis.
Furthermore, total trading book exposures to a single client (and persons affiliated with it) must not exceed five times the bank's
or group's own funds, to the extent such own funds are not required to meet the capital adequacy requirements with respect to
the investment book. Total trading book exposures to a single client (and persons affiliated with it) in excess of the aforementioned
limit are not permitted.
Limitations on Qualified Participations
The German Banking Act places limitations on the investments of deposit-taking credit institutions in enterprises outside the
financial and insurance industry, where such investment (called a "qualified participation"):
•
directly or indirectly amounts to 10% or more of the capital or voting rights of an enterprise; or
•
would give the owner significant influence over the management of the enterprise.
Participations that meet the above requirements are not counted as qualified participations if the bank does not intend for the
participation to establish a permanent relationship with the enterprise in which the participation is held. For purposes of
calculating qualified participations, all indirect participations held by a bank through one or more subsidiaries are fully attributed
to the Bank.
The nominal value of a bank's qualified participation in an enterprise must not exceed 15% of the bank's regulatory banking
capital. Furthermore, the aggregate nominal value of all qualified participations of a bank must not exceed 60% of the bank's
regulatory banking capital. A bank may exceed those ceilings only with BaFin's approval. The bank is required to support the
amount of the qualified participation or participations that exceed a ceiling with regulatory banking capital on a one-to-one basis.
The limitations on qualified participations also apply on a consolidated basis.
71
Financial Statements and Audits
German GAAP for banks primarily reflect the requirements of the German Commercial Code and the Regulation on Accounting by
Credit Institutions (Verordnung über die Rechnungslegung der Kreditinstitute). The Regulation on Accounting by Credit Institutions
requires a uniform format for the presentation of financial statements for all banks. Under German law, DZ BANK is required to
be audited annually by a certified public accountant (Wirtschaftsprüfer). BaFin must be informed of and may reject the accountant's
appointment.
The German Banking Act requires that a bank's accountant inform BaFin of any facts that come to the accountant's attention that
would lead it to refuse to certify or to limit its certification of the bank's annual financial statements or which would adversely
affect the financial position of the bank. The accountant is also required to notify BaFin in the event of a material breach by
management of the bank's articles of association or of any other applicable law.
The accountant is required to prepare a detailed and comprehensive annual audit report (Prüfungsbericht) for submission to the
bank's administrative board, BaFin and the German Central Bank.
Reporting Requirements
BaFin and the German Central Bank require German banks to file comprehensive information in order to monitor compliance with
the German Banking Act and other applicable legal requirements and to obtain information on the financial condition of banks.
Compliance with the capital adequacy requirements is determined on the basis of the periodic reporting.
Internal Auditing
BaFin requires every German bank to have an effective internal auditing department. The internal auditing department must be
adequate in size and quality and must establish adequate procedures for monitoring and controlling the bank's activities.
Banks are also required to have a written plan of organization that sets forth the responsibilities of the employees and operating
procedures. The bank's internal audit department is required to monitor compliance with the plan.
Investigations and Official Audits
BaFin conducts audits of banks on a random basis, as well as for cause. It may require banks to furnish information and documents
in order to ensure that the bank is complying with the German Banking Act and its regulations. BaFin may conduct investigations
without having to state a reason for its investigation.
BaFin may also conduct investigations at a foreign entity that is part of a bank's group for regulatory purposes in order to verify
data on consolidation, large exposure limitations and related reports. Investigations of foreign entities are limited to the extent
that the law of the jurisdiction where the entity is located restricts such investigations.
BaFin may attend meetings of a bank's administrative board and shareholders' meetings. It also has the authority to require that
such meetings be convened.
Enforcement Powers
BaFin has a wide range of enforcement powers in the event it discovers any irregularities. It may remove the bank's managers from
office or prohibit them from exercising their current managerial capacities. If a bank's own funds are inadequate or if a bank does
not meet the liquidity requirements and the bank fails to remedy the deficiency within a given period, then BaFin may prohibit or
restrict the bank from distributing profits or extending credit. This prohibition also applies to the parent bank as the superior entity of
a group of institutions in the event that the own funds of the group are inadequate on a consolidated basis. If a bank fails to
meet the liquidity requirements, BaFin may also prohibit the bank from making further investments in illiquid assets.
If a bank is in danger of defaulting on its obligations to creditors, BaFin may take emergency measures to avert default. These
emergency measures may include:
•
issuing instructions relating to the management of the bank;
•
prohibiting the acceptance of deposits and the extension of credit;
•
prohibiting or restricting the bank's managers from carrying on their functions; and
•
appointing supervisors.
If these measures are inadequate, BaFin may revoke the bank's license and, if appropriate, order the closure of the bank.
72
To avoid the insolvency of a bank, BaFin may prohibit payments and disposals of assets, close the bank's customer services, and
prohibit the bank from accepting any payments other than payments of debts owed to the bank. Only BaFin may file an application
for the initiation of insolvency proceedings against a bank.
Violations of the German Banking Act may result in criminal and administrative penalties.
73
Taxation
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS AS TO THE UNITED STATES OF
AMERICA FEDERAL AND GERMAN INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF TRUST PREFERRED SECURITIES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
Certain United States Federal Income Tax Considerations
The following is a summary based on present law of certain United States federal income tax considerations for a prospective
purchaser of the Trust Preferred Securities. This summary addresses only the tax considerations for a prospective purchaser that
acquires Trust Preferred Securities on their issue at their offering price (Trust Preferred Securityholder) and that is a Non-U.S.
Holder. For this purpose, a "Non-U.S. Holder" means any corporation, partnership, individual or estate or trust that, for U.S.
federal income tax purposes, is (i) a foreign corporation, (ii) a foreign partnership all of whose partners are Non-U.S. Holders,
(iii) a non-resident alien individual or (iv) a foreign estate or trust all of whose beneficiaries are Non-U.S. Holders.
This summary does not address all tax considerations for a beneficial owner of the Trust Preferred Securities and does not address
the tax consequences to a Non-U.S. Holder in special circumstances. For example, this summary does not address a Non-U.S. Holder
subject to United States federal income tax on a net income basis. This summary is based upon the Internal Revenue Code,
Treasury Regulations, IRS rulings and pronouncements and judicial decisions as of the date hereof, all of which are subject to
change (possibly with retroactive effect).
Prospective investors should note that no rulings have been or are expected to be sought from the IRS with respect to the tax
treatment of the Trust Preferred Securities and no assurance can be given that the IRS will not take contrary positions. Moreover,
no assurance can be given that the tax consequences described herein will not be challenged by the IRS or, if challenged, that
such a challenge would not be successful.
Tax Treatment of the Trust and the Company
Assuming full compliance with the terms of the Trust Agreement and the LLC Agreement (and certain other transaction documents
described herein), neither the Trust nor the Company will be treated for United States federal income tax purposes as a corporation
or be subject to United States federal income tax.
In purchasing the Trust Preferred Securities, each Trust Preferred Securityholder agrees with the Bank, the Company and the Trustees
that the Bank, the Company, the Trustees and the Trust Preferred Securityholders will treat the Trust as a grantor trust and the
Trust Preferred Securityholders for all United States federal income tax purposes as holders of an undivided interest in the Trust
assets, including the Company Class B Preferred Securities, and not as holders of an interest in the Bank or in any other person.
The Bank will treat the Company as a partnership for all United States federal income tax purposes. The following assumes that
such treatments are correct.
Income and Withholding Tax
The Company intends to operate so that it will not be treated as engaged in the conduct of a trade or business within the United
States of America. The Company will hold only obligations the interest from which is not from sources within the United States of
America. Accordingly, a Non-U.S. Holder will not be subject to withholding of United States federal income tax on payments in
respect of the Trust Preferred Securities and a Non-U.S. Holder also will not be subject to United States federal income tax on its
allocable share of the Company's income unless such income is effectively connected with the conduct by the Non-U.S. Holder of
a trade or business within the United States of America.
A Non-U.S. Holder will not be subject to United States withholding tax on gain realized on the sale or exchange of the Trust
Preferred Securities. A Non-U.S. Holder also will not be subject to United States federal income tax on such gain, unless (i) such
gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the United States of America or
(ii) in the case of gain realized by an individual Non-U.S. Holder, the Non-U.S. Holder is present in the United States of America
for 183 days or more in the taxable year of the sale and certain other conditions are met.
Backup Withholding
Backup withholding may apply to payments to, and proceeds of disposition by a non-corporate holder. However, in general, no
backup withholding will be required for payments to Non-U.S. Holders that provide proper certification of foreign status. Even
without such certification, backup withholding will not apply to payments made outside the United States of America to a nonU.S. bank account. Amounts withheld under the backup withholding rules will be allowed as a refund or credit against the
holder's United States federal income tax liability, provided certain required information is furnished to the IRS.
74
German Taxation
The following is a general discussion of certain German tax considerations that may be relevant to a holder of Trust Preferred
Securities. The information contained in this summary is not to be construed as tax advice. It is based on an interpretation of the
German tax laws as of the date hereof and such tax laws are subject to change. Any such change may be applied retroactively
and may adversely affect the tax consequences described herein. This summary does not purport to deal with all aspects of
taxation that may be relevant to investors in the light of their individual circumstances.
Prospective purchasers of Trust Preferred Securities are advised to consult their own tax advisors as to the tax
consequences of the purchase, ownership and disposition of Trust Preferred Securities, including the effect of any
state or local taxes, under the tax laws in the Federal Republic of Germany and in each country of which they are
residents.
Tax Residents
—Trust Capital Payments
Trust Capital Payments, including Trust Capital Payments having accrued up to the disposition of a Trust Preferred Security and being
credited separately, paid to a holder of Trust Preferred Securities who is subject to unlimited German tax liability (i.e. a person
whose residence, habitual abode, statutory seat, or place of effective management and control is located in the Federal Republic
of Germany) or to holders of Trust Preferred Securities who are subject to limited German tax liability (that includes persons with
a German tax presence, e.g. a permanent establishment or a permanent representative, holding the Trust Preferred Securities as
property within such German tax presence) is subject to German personal or corporate income tax. In addition, a solidarity
surcharge of 5.5% on the amount of the personal or corporate income tax will be levied and, in the case of a holder of Trust
Preferred Securities who is an individual, may be subject to church tax. Trust Capital Payments are also subject to trade tax if the
Trust Preferred Securities are held as assets of a German commercial business.
If the Trust Preferred Securities are kept by a German Disbursing Agent (inländische Zahlstelle), such German Disbursing Agent
will have to withhold tax (Zinsabschlag) at a rate of 30% of the gross amount of all Trust Capital Payments to the holder of Trust
Preferred Securities. In addition, a solidarity surcharge of 5.5% will be withheld on this amount by the German Disbursing Agent
resulting in an effective tax burden of 31.65% on the gross amount of Trust Capital Payments paid to a holder of Trust Preferred
Securities. We assume that, as a consequence of the Book-Entry, Settlement and Clearance conditions, the holders of Trust
Preferred Securities will generally keep their Trust Preferred Securities in a custodial account. However, if the Trust Capital
Payments are paid on Trust Preferred Securities not kept in a custodial account (Tafelgeschäft), tax at a rate of 35% and a
solidarity surcharge of 5.5% thereon will be withheld from the gross amount of the Trust Capital Payments paid to the holder of
Trust Preferred Securities resulting in an effective tax burden of 36.925%.
The tax withheld will be credited against the final German personal or corporate income tax liability of the holder of Trust Preferred
Securities and against the solidarity surcharge due. Individuals subject to unlimited German tax liability are entitled to a savers'
tax exemption (Sparerfreibetrag) on interest payments of up to € 1,370 including any other income from capital investments and
a deductible expense allowance of € 51 (€ 2,740 and € 102, respectively, for married couples). Such holders of Trust Preferred
Securities can take advantage of the savers' tax exemption for the Trust Capital Payments they receive, unless the Trust Preferred
Securities are attributable to their German business assets, if the holder of Trust Preferred Securities files a certificate of exemption
(Freistellungsauftrag) with the German Disbursing Agent. In this case, the German Disbursing Agent will not withhold tax up to
the amount shown in the certificate of exemption (see the maximum amounts above) taking into account other income from
capital investments. As well, the German Disbursing Agent will not withhold any tax, if the holder of Trust Preferred Securities
submitted a certificate of non-assessment (Nichtveranlagungsbescheinigung) issued by the local tax office to the German
Disbursing Agent.
—Gains from the Sale or Redemption of the Trust Preferred Securities
Gains from the sale of the Trust Preferred Securities, including gains from the redemption of the Trust Preferred Securities, are
considered accrued interest and are subject to personal or corporate income tax and a solidarity surcharge at a rate of 5.5% thereon
for persons that are subject to unlimited or limited German tax liability as described above and, in the case of a holder of Trust
Preferred Securities who is an individual, may be subject to church tax. In the case the Trust Preferred Securities are held as assets
of a German commercial business, the gains are subject to trade tax. The taxable gain from the sale or redemption of the Trust
Preferred Securities is calculated as the difference between the proceeds from the sale or redemption and the initial acquisition
cost of the Trust Preferred Securities (Marktrendite). If the Trust should consolidate, amalgamate, convert, merge with or into, or
be replaced by, any corporation or other entity or if a successor entity assumes all rights and obligations of the Trust under the
Trust Securities, a holder of Trust Preferred Securities should assume that this will be treated equivalent to a sale (exchange
transaction) for tax purposes.
75
If the Trust Preferred Securities are kept by a German Disbursing Agent, and if the Trust Preferred Securities have been held in
custody with such German Disbursing Agent since the acquisition of the Trust Preferred Securities, the German Disbursing Agent
must withhold 30% (plus a solidarity surcharge of 5.5% thereon) of the gains from the sale or redemption of the Trust Preferred
Securities. If custody has changed since the acquisition of the Trust Preferred Securities, the tax basis for such withholding is an
amount equal to 30% of the proceeds arising from the sale or redemption of the Trust Preferred Securities. We assume that, as a
consequence of the Book-Entry, Settlement and Clearance conditions, the holders of Trust Preferred Securities will generally keep
their Trust Preferred Securities in a custodial account. However, if the sale or redemption involves Trust Preferred Securities not
kept in a custodial account (Tafelgeschäft), the withholding tax will be imposed at a rate of 35% (plus a solidarity surcharge
5.5% thereon) of 30% of the sales or redemption proceeds.
The tax withheld will be credited against the final personal or corporate income tax liability of the holder of Trust Preferred
Securities and against the solidarity surcharge due. Individuals subject to unlimited German tax liability are entitled to a savers'
tax exemption on gains which are considered accrued interest up to the amount of € 1,370 taking into account other income
from capital investments and a deductible expense allowance of € 51 (€ 2,740 and € 102, respectively, for married couples).
Individual holders of Trust Preferred Securities can take advantage of the savers' tax exemption (Sparerfreibetrag) for the gains
they receive from the sale or redemption of the Trust Preferred Securities, unless the Trust Preferred Securities are attributable to
their German business assets, if the holder of Trust Preferred Securities files a certificate of exemption (Freistellungsauftrag) with
the German Disbursing Agent. In this case, the German Disbursing Agent will not withhold tax up to the amount shown in the
certificate of exemption (see the maximum amounts above) taking into account other income from capital investments. As well,
the German Disbursing Agent will not withhold any tax, if the holder of Trust Preferred Securities submitted a certificate of nonassessment (Nichtveranlagungsbescheinigung) issued by the local tax office to the German Disbursing Agent.
Non-Residents
Income of persons which are neither subject to unlimited nor to limited tax liability in the Federal Republic of Germany, are in
general exempt from withholding tax (Zinsabschlag). However, in the case of over-the-counter-transactions (Tafelgeschäft)
withholding tax will be imposed at a rate of 35% (plus a solidarity surcharge of 5.5% thereon) of the gross amount paid, if the
Trust Capital Payments or the proceeds arising from the sale, replacement (exchange) or redemption of the Trust Preferred
Securities are paid through a German branch of a German or non-German credit institution or financial services institution on
Trust Preferred Securities.
EU Savings Tax Directive
On June 3, 2003 the ECOFIN Council of the European Union (Council) agreed on the final wording of the directive on the taxation
of savings income (EU Directive). The EU Member States were obliged to implement the EU Directive in national law by
January 1, 2004. The EU Directive obliges all EU Member States with the exception of Austria, Luxembourg and Belgium to
introduce a system for the automatic exchange of information on cross-border interest payments made within the European
Union to natural persons in another member state.
Austria, Luxembourg and Belgium will be allowed to levy a withholding tax on such payments in lieu of exchanging information.
The rate of the withholding tax is initially 15% and will rise successively to 35% until 2011. 75% of the proceeds derived from
this withholding tax on interest payments will be passed on by Austria, Belgium and Luxembourg to the countries of residence of
these natural persons. The agreement of June 3, 2003 does not necessarily commit Austria, Luxembourg and Belgium to move to
an automatic information-exchange system after 2011, but makes this move dependent upon the Council's agreeing unanimously
that the USA has committed itself to an exchange of information and on the EU's unanimously reaching agreement on satisfactory
information-exchange arrangements with Switzerland, Monaco, Liechtenstein, Andorra, San Marino and the associated territories
of the EU-member states.
The Directive is to be applied for the first time as of January 1, 2005 provided that Switzerland, Liechtenstein, San Marino, Monaco
and Andorra apply 'equivalent measures' from the same point in time on the basis of the agreements made with the EU and that
all relevant dependent and associated territories of the EU Member States use either the information-exchange system or the
withholding tax system from the same point in time. The Council was to have determined by June 30, 2004 at the latest whether
these application requirements had been fulfilled. This, however, was not the case, in particular because the referendum system
in Switzerland made it impossible to guarantee that the withholding tax on savings income could be introduced in Switzerland by
January 1, 2005. A new earliest effective date has, therefore, been envisaged for July 1, 2005.
Inheritance and Gift Tax
The receipt of Trust Preferred Securities in case of succession upon death, or by way of a gift among living persons is subject to
German inheritance and/or gift tax on the fair market value at the time of the taxable event if the deceased, donor and/or the
recipient is a German resident at the time of the taxable event or is a German citizen who has not been continuously outside the
Federal Republic of Germany for a period of more than five years at the time of the taxable event. German inheritance and gift
76
tax is also triggered if neither the deceased, nor the donor nor the recipient of the Trust Preferred Securities are German residents,
if the Trust Preferred Securities are attributable to German business activities and if for such business activities a German permanent
establishment is maintained or a permanent representative is appointed in the Federal Republic of Germany. Double taxation
treaties may provide for exceptions to the domestic inheritance and gift tax regulations.
Other Taxes
No stamp, issue, registration or similar direct or indirect taxes or duties will be payable in the Federal Republic of Germany in
connection with the issuance, delivery or execution of the Trust Preferred Securities. Currently, net assets tax is not levied in the
Federal Republic of Germany.
77
Sale
The Trust Preferred Securities were offered by the Lead Manager at an offering price of € 1,000 per Trust Preferred Security
(Offering Price) within the Subscription Period, i.e. from (and including) October 4, 2004 to (and including) November 11,
2004.
The Trust Preferred Securities were issued on November 22, 2004 against payment therefor. Payment and delivery was through
the facilities of Clearstream Frankfurt.
The Trust Preferred Securities are a new issue of securities for which currently no established trading exists. The Bank and the
Company have been advised by the Lead Manager that it currently intends to trade the Trust Preferred Securities. However, the
Lead Manager is not obligated to do so and any such market making activity will be subject to the limits imposed by applicable
law and may be interrupted or discontinued at any time without notice.
In connection with the Offering, the Lead Manager may, up to an amount of 3% of the aggregate denomination of the Trust
Preferred Securities and to the extent permitted by applicable laws, carry out stabilization measures with a view to supporting the
market price of the Trust Preferred Securities at a level higher than that which might otherwise prevail for a limited period after the
Issue Date. However, there is no obligation of the Lead Manager to do this and no assurance that stabilization measures will be
undertaken. Such stabilizing, if commenced, may be discontinued at any time and, in any case, will not exceed a period of 30 days
after receipt by the Issuer of the proceeds of the issue of the Trust Preferred Securities or 60 days after the allotment of the Trust
Preferred Securities, whichever period ends earlier, and shall be in compliance with all applicable laws. By engaging in stabilizing
transactions the Lead Manager shall act as principal and not as agent for the Issuer.
Stabilization may create the risk that the market price and/or the market liquidity of the Trust Preferred Securities is kept at an
artificial level during such stabilization.
Selling Restrictions
United States of America
The Lead Manager has agreed that it will offer or sell Trust Preferred Securities only in offshore transactions in reliance on Regulation S
and each purchaser of Trust Preferred Securities offered hereby will be deemed to have represented and agreed that such purchaser
understands that the Trust Preferred Securities have not been registered under the Securities Act and may not be offered, sold or
delivered within the United States of America or its possessions or to, or for the account of, any U.S. Person, unless an exemption
from the registration requirements of the Securities Act is available (terms used above that are defined in Regulation S are used
above as therein defined).
The Lead Manager has agreed that it has not offered and sold and will not offer or sell the Trust Preferred Securities, (i) as part of
their distribution at any time and (ii) otherwise until 40 days after the later of the commencement of the Offering or the Issue Date,
within the United States of America or to, or for the account or benefit of, U.S. Persons.
The Trust Preferred Securities may not be purchased by or transferred to any employee benefit plan subject to Title I of the U.S.
Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor legislation, any plan or arrangement subject to Section 4975 of the Internal Revenue Code, or any entity whose underlying assets include the assets of any such
employee benefit plans, plans or arrangements.
United Kingdom
The Lead Manager has represented, warranted and agreed that:
– it has not offered or sold and, prior to the expiry of a period of six months from the Issue Date, will not offer or sell any Trust
Preferred Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995 (United Kingdom), as amended from time to time, or any successor legislation;
– it has only communicated or caused to be communicated and will only communicate or cause to be communicated any
invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA received by it in
connection with the issue of sale or any Trust Preferred Securities in circumstances in which Section 21(1) of the FSMA does
not apply to the Bank, the Company or the Trust; and
– it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to
the Trust Preferred Securities in, from or otherwise involving the United Kingdom.
78
Netherlands
The Lead Manager has represented, warranted and agreed that the Trust Preferred Securities will not be offered, sold, transferred
or delivered, as part of their initial distribution, or at any time thereafter, directly or indirectly, other than to individuals or legal
entities in The Netherlands who or which trade or invest in securities in the conduct of a profession or trade within the meaning
of Section 2 of the exemption regulation to the Netherlands Securities Market Supervision Act 1995, as amended from time to
time, ("Vrijstellingsregeling Wet toezicht effectenverkeer 1995"), which includes banks, securities firms, insurance companies,
pension funds, investment institutions, central governments, large international and supranational organizations, other institutional
investors and other parties, including treasury departments of commercial enterprises, which are regularly active in the financial
markets in a professional manner.
General
No action has been taken in any jurisdiction that would permit a public offering of any of the Trust Preferred Securities, of
possession or distribution of the Offering Circular or any other offering material, in any country or jurisdiction where action for
that purpose is required. The Lead Manager has agreed that it will comply with all relevant securities laws and regulations in
each jurisdiction in which it purchases, offers, sells or delivers Trust Preferred Securities or has in its possession or distributes this
Offering Circular or any other offering material.
79
Business Development and Outlook
In the first six months of 2004, DZ BANK AG and the DZ BANK Group have been able to more than double their earnings after
provisions for risk compared with the first half of 2003, and in the process strengthen and maintain the heartening trend that
was emerging a year ago into the first half of the current year. Significantly stronger income streams lifted operating profit after
provisions for risk to EUR 110 million in the case of DZ BANK AG (H1-2003: EUR - 53 million) and EUR 529 million for the DZ BANK
Group (H1-2003: EUR 194 million).
These results are evidence of the sustained improvement of operating profitability, the credit for which is due to the strong demand
for the retail-banking products the Bank provides for the primary cooperative banks, the new more market-responsive structure of
the investments portfolio, rationalisation of the process and cost structures, and the adoption of a risk-centric lending policy. The
positive earnings trend is a clear confirmation of the strategic realignment of the DZ BANK Group over the recent years.
At 62 percent for the Bank and 60 percent for the Group, the cost-income ratios have fallen almost into line with the management
projections.
DZ BANK AG
Extract from the Income Statement of DZ BANK AG 01.01.2004 - 30.06.2004 (unaudited)
in Euro million
01.01.-30.06.2004
Net interest income
384
Net commission income
134
Net trading income
168
Balance of other operating
11
income/expense
General and administrative expense
-434
Profit before provisions for risk
263
Provisions for risk
-153
Profit after provisions for risk
110
Cost-Income ratio as at 30.06.2004: 62 per cent
01.01.-30.06.2003
292
147
150
11
Change in %
32
-9
12
0
-469
131
-184
-53
-7
>100
-17
>100
The Bank's interest surplus has recovered markedly in the first half and the net interest income of EUR 384 million was 32 percent
higher than the year-earlier total. The increase is attributable in roughly equal proportions to the improvements in the operating
interest result, reflecting the more favorable refinancing base, and in the shares of affiliates.
Last year's demerger of the Bank's payments handling activities reduced its net fee and commission income while also permanently
lowering administration expenses. However, this decline was largely compensated by commissions on the successful placements of
capital-guarantee certificates through the primary cooperative banks. Net commission income to June 30, 2004 totaled EUR 134
million.
Net trading income increased to EUR 168 million (H1-2003: 150 million). The Bank has systematically expanded its popular
customer-induced capital market operations and is now one of the leading German issuing houses. Administration costs have
been reduced by a further 7 percent in the first six months to EUR 434 million and are now within the range of the ambitious
management targets. The cost savings from optimising processing and system platforms are particularly noteworthy; this expense
heading has been reduced by 34 percent in the period.
With the risk costs in relation to lending operations coming in at EUR 101 million (H1-2003: 173 million), the Bank's total
provisioning expense was EUR 153 million (H1-2003: 184 million).
This means the provisions for credit risk are well within the planned full-year budget.
80
DZ BANK Group
Extract from the Income Statement of DZ BANK Group 01.01.2004 - 30.06.2004 (unaudited)
in Euro million
Net interest income
Net commission income
Net trading income
Result for insurance operations
Balance of other operating income/expense
General and administrative expense
Profit before provisions for risk
Provisions for risk
Profit after provisions for risk
Cost-Income ratio as at 30.06.2004: 60 per cent
01.01.-30.06.2004
1,073
472
171
51
224
-1,198
793
-264
529
01.01.-30.06.2003
908
348
156
61
130
-1,181
422
-228
194
Change in %
18
36
10
-16
72
1
88
16
>100
The DZ BANK Group, which includes the Bank, Cooperative Banking Group-owned companies such as Bausparkasse Schwäbisch
Hall, DG Hyp, R + V Versicherung, Union Asset Management Holding, VR Leasing and norisbank as well as subsidiaries such as
Deutsche Verkehrsbank, was able to substantially increase its operating profit after provisions for risk in the period to EUR 529
million (H1-2003: 194 million).
Total operating income increased over the period under report by EUR 388 million or 24 percent to EUR 1,991 million. The
increase of net interest income to EUR 1,073 million (H1-2003: 908 million) was essentially due to the higher interest surpluses
at DZ BANK AG and DG Hyp.
The rise in the Group's fee and commission surplus to EUR 472 million (H1-2003: 348 million) was due amongst other factors to
the increase in the average funds under management at Union Asset Management Holding. The primary cooperative banks are
the biggest beneficiaries of the DZ BANK Group companies' expanding commission-based business as they are the distribution
partners within the cooperative financial services sector. In the 2003 financial year the primary cooperative banks earned more
than EUR 1 billion in commissions on their sales of DZ BANK Group products.
Net trading income improved at the Group level – in line with the increase at DZ BANK AG – to EUR 171 million (H1-2003:
156 million).
Total provisions for risk increased to EUR 264 million (H1-2003: 228 million); this was exclusively due to the net change in the
valuation of securities held in the liquidity reserve, as credit risk provisioning was actually lower.
The striking earnings improvement at the DZ BANK Group level over the last six months represents another step along the road
to achieving our profitability targets. The Group's defined strategic objectives, most importantly the exploitation of already
identified cost savings potential and the reaping of production and distribution synergies, will further strengthen the earnings
accretion process.
Balance sheet
Both the Bank's and the Group's balance sheets have expanded again in the first half of the year. The increase in the Bank's
balance sheet assets by 7.7 percent over the end-2003 position to EUR 185 billion was primarily the result of higher loans and
advances to other banks together with increased securities holdings. Loans and advances to primary cooperative banks were
virtually unchanged.
The DZ BANK Group's total balance sheet assets increased by 6.4 percent to EUR 353 billion, due principally to changes at the
Bank and also to increased securities holdings at DG Hyp.
81
Outlook
Turning to the further course of the year, DZ BANK AG is confident of continuing strong demand from the primary cooperative
banks for the specialist retail products developed by the companies of the DZ BANK Group. The Bank will also prioritise the
expansion of the banking services provided for SME corporate customers on a joint basis with the primary cooperative banks.
DZ BANK AG also intends to sustain the substantial income contribution from its ongoing customer-led capital market operations
at a high level. With lending expanding but remaining strictly risk-sensitive, DZ BANK AG foresees positive earnings stimulus
coupled with a further reduction of full-year risk provisioning. Management accordingly predicts significantly higher full-year
earnings than in 2003.
In September 2004, the supervisory board of DZ BANK instructed the board of managing directors to enter into exploratory talks
with WGZ-Bank in Düsseldorf with a view to forging a closer relationship between the two banks. The outcome of these talks is
unpredictable and no time limit has been stipulated for these talks.
82
Annex A – Subordinated Support Undertaking
83
This Subordinated Support Undertaking (the Agreement), dated as of November 22, 2004, is entered into between DZ BANK
AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main, a German stock corporation, and DZ BANK Capital Funding LLC
II, a limited liability company formed unter the laws of Delaware, United States of America, (the Company).
Preamble
WHEREAS, DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main, a German stock corporation (the Bank)
owns the security of DZ BANK Capital Funding LLC II, a limited liability company formed under the laws of the State of Delaware,
United States of America, (the Company) representing the common limited liability interest in the Company (the Common
Security);
WHEREAS, pursuant to the LLC Agreement (as defined below), the Company will issue a Class A Preferred Security (as defined
below) to the Bank and all of the Class B Preferred Securities (as defined below) to the Trust (as defined below);
WHEREAS, pursuant to the Trust Agreement (as defined below), the Trust will issue the Trust Preferred Securities (as defined
below) upon the same terms as, and representing corresponding amounts of, the Class B Preferred Securities;
WHEREAS, the Company intends to use the net proceeds from the issuance of the Class B Preferred Securities to purchase
subordinated notes of the Bank;
WHEREAS, the Company may from time to time declare Class B Capital Payments (as defined below) on the Class B Preferred
Securities pursuant to and in accordance with the LLC Agreement; and
WHEREAS, the Bank wishes, prior to the issuance of the Class B Preferred Securities, to undertake for the benefit of the Company
and the holders of Class B Preferred Securities to ensure that (i) the Bank shall maintain direct or indirect ownership of the Class A
Preferred Security and the Common Security as long as any Class B Preferred Securities remain outstanding, (ii) the Company shall at
all times be in a position to meet its obligations, if and when such obligations are due and payable, including its obligation to
make Class B Capital Payments (as defined below and including Additional Amounts (as defined below) thereon) and to pay the
Redemption Amount (as defined below) and (iii) in liquidation or dissolution of the Company, the Company will have sufficient
funds to pay the amounts corresponding to the amounts set forth in (i) to (iii) of the definition of Liquidation Amount (as defined
below).
NOW, THEREFORE, the parties agree as follows:
Section 1
Certain Definitions
Additional Amounts has the meaning specified in Section 7.04(c) of the LLC Agreement.
Agreement has the meaning specified on the cover page.
Bank has the meaning specified in the preamble.
Class A Preferred Security means the class of preferred limited liability company interests in the Company designed as Class A.
Class B Agio means the agio of € 980 per Class B Preferred Security having a denomination of € 1,000.
Class B Capital Payments means any cash distributions at any time after the date hereof declared by the Board of Directors of
the Company in accordance with the LLC Agreement, but not yet paid, on the Class B Preferred Securities.
Class B Equity Component means the amount corresponding to the Liquidation Ratio multiplied by the Net Assets and divided
by the aggregate number of all outstanding Class B Preferred Securities.
Class B LPA means the liquidation preference amount of € 20 per Class B Preferred Security.
Class B Payment Period has the meaning set forth in Section 7.04(b)(ii) of the LLC Agreement.
84
Class B Preferred Securities mean the class of preferred limited liability company interests in the Company designed as Class B,
with a denomination of € 1,000, a Class B LPA of € 20 and a Class B Agio of € 980 per security.
Common Security has the meaning specified in the preamble.
Company has the meaning specified in the preamble.
Independent Enforcement Director means the additional member of the board of directors of the Company appointed by the
holders of the Class B Preferred Securities upon the occurrence of certain events in accordance with, and under the terms set
forth in, the LLC Agreement.
Liquidation Amount means the sum of (i) the Class B LPA, plus (ii) accrued and unpaid Class B Capital Payments in respect of
the then current Class B Payment Period to but excluding the date of liquidation and Additional Amounts, if any, plus (iii) the
Class B Equity Component, plus (iv) any assets of the Company remaining after distributions have been made under the Class A
Preferred Securities, provided that the Company receives amounts under the Subordinated Support Undertaking given by the Bank
to the Company corresponding to the sum of the amounts referred to under (i) to (iii) of the definition of Liquidation Amount and
provided further that the sum of (i) and (iii) shall not exceed the Class B Denomination per Class B Preferred Security, i.e. € 1,000.
Liquidation Ratio means the (i) aggregate Class B Agio of all outstanding Class B Preferred Securities divided by (ii) the sum of
the aggregate Class B Agio of all outstanding Class B Preferred Securities, the subscribed capital (gezeichnetes Kapital), the capital
reserves and the surplus reserves of the Bank as determined in the unconsolidated liquidation financial statements (Liquidationseröffnungsbilanz) of the Bank set up by the Bank (which may be unaudited) in connection with the liquidation, dissolution or
winding-up of the Bank.
LLC Agreement means the limited liability company agreement of the Company dated as of August 12, 2004 between the Bank
and the Company, as amended and restated as of November 22, 2004, and as the same may be further amended from time to
time in accordance with its terms.
Net Assets means the aggregate amount available for distribution in the liquidation, dissolution or the winding-up of the Bank
after all creditors senior to the holders of common shares of the Bank have been satisfied.
Person means any individual, corporation, association, partnership (general or limited), joint venture, trust, estate, limited liability
company, or other legal entity or organization.
Preferred Securities mean the Class A Preferred Security and the Class B Preferred Securities, collectively.
Redemption Amount shall be the amount at which the Class B Preferred Securities are redeemable at the option of the
Company pursuant to Section 7.04(d)(i) of the LLC Agreement or upon the occurrence of a Special Redemption Event pursuant to
Section 7.04(d)(ii) of the LLC Agreement.
Trust means DZ BANK Capital Funding Trust II, a statutory trust formed pursuant to the Trust Agreement under the laws of the
State of Delaware, United States of America.
Trust Agreement means the trust agreement dated as of August 12, 2004 between the Bank, the Company, the property
trustee, the Delaware trustee and the regular trustees named therein as amended and restated as of November 22, 2004 and as
the same may be further amended from time to time in accordance with its terms.
Trust Preferred Securities means the noncumulative trust preferred securities issued by the Trust.
Section 2
Subordinated Support Undertaking
(a) The Bank undertakes to ensure that the Company shall at all times be in a position to meet its obligations if and when such
obligations are due and payable, including its obligations to make Class B Capital Payments (including Additional Amounts
thereon, if any) and to pay (i) the Redemption Amount and (ii) in the event of any liquidation or dissolution of the Company
in the context of a liquidation, dissolution or winding-up of the Bank, the amounts corresponding to the amounts set forth in
(i) to (iii) of the definition of Liquidation Amount.
(b) The obligations of the Bank under this Section 2 shall be subordinated to all unsubordinated and subordinated debt obligations
of the Bank (including profit participation rights (Genussrechte) and silent partnership interests (Stille Beteiligungen)), and
shall rank pari passu with the most senior ranking preference shares of the Bank, if any, and shall rank senior to any other
85
preference shares and the common shares of the Bank; provided that the Bank's obligation to ensure the Company's position
to meet its obligations to pay the Class B Equity Component of the Liquidation Amount shall rank pari passu with the Bank's
obligation to pay liquidation proceeds to its holders of common stock; therefore, the Bank's obligation to ensure the Company's
position to meet its obligation to pay the Class B Equity Component of the Liquidation Amount shall only arise after all
creditors of the Bank ranking senior to the common shareholders of the Bank have been satisfied.
(c) This Agreement shall not constitute a guarantee or an undertaking of any kind that the Company will at any time have
sufficient assets, or be authorized pursuant to the LLC Agreement, to declare a Class B Capital Payment or another
distribution.
Section 3
Third Party Beneficiaries and Enforcement of Rights
(a) The parties hereto agree that this Agreement is entered into as a third party beneficiary contract within the meaning of
Section 328(2) of the German Civil Code (echter Vertrag zugunsten Dritter gem. § 328 Abs. 2 BGB) for the benefit of the
Company and all current and future holders of the Class B Preferred Securities and that the Company and any holder of any
such Class B Preferred Securities may severally enforce the obligations of the Bank under Section 2.
(b) The Parties hereto acknowledge that, as provided in the LLC Agreement, if a holder of Class B Preferred Securities has notified
the Company that the Bank has failed to pay any amount then due hereunder, and such failure continues for sixty (60) days
after such notice is given, the majority of the holders of the Class B Preferred Securities shall have the right to appoint one
Independent Enforcement Director who will have the sole authority, right and power to enforce the rights and settle any
claim of the Company under this Agreement.
Section 4
No Exercise of Rights
The Bank shall not exercise any right of set-off or counterclaim that it may have against the Company as long as any Class B
Preferred Securities are outstanding.
Section 5
Burden of Proof
Any failure of the Company to pay Class B Capital Payments, the Redemption Amount or the amounts set forth in (i) to (iii) of the
definition of Liquidation Amount (or any part thereof), plus, in either case, Additional Amounts, if any, as and when such amounts
are due shall constitute prima facie evidence of a breach by the Bank of its obligations hereunder. The Bank shall have the burden of
proof that the occurrence of such breach results neither from its negligent nor its wilful misconduct.
Section 6
No Senior Support to Other Subsidiaries
The Bank undertakes that it shall not give any guarantee or similar undertaking with respect to, or enter into any other agreement
relating to, the support or payment of any amounts in respect of any other preference securities (or instruments ranking pari passu
with or junior to such preference securities) of any other Bank Affiliate that would in any regard rank senior in right of payment to
the Bank's most senior obligations under this Agreement, unless the parties hereto modify this Agreement such that the Bank's
obligations under this Agreement rank at least pari passu with, and contain substantially equivalent rights of priority as to
payment as such guarantee or similar undertaking.
Section 7
Continued Ownership of the Class A Preferred Security and the Common Security
The Bank undertakes to maintain direct or indirect ownership of the Class A Preferred Security and the Common Security as long
as any Class B Preferred Securities remain outstanding.
Section 8
No Dissolution of the Company
Under the terms of the LLC Agreement and to the fullest extent permitted by law, the Company shall not be dissolved until all
obligations under this Agreement have been paid in full pursuant to its terms.
86
Section 9
Modification and Termination
So long as Class B Preferred Securities remain outstanding, this Agreement may not be modified or terminated without the
consent of 100 per cent. of the holders of such Class B Preferred Securities as provided in the LLC Agreement, except for such
modifications that are not adverse to the interests of the holders of the Class B Preferred Securities.
Section 10
No Assignment
So long as any Class B Preferred Securities remain outstanding, the Bank shall not assign or transfer its rights or obligations
under this Agreement to any Person without the consent of 100 per cent. of the holders of such Class B Preferred Securities.
Section 11
Successors
This Agreement shall be binding upon successors to the parties.
Section 12
Severability
Should any provision of this Agreement be found invalid, illegal or unenforceable for any reason, it is to be deemed replaced by
the valid, legal and enforceable provision most closely approximating the intent of the parties, as expressed in such provision, and
the validity, legality and enforceability of the remainder of this Agreement shall in no way be affected or impaired thereby.
Section 13
Governing Law and Jurisdiction
This Agreement shall be governed by, and construed in accordance with, the laws of the Federal Republic of Germany and the
parties irrevocably submit to the non-exclusive jurisdiction of the district court (Landgericht) Frankfurt am Main.
87
Contents of the Financial Part
Consolidated Financial Statements 2003 of DZ BANK Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-3
Annual Financial Statements 2003 of DZ BANK AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-127
F-1
F-2
Financial Part
DZ BANK Group
Consolidated Financial Statements 2003
F-3
Management Report on the 2003
financial year for the DZ BANK Group
I. Overview of trading in fiscal 2003
2. Continuation of the strategic
realignment launched in 2001
1. Macroeconomic framework
During the year under report DZ BANK AG (DZ BANK) has
successfully maintained our strategy of focusing our business
activity more closely on the local cooperative banks and
The banking sector continued to find itself confronted with ex-
applying a risk-aware lending policy. At the same time we
ceptional challenges during the year under report. The existing
were able to make further progress on the projects launched
need to resize the credit industry in response to the globali-
at the time of the merger in 2001 to migrate our databases
sation of markets was further exacerbated by the persistence
and harmonise our IT platforms, and to bring many of these
of extremely weak economic conditions during the year just
projects to a successful conclusion during 2003.
ended. In the shadow of the Iraq crisis, economic output
weakened by 0.3 percent in the first half of 2003 before rising
There have also been changes in the DZ BANK Group’s port-
by 0.2 percent in the second half of the year.
folio of businesses during the year, all of them aimed at
strengthening the effectiveness of the cooperative banking
With economic activity and demand unsatisfactory, the persis-
sector as a whole:
tently difficult conditions on the labor market weighed on consumer sentiment and private household demand fell again by
- Spin-off of payments processing division
0.1 percent in 2003. Corporate investment activity also remained well below expectations as the only investments com-
The separating out of DZ BANK’s payments processing divi-
panies made were primarily aimed at improving productivity.
sion into a newly-founded specialist company Transaktions-
The European Central Bank’s lowering of the interest rates
institut für Zahlungsverkehrsdienstleistungen AG, Frankfurt
level by a total of 75 basis points in two steps did not deliver
am Main, (Transaktionsinstitut) with effect from September 1,
the hoped-for stimulative effect on investment and consumer
2003 has created the nucleus for a neutral processing platform
demand.
to service national and international payments transactions.
The benefit of efficiency gains achieved through the expansion
The biggest burdens on German business in the year under
of transaction volumes and the modernisation of processing
report were its locational disadvantages, however. We had to
technologies will feed through to the local cooperative banks
wait until the end of 2003 to see the start of the necessary
in the form of significantly reduced unit costs. In December
policy changes when reform initiatives aimed at reducing cor-
2003 WestLB AG, Düsseldorf, announced it is interested in
porate taxes and social costs were finally passed.
partnering with Transaktionsinstitut. Between them, these
banks handle no less than 26 percent of the total domestic
payments traffic measured by numbers of transactions
F-4
- Acquisition of norisbank AG, Nürnberg
- Amalgamation of factoring business with Francebased Natexis Factorem S. A., Paris
DZ BANK’s takeover of the specialist consumer credit provider
norisbank AG as from October 1, 2003 has created the neces-
In November 2003 Natexis Banque Populaire, Paris, and
sary foundation for increasing the cooperative banking sector’s
VR-LEASING AG, Eschborn, signed a joint-venture agreement
share of this fast-growing market segment. norisbank’s partner
to establish VR FACTOREM GmbH, Eschborn. The new under-
banks model gives local cooperative banks the opportunity to
taking, 51 percent owned by our French partner and 49 per-
distribute its high-profile “easyCredit” brand product. noris-
cent owned by VR-LEASING AG, will specialise in the provision
bank has installed a high-grade risk management system and
of factoring services for small and midsize enterprises and also
a modern, low-cost processing technology. By the end of 2003
absorb the factoring operations of VR DISKONTBANK GmbH,
no less than 438 partner banks had already registered their
Eschborn, a subsidiary of VR-LEASING AG. DZ BANK and
interest in distributing “easyCredit”.
Natexis Banque Populaire have also agreed to intensify our
existing cooperation in the areas of research, asset manage-
- Cross-sector merger of securities processing businesses
ment and private equity.
The merger of the municipal savings bank sector’s specialist
- Investment custody business
service provider WPS WertpapierService Bank AG, Düsseldorf,
with its cooperative sector equivalent Bank für Wertpapierser-
In January of the current year, Union Asset Management
vice and -systeme AG, Frankfurt am Main, to form Deutsche
Holding AG, Frankfurt am Main, and DekaBank Deutsche
WertpapierService Bank AG, Frankfurt am Main, (dwpbank) in
Girozentrale, Frankfurt am Main, started to jointly explore
August 2003 has created Germany’s biggest specialist securi-
the possibility of pooling their investment custody activities.
ties processor. The involvement of further partners in future
and the harmonisation of processing platforms will deliver
In order to further the structural streamlining of the DZ BANK
permanent efficiency advances. At the end of November the
Group, in addition to the initiatives described DZ BANK has
new entity was able to sign an agreement on future coopera-
also acquired (effective December 31, 2003) ReiseBank AG,
tion with Dresdner Bank AG, Frankfurt am Main. The shares
Frankfurt am Main, and CashExpress Gesellschaft für Finanz-
of dwpbank are held in equal proportions by the cooperative
and Zahlungsverkehrsdienstleistungen mbH, Frankfurt am
sector (40 percent by DZ BANK, 10 percent by WGZ-Bank
Main, from DVB Bank AG, Frankfurt am Main. These moves
Westdeutsche Genossenschafts-Zentralbank eG, Düsseldorf)
will free DVB Bank to focus on its core international transport
and the savings bank sector. The intention is to bring further
finance and consultancy business.
equity partners on board in the future.
F-5
3. Earnings
for the previously mentioned exceptional factors in the
prior-year figures, this represents a change of € +216 million
or +6.2 percent.
The DZ BANK Group’s key income statement measures evolved
Administrative expense reduced by € 99 million to
as follows in the year under report:
€ 2,403 million.
Operating profit before risk provisions amounted to
€ 1,293 million (2002: € 1,498 million). Excluding the ex-
The cost-income ratio was 65.0 percent (2002: 71.9 percent).
ceptional income of € 453 million under the previous year’s
net income from insurance activities heading and correcting
Including a partial liquidation of the group’s prudential
the previous year’s profit positions to reflect subsequent
reserves (§ 340f HGB), the net new risk provisioning of
changes in accounting methods, this represents an increase
€ -326 million was around 86 percent lower than the preced-
of 32.2 percent.
ing year.
Our total operating income for the 2003 financial year
amounted to € 3,696 million (2002: € 4,000 million). Adjusted
Income statement DZ BANK Group 2003/2002
2003
2002
in € million
Change
in %
1,965
1,937
1.4
Net commission income
773
853
- 9.4
Net earnings from financial activities
335
216
55.1
Net interest income
1
Net income from insurance activities
Personnel expense
Other administrative expenses
2
General and administrative expense
182
591
- 69.2
1,140
1,172
- 2.7
1,263
1,330
- 5.0
2,403
2,502
- 4.0
441
403
9.4
Balance of other operating expense/
income
Operating result before risk
1,293
1,498
-13.7
- 326
- 2,307
- 85.9
967
- 809
>100.0
- 244
- 63
>100.0
Profit before taxes
723
- 872
>100.0
Taxes
341
-1,223
>100.0
Net profit on period
382
351
8.8
provisions
Risk provisions
Operating result
1
Balance of other expenses/income
3
includes current earnings, earnings from profit transfer agreements
2
other administrative expenses plus depreciation and
write-downs on fixed and intangible assets
3
Result from financial investments, special items with
reserve character, extraordinary expenditure/income
and other items
F-6
The detailed breakdown of the fiscal 2003 results is as
tomers’ export business through financing arrangements that
follows:
are then paid down against deliveries of marketable goods
(counterdeals). The specialist market position we have estab-
The DZ BANK Group’s net interest income was 1.4 percent
lished in earlier years in the financing of Hermes-backed
higher year-on-year at € 1,965 million. It should be noted that
export transactions also enabled us to sign additional frame-
this change is essentially the result of the two presentation
work agreements with foreign banks in India, Indonesia,
methodology changes described below that were implemented
Russia and the Ukraine; these will also provide the basis for
last year and which are more consonant with the operating
future business.
logic. Unlike last year, the expenses arising from prepayment
penalties on the premature redemption of note loans and re-
In 2003 Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall,
gistered bonds are no longer shown as part of the balance of
(BSH) was once again able to top the previous year’s demand-
other (non-operating) expenses and income, but as part of the
ing target by recording 4.7 percent net interest income
interest result. Furthermore, the net earnings from financial
growth. Its interest income was virtually unchanged but inte-
activities total for 2003 includes for the first time the balance
rest expense was sharply lower. The reduction on the expense
of income and expense from repurchase agreements that in
side was due to increased reliance on low-interest “A-pro-
the previous year was still part of the net interest income
gram“ financing in the home savings and loan business,
heading. If we adjust the previous year to reflect these two
coupled with a systematic policy of variable-rate borrowing
method changes, net interest income increased by 5.8 percent
during a period of falling rates in the non-collective segment.
in 2003; if we additionally adjust for the income variances due
to changes in the sphere of consolidation, the group’s net
Net interest income came in 5.0 percent lower than a year
interest income increased by 3.0 percent.
earlier at Deutsche Genossenschafts-Hypothekenbank AG,
Hamburg, (DG HYP) due to the expiry of higher-margin lending
The evolution of the interest surplus across the various sub-
arrangements from earlier years; this pattern is typical for the
sidiaries was inconsistent.
sector. The success of DG HYP’s treasury operations in the area
of risk- and yield-optimised national and international port-
After adjusting for the previously mentioned exceptional pre-
folio management enabled it to make a bigger contribution to
sentational effects (and before shares of affiliates), DZ BANK
the interest result than in 2002. DG HYP’s new business re-
improved its net interest income by +2.3 percent.
corded noteworthy volume growth on the back of rising margins and falling loan maturities in the household and commer-
The credit and money market operations made a significant
cial real estate finance segments as well as in the state finance
contribution to the overall interest result. The structured trade
segment. Overall DG HYP has further reinforced its market
finance business in particular was able to make impressive
position in a difficult economic environment.
progress. We were able to expand our market position thanks
primarily to the encouraging growth of the demand for finance
from the oil and gas sector – even though the domestic and
European markets were marked by constrained demand and
slow growth. We were also able to further strengthen our
leading position in Germany as a provider of two-way-tradebacked export finance, in which the bank supports its cus-
F-7
Important steps were taken during 2003 to reposition DG HYP
mission income reduced by 1.3 percent. The international
as a lean but fit real estate bank under the umbrella of the
operations were once again able to increase their contribution
DZ BANK Group’s specialist property subgroup VR-Immobilien
to the group interest result year-on-year, while the credit
AG, Frankfurt am Main. Its new business policy focus will see
operations fell short of last year’s outcome. Across the group,
DG HYP concentrating in future on four core businesses: per-
net interest income fell slightly in the securities and payments
sonal real estate credit portfolios, commercial real estate credit
handling business lines.
business, real estate credit treasury, and treasury.
DZ BANK’s securities-related business was exceptionally proDZ BANK International S.A., Luxembourg-Strassen, (DZI) was
fitable overall last year and was able to substantially more
able to increase its net interest income by 4.6 percent in the
than compensate for the reduced contributions of the other
year under report, thanks especially to its treasury operations.
business lines, payments handling, lending and international
DZI’s focus on four core businesses – international private
operations. During the year under report we significantly ad-
banking, investment funds, credit and treasury – has enabled it
vanced the process of accelerating and concentrating our retail
to once again demonstrate its strength as an important center
banking sales activities that was launched in 2002. The twin
of expertise for the German cooperative banking sector.
priorities were to extend our product offering and increase our
product specialisation, in both cases centrally driven by cus-
Although it was able to raise its interest margin, the net in-
tomer interests. The uncertainty emanating from the Iraq crisis
terest income of our specialist international transport finance
and the resulting slump of the stock market indices to multi-
subgroup DVB fell by 2.1 percent in the year under report.
year lows in March 2003 combined with the difficult economic
Almost 90 percent of DVB’s international lending business is
environment in Germany to undermine investors’ confidence in
US-dollar-denominated, so its results suffered as the euro
risk assets and further reinforce our customers’ pronounced
strengthened against the dollar in 2003.
need for security. Continuing the previous year’s evident trend
of increasing demand for structured products that offer capital
The highly satisfactory trend of business at norisbank AG, which
guarantees coupled with the chance to participate in the rising
has been part of the DZ BANK Group’s sphere of consolidation
value of selected baskets of stocks or indices, our certificates
since the closing quarter of 2003, contributed € 52 million to
offering attracted exceptional interest – especially the Multi-
the group’s fiscal 2003 net interest income on a pro rata basis.
Zins and VarioZins versions and the product innovation of
The integration of this installment credit specialist into the
the year in 2003, the MaxiRend Tracker. We were delighted in
cooperative banking sector will be assisted by norisbank’s
November 2003 when the readers of the specialist magazine
“partner banks model“ that most importantly will allow the
“Zertifikate Journal“ and of the newspaper “Welt am Sonn-
participating local cooperative banks to start to distribute
tag“ voted DZ BANK “Issuer of the Year“ and the jurors
norisbank’s high-profile “easyCredit“ branded product. As at
awarded us the distinction of “Best Issuer of Protected-Capital
the end of 2003, no less than 438 partner banks had regis-
Products“.
tered their interest in marketing “easyCredit“.
DVB’s net commission income was 5.4 percent lower comThe group’s net fee and commission income moderated by
pared with the previous year. Credit commissions in the in-
9.4 percent to € 773 million. Much of this big variance is due
ternational transport finance advisory and syndication business
to the impact on the income statement of the changes in the
increased by around 7 percent year-on-year. Falling commis-
circle of consolidation. If we adjust for these effects, net com-
sion income from ReiseBank AG’s currency exchange business
F-8
as a result of the decline in tourism and the loss of the pay-
In the pension provision market that is so promising for the
ments handling and securities services DVB used to provide for
funds industry, the new SME pension product “VR Mittel-
the Sparda banks reduced the net commission income total
standsRente“ – jointly developed and marketed by UMH and
overall, however.
R+V Versicherung AG, Wiesbaden – was a proactive response
to the need of small and midsize businesses for advice and
The Union Investment Group (UMH) was able to increase its
support in the pensions area. “VR MittelstandsRente“ is a
net commission income, which basically depends on the total
standardised package that offers employees of SME compa-
fund assets under management, by 3.4 percent last year.
nies a cost-effective opportunity to convert their pay into
However, the further declines of prices on the international
pension cover by taking out a direct insurance policy with R+V
stock markets in the first half of 2003 helped to keep investors
Versicherung AG. The surpluses over the life-cover premiums
nervous. They therefore tended to favor low-risk investments,
are invested into a UMH equity funds of funds. Employees can
especially fixed-income and real estate funds. The Union
also take advantage of the Riester subsidy and invest additio-
Investment Group responded to investors’ changing needs
nal contributions into either R+V Versicherung’s “VR-Renten-
structure by launching a line of capital-guaranteed products
polster“ product or the Union Investment Group’s “UniProfi-
as well as a fund of hedge funds for institutional investors.
Rente“ product.
Overall the subgroup was able to lift its total funds under
management across all product categories from € 101 billion
BSH’s net commission income reduced by 38.8 percent while
to € 110 billion.
its new business expanded by 42.9 percent. DG HYP’s net
commission income reduced by 67.9 percent year-on-year on
UMH was once again the market leader as measured by net
the back of a 17.1 percent increase in the volume of new pro-
funds inflow last year, as it attracted € 7.8 billion of new
perty loans extended. Both BSH and DG HYP pay commissions
money into its stable of retail funds (including open-ended real
to the local cooperative banks for the new business they sign
estate funds). Building on this sales success, the Union Invest-
up, and the expansion of new save-to-build plans at BSH and
ment Group again improved its ranking in the BVI retail fund
new loan commitments at DG HYP meant they had to pay out
assets table; as at December 31, 2003 its market share includ-
more in fees than in the previous year. The consequence was
ing open real estate funds stood at 17.6 percent compared to
BSH’s commission expenses increased in the year under report
just 17.1 percent a year earlier.
and since its higher expenses outweighed the fees it received
on new save-to-build contracts, BSH posted a much smaller
commission surplus than in the preceding year. DG HYP’s
commission expenses were also influenced during the year by
the higher issuance fees it had to pay on its successful capital
market initiatives compared with the preceding year and its
increased placement of pfandbriefe. The increase of DG HYP’s
commission income (primarily due to higher fees received for
administering the commercial property loans portfolio) was
comparatively smaller.
F-9
BSH was once again able to significantly increase the volume
of its home savings and loan new business year-on-year, and
impressively extend its market leadership position in new
DZ BANK Group operating income 2003/2002
in € million
3,696
save-to-build business. This growth was also boosted by the
4.000
public debate that started in the closing months of 2003
3.500
about reducing the government subsidies for homebuilding.
3.000
2.500
norisbank AG has been fully consolidated from October 1,
2.000
2003 and the new group member made a pro rata contribu-
1.500
tion of € 14 million to the group commission surplus. This
1.000
resulted primarily from the transacting of quasi-credit and
500
with-profits insurance business.
4,000
(-7.6 %)
1,937
1,965
0
853
773
335
182
441
2003
216
591
403
2002
The group’s net earnings from financial activities, which
was 55.1 percent higher, essentially depends on DZ BANK’s
Net interest income
proprietary trading activities. If we adjust the prior-year value
Net commission income
for the net result on repurchase agreements, the net result
Net income from financial activities
increased by 46.9 percent.
Net income from insurance operations
Other net operating income
Strong year-on-year income growth was recorded both in the
area of equity-price-sensitive products and in the results from
trading exchange rate and especially interest rate risks.
The group’s general and administrative expenses were
The group’s net income from insurance activities, generated
reduced by 4.0 percent to € 2,403 million. Within this total,
exclusively by the R+V Versicherung subgroup, amounted to
non-personnel expenses moderated by 5.0 percent and
€ 182 million 2003 compared with € 591 million in 2002.
personnel expenses reduced by 2.7 percent.
However, if we exclude the equity interests disposal gains
component of € 453 million from the prior-year total, the total
The parent bank played a major role in the reduction of the
income from the insurance operations increased by € 213 mil-
group’s general and administrative expenses. DZ BANK’s
lion. This improvement was assisted by higher premium
personnel expenses moderated by 4.4 percent and its non-
receipts due to a marked pickup in the demand for life and
personnel expenses reduced by 1.8 percent.
pension insurance as well as higher health insurance revenues
(at R+V Krankenversicherung). Adjusted for the one-off effect
in last year’s results, our net income from the insurance operations was improved by € 44 million.
F-10
Once again, the focus at the group level last year was on con-
of the local cooperative banks covered by the computing center
centrating our business activities in newly defined fields of
of FIDUCIA IT AG at Karlsruhe. Integrating this capability into
endeavor with the objective of realising further efficiency
our systems landscape has released substantial synergies. The
potentials, in line with the fundamental strategic realignment
now nationwide availability of “VR Marktplatz“, our market
of the DZ BANK Group described at the start of this report.
information platform designed for end customers, also represents a further substantial quality enhancement of our internet
We expect the concentration of “back-office ” services pro-
brokerage package.
vision into the specialist companies Transaktionsinstitut,
dwpbank and VR Kreditwerk Hamburg-Schwäbisch Hall AG,
The essential prerequirement for reorganising DZ BANK’s IT
Hamburg and Schwäbisch Hall, to strengthen the competitive-
systems was to reduce the wealth of different systems de-
ness of the DZ BANK Group and the entire cooperative bank-
ployed in investment banking and to switch to the standard
ing sector.
software of the SAP Banking Platform. One result was that we
have already reduced our IT costs by 30 percent compared
We passed further milestones and did further groundwork in
with 2001, the first year of the merger. By 2004, when we will
2003 on harmonising and integrating IT systems across the
have completed our technology harmonisation in less than
companies that make up the integrated cooperative financial
three years, the total savings will be more than 50 percent.
services system. Having successfully introduced our central information and communications medium “DZ-InfoNet“ in
In the year under report we were able to improve the group’s
2002, we expanded the functionality and performance spec-
cost-income ratio, adjusted for the previously mentioned ex-
trum of this platform during 2003 to transform it into the all-
ceptional factors in the prior-year net interest income and net
round information portal “VR-BankenPortal“. Since the end of
income from insurance operations headings, to 65.0 percent
last year, the primary banks now have a central point of access
compared with 71.9 percent in 2002.
to the product and service offerings of virtually all the cooperative banking sector’s household-name “product providers“.
The balance of other operating expenses and income of
The “Konto-Online“ application integrated into the “VR-Ban-
€ 441 million is primarily due to the net leasing income
kenPortal“ site also allows local cooperative banks to obtain a
generated by the VR LEASING subgroup, which increased by
close-to-real-time overview of their credit and current account
5.5 percent last year as the total volume of new business
positions vis-à-vis DZ BANK, and provides access to end-to-
expanded by 14 percent (especially outside Germany). The
end-supported online transaction processing.
refocusing of the real estate leasing and fleet management
operations onto the SME business customer segment and the
Additionally, the nationwide availability of the “GENO-Broker“
spin-off of VR DISKONTBANK GmbH’s factoring business into
application means all the cooperative banks within DZ BANK’s
VR FACTOREM GmbH both helped boost the 2003 positive
territory can take advantage of this online service to support
outcome.
their investment advisers. “VR-Networld Brokerage“ now provides a single system for dealing in securities for the customers
F-11
The group’s net new risk provisioning amounted in 2003
existing social plan from ongoing early retirement obligations,
to € -326 million compared with a prior-year total of
plus expenses in connection with the spin-off of the payment
€ -2,307 million. The key factor in this big improvement,
handling operation to the new Transaktionsinstitut.
apart from the change in the section 340f HGB prudential
reserve each year, was the much lower levels of risk provisions
The group’s net profit on the year amounted to € 382 million
required compared with the difficult 2002 year; most of the
compared to the previous year’s € 351 million.
new provisions related to commercial real estate lending exposures and energy sector exposures. Our new business, which
The consolidated profit amounted to € 55 million after mi-
as far as Germany is concerned was once again overshadowed
nority interests of € 88 million and the allocation of € 239 mil-
in 2003 by the clear signs of demand and growth weakness,
lion to the surplus reserves.
remained subject to the binding risk limits and profitability
criteria imposed immediately after the merger. We have continued to systematically refine our credit risk strategy and risk
management procedures; another priority was to redesign the
4. Volume development
organisation of our credit management structures and processes in anticipation of the more demanding credit processing
quality requirements that Basel II will impose as well as the
The group’s total assets as at December 31, 2003 were
Minimum Requirements for the Conduct of Lending Business
€ 6.6 billion or 2.0 percent lower than a year earlier, at
(MaK).
€ 331.7 billion. This volume reduction was predominantly
due to developments at DZ BANK, whose balance sheet shrank
The balance of other expenses and income closed 2003
by € 12.7 billion. On the other hand the first-time consoli-
at the amount of € -244 million (2002: € -63 million). This in-
dation of norisbank AG boosted the group’s total assets by
cludes net earnings from financial investments in the sum of
€ 3.1 billion.
€ -108 million (2002: € 181 million). The 2003 total includes
value adjustments on securities treated as fixed assets and an
income contribution from the transactions surrounding the
DZ BANK Group: Balance sheet total at
12.31.2003 /12.31.2002
dwpbank joint venture. The 2002 total included an income
contribution of € 218 million resulting from the fundamental
in € billion
strategic realignment of the DZ BANK Group’s portfolio of
400
businesses. The extraordinary expenses total of € 78 million
(2002: € 224 million) essentially comprises personnel and non-
300
331.7
personnel restructuring expenses, expenses arising under the
200
338.3
(- 2.0 %)
100
0
12.31.2003
F-12
12.31.2002
The total volume of business amounted at the year-end to
Deposits from other banks amounted to € 115.4 billion at
€ 467.6 billion (12.31.2002: € 466.5 billion).
the end of the year under report and were therefore € 7.5 billion lower in total year-on-year, mainly due to a reduction in
The nominal volume of off-balance-sheet futures trans-
this liabilities heading of € 8.7 billion at DZ BANK.
actions was € 57.3 billion higher at the year-end, at
€ 741.6 billion. The relevant replacement costs were
Non-bank customer deposits increased at the group level by
€ 0.4 billion higher at € 14.9 billion.
€ 5.8 billion or 8.0 percent to € 78.5 billion. At DZ BANK,
customer deposits were € 0.9 billion higher than a year earlier
Placements with, and loans and advances to, other banks
due to a sharp rise in the volume of time deposits coupled
reduced by € 4.3 billion or 4.6 percent to € 89.3 billion. At
with slightly higher current deposits and overnight funds. DZI
DZ BANK this measure declined by € 4.4 billion. The year-on-
and BSH also posted higher customer deposits, by € +1.8 bil-
year change at DG HYP amounted to € 2.1 billion as the total
lion and € +1.5 billion respectively. As a new constituent of
state-sector credit extended reduced. BSH’s claims on banks
the group’s sphere of consolidation, norisbank AG contributed
increased by € 1.9 billion due to business expansion.
an additional € 2.0 billion to this heading.
The marked reduction in the total consolidated loans and ad-
Certificated liabilities reduced at the group level by € 7.4 bil-
vances to other (non-bank) customers by € 4.4 billion or
lion or 8.9 percent to € 75.6 billion. This was primarily the
4.1 percent to € 102.5 billion resulted primarily from the de-
result of reduced bond issuance by DZ BANK (€ -3.9 billion)
clining trend of lending business at DZ BANK, where the
and DG HYP (€ -2.6 billion).
pronounced weakness of economic growth and demand in the
year under report produced a € 6.3 billion contraction in the
The group’s reported capital and reserves amounted to
debtors total. At the group level by contrast, claims on non-
€ 6.1 billion (12.31.2002: € 6.0 billion). Its capital on the BIS
bank customers rose by € 2.7 billion as a consequence of the
definition totaled € 13.3 billion (12.31.2002: € 12.7 billion),
first-time consolidation of norisbank AG.
with core capital (BIS) accounting for € 7.0 billion of the total
(12.31.2002: € 6.4 billion). The group clearly exceeded the
The volume of the group’s securities holdings closed the year
prescribed minimum standards with a BIS tier 1 capital ratio
under report at € 85.9 billion compared with the year-earlier
of 7.0 percent (12.31.2002: € 5.8 percent) and a BIS total
total of € 85.9 billion. DG HYP’s securities holdings increased
capital ratio of 11.7 percent (12.31.2002: € 10.5 percent).
by € 3.6 billion compared to a year earlier due to the expansion of the securities portfolio it uses for return and liquidity
management purposes. There was an overall € 3.4 billion
reduction in the value of the parent bank’s securities as it significantly reduced its holdings of stocks and other variableyield securities.
F-13
II. Risk Report
1. The DZ BANK Group’s risk
supervision system
as well as group-wide risk capital management. This ensures
the group’s subsidiaries are integrated into a coordinated
management and controlling approach and guarantees a
holistic view.
The Group Risk Controlling Working Group also meets at
least quarterly to assist the Group Treasury Committee with
The systematic and controlled acceptance of risks in relation to
work on any risk themes and issues arising from the group-
return targets is an integral component of corporate manage-
wide management of risk capital. This working party is also
ment at the DZ BANK Group. The operating activities resulting
the central coordination point for implementing Basel II across
from our business model require the capability to effectively
the DZ BANK Group. The Operational Risks sub-working group
identify, measure and manage risk together with adequate
addresses specific operational risk issues affecting the group.
capital backing. Our activities are guided by the principle that
we only take on the minimum risk required to achieve our
The Group Credit Committee commenced its work in Febru-
business-policy goals.
ary 2004. It consists of the directors responsible for the group
companies’ credit operations and the members of DZ BANK
We have implemented and we apply a group-wide risk moni-
AG’s Board of Managing Directors responsible for credit ope-
toring and management system that fully complies with the
rations and risk controlling. This new management committee
statutory requirements while also going further and assisting
is tasked with the group-wide measurement, controlling and
our internal commercial management requirements. All the
management of credit risks. It also explores the organisational
group companies are integrated into the DZ BANK Group’s
and methodological dimensions of specific exposure manage-
risk management system according to the materiality of the
ment.
risks involved.
As part of the merger that created DZ BANK, we established
Committees
a Group IT Circle to most importantly minimise pertinent risks
within interrelated group operations by defining ultimate
The DZ BANK Group’s central risk management body is the
directing and decision-making authorities. The Group IT circle,
Group Treasury Committee. Its membership comprises the
which is made up of board directors from a range of group
members of the Board of Managing Directors and the division
companies, has been entrusted with group-wide authority to
heads of DZ BANK AG (DZ BANK) responsible for Treasury,
issue guidelines on information technology issues, to define
Controlling and Accounting plus the directors of group com-
the strategic thrust of group information technology policies
panies that have a significant influence on the group’s risk
and practices, and manage group-wide IT line functions and
profile. This committee meets at least quarterly and concerns
IT projects.
itself with all the types of risk relevant to the DZ BANK Group
F-14
Other committees have been set up to manage DZ BANK’s
The separate risk controlling function is responsible for en-
overall risk; the parent bank’s Treasury Committee is respon-
suring the permanent transparency of the risks entered into
sible for the areas of market price risk and liquidity risk. It
across all risk categories. Risk Control monitors limit com-
meets weekly to discuss the management of the bank-specific
pliance, produces risk reports and is additionally responsible
risk and performance parameters as well as capital ratios for
for ensuring that the risk measurement approaches, proce-
the bank and the DZ BANK Group, and prepares correspond-
dures and models employed are methodologically up-to-date.
ing action proposals for submission to the full Board of Manag-
DZ BANK’s Risk Control unit coordinates the methodologies
ing Directors. The Board of Managing Directors has formed a
to be used with the Controlling units of the group companies
Credit Committee from amongst its own members tasked
and thereby ensures group-wide risk capital management.
with managing the bank’s overall credit portfolio. The Credit
DZ BANK’s central risk controlling unit also works together
Committee decides on significant loan commitments in rela-
with the group companies to produce a system of group-
tion to the bank’s and the group’s credit risk strategy. This
wide risk reports that cover virtually every risk category on
committee is also responsible for controlling country risk
a basically methodologically consistent basis.
across the DZ BANK Group.
Risk reporting
Separation of functions
The quarterly group risk report is our central instrument for
At the DZ BANK Group we distinguish between risk manage-
reporting on group risks to the Board of Managing Directors
ment and risk controlling. Risk management encompasses
and the Group Treasury Committee. We have additionally
the measures taken locally by the risk-bearing operating units
installed reporting systems specific to all the relevant risk types
to implement the risk strategy. The business units responsible
at DZ BANK and in all the key group companies; these are
for risk management decide whether to consciously assume or
intended – subject to the materiality of the risk positions
reduce risk. In doing so they observe the centrally prescribed
concerned – to ensure that decision makers at all times have
universal prescriptions and the relevant risk limits. The risk
sufficient transparency as to the risk profile of the risk units
management units are kept organisationally and functionally
they are responsible for.
separate from their downstream units. This applies most importantly in the areas of controlling, accounting and process-
A Risk Manual is made available to all staff via the Intranet.
ing.
In addition to listing the universal prescriptions governing the
management of risk capital and risk types, this manual also
provides extensive descriptions and definitions of the methods,
processes and responsibilities deployed.
F-15
Internal Audit
price risks also stem from our home savings and loan business.
The activities of our insurance subsidiaries generate actuarial
Internal Audit, a capability established at all the relevant group
risk for the DZ BANK Group. Liquidity risks are also typical
companies, is a second independent component of our risk
risks of on-balance-sheet banking transactions. Finally, opera-
management and supervision system. It performs systematic
tional risks and strategic risks are associated with all forms of
and regular audits. Internal Audit is tasked with ensuring the
business activity and are therefore relevant for all the group
functionality and effectiveness of the risk supervision system
companies.
and also the rectification of established shortcomings. The
group companies’ internal audit units report directly to their
The relative significance of each risk type for the DZ BANK
respective Managing Director or Chairman of the Board of
Group was as follows at December 31, 2003:
Managing Directors. Germany’s defined Minimum Requirements for the Organisation and Performance of Banks’
Internal Audit Function are fully complied with in the bank’s
Risk positions of the DZ BANK Group
subsidiaries.
Risk position
Share
As part of our planned upgrading of the DZ BANK Group’s
in € million
management and supervision toolkit, we are currently working
Default risk
2,079
66 %
with the most risk-exposed companies to refine the core func-
Market price risk
295
9%
tionalities of a group audit capability. To this end, the internal
Operational risk
602
19 %
audit teams of the relevant companies are assisting DZ BANK’s
Strategic risk
192
6%
12.31.2003
internal audit to investigate and evaluate the most important
group-relevant processes and procedures in the respective
units.
We measure default and market price risk using internal models
Risk types
based on value-at-risk approaches. We are still using the Basel II
standard approach to estimate the loss potential arising from
Default risk is the most important category of risk for the
operational risk at the group level; individual companies are
DZ BANK Group. It results especially from our group-wide
already using more advanced methods. The quantification of
corporate banking and investment banking activities as well
strategic risk is based on empirical benchmark analyses. Actuarial
as our retail-oriented credit operations. Market price risk origi-
risk is quantified on the basis of a risk based capital model.
nates primarily in the companies that conduct trading operations or make significant capital market investments. Market
F-16
our risk assets is in conformance with our defined strategy.
2. Risk capital management
This process ends with the specification of a group-wide
planning target regulatory capital requirement. The covering
One objective of the DZ BANK Group’s risk management is
of this need and the performance of the resulting issuance
to ensure that the group’s overall risk exposure remains in
transactions is centrally coordinated by DZ BANK’s Treasury
harmony with its capital underpinning at all times. We do this
function.
by actively managing both our regulatory capital adequacy as
defined by Principle I KWG and also the economic capital
The DZ BANK Group’s regulatory capital ratios as at Decem-
adequacy that results from our own internal risk measurement
ber 31, 2003 on the BIS and KWG definitions can be seen in
methods. We also integrate their risk capital requirements into
the following table.
our measurement of the performance of the DZ BANK Group’s
main business lines and thereby extend the conventional earn-
These ratios were significantly higher than the prescribed mini-
ings components by also factoring in the capital tied up by
mum values at all times during 2003 both for the individual
their risk exposures.
institutions and for the DZ BANK Group as a whole.
Managing regulatory capital adequacy
It is probable that as from 2005 the DZ BANK Group will fall
under the provisions of the EU financial conglomerates
For the purposes of managing the DZ BANK Group’s regula-
directive. Among other things, this will extend the regulatory
tory capital adequacy, we work with significantly higher inter-
capital requirements currently applicable to the group to in-
nal targets than the minimum standards defined by the regu-
surance providers as well. To prepare the ground for these new
lators of 4 percent for the Tier1 capital ratio and 8 percent for
requirements, we have already started to include our insurance
the total capital ratio. We perform an annual group-wide risk
subsidiary in our regulatory capital requirement analyses. At
assets planning process to avoid unforeseen stressing of these
the same time we are regularly participating in the Basel
capital ratios and to ensure that the growth or reduction of
Committee’s worldwide quantitative impact studies and are
DZ BANK regulatory capital requirement and regulatory capital ratios
Group companies (KWG)
in € billion at
DZ BANK
DZ BANK
Group (BIS1)
Group (KWG)
114.4
114.4
56.3
14.6
18.5
6.9
3.0
1.7
2.1
- Tier I capital
7.0
8.0
6.0
1.8
1.2
0.4
0.5
0.2
0.1
- Tier II und III
6.3
6.0
5.2
0.4
0.7
0.3
0.1
0.0
0.1
12.31.2003
Risk positions
DZ BANK AG
Schwäbisch
DG HYP
Hall
DZ BANK
DZ BANK
Gruppe International
DVB-
Ireland
norisbank
Capital
Ratios
1
- Tier I capital ratio
7.0%
8.2%
12.2%
12.1%
6.4%
6.2%
12.3%
12.0%
6.8%
- Total capital ratio
11.7%
12.1%
17.0%
14.7%
10.4%
10.5%
13.9%
12.0%
9.8%
Bank for International Settlements
F-17
performing indicative trial calculations of our future capital
The risk tolerance capacity and the economic risk capital made
needs under Basel II. In particular the greater proportional
available by the Board of Managing Directors of the group
significance of our retail business in the DZ BANK Group’s mix
parent for the 2003 and 2004 financial year were as follows:
will reduce our regulatory capital requirement under Basel II
and bring this measure at least approximately into line with
DZ BANK Group’s risk tolerance capacity
our economic capital requirement.
Managing economic capital adequacy
in € million
2003
2004
Risk cover assets
7,000
7,500
Economic risk capital
4,500
5,500
In addition to regulatory capital management, we have also
established a system of economic capital management based
on our internal risk measurement methods. This factors in not
just the risk types defined by the present KWG Principle I, but
Our insurance business risks were also fully incorporated
all the risk categories relevant to the DZ BANK Group, in other
into our analysis of the DZ BANK Group’s economic capital
words default risk, market price risk, operational risk, actuarial
adequacy for the first time in respect of the 2004 year.
risk and strategic risk. Default risk and market price risk are
quantified using value-at-risk approaches. There is still a need
The risk capital provided was allocated between default risk,
for further across-the-board methodological improvement,
market price risk, operational risk and strategic risk as follows:
most importantly to ensure the economically adequate measurement of operational and strategic risk as well as risk stemming from the insurance business.
DZ BANK Group: risk capital by risk type
When calculating the DZ BANK Group’s overall risk capital re-
2003
quirement, we allow for correlations between individual group
Risk
2004
Share
Risk
Share
companies’ risk positions within the default risk and market
in € million
price risk categories. We use simple addition to aggregate the
Default risk
2,900
65 %
2,422
54 %
various types of risk. This reflects our conservative assumptions
Market price risk
600
13 %
1,067
24 %
that extreme losses occur simultaneously across all risk cate-
Operational risk
600
13 %
735
16 %
gories and that the various risk types correlate completely.
Strategic risk
400
9%
247
6%
capital
capital
We derive the DZ BANK Group’s risk tolerance capacity
from the available risk cover assets. This value is determined
The available risk capital was also allotted to the individual
on the basis of a commercial analysis of the group’s capital
group companies for fiscal 2004. We have accordingly now
after allowing for all relevant consolidation effects. Regulatory
laid the necessary foundations for optimising the group-wide
capital components that are external capital in character are
allocation of risk capital. The individual companies’ respective
excluded from the risk cover assets total. To this extent, our
risk management process and operating risk limit systems are
internal risk tolerance formula is more narrowly defined than
now based on this new group-wide framework.
the regulators’ concept.
F-18
Risk-capital-based performance management
3. Default risk
To ensure that the risk capital requirement is also factored
into the measurement of performance, the Board of Managing
We understand default risk as the risk of loss arising from
Directors of DZ BANK has decided to introduce two risk-
the failure of a business partner to fulfill its contractual obliga-
capital-based performance ratios – RORAC (return on risk
tions. The risk of a loss can however also result from a down-
adjusted capital) and EVA (economic value added) – to assist
grade of the counterparty’s credit rating.
the management of the DZ BANK Group’s subsidiaries and
principal business lines. RORAC is a relative return measure
Risk strategy
that shows the extent to which the respective business has
achieved a positive rate of return on the capital tied up by the
We aim to engage in lending business primarily as the subsidi-
risk it has entered into. EVA is an absolute performance mea-
ary partner of local cooperative banks. Building on this funda-
sure that shows the business’s absolute earnings contribution
mental business policy decision, since 2003 DZ BANK has
after servicing the shareholders’ return entitlement and there-
been implementing a credit risk strategy that concentrates on
fore identifies the business’s economic value contribution to
customers that offer a good credit standing and cross-selling
the overall success of the DZ BANK Group. Both ratios are
potential. The group companies formulate similar strategic
reciprocally reconcilable through the application of straight-
goals and guidelines for the assumption of default risks in
forward logic.
consultation with the parent bank and in the light of their own
business policy positioning. The starting point for applying this
We will start reporting these ratios by operating segments
risk strategy is our risk tolerance capacity.
in 2004. The first stage of the rollout is to use the regulatory
capital requirement as a method of capital allocation. The
MaK-conformant structural and process organisation
changeover to Basel II will significantly, if not completely
harmonise the measurement of economic and regulatory
The structural requirements defined by the banking regulators
capital. Our objective is to put the main businesses’ economic
are already an integral component of our lending business
capital requirement right at the center of their performance
organisation. We have implemented forward-looking structural
management. We will do this by continuing to progressively
and processing organisational arrangements that create the
refine the bank’s internal risk measurement procedures and
necessary foundation for the future risk-oriented conduct of
the essential data foundations they are built on.
our credit operations. For instance we have implemented a
graduated competences scale that clearly defines credit pro-
We also see the ongoing upgrading of the DZ BANK Group’s
cess authorities from application through approval to ongoing
risk capital management as helping to prepare the ground
contract processing including periodic loan monitoring with
for us to meet the requirements of Basel II. Under the rubric
regular credit quality analysis, the whole system being docu-
of pillar 2 especially, the banking regulators will expect us to
mented in organisation manuals. Established reporting and
implement a bank-internal capital adequacy process that
review processes help keep the decision makers promptly in-
encompasses all material risks and meshes seamlessly with
formed of changes in the risk structures of our credit portfolios
other bank-wide management processes.
and provide the basis for the active management of default
risk.
F-19
Rating systems and pricing in the lending operations
Early-warning systems and work out units
We are developing credit rating procedures in collaboration
DZ BANK especially has built up a wide range of tools for moni-
with the BVR cooperative banking industry association and the
toring and managing problem credit exposures in the classic
other cooperative central bank WGZ-Bank. The so-called BVR
lending business. These include reports that assist the early
II rating is intended to produce a harmonised rating system
detection of at-risk cases, the monitoring of exposures at
for use right across the cooperative banking sector. BVR II
latent risk of default, and the observation of acute default-
ratings are differentiated by customer segments and we are
threatened credits. These reports permit highly informative,
successively extending them to cover all relevant customer
target-group-specific and close-to-real-time reporting to the
groups. In developing these ratings, we have already taken
management levels and Board of Managing Directors. Credit
account of the future Basel II requirements. Our goal is that
structure analyses are also performed regularly to support the
when the development work is completed, all the new rating
portfolio managers; these identify risk concentrations in the
modules will satisfy the Basel II requirements for internal-
lending portfolio. As part of our rating-linked credit monitoring
ratings-based approaches. The credit analysis procedures also
process, we also review the size of the agreed lines as the
provide the basis for the introduction of risk-adjusted pricing
need arises, but always within maximum twelve-monthly
in our lending operations and for the expansion of our activi-
intervals.
ties in the area of securitising credit risks.
Identified problem credits are transferred to DZ BANK’s work
To ensure lending business is profitable we calculate standard
out units at a very early critical stage. By providing hands-on
risk costs in many areas of the DZ BANK Group. Standard risk
“intensive care“ and applying tailor-made rehabilitation con-
costs are intended to help cover the average predictable los-
cepts to critical problem cases, these specialist units create
ses. The procedure involves estimation coupled with post facto
the necessary basis for rescuing and optimising problem risk
verification, i.e. pre- and post-calculation. The SRC are factored
positions.
as a cost component into the contribution costing of transactions and are determined using empirical default probabilities.
Portfolio management
Other factors influencing the calculation of standard risk costs
are the credit take-up rate (utilisation of the agreed facility)
The implementation of a portfolio management organisation
and the anticipated loss at the time of the default adjusted for
structure at DZ BANK in 2003 has created the foundation for
customer-provided collateral. The aim of this approach is to
an aggregated management level that supplements specific
permit credit-differentiated pricing. At the same time we want
risk management. The initial focus of our portfolio manage-
to ensure that in actuarial terms, our net risk provisioning
ment effort during 2004 will be to establish a new structural
– principally loan loss provisions and direct write-downs – is
limits system that will be centered on the lending operations’
covered by the standard risk costs we receive on a long-term
economic risks. Most importantly, this will allow us to adequa-
average basis. The integration of capital costs into the contri-
tely integrate the effects of correlated default risks into the
bution margin calculation makes it possible to identify a risk-
operational management of our credit business. Based on
sensitive return on tied-up capital.
detailed quantitative analyses and the ongoing assessment
of our current aggregated credit risk position, this will also
provide us with new opportunities to utilise the increasingly
more liquid credit markets to actively manage DZ BANK’s
credit portfolio structure.
F-20
As part of our toolkit for actively managing default risk, we
expresses a very low long-term risk, while the worst risk
use the securitisation of receivables to optimise our risk-
class G implies acute danger of losses.
return relativities. Our ABS primary market activities are additionally intended to lighten the load on our economic and
Measuring the default risk on trading transactions
regulatory capital. We plan to further intensify these activities
in the future. We will focus on multiseller transactions that will
Default risk on trading transactions occurs primarily at
be designed to also provide our local cooperative bank part-
DZ BANK and takes the forms of counterparty risk and issuer
ners with a vehicle for risk transfer and thereby improve the
risk. Counterparty risk is made up of replacement risk and
spread of their risks.
fulfillment risk.
Managing credit exposures and lines
To calculate the accepted value of the counterparty risk com-
We further improved our group-wide exposure management
trading operations, the current market value of the transaction
system in 2003. Our established credit exposure reporting sys-
concerned is increased by a so-called “add-on“ – i.e. the
tem provides quarterly credit portfolio reports that cover the
markup for potential market price fluctuations during the life-
key group companies. The report provides a breakdown of the
time of the transaction – based on the global add-on factors
various portfolios – for each group company separately and
defined by Principle I. To calculate the exposure, we recognise
also as a group view – by exposure size, country assignment,
the risk-reducing effects of both netting agreements and colla-
residual term, sector and risk rating. It also analyses each
teral agreements. Automating our collateral management
group company’s ten biggest exposures by a range of risk
process has enabled us to significantly increase the number
ponent of the replacement risk arising from DZ BANK’s
parameters.
of collateral agreements signed compared with 2002 and to
steadily expand the circle of our collateral counterparties. We
At DZ BANK we have installed framework limits for individual
plan to extend the collateral management process to repo
business partners and borrower units. To support portfolio-
and securities lending transactions. The accepted value of
level limit management, we also use analyses of selected stra-
the counterparty risk component of the fulfillment risk is
tegic portfolios by parameters such as country, country group,
the payment owed, in other words the size of the amount the
product type or sector. Early warning processes have been im-
counterparty is due to actually pay to DZ BANK. The fulfillment
plemented as the essential key to timely limit reviews. We have
risk is related to an assumed fulfillment period. The accepted
also defined processes for handling overdraft situations.
value of the issuer risk is the sum of the current market
values of the relevant securities.
We monitor compliance with the DZ BANK Group’s defined
country risk limits using a pre-deal limit check procedure. The
Line management of default risk on trading transactions
basis for assessing country risks is DZ BANK’s own internal
country risk model. Each country’s risk factors – essentially,
To limit the default risk arising from trading transactions, we
macroeconomic risk ratios and certain political risk measures –
have implemented a volume-oriented limits system. These
are evaluated by the country risk model on the basis of a
non-product-specific volume limits are further subdivided into
scoring approach that automatically generates a country risk
maturity bands to help manage replacement risk at the coun-
index, whose reading determines the assignment of that state
terparty level. A daily limit is assigned to manage fulfillment
to one of the seven country risk classes. The best risk class A
risk and each issuer is assigned a rating-dependent global or
specific limit to help manage issuer risk.
F-21
As in the classic lending business, we have also implemented
Analysing the credit portfolio
adequate early warning and overdrawn procedures in respect
of the trading operations. Daily reports notify the member of
An initial pointer to the inherent riskiness of the DZ BANK
the Board of Managing Directors responsible for risk monito-
Group’s credit portfolio can be obtained by analysing the indi-
ring of any infringement of the counterparty and issuer risk
vidual group companies’ risk-weighted assets. The risk assets
lines. We also have monthly reports of all open forward tran-
structure as defined by Principle I provides a clue to the rela-
sactions with significant counterparties. The Board of Mana-
tive risk of the individual credit portfolios based on at least a
ging Directors is additionally notified of counterparty risks
rough credit weighting. The average risk weights for each com-
through the monthly report required under the Minimum
pany are an indicator of the type of business it engages in. For
Requirements for the Conduct of Trading Transactions by Banks
instance a high proportion of classic corporate customers busi-
(MaH Report).
ness results in a high risk weight, while a high proportion of
lending transactions with state-sector borrowers or banks will
We use a centralised DP system to ensure the methodologi-
produce a lower average risk weight.
cally consistent measurement and supervision of the default
risk from DZ BANK’s trading transactions. The vast majority of
The changeover to Basel II and the significantly more highly
our front-office systems are linked into this software. Linking
differentiated risk weightings under the internal ratings-based
the collateral management system to this DP system ensures
approach means that this sort of analysis will in future gene-
that collateral provided on OTC derivatives and forex transac-
rate much more risk-sensitive outcomes. The Basel committee
tions is automatically counted against the default risk arising
will make the publication of what it calls the “average risk
from trading transactions. From 2004 onward, we will also be
weight“ of banks’ credit portfolios mandatory in future under
using this software to measure and monitor issuer risk.
Basel II’s pillar 3. The average risk weights of the overwhelming majority of DZ BANK Group companies have reduced
compared with 2002:
F-22
We currently use two approximative methodologies to measure
DZ BANK Group average risk weights as
per Principle I
the credit value-at-risk at the group level and consistently
across the group companies. One method is based on ana-
Weighted
in € million
risk assets
Average risk
lyses of the individual group companies’ net risk provisioning
weights
ratios and enables us to draw conclusions about default risk
correlations between the various companies’ credit portfolios
12.31.2003
12.31.2003
12.31.2002
49.3
43.5 %
45.0 %
Hall
15.0
47.3 %
49.5 %
and scored using a fluctuation factor we have identified by
DG HYP
18.8
26.2 %
26.4 %
empirical analysis.This factor represents a sector-typical relation-
7.1
66.8 %
68.0 %
ship between the rate of unforeseen losses and anticipated
3.8
25.3 %
26.8 %
Ireland
1.7
39.6 %
43.4 %
norisbank
2.1
84.7 %
84.0 %
VR LEASING
2.9
88.5 %
92.1 %
DZ BANK AG
second method the anticipated credit defaults value is weighted
Schwäbisch
DVB
DZ BANK
International
and thereby point up group-wide diversification effects. In the
losses.
DZ BANK
The following summary shows the group’s risk potential based
on this empirical fluctuation factor:
Risk potential of the DZ BANK Group’s lending
business
Our work on the economic management of the DZ BANK
in € million
12.31.2003
12.31.2002
Change
Group’s credit portfolio draws a distinction between the
Anticipated loss
650
765
-15.1 %
anticipated losses on individual transactions and unex-
Unexpected loss
2,079
2,448
-15.1 %
pected credit portfolio losses. Firstly we pre-empt
“creeping“ capital erosion by pre-calculating the anticipated loss per discrete transaction. Most of the group
companies are currently already in the process of im-
The marked reduction of the unexpected loss total is partly
plementing the necessary calculation of rating-dependent
explained by the significant volume reduction in the DZ BANK
standard risk costs. Secondly we quantify the unforeseen
Group’s default-risk-laden exposures.
losses on the group’s credit portfolios using a credit
value-at-risk approach. This provides the basis for our
group-wide economic capital adequacy analysis and also
the basis for allocating economic risk capital to the group
companies and DZ BANK.
F-23
Risk structure of the DZ BANK Group’s credit portfolio
Take-up of facilities (in € billion) at December 31, 2003
100
90
80
70
60
50
40
30
20
10
0
Miscellaneous
1
2
3
4
5
6
7
credit rating classes
In addition to the group-wide credit value-at-risk methods
The above chart shows the take-up of credit facilities by BVR I
described, individual group companies such as for instance
credit rating classes, with the ascending order of ratings on
DZ BANK and Deutsche Genossenschafts-Hypothekenbank AG,
the horizontal axis indicating reducing borrower credit quality.
Hamburg, (DG HYP), also use industry-standard credit risk
portfolio models. These derive anticipated and unforeseen
Under DZ BANK’s default risk strategy, new lending business
loss estimates from information on discrete transactions. They
can be taken on up to a qualifying rating class ceiling of 3,
factor in rating information, default probabilities, business and
provided the other ancillary conditions are fulfilled. Existing
customer-specific loss ratios and sector correlations. We intend
credit exposures that conflict with the credit risk strategy
to deploy standard approaches of this kind for the purposes of
accordingly need to be reduced. All credit exposures subject to
group-wide portfolio management in future.
a specific risk provision are assigned to rating classes 6 and 7.
The “critical” rating classes 4 through 7 account for 9 percent
We also regularly analyse our credit portfolio with regard to
of the total credit volume. The “miscellaneous” heading covers
a wide range of differentiated discrete criteria such as risk
business partners that did not require a credit quality judg-
structures based on our internal rating methodologies or
ment under the provisions of section 18 KWG or internal rules.
country risk groupings.
The following overview shows the geographical distribution
of the DZ BANK Group’s credit portfolio by country risk
groups:
F-24
DZ BANK Group´s credit portfolio by country risk groups
Country limit utilisation
in € million
12.31.2003
12.31.2002
Group country limit
Gross
Net
Gross
Net
A
Unlimited
65,747
60,841
79,421
69,634
B
2.256
1,270
1,078
1,311
1,086
C
4.617
5,359
2,176
4,211
1,852
D
1.887
1,439
582
2,360
841
E
523
659
176
1,095
328
F
70
147
30
131
27
G
Case by case
70
32
84
9
Unrated
208
50
9
30
24
Offshore
Unlimited
43
3
187
157
74,784
64,927
88,830
73,958
CR group
Total
The term gross utilisation relates to the types of business
Analysing the default risk on trading transactions
defined in section 19.1 KWG. We deduct collateral and allow
for third-country insurance cover to identify the net utilisation
Utilisation was significantly reduced in the area of replace-
rate. As at December 31, 2003 more than 98 percent of the
ment risk over the course of the year, primarily as a result of
bank’s net foreign credit volume was assigned to the country
the recognition of close-out netting and collateral agreements
risk groups A through C, for which we do not form country risk
to reduce risk. Moreover, the setting of restrictive limits resul-
provisions. The 12 percent year-on-year reduction in the net
ted in a higher utilisation rate while simultaneously reducing
utilisation results from our conservative risk policy and
risk. Our conservative limits policy also reduced our exposure
exchange rate effects. At present the country limits for Ivory
in the area of issuer risk. The year-on-year increase in fulfill-
Coast, Georgia, Uruguay and Venezuela have been suspended.
ment risk was due to the first-time inclusion of cross currency
No new business can be transacted in these countries until fur-
swaps. Our participation in the so-called Continuous Linked
ther notice.
Settlement initiative, a procedure for the worldwide clearing of
DZ BANK AG: Default risk on trading transactions
12.31.2003
12.31.2002
in € million
Lines
Utilisation
Lines
Utilisation
Replacement risk
134.5
18.7
131.5
25.4
Fulfillment risk
86.9
9.6
70.9
8.4
Issuer risk
88.3
27.5
109.5
30.0
F-25
foreign-currency trading payments, substantially reduced the
Summary and outlook
risk arising from spot and forward foreign exchange transactions.
During 2003 we took further steps to improve the risk situation in DZ BANK’s credit operations that had been put under
strain in earlier years. The year’s significant milestones include
Risk provisioning and write-downs
the progress made towards building a high-performance credit
Under the terms of our internal guidelines, a specific loan loss
organisation, the improvements in our rating procedures and
provision must be formed when a borrower’s unsatisfactory
the resulting adoption of risk-sensitive pricing, and the expan-
financial circumstances or lack of adequate collateral provide
sion of our exposure management and early risk detection
reasonable grounds to question the collectibility of the out-
systems. The success of these initiatives is also reflected in the
standing entitlements or when there are indications that the
significantly lower level of new risk provisioning despite the
borrower will not be able to service the loan long-term. The
persistently difficult economic environment. Based not least
specific risk provision must comply with the requirements of
on the modestly positive outlook for the national economy, we
the Commercial Code, and most importantly comply with the
expect this positive trend to continue in 2004.
prudential principle. In other words, it must be sufficiently
dimensioned to at least cover the probable loss in the circum-
During 2004 we intend to further refine and extend our group-
stances of the individual case. This requirement also applies
wide exposure and line management. A central building block
for the valuation of collaterals.
in this process will be the implementation of integrated data
economies. We at DZ BANK will also complete the coverage
The table below shows the DZ BANK Group’s provisions for
of our main customer segments by rolling out further BVR II
risk:
rating modules. We will accompany this by introducing differentiated standard risk cost and capital cost sets specific to
DZ BANK Group´s provisions for risks
these segments. We will also continue to work on enhancing
our credit value-at-risk management and credit portfolio
in € million
Specific
Country risk
Global
loan loss
provisions
loan loss
provisions
provisions
management at individual group companies.
1
Position at
12.31.2002
3,652
96
174
124
- 22
14
3,776
74
188
4. Market price risk
Change
during 2003
Position at
12.31.2003
By market price risk we understand the risk of loss that can result from detrimental changes in market prices or price-determining parameters. Market price risk further subdivides accor-
1
The global loan loss provisions total includes a collective loan loss
provision of € 3 million at DZ BANK’s Luxembourg branch
ding to the underlying factors into the following component
categories: interest rate and exchange rate change risk, share
price risk and commodity price risks.
F-26
Risk strategy
Organisation and responsibilities
At DZ BANK we engage in proprietary trading in fixed-income,
In the group’s trading book institutions, we manage market
equity and forex products primarily to support our customer
price risk on a distributed basis by portfolios, with the risk and
business. In contrast to “classic“ own-account trading, which
performance responsibilities assigned to the individual port-
centers on the achieving of profit through risk-taking, we see
folio managers. A quarterly report on the key market price
our core expertise as the ability to enter into and manage
risk and performance measures at the group level is submitted
risk in order thereby to be in a position to offer a customer-
to the Group Treasury Committee. As a routine part of manage-
demand-driven product range.
ment reporting, the Risk Control units of the group companies
provide daily, weekly and monthly updates to both the members
Market price risks arise for the DZ BANK Group primarily
of the Board of Managing Directors responsible for risk
through our customer-account and own-account trading ac-
management and risk controlling and the portfolio managers
tivities as well as from our lending, real estate and insurance
themselves. Limit infringements at the level of group compa-
operations. Market price risks also arise from our own securi-
nies are notified to DZ BANK on an ad-hoc reporting basis.
ties issuance. Interest rate change risk is the most significant
category of market price risk for the DZ BANK Group. While
Measuring and limiting market price risks
significant portions of the interest rate change risks facing
DZ BANK are credit-dependent interest rate change risks,
We measure market price risk using the value-at-risk con-
general non-credit-dependent interest rate change risks are
cept (VaR), identifying the value-at-risk both across the group
predominant in the other group companies.
and at each individual group company covered. By relying on
The market price risk strategy for capital investments in
we ensure that correlations and hedging effects between indi-
connection with our insurance activities is governed by the
vidual companies’ risk positions can be taken into account.
DZ BANK’s internal model for the group-wide calculation,
strict prescriptions of Germany’s Insurance Supervision Act
and the rules it lays down for investing tied assets. Insurance
At the majority of the banking subsidiaries, we manage market
companies are obliged to so invest their cover pool portfolios
price risk by means of a limits system that is matched to
and other reserved assets as to ensure the maximum possible
the sub-portfolios structure and which sets limits for both the
security and return while maintaining the liquidity of the cover
market price risk entered into in specified parts of the group
at all times as well as the commensurate mix and spread of in-
and also the losses that potentially accumulate over the course
vestments. The assets invested have to be constantly balanced
of the year. To support operational risk management within
against the payment liabilities inherent in the insurance con-
DZ BANK’s trading divisions, during 2003 we introduced a
tracts. Insurers are obliged to perform annual stress tests
sensitivities- and scenarios-oriented limits structure to supple-
based on a formula defined by the German financial services
ment the existing value-at-risk-based risk management tools.
regulator BaFin to demonstrate their continuing ability to
meet their obligations to policyholders even in the event of an
enduring capital markets crisis situation.
F-27
Most of our trading activities are concentrated at DZ BANK.
We also run stress tests to factor extreme market movements
As required by Principle I, we calculate the value-at-risk in our
into the internal risk model. The crisis scenario tests involve
trading units at a 99 percent confidence level and assuming
simulating high-magnitude fluctuations in the risk factors and
a retention period of ten business days, also for internal risk
serve to identify potential losses not shown up by the daily
management purposes. A DZ BANK value at risk calculation
VaR approach. These stress tests model both extreme market
is performed daily for all levels of the portfolio hierarchy with
movements that have actually occurred in the past and also
the aid of an historic simulation over a one-year observation
crisis scenarios which – irrespective of the market data history
period. We do this using DZ BANK’s own internal risk model
– are deemed to be economically relevant. The value losses
that has been approved by the German banking regulator
simulated through this stress testing are used as the basis for
(BaFin) for calculating the capital backing required for market
continuously reviewing the adequacy of the internal limits
price risk positions based on VaR – in line with Principle I. The
hierarchy.
add-on factor (relevant to the capital backing calculation)
required by Clause 33 of Principle I is currently 0.6. This is the
As part of the quarterly reporting system, the group compa-
same model we use to calculate the value-at-risk at the level
nies report to DZ BANK both any infringements of the insti-
of the group.
tution-specific value-at-risk identified by back testing and any
infringements of the limits simulated during stress testing.
The market price risk on our non-trading portfolios results
primarily from the group’s strategic capital investments. Our
Analysis of market price risks
procedures for quantifying and limiting the risk in our nontrading portfolios basically follow the same approach as for
The value-at-risk on the group’s banking operations identified
the trading operations.
by DZ BANK’s internal model amounted to € 125.8 million as
at December 31, 2003. The value-at-risk in the group’s (essen-
Back tests and stress tests
tially DZ BANK’s) trading portfolios amounted at December 31,
2003 to € 30.0 million (December 31, 2002: € 27.0 million).
We perform back tests to verify the predictive quality of our
The chart shows the changes in the trading divisions’ daily
value-at-risk approaches. This involves a comparison of the
value-at-risk over the course of 2003:
actual daily losses and gains with the VaR values calculated
using the internal risk model. The model assumption for calcu-
The increased risk after September is primarily the result of
lating the loss potential stipulates that the actual loss must
including general credit spread risks in the risk calculation
not exceed the simulated VaR on more than one percent of
and essentially relates to our holdings of securities for trading
trading days.
purposes.
F-28
Change in DZ BANK AG’s trading divisions’ daily value-at-risk
in € million
50
Maximum (43.5)
40
30
20
Mean (20.3)
10
Minimum (8.8)
0
Jan 03
Feb 03
Mar 03
Apr 03
May 03
Jun 03
Jul 03
Aug 03 Sept 03
Oct 03
Nov 03
Dec 03
Simple addition of the institution-specific value-at-risk results
Following the integration of R+V and norisbank during 2003,
as at December 31, 2003 produced a risk position of € 166 mil-
all the major group companies are now part of our group-wide
lion for our non-trading portfolios; this is in line with the
market price risk management process.
prior-year figure. Since September 2003 we have been recognising correlation effects when calculating the value-at-risk in
We will continue to maintain the market price risk strategy
the DZ BANK Group’s non-trading portfolios. The value-at-risk
we have applied in previous years during 2004 as well and
identified on this basis as of the year-end was € 118.7 million.
will continue to base the limits we assign on the group’s risk
Our ad-hoc reporting system has not established any in-
tolerance capacity. As in previous years, our trading operations
fringements of the bank-wide limits at group companies.
will continue to focus basically on customer servicing.
Summary and outlook
In recognition of the significance of our credit products activities, DZ BANK made a start in 2002 on creating a database of
The prescribed group-wide framework limits for the assump-
historic credit spread time series. We integrated general credit-
tion of market price risks, expressed as the allocated risk capi-
spread risks into our internal risk model during 2003. We plan
tal of € 600 million, were complied with at all times in 2003.
to integrate the trading divisions’ specific interest rate risks
On December 31, 2003 the aggregate market price risk of the
into the internal risk model during 2004.
DZ BANK Group amounted to € 294.9 million. This value is the
sum of the group-wide value-at-risk in banking activities of
€ 125.8 million and a risk position from capital investments in
the context of non-banking activities of € 169.1 million.
F-29
5. Liquidity risk
term liquidity risk including the most significant deterministic
and stochastic cash-flows. Cover surplus and shortfall positions can be promptly detected in the maturity range from one
By liquidity risk we mean the danger that insufficient funds
day through to 3 months. The resulting countermeasures to
will be available to fulfill due payment obligations (liquidity
procure additional liquidity or reduce the need for liquidity can
risk as strictly defined) or that funds can only be procured on
then be initiated in a timely manner.
more demanding conditions when needed (refinancing risk).
Market liquidity risk is created by the holding of financial
As part of the daily liquidity reporting system, the size of the
instruments that cannot be sold or settled at all, or only at a
intraday liquidity position is limited using a traffic light
loss, due to insufficient market depth or disturbances of the
model. The management of intraday liquidity is established
market. We subdivide liquidity risk into the following three
within the framework of the ongoing planning of the accounts
maturity categories according to the periodicity of the liquidity
maintained at central banks and other nostro accounts.
processes involved: short-term (same business day up to 3
months), medium-term (3 months up to 2 years) and long-
Our short and medium-term refinancing is built on the prin-
term (over 2 years).
ciple of appropriately broad diversification across investor
groups, regions and products. Our principal source of refinanc-
Risk strategy
ing is placements by local cooperative banks. Over the course
of fiscal 2003 we reduced our unsecured refinancing by 9 per-
We manage our liquidity with the objective of ensuring our
cent. The following table shows the changes in the composi-
solvency (our capacity to pay our way) at all times. We also
tion of the most important headings of our unsecured short
strive to sustainably minimise our liquidity costs.
and medium-term refinancing compared with 2002:
Managing short and medium-term liquidity
The DZ BANK Group’s unsecured short and
medium-term refinancing by investor groups
The strategic framework requirements for the DZ BANK Group’s
liquidity management are defined and approved by the Group
Treasury Committee. It is on this foundation that DZ BANK’s
Treasury unit centrally coordinates the management of our
short and medium-term liquidity. Operational liquidity management is located both at DZ BANK and at the group companies and covers both the euro and foreign-currency positions.
12.31.2003
12.31.2002
Local cooperative banks
43 %
46 %
Interbanks
32 %
33 %
Corporate customers
20 %
14 %
5%
7%
Commercial paper/
certificates of deposit
To ensure the short and medium-term liquidity of the DZ BANK
Group, we combine the payment flows of significant group
companies through DZ BANK’s Group clearing function.
Since our ability to raise unsecured liquidity from the money
To assist liquidity management we use a daily analysis pre-
market is restricted, our liquidity management function per-
pared by the Controlling unit of DZ BANK’s predicted and
forms weekly and monthly analyses of the structure of our
unforeseen liquidity flows. We use this report to monitor short-
differentiated liabilities-side resources. These analyses provide
F-30
Liquidity ratios for the DZ BANK Group 1
Liquidity ratios
Band I
Band II
Band III
Band IV
(up to 1 month)
(1 month to 3 months)
(3 months to 6 months)
(6 months to 12 months)
12.31.2003
12.31.2002
12.31.2003
12.31.2002
12.31.2003
12.31.2002
12.31.2003
12.31.2002
1.21
1.32
1.56
1.68
0.80
0.71
0.96
0.90
1.21
1.32
1.12
1.16
1.08
1.10
1.06
1.07
per maturity band
Cumulative liquidity
ratios across
maturity bands
1
Calculations based on Principle II approach
management information and are the basis for the active
To act as a liquidity-risk early warning indicator at DZ BANK,
management of our liabilities profile.
we use an internally defined planning threshold value of 1.20
for the maturity band I liquidity ratio. This value is based on
In addition to our internal management tools, our short-term
empirical experience and is designed to provide a lower limit
liquidity risk is also limited by regulator-imposed rules. This
that permanently secures sufficient liquidity discretion. We ini-
is the case both for DZ BANK and for our main German and
tiate targeted countervailing measures as soon as the liquidity
foreign subsidiaries and affiliates, which are all subject to
ratio falls to the level of the planning threshold.
equivalent regulatory regimes governing liquidity monitoring
under the relevant national law. The companies of the DZ BANK
To secure day-to-day liquidity, the liquidity management func-
Group complied with the requirements of principle II KWG at
tion has a portfolio of qualifying securities for central bank
all times during 2003.
repurchase operations at its disposal that it can sell at short
notice or deposit as security for refinancing transactions with
As part of the group-wide liquidity risk reporting system, each
central banks.
quarter we consolidate the Principle II data for the domestic
group companies with bank status and the Principle-II-equi-
Managing long-term liquidity
valent values of the foreign group companies and non-bank
companies with the corresponding data for DZ BANK. On
We use the liquidity process balance tool to manage long-
this basis we calculate what we call a “Group Principle II”
term liquidity processes. At DZ BANK and the other banking
measure that would enable us to detect survival-threatening
subsidiaries, we draw up liquidity process balances at least
liquidity risks within the group.
once a month and report the results to the committees responsible for strategic liquidity positioning decisions. Strategically
The above table shows the DZ BANK Group’s liquidity ratios
undesirable liquidity gaps are closed by managing the pattern
for 2003 compared with 2002. The liquidity ratios for each
of our issuance and repurchases. We also help to manage our
maturity band are calculated applying the Principle II system.
liquidity by defining internal buying-in rates for liquidity-bind-
The cumulative multi-band liquidity ratios predict the future
ing assets and liabilities balancing transactions.
trend of the ratios excluding the effects of new business.
F-31
Our long-term funding is generated through structured and
Summary and outlook
unstructured capital market products that are mostly distributed via local cooperative banks’ own- and third-party
The liquidity gaps identified by the liquidity process balances
securities account operations. Both DZ BANK and DG HYP
do not constitute potentially existence-threatening incon-
are authorised to raise liquidity by issuing covered bonds –
gruences in the DZ BANK Group’s refinancing structure. We
DZ BANK Briefe in the case of DZ BANK and pfandbriefe in
do not expect our liquidity risk to increase in 2004.
the case of DG HYP.
We are currently in the process at DZ BANK of further upManaging market liquidity risk
grading our non-trading-related liquidity reporting. As well
as completing our data picture of deterministic cash flows, we
Market liquidity risk refers to our management of both market
intend most importantly to improve our modeling of stochastic
price risk and liquidity risk. In the context of liquidity risk
cash flows and refine our understanding and definition of
management, the market liquidity of financial instruments is
position limits in respect of unforeseen liquidity processes both
especially relevant when liquidity-binding positions need to be
in the normal scenario and in crisis scenarios. We also hope
sold to raise short-term funds – for instance, during a liquidity
to further refine our modeling and management of market
crisis. As we would never expect the entire securities portfolio
liquidity risks in 2004.
to be sold immediately and without loss in such circumstances,
we on principle treat as not liquidatable all securities that
cannot be used as refinancing-eligible collateral for open-
6. Actuarial risk
market transactions with central banks.
In the context of DZ BANK’s market price risk management by
Actuarial risk arises within the DZ BANK Group through the
contrast, market liquidity risk does not relate to the selling of
business activities of our insurance subgroup R+V Versiche-
liquidity-binding positions but to the hedging of open market
rung AG, Wiesbaden (R+V).
risk positions. Portfolio managers bear the responsibility for,
and manage, hedging-related market liquidity risk. Any
Insurance solvency
losses incurred under this heading count towards the relevant
manager’s annual loss limit. Moreover market liquidity risks
R+V uses the regulatory solvency requirements as the basis
over the assumed retention period of 10 trading days are
for evaluating its overall risk situation. All the companies of
included in the value-at-risk calculated for the purposes of
the R+V group individually satisfy these solvency requirements
supervising market price risks. Significant hedging-related
even without taking their valuation reserves into considera-
market liquidity risks only exist in relation to certain credit-risk-
tion. The R+V group as a whole equally satisfies these require-
laden securities and credit derivatives positions. These are
ments.
mainly asset backed securities held on the basis of strategic
considerations.
F-32
Risk management in the directly-contracted life and
Risk management in the directly-contracted property and
health insurance business
casualty insurance business
The key determinant of the actuarial risk situation in the life
The key determinants of the actuarial risk situation for
insurance operations is the long-term nature of the benefit
property and casualty insurers are the premiums/claims risk
guarantees on the insured event at the same time as the
and the reserve risk. To make these risks manageable, the
premiums are fixed. To ensure their ability to satisfy all their
pricing of this category of business is the subject of precise
payment obligations under the insurance contracts, the com-
calculations based on mathematical-statistical models. Actively
panies set aside reserves. The dimensioning of these reserves
managing the composition of its business enables R+V to
is based on assumptions about the future trend of biometric
balance its risks over regions and segments. Passive reinsu-
risks, investment returns and costs. The risk that the calculation
rance helps to limit the cost of discrete risks and cumulative
basis will change over time is kept manageable through the
claims such as natural catastrophes. Claims reserves have
companies’ prudent product development and actuarial
been formed to cover both known and unknown losses at a
controlling systems.
level commensurate with the risk. R+V continuously monitors
the consumption of these reserves and the lessons learned are
The outstanding feature of the actuarial risk situation in health
fed back into the current estimates. The equalisation reserve
insurance is the steady rise in the costs of claims, due firstly to
also helps to balance out chance variations in the claims
the expansion of the customer base and secondly to changes
incidence over time.
in the behavior of policyholders and service providers. The
companies are countering these risks by applying a risk-aware
The overall claims situation has eased again in 2003 follow-
business acceptance policy characterised by binding accep-
ing the drain on the reserves in 2002 due to the so-called
tance guidelines, prudent risk selection and targeted benefits
hundred-year floods and the surge of storm damage claims.
and costs management. Management actuaries continuously
monitor the adequacy of the assumptions and parameters
factored into the calculation.
Claims rates on actuarial risks in the direct P & C insurance business
Net claims rate in % of earned
premiums 1
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
71.8
80.7
73.2
71.3
68.0
64.2
60.4
63.8
66.1
71.5
71.2
77.7
72.0
71.2
66.6
63.9
60.4
63.7
65.9
71.5
Including large-scale/
catastrophic claims
Excluding large-scale/
catastrophic claims
1
Accounting system changed from 1995 on
F-33
Risk management in the insurance underwriting business
caused through human actions, technological failures, process
or project management weaknesses or external events. This
The main actuarial risks facing insurance underwriters are
definition includes legal risks, but excludes strategic risks and
imbalances in the portfolio, excessive exposure to catastrophe
reputation risks.
claims and far-reaching changes in the fundamental trends
of the principal market segments. R+V counters these risks
Risk strategy
through continuous observation of the market. Its pays particular attention to maintaining a balanced portfolio, both in terms
Our strategy for handling operational risk is based on the
of its worldwide territorial diversification and in terms of its
DZ BANK Group’s risk tolerance capacity. At present the im-
sectoral mix. Its assumption of risks is subject to prescribed
plementation of the risk strategy is predominantly qualitative
subscription limits that cap its liability in respect of both indi-
in nature since our risk quantification system is still under
vidual and cumulative claims.
development.
The possible burden from catastrophe losses is continuously
Organisation and responsibilities
recorded, broken down by scale and frequency, and monitored
using market-standard methods including a DP system and
Our functional organisation model provides a key point of
backed up by in-house-developed verification processes. R+V
reference for all our other tools, in that it comprehensively
reinsures the liabilities it underwrites, especially potential
describes the roles and responsibilities of all process partici-
cumulative claims, through the national and international
pants. The model distinguishes four top-level dimensions:
reinsurance markets. The group only places business with
companies of first-class credit quality.
- Distributed risk management
- Central risk management
- Independent risk controlling
7. Operational risk
- Internal Audit
The fundamental management responsibility for operational
We have made a start at DZ BANK during 2003 on a large-
risks has been distributed to the individual organisation units.
scale project to design and implement sophisticated tools for
Specified universal issues, such as personnel or IT manage-
controlling and managing operational risks. This involves over-
ment, are centrally supported by specialised units. To preserve
hauling all our existing methodologies and tools. The group
the necessary separation of functions, the group companies
companies are similarly systematising their operational risk
have set up dedicated units to perform independent controll-
control and management toolkits.
ing of operational risk; these units are charged with developing and implementing methodologies for the controlling and
Basing our approach closely on the banking regulators’ defini-
management of operational risks and with supervising risk
tion, we understand operational risk as the threat of losses
management.
F-34
Management tools
An important sub-aspect of strategic risk is business risk.
By this we understand the potential for losses that results
We gather loss data group-wide so that we can promptly
from the fact that falling revenue cannot be fully compensated
analyse historic loss events in order to be able to identify
by equivalent cost reductions. This risk is also referred to as
trends in the development of risks and concentrations of
fixed cost cover risk or cost overhang risk. We have made
operational risks in specific operating units. We are also using
preliminary quantifications of our business risk using an earn-
the collected loss data to build up the necessary data history
ings-at-risk approach coupled with intra-sector comparisons.
to quantify operational risks in future.
The construction of suitable methods for measuring strategic
risks has been flagged as a bolt-on development priority for
In order to identify all operational risks and create the maxi-
our Risk Control unit. There are still no industry standards for
mum possible transparency as to our risk situation, we have
quantifying strategic risk.
implemented extensive self-assessment processes in many
areas of the DZ BANK Group. This involves experts from the
The management of the DZ BANK Group’s strategic risks
responsible units making judgments on their operational risk
is the primary role of the Board of Managing Directors of
with the aid of prescribed questionnaires.
DZ BANK in consultation with the directors of the group
companies. Our present system for managing strategic risk
Finally we deploy a system of risk indicators based on pre-
relies on the forward-looking evaluation of success factors
scribed thresholds combined with a traffic light system that
coupled with the definition from these of performance targets
enables us to draw conclusions about trends and thereby
for the key group companies.
functions as an early warning screen. Risk indicators are
extensively, systematically and regularly surveyed within the
This is founded on a revolving planning process that perio-
DZ BANK Group.
dically updates the strategic multi-year plan and the annual
operating plans. The core components of the planning process
are the observation of market trends – most importantly in the
8. Strategic risk
area of customers, products and competitors – and environmental conditions, such as changes in the legal framework,
plus critical analyses of our own strengths and weaknesses
By strategic risk we understand the danger of losses that result
profile. A management information system monitors the
from management decisions on the business-policy position-
achievement of targets.
ing of the DZ BANK Group. Strategic risks are realised when
important changes in environmental conditions or market
As a result of important decisions of principle to reposition
trends are not recognised early enough or their impact is
DZ BANK as a central bank, as a corporate bank and as a
wrongly assessed and as a consequence disadvantageous
group holding company, significant steps were taken during
fundamental decisions are made that are then difficult to
2003 to limit and actively manage our strategic risks.
reverse.
F-35
The acquisition of norisbank, a specialist consumer finance
9. Summary
bank, has helped to further round out the DZ BANK Group’s
product offering. norisbank will strengthen the strategic
positioning of the cooperative grouping as an end-to-end
The DZ BANK Group has consistently operated within the
integrated financial services provider and also help to stabilise
boundaries of our risk tolerance capacity during 2003. We
the group’s underlying profitability. New spin-offs and joint
will ensure the same is true in 2004. Our economic risk-taking
ventures in the area of high-volume securities and payments
is commensurate with our capital backing. We also satisfied,
transaction processing services have allowed us to further
and continue to satisfy, the regulatory capital adequacy re-
variabilise our cost base and thereby limit our business risk.
quirements at all times; the DZ BANK Group’s capital ratios
were and are substantially higher than the regulators’ mini-
Substantial strategic risks arising from the merger that created
mum standards.
DZ BANK were finally eliminated during the 2003 financial
year. Among other achievements, we have realised almost all
We are deploying modern management and monitoring tools
the synergy potential that we predicted on the non-personnel
in every area of risk, and we will continue to progressively
costs front, and we have largely completed the optimisation of
refine and improve them. We will be guided in this process
our personnel structure.
by the future Basel II requirements for risk management by
banks as well as the Solvency II regime for risk management
by insurance providers.
F-36
III. Outlook
some of which will only come to market this year – including
DZ BANK’s new business customer products – to produce significant volume growth that should help the cooperative bank-
Using our combined strength to reap synergies
ing sector to increase our market share. Moreover, boosting
and make the most of the economic upturn
the efficiency of our sales effort is a key focus of our drive to
harvest synergies between the constituents of the cooperative
We see more favorable economic omens for the 2004 financial
sector, and we are confident of further positive progress on
year. We have developed a wealth of new products and
this front in the current year.
simultaneously regrouped both processes and resources at
the parent bank and across the DZ BANK Group during the
DZ BANK’s administration costs are set to fall again, assuming
year under report specifically to equip ourselves to actively
the measures we are taking to boost the cost effectiveness of
exploit – together with our partners in the cooperative bank-
the Group’s processes and functions deliver the anticipated
ing sector – the opportunities the market is about to offer us.
positive effects. Thanks to our high-throughput central process-
In this light, we expect 2004 to bring improved results across
ing service providers such as Transaktionsinstitut für Zahlungs-
the board.
verkehrsdienstleistungen and dwpbank, the local cooperative
banks will also share the benefit of these effects.
This outlook is based on the anticipated brightening of the
economic climate this year. After a year of economic stagna-
We are convinced of the effectiveness of the parent bank’s and
tion in 2003 when consumer demand and corporate invest-
the group’s upgraded credit management systems. With new
ment both contracted, we are confident that 2004 will see
business now margin and risk-oriented, we have built a good
a slightly stronger contribution from the domestic component
foundation for further reducing our risk provisioning costs. We
and a substantially stronger contribution from the export
will continue to optimise our corporate portfolio in 2004 in
component of the German economy. The consequential effects
line with our defined strategy.
of the government’s program of legal reforms coupled with a
cyclical recovery of corporate investment are likely to moder-
To summarise these economic trends and this internal progress
ately stimulate overall domestic economic output.
in a sentence, we believe the 2004 financial year will bring
improved trading and results for DZ BANK and the DZ BANK
Our chosen focus on the cooperative banking sector requires
Group and we are confident – especially in the light of our
us both to continuously develop our products and most im-
subsidiary role within the cooperative banking sector – that
portantly to provide effective support for the local cooperative
all our business partners are also set to share in this positive
banks’ sales organisation. We expect the product innovations
trend.
that the group companies put so much effort into last year and
F-37
Report of the Supervisory Board
The Supervisory Board was also kept informed about the
bank’s and the Group’s risk situation and the refinement of
their systems and procedures for controlling risks, especially
market price and default risks and the other risks typical of the
banking industry. Significant individual business transactions
were submitted to the Supervisory Board for approval.
To enable it to perform its duties and comply with the statutory requirements, the Supervisory Board formed a Personnel
Sub-committee, an Audit Sub-committee, a Credit and Investments Sub-committee and a Mediation Sub-committee pursuant to section 27.3 of the German Codetermination Act.
The first three sub-committees met on several occasions. The
Dr Christopher Pleister
Chairman of the Supervisory Board
full Supervisory Board was kept regularly informed about the
activities of its sub-committees.
of DZ BANK AG
Outside of formal meetings, the chairman of the Supervisory
Board and the chairmen of the Audit and the Credit and
As required by the law and the Articles of Association, the
Investments Sub-committees were kept informed of key
Supervisory Board and its sub-committees have monitored the
decisions and exceptional business occurrences through
conduct of the business by the Board of Managing Directors
regular discussions with the chairman of the Board of Manag-
during the 2003 financial year and have discussed and voted
ing Directors.
on the proposed transactions requiring their consent.
Dr Rainer Märklin resigned from the Supervisory Board with
The Supervisory Board was kept regularly informed by the
effect from the end of the ordinary general meeting of share-
Board of Managing Directors about the situation and progress
holders held on May 28, 2003. Mr Helmut Gottschalk was
of the bank and the Group and the general trend of trading.
elected as a new member of the Supervisory Board.
The Supervisory Board held a total of six meetings whose
primary focuses, in addition to the in-depth discussion of
Dr Thomas Duhnkrack was appointed as a full member of the
current business developments, were the future business policy
Board of Managing Directors with effect from January 1, 2003.
of the bank including its principal strategic and organizational
Mr Uwe E. Flach and Mr Peter Dieckmann resigned from the
dimensions, and key issues concerning the integrated co-
Board of Managing Directors of DZ BANK as at December 31,
operative financial system.
2003.
F-38
Deloitte&Touche GmbH, Wirtschaftsprüfungsgesellschaft,
Frankfurt am Main, and Ernst&Young AG, Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, jointly audited the
bookkeeping records, annual financial statements and
management report of DZ BANK for the year to December 31,
2003 presented by the Board of Managing Directors as well as
the consolidated financial statements and the Group management report, and found them to be in conformance with the
statutory regulations. The auditors accordingly issued an unqualified audit certificate in both cases. The audit reports were
submitted to the members of the Supervisory Board and comprehensively examined and discussed. The Supervisory Board is
in agreement with the findings of the auditors.
Representatives of the auditors attended the meeting of the
Supervisory Board called to approve the annual financial statements in order to report in detail on the key audit outcomes.
They also made themselves available to the members of the
Supervisory Board to answer any queries.
The Supervisory Board and the Audit Sub-committee chaired
by Mr Rolf Hildner have examined in detail the annual and
consolidated financial statements and management reports for
DZ BANK and the DZ BANK Group as well as the proposed appropriation of profits. We have no objections to raise.
Frankfurt am Main, April 14, 2004
At its meeting on April 14, 2004 the Supervisory Board approved the annual financial statements for the year to Decem-
DZ BANK AG
ber 31, 2003 prepared by the Board of Managing Directors,
Deutsche Zentral-Genossenschaftsbank,
which are therefore formally adopted. The Supervisory Board is
Frankfurt am Main
in agreement with the proposal from the Board of Managing
Directors for the appropriation of the available profits.
The Supervisory Board thanks the Board of Managing Directors
and all employees for their exceptional personal commitment
Dr Christopher Pleister
and efforts on behalf of the bank and the Group in 2003.
Chairman, Supervisory Board
F-39
Group Financial Statements
86
90
Consolidated Balance Sheet of the
110
DZ BANK Group as at December 31, 2003
110
7 | Maturity structure of assets and liabilities
111
8 | Arrears of interest and capital repayments on
building loans advanced by Bausparkasse Schwä-
Consolidated Income Statement of the DZ BANK
bisch Hall.
Group for the period from Jan. 1 to Dec. 31, 2003
92
95
98
99
99
99
112
9 | Building loans agreed but not yet paid out by
112
10 | Related companies and companies with which a
113
11 | Claims and liabilities in respect of affiliated banks
113
12 | Subordinated assets
114
13 | Insurance-related investments
116
14 | Other insurance-specific assets
116
15 | Trust operations
116
16 | Foreign currency positions
Bausparkasse Schwäbisch Hall
Consolidated Cash Flow Statement
participation relationship exists
Segment Reporting
Capital Structure and Movement
Notes to the Financial Statements
A. General Information
1 | Legal basis on which these Group Financial
B. Notes to the Balance Sheet
117
17 | Business subject to repurchase agreements
100
2 | Sphere of consolidation
117
18 | Assets assigned as security for liabilities
101
3 | Principles of consolidation
117
19 | Structure of securities portfolio by purpose
102
4 | Presentation and valuation rules
118
20 | Securities eligible for stock exchange listing
108
5 | Deferred taxation in the Consolidated Financial
119
21 | Fixed asset structure and movements
120
22 | Own shares
121
23 | Authorised capital
121
24 | Shareholder disclosures
Statements have been drawn up
Statements
109
6 | Currency translation
F-40
121
25 | Other assets
132
42 | Other operating income and expense
122
26 | Tax deferrals and provisions for deferred tax liabi-
132
43 | Exceptional income and expense
133
44 | Taxes on income
lities
123
27 | Accruals and deferrals
123
28 | Other liabilities
134
D. Other information
123
29 | Provisions
134
45 | Other financial obligations
124
30 | Actuarial reserves
134
46 | Placing and underwriting obligations
124
31 | Other insurance-specific liabilities
134
47 | Declaration of backing
125
32 | Participatory capital
135
48 | Employees
127
33 | Subordinated liabilities
135
49 | Cover statement for DZ BANK AG
127
34 | Off-balance-sheet futures business by product
136
50 | Cover assets trustees
136
51 | Cover statement for the mortgage bank’s mortgage
137
52 | Information on leasing business
138
53 | Changes in the business book of Bausparkasse
139
54 | Change in the loan allocation volume of Bauspar-
140
55 | Statutory bodies
143
56 | Appointments held by members of the Board of Ma-
structure
129
35 | Off-balance-sheet futures business by counterparties structure
and local authority lending business
Schwäbisch Hall
130
C. Notes to the Income Statement
130
36 | Breakdown of income by geographical markets
130
37 | Commission income and expense
130
38 | Net income from financial transactions
131
39 | Income from insurance operations
naging Directors and employees on the Supervisory
131
40 | Expense from insurance operations
Boards of major corporations
132
41 | Administration and agency services provided for
kasse Schwäbisch Hall
third parties
F-41
Consolidated Balance Sheet of the DZ BANK Group
as at December 31, 2003
Assets
(Note)
in € million
1. Cash reserve
12.31.2003
12.31.2002
879
878
a) Cash on hand
132
87
b) Balances with central banks
746
790
(573)
(509)
1
1
74
38
57
17
(51)
(2)
17
21
of which: eligible for refinancing at Deutsche Bundesbank
c) Balances with postal giro agencies
2. Debt instruments of public-sector entities and bills of
exchange eligible for refinancing at central banks
a) Treasury bills, discountable Treasury notes and similar debt
instruments of public-sector entities
of which: eligible for refinancing at Deutsche Bundesbank
b) Bills of exchange
of which: eligible for refinancing at Deutsche Bundesbank
3. Placements with, and loans and advances to, other banks
(7)
a) Repayable on demand
b) Term deposits and loans
of which: relating to saver´s building loan
relating to mortage loans
(17)
(21)
89,264
93,637
3,089
2,907
86,175
90,730
(49)
(90)
(236)
(247)
(7,159)
(9,268)
102,462
106,935
(26,598)
(26,791)
a) Mortage loans
24,520
24,911
b) Local authority loans
18,702
19,220
relating to local authority loans
4. Loans and advances to non-bank customers
(7)
of which: secured by mortages
(excluding BSH construction loans)
19,957
20,462
(15,039)
(15,119)
ca) Allocations of saver’s building loans
9,662
10,836
cb) Preliminary and bridge finance
9,281
8,574
c) Construction loans advanced by Bausparkasse Schwäbisch Hall
of which: secured by mortages
cc) Other
d) Other loans and advances
5. Bonds and other fixed-interest securities
a) Money market instruments issued by
aa) public-sector issuers
(7, 19, 20)
1,014
1,052
39,283
42,342
82,732
78,090
104
99
–
–
(–)
(–)
104
99
(57)
(60)
of which: qualifying as repo collateral at
Deutsche Bundesbank
ab) other issuers
of which: qualifying as repo collateral at
Deutsche Bundesbank
F-42
in € million
(Note)
b) Bond issued by
ba) public-sector issuers
12.31.2003
12.31.2002
75,339
74,121
15,563
11,620
(14,787)
(11,047)
59,776
62,501
(41,840)
(44,675)
of which: qualifying as repo collateral at
Deutsche Bundesbank
bb) other issuers
of which: qualifying as repo collateral at
Deutsche Bundesbank
c) own bonds
Nominal value
7,289
3,870
(7,144)
(3,754)
(19, 20)
3,212
7,798
7. Insurance-related investments after offsets
(13)
35,715
33,776
8. Other insurance-specific assets
(14)
2,149
2,144
6. Equity shares and other available-yield securities
9. Participations
(20, 21)
of which: In banks
In financial services institutions
10. Participations in associated companies
(20, 21)
of which: In banks
In financial services institutions
11. Shares in related companies
(20, 21)
of which: In banks
In financial services institutions
12. Assets held on trust basis
(15)
of which: trust loans
420
440
(254)
(205)
(12)
(12)
251
180
(237)
(171)
(14)
(9)
824
905
(88)
(161)
(35)
(39)
2,411
2,326
(841)
(750)
133
221
13. Equalization claims against government agencies Including claims converted into bonds
14. Intangible assets
(21)
21
21
15. Property and equipment
(21)
5,206
5,309
16. Own equity or partnership shares
(22)
Nominal value
24
24
(10)
(10)
17. Other assets
(25)
3,110
2,807
18. Deferred tax assets
(26)
1,933
1,960
19. Accrued income and deferred expenses
(27)
903
766
a) From issuance and lending operations
656
512
b) other
247
254
331,723
338,255
Total assets
F-43
Equity and liabilities
in € million
(Note)
12.31.2003
12.31.2002
(7)
115,417
122,922
a) Repayable on demand
27,720
30,015
b) Fixed-term or agreed notice
87,697
92,907
(645)
(630)
(980)
(929)
1. Deposits from other banks
of which: issued registered mortage pfandbriefe
issued registered public pfandbriefe
issued registered mortage and public pfandbriefe
assigned to lenders as security on loans taken out
saving deposits under save-to-build plans
of which: on advanced saver´s building loan
2.
Amounts owed to other depositors
(7)
a) Deposits under save-to-build plans and on saving accounts
aa) Savings deposits with three months notice term
(26)
(34)
(259)
(182)
(1)
(1)
78,521
72,649
27,159
25,314
767
352
22
105
26,370
24,857
(56)
(59)
ab) Savings deposits with more than three months
notice term
ac) Saving deposits under save-to-build plans
of which: relating to plans under notice
relating to allocated saver´s building loans
b) Other liabilities
(107)
(93)
51,362
47,335
ba) Repayable on demand
10,764
8,412
bb) Fixed-term or agreed notice
40,598
38,923
(3,942)
(4,170)
(3,936)
(4,052)
of which: issued registered mortage pfandbriefe
issued registered public pfandbriefe
issued registered mortgage and public pfandbriefe assigned to lenders as security on loans
taken out
3. Liabilities in certificate form
(7)
a) Issued bonds
(140)
83,035
70,772
77,785
aa) Mortage pfandbriefe
13,497
13,161
ab) Public pfandbriefe
26,649
29,880
ac) Other bonds
30,626
34,744
b) Other certificated liabilities
4,840
5,250
(2,115)
(3,199)
(15)
2,411
2,326
(841)
(750)
(28)
3,555
3,535
of which: money market instruments
4. Liabilities arising from trust operations
of which: trust loans
5. Other liabilities
F-44
(124)
75,612
in € million
6. Accrued expenses and deferred income
(Note)
12.31.2003
12.31.2002
(27)
2,661
2,460
a) From inssuance and lending operations
332
376
2,329
2,084
3,067
2,873
a) Provisions for pensions and similar obligations
959
877
b) Provisions for taxes
419
478
1,689
1,518
459
456
(30)
32,540
30,838
(31)
4,380
4,141
11. Subordinated liabilities
(7, 33)
3,567
3,602
12. Participatory capital
(7, 32)
2,680
2,685
(277)
(233)
743
741
6,110
5,992
b) Other
7. Provisions
(7, 26, 29)
c) Other provisions
8. Building savings & loan guarantee fund
9. Actuarial reserves
10. Other insurance-specific liabilities
of which: Maturing within two years
13. Fund for general banking risks
14. Capital and reserves
a) Subscribed capital
(23)
2,879
2,879
b) Capital reserve
528
528
c) Surplus reserves
45
107
9
5
cb) Reserve for own shares
24
24
cc) Other surplus reserves
12
78
2,603
2,426
55
52
Total Equity and Liabilities
331,723
338,255
1. Contingent liabilities
12,916
13,262
12,916
13,262
14,195
16,158
14,195
16,158
108,765
98,846
108,765
98,846
ca) Statutory reserve
d) Balancing item for minority interests
e) Cumulative profit
Liabilities arising from guarantees and warranties provided
2. Other obligations
Irrevocable credit commitments
3. Specialist funds managed on behalf of shareholders
Sum of inventory values
Number of specialist funds administered: 658 (PY: 685)
F-45
Consolidated Income Statement of the DZ BANK Group for the period
from January 1 to December 31, 2003
(Note)
in € million
1. Interest income from
a) Lending and money market operations
of which: relating to saver´s building loans
relating to preliminary and bridge loans
relating to other construction loans
2003
2002
11,099
12,812
8,719
10,151
(518)
(561)
(508)
(473)
(67)
(63)
2,380
2,661
9,478
11,277
(707)
(700)
318
379
272
318
20
28
6
10
20
23
26
23
1,847
1,726
(252)
(164)
(47)
(52)
1,074
873
(527)
(408)
b) Fixed-interest securities and government-inscribed
debt
2. Interest expense
of which: on savings deposits under save-to-build plans
3. Current income from
a) Equity shares and other variable-yield securities
b) Participations
c) Shares in associated companies
d) Shares in related companies
4. Income from profit pools and profit transfer or profit sharing agreements
5. Commission income
(37)
of which: Business conclusion and introduction fees from
Bausparkasse Schwäbisch Hall
Loan administration fees following allocation by
Bausparkasse Schwäbisch Hall
6. Commission expense
(37)
of which: Business conclusion and introduction fees paid
to Bausparkasse Schwäbisch Hall
7. Net income from financial transactions
(38)
335
216
8. Income from insurance operations
(39)
9,473
9,713
9. Expense from insurance operations
(40)
9,291
9,122
(42)
2,228
2,159
10. Other operating income
11. Income from liquidation of special item with
reserve portion
12. General administrative expenses
a) Personnel expenses
aa) Wages and salaries
–
7
2,226
2,299
1,140
1,172
896
930
ab) Compulsory social security contributions and
expenses for pension benefits and welfare
of which: for pensions provision
b) Other administrative expenses
F-46
244
242
(111)
(108)
1,086
1,127
in € million
(Note)
2003
2002
177
203
1,787
1,756
326
2,307
108
–
–
181
42
71
817
- 692
–
2
13. Depreciation and write-downs on tangible and
intangible assets
14. Other operating expense
(42)
15. Depreciation and write-downs on loans and advances and certain securities, plus additions to provisions on lending business
16. Depreciation and write-downs on participations,
shares in related companies and securities treated
as fixed assets
17. Income from write-ups on participations, shares in
related companies and securities treated as fixed
assets
18. Expenses from the assumption of losses
19. Result of ordinary operations
20. Exceptional income
(43)
21. Exceptional expense
(43)
78
224
22. Taxes on net exceptional income
(44)
- 31
- 89
- 47
- 133
(44)
345
- 1,229
-4
6
47
47
23. Net exceptional result
24. Taxes on the result of ordinary operations
25. Other taxes not included under “Other operating
expense” heading
26. Earnings paid out under profit pools and profit
transfer or profit sharing agreements
27. Net income on period
382
351
28. Attributable to minority interests
88
296
29. Withdrawals from surplus reserves
–
39
–
39
239
42
4
3
from own-shares reserve
30. Allocations to surplus reserves
a) to statutory reserve
b) to other surplus reserves
31. Consolidated earnings
235
39
55
52
F-47
Consolidated Cash Flow Statement
in € million
2003
Net income on period (including shares of earnings of minority-owned companies)
before exceptional items and taxes
817
Non-cash positions in net income and adjustments to reconcile net income
with cash provided by ongoing activities:
Depreciation, write-downs and write-ups on loans and advances, investments and property
and equipment (including leasing)
Change in provisions (excluding tax liabilities)
Change in actuarial reserve
1,528
41
1,702
Change in other non-cash positions (including insurance-related items)
-286
Profit/loss from the sale of investments, property and equipment
-131
Other adjustments (net)
Sub-total
-2,006
1,665
Change in assets and liabilities from ongoing activities after correction
for non-cash components:
Claims
- Placements with and loans and advances to other banks
3,376
- Loans and advances to non-bank customers
6,673
Securities held for dealing purposes
-1,935
Other assets from ongoing activities
-437
Other insurance-specific assets
-5
Liabilities
- Deposits from other banks
- Amounts owed to other depositors
Promissory notes and other liabilities in certificate form
3,999
-7,247
Other liabilities from ongoing activities
-19
Other insurance-specific liabilities
239
Interest and dividend receipts
Interest payments
Actual income tax payments
Cash flow from operating activities
F-48
-6,803
12,530
-10,505
-176
1,355
in € million
2003
Proceeds from
- the sale of investments
6,352
- the sale of property and equipment
892
Payments for
- the acquisition of investments
-4,543
- the acquisition of property and equipment
-1,796
Proceeds from the sale of insurance-related investments
10,532
Payments for the acquisition of insurance-related investments
-12,146
Effects from changes in the sphere of consolidation
-220
Change in funds from other investing activity (net)
-6
Cash flow from investing activities
- 935
Receipts from capital increases
_
Payments to shareholders and minority shareholders
- Dividend payments
-291
- Other payments
-12
Change in funds from other capital (net) – including participatory and subordinated capital
-80
Cash flow from financing activities
- 383
Funds at start of period
916
Cash flow from operating activities
1,355
Cash flow from investing activities
-935
Cash flow from financing activities
-383
Funds at end of period
953
F-49
The Consolidated Cash Flow Statement for the DZ BANK Group is structured in compliance with the requirements of accounting standard DRS 2-10. It reconciles the starting value of the group’s cash and cashequivalents (funds) with the funds position at the close of the year by representing the year’s net payment
flows from operating, investing and financing activities. We have not reported prior-year figures for comparison purposes as this is the first year a cash flow statement has been prepared.
The funds reported include cash in hand and balances at central banks (cash reserve). The cash equivalents
include debt instruments of public entities and bills of exchange.
Cash of € 422 million was used to acquire shares in fully consolidated companies during 2003, while sales
of this kind generated cash inflows of € 72 million. Cash totaling € 130 million was acquired in the process.
To summarise the main aggregate effects of the above transactions, claims on customers totaling
€ 2,698 million and liabilities to customers totaling € 2,206 million were acquired.
F-50
Segment Reporting
by business lines
in € million
Net interest income
Risk provisions
Net commission income
Surplus from insurance operations
Net income from financial transactions
General and administrative expense
Net other income and expense
Retail
Property
Corporate
Banking
Finance
Insurance
Other/
Total
Consolidation
12.31.2003
Banking
751
275
1,129
–
-190
1,965
-382
-29
-147
–
232
- 326
411
545
-183
–
–
–
326
9
–
–
-1,207
-620
-580
389
28
74
0
773
-1
182
–
335
–
4
- 2,403
–
-50
441
–
183 1
288
208
293
183
-5
967
Segment assets
167,576
22,118
101,048
37,864
-12,193
316,413
Segment liabilities
166,603
19,950
96,199
36,920
-13,202
306,470
5,280
1,509
2,946
1,173
-4,853
6,055
Profit after risk provisions
Balance sheet equity
Return on equity in percent
Risk positions
Cost-income ratio in percent
Total employees
1
Central and
5.5
13.8
9.9
15.6
–
16.0
67,503
8,307
33,128
9,339
624
118,901
64.3
72.3
56.9
–
–
65.0
7,019
4,227
3,791
10,276
–
25,313
The specific earnings calculation rules governing life and health insurance providers mean that if they make high tax payments, the reported surplus on insurance operations is
increased correspondingly.
F-51
by regions
Germany
Rest of Europe
Rest of world
Total
Consolidation
in € million
12.31.2003
Profit before risk provisions
Risk provisions on lending business
1,098
214
97
-116
1,293
-460
-10
-86
230
- 326
638
204
11
114
967
Segment assets
287,132
30,914
10,577
-12,210
316,413
Segment liabilities
279,478
31,392
7,442
-11,842
306,470
66.1
58.3
34.8
–
65.0
Profit after risk provisions
Cost-income ratio in percent
The Summary Operating Segments Report is prepared in accordance with the requirements of the accounting standards DRS 3 and DRS 3-10. The results are broken out into segments firstly on the basis of core
operating business lines and secondly on the basis of geographical areas. We have not reported prior-year
figures for comparison purposes as this is the first year a summary operating segments report has been
prepared.
The annual results, assets and liabilities of the group’s consolidated subsidiaries have all been valued on a
consistent basis and allocated to the operating segment that best reflects their respective business focus.
The Central and Corporate Banking segment encompasses all the DZ BANK Group’s activities in the areas
of business with local cooperative banks, business with corporate customers, business with institutional customers and investment banking. In other words, the focus is on business customers as a target group.
The VR-LEASING AG, Eschborn, and DVB Bank AG, Frankfurt am Main, subgroups are also included under
this heading, as are the companies DZ BANK Ireland plc, Dublin, Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG, Frankfurt am Main, and DZ BANK AG.
The Retail Banking segment covers the DZ BANK Group’s private banking operations and activities relating
primarily to asset management, and the focus is therefore on personal customers as a target group. The
main companies included are cosba private banking ag, Zürich, DZ BANK International SA, LuxembourgStrassen and norisbank AG, Nürnberg, plus the subgroups Union Asset Management Holding AG, Frankfurt
am Main, and SÜDWESTBANK Aktiengesellschaft, Stuttgart.
The Property Finance segment takes in the group’s home savings and loan and mortgage lending businesses. The main companies concerned are Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall, Deutsche
Genossenschafts-Hypothekenbank AG, Hamburg, and VR Kreditwerk Hamburg-Schwäbisch Hall AG,
Hamburg and Schwäbisch Hall.
F-52
The Insurance segment covers the group’s insurance operations in the form of the R+V Allgemeine Versicherung AG, Wiesbaden, subgroup.
The Others/Consolidation heading reports the companies that do not count as part of the DZ BANK Group’s
core operating business lines. This segment also includes the inter-segment consolidation adjustments. They
include the impact on the income statement of the deconsolidation of VR-Immobilien SAGA GmbH of
€ 97 million and the consolidation of DG HYP’s income of € 32 million from the sale of land and buildings,
valued differently at the group level.
The components taken into account in reporting the profitability of the segments include their net interest
income, risk provisions, net commission income, surplus from insurance operations, net proprietary trading
income, administration expense and balance of other income and expense.
The segments’ net worth and financial situation is shown by reference to their assets and liabilities. The segment assets include their cash reserve, claims on other banks and non-bank customers, bonds and other
fixed-interest securities, equity shares and other variable-yield securities, insurance-related investments and
other insurance-specific assets. The segment liabilities include their liabilities to other banks and non-bank
customers, certificated liabilities, actuarial reserves and other insurance-specific liabilities.
The Balance-sheet Equity heading breaks down the DZ BANK Group’s balance-sheet equity excluding the
consolidated net profit. The segment figures aggregate the equity of the companies assigned to the segment, adjusted for intra-segment effects.
The measures chosen for judging the success of the operating segments are the rate of return on their
balance-sheet equity and their cost-income ratio. The return on equity has been calculated as the ratio of
profit after risk provisions to balance-sheet equity. The cost-income ratio shows the relationship between
their total general and administrative costs and their operating income and reflects the segments’ cost
efficiency.
The second reporting format breaks down some of the same parameters according to the registered office of
the operating units concerned.
F-53
Capital Structure and Movement
Position at
Shares
Own
Dividends
12.31.2002
issued
shares
paid
acquired/
in € million
Changes in Consolidaconsolida-
ted profit
tion sphere
Earnings-
Position at
neutral
12.31.2003
effects
cancelled
DZ BANK Group
Subscribed capital
2,879
–
–
–
–
–
–
2,879
Capital reserve
528
–
–
–
–
–
–
528
Earned group equity
159
–
–
-52
-350
294
–
51
- Currency translation balancing item
–
–
–
–
–
–
9
9
- Other neutral transactions
–
–
–
–
–
–
40
40
Cumulative net other group items:
Group balance-sheet equity
3,566
–
–
- 52
- 350
294
49
3,507
24
–
–
–
–
–
–
24
3,542
–
–
- 52
- 350
294
49
3,483
2,426
183
–
-239
211
88
–
2,669
- Currency translation balancing item
–
–
–
–
–
–
-84
- 84
- Other neutral transactions
–
–
–
–
–
–
18
18
Equity
2,426
183
–
- 239
211
88
- 66
2,603
Group equity
5,968
183
–
- 291
- 139
382
- 17
6,086
(excluding minorities)
Own shares not intended for cancellation
Equity
Minority interests
Minority capital
Cumulative net other group items:
This group capital structure and movements statement has been drawn up in accordance with DRS 7.
Because this table is an innovation, we have not included prior-year values for the currency translation
balancing item and other neutral transactions headings. The group equity total in this table is lower than
the figure shown in the consolidated balance sheet by the value of the own shares holding, a deduction
required by DRS 7.
F-54
Notes to the Financial Statements
A. General Information
1 | Legal basis on which
These Consolidated Financial Statements of the DZ BANK Group for the year ending December 31, 2003
these Consolidated
have been prepared in accordance with the requirements of the German Commercial Code (HGB) and the
Financial Statements
Order on the Accounting of Credit Institutions and Financial Services Institutions (RechKredV). At the same
have been drawn up
time, the Consolidated Financial Statements are in compliance with the provisions of Germany’s Joint
Stock Corporations Act (AktG) and the DG BANK Reorganization and Transformation Act (UmwG), as well
as the Articles of Association of DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main
(DZ BANK AG). The Consolidated Financial Statements additionally comply in all respects with other standards drawn up by the German accountings standards committee (Deutsche Standardisierungsrat, DSR)
and officially promulgated by the Federal Justice Ministry (Bundesministerium der Justiz, BMJ) as required
by section 342.2 HGB.
On February 26, 2002 the federal government’s Corporate Governance Commission presented its German
Corporate Governance Code. The currently valid version was published in the online Federal Gazette on
May 21, 2003. This code brings together all the important legal requirements regulating the leadership and
supervision of German stock corporations as well as internationally recognized standards of best practice in
responsible corporate governance.
The German Act to Promote Transparency and Public Information through the Further Reform of Company
and Accounting Law (TransPuG), incorporated into the Joint Stock Corporations Act through the addition of
a new section 161 AktG, makes this Code an integral component of the reporting duties of all listed companies’ executive and supervisory boards.
DZ BANK Group has one stock exchange listed company in DVB Bank Aktiengesellschaft, Frankfurt am Main
(DVB). As required by the law and within the set time frame, on December 30, 2003 the Board of Managing
Directors and Supervisory Board of DVB published a second declaration of conformity within the terms of
section 161 AktG in conjunction with section 15 EG AktG.
All monetary values are stated in euro in compliance with section 298.1 HGB in conjunction with section
244 HGB. Advantage has been taken of the option to provide information through the notes rather than the
balance sheet. In the interests of clarity, we have aggregated certain balance sheet and income statement
headings.
The separate financial statements of all the companies consolidated into the group were prepared using the
same presentation and valuation principles that applied for DZ BANK AG. Separate notes have been prepared for DZ BANK AG and the DZ BANK Group.
F-55
Significant information on the group’s building savings & loan business has been included in the standard
forms prescribed by the RechKredV. In addition, aggregated headings from the reporting forms prescribed
for insurance companies have been included in the balance sheet and income statement. Insurance-specific
items have been expanded on in the Notes. The Consolidated Financial Statements also comply with the
special rules for reporting on leasing and investment companies.
2 | Sphere of consolidation
The Consolidated Financial Statements for the year to December 31, 2003 include, in addition to DZ BANK AG
as the parent company, a further 23 subsidiary companies and five sub-groups numbering among them 810
companies.
The DZ BANK Group’s sphere of consolidation has changed as follows from the end-2002 position:
5 new companies were consolidated for the first time at December 31, 2003. These are:
- DZ BANK Capital Funding LLC I, Wilmington, USA
- DZ BANK Capital Funding Trust I, Wilmington, USA
- norisbank AG, Nürnberg
- Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG, Frankfurt am Main
- WÜRTT. GENO-HAUS GmbH & Co. KG, Stuttgart
The fully consolidated subsidiary company SÜDWESTBANK Aktiengesellschaft, Stuttgart, was consolidated as
a subgroup for the first time as at 31 December 2003.
The following 2 companies were removed from the sphere of consolidation during 2003:
- FinanzVerbund Beteiligungsgesellschaft mbH, Schwäbisch Hall (FinanzVerbund)
- VR-Immobilien SAGA GmbH, Frankfurt am Main
The assignment of 51 percent of the voting rights in VR-Immobilien SAGA GmbH resulted in the company’s
deconsolidation and also reduced the group’s holding in Bausparkasse Schwäbisch Hall AG, Schwäbisch
Hall, from 94.9 percent to 82.8 percent.
FinanzVerbund only survived as a shell company in 2003 and was deconsolidated on the grounds of triviality
as permitted by section 296.2 HGB.
F-56
With retroactive effect from 1 January 2003, Bank für Wertpapierservice und -systeme AG, Frankfurt am
Main, (bws bank) was amalgamated with WPS WertpapierService Bank Aktiengesellschaft, Düsseldorf, to
create Deutsche WertpapierService Bank AG, Frankfurt am Main (dwpbank). This merger led to the deconsolidation of bws bank. The newly created company dwpbank, in which DZ BANK AG now holds 40 percent of
the share capital, is consolidated at equity.
A total of 141 related companies were not included in the Consolidated Financial Statements because of
their overall minor significance to the group’s assets and liabilities, financial position and profit situation as
defined by section 296.2 HGB.
It was decided not to apply the at-equity method in the case of 7 associated companies on the grounds of
triviality, as permitted by section 311.2 HGB.
The complete list of shareholdings is listed in the Frankfurt am Main Commercial Register. An overview of
the group’s major participations is available on request from DZ BANK AG.
3 | Principles of
consolidation
In line with previous practice, capital consolidation was carried out according to the book value method
based on the valuations at the date of the first-time consolidation of the equity interests. The resulting
goodwill of € 332 million for FY 2003 following the proportional disclosure of undisclosed reserves and
liabilities in the acquired assets and debts has been set directly against the surplus reserves.
We show a balancing item to reflect minority interests.
The group’s shares in associated companies are valued and reported at equity based on their book
values at the time of first-consolidation. Their valuation has accordingly not been aligned with the groupwide valuation methods as allowed under section 312.5.2 HGB.
Österreichische Volksbanken-AG, Vienna, VB-Leasing International Holding GmbH, Vienna, and Deutsche
WertpapierService Bank AG, Frankfurt am Main, (dwpbank) are valued as associated companies, i.e. at
equity under the terms of section 312 HGB and DRS 8, because their business and financial policy is subject
to significant control by the group.
dwpbank was included at equity for the first time in the DZ BANK Group’s sphere of consolidation in 2003.
The inter-company profit arising from the merger was proportionally eliminated in line with point 30 of
DRS 8.
Its existing goodwill was charged against the surplus reserves under the provisions of section 312.2.3 HGB
in conjunction with section 309.1.3 HGB.
F-57
Intra-group receivables, liabilities, provisions, accrued and deferred items, contingent liabilities, and income
and expenditure have been consolidated as required by sections 303 and 305 HGB. Intra-group profits and
losses have been eliminated (section 304 HGB). However, this consolidation has been dispensed with where
the sums involved were trivial.
In variance of these principles, the group insurance subsidiaries’ results were included in these Consolidated
Financial Statements on an unadjusted basis due to the unique nature of this business. Their intra-group
components have accordingly not been consolidated.
4 | Presentation and
Claims on banks and non-bank customers
valuation rules
Claims on banks and non-bank customers (placements, loans and advances) are shown at their nominal
value or cost of acquisition. Differences between their nominal value and disbursement value are apportioned pro rata to time and shown under accrued and deferred items. Note receivables, registered bonds and
lease receivables purchased from third parties are shown at purchase cost. Without exception, all receivables
fall under current assets and are valued strictly at the lower of cost or market. The total shown for loans
and advances to non-bank customers includes registered bonds assigned to the bank’s investment book and
lease receivables that are matched by corresponding hedge transactions.These constitute distinct valuation
units.
The provision for risk in the lending business encompasses write-downs and loan-loss provisions in respect
of credit, country and latent default risks plus the fund for general banking risk (section 340f.1 HGB). Appropriate provision at the level of the anticipated loss was made in respect of all identifiable credit and country
risks. Latent risks in the lending business are covered by a global provision, based on the average actual
loan loss incurred in the preceding five financial years. This is in accordance with the responsible authority’s
rules for the tax recognition of general provisions by banks.
Bonds and other fixed-interest securities and equity shares and other variable-yield securities
Bonds and other fixed-interest securities and equity shares and other variable-yield securities are valued
using the lower of cost or market rule governing current assets (holdings in the dealing portfolio and
liquidity reserve), i.e. are shown at cost of acquisition or the stock market value at the accounting date if
lower.
F-58
Only where the value loss on securities held as fixed assets is temporary in nature is their value retained
under the terms of section 340e.1 HGB. The value of the securities not carried at the lower of cost or market
(a disclosure required by section 35.1.2 RechKredV) is € 3,339 million for the balance sheet item “Bonds
and other fixed-interest securities” and € 100 million in respect of the balance sheet item “Equity shares
and other variable-yield securities”. In the case of specifically identified securities held as fixed assets or as
part of the liquidity reserve, their valuation has been linked with corresponding hedging transactions.
Financial trading transactions - including note loans and registered bonds - were valued at market prices
or their synthetic valuations at the end of the year. These transactions are essentially all performed by
DZ BANK AG. Where standardized, exchange-traded products are concerned, the valuation is based on the
end-of-year closing prices of the relevant stock exchanges. Swap trading positions were valued on the
basis of the prevailing yield curves using the present value method.
The current interest payments on swaps held for trading purposes (including accrued and deferred items)
and price gains and losses on note loans and registered bonds held for trading purposes are shown in the
income statement under the heading of net income from financial activities. Those trading transactions in
foreign exchange, securities and derivatives which are subject to the same market price change risk or credit
risk (interest rate, exchange rate and other price risks plus spread risks) are also aggregated for accounting
purposes into cross-product portfolios that form part of the bank’s harmonized risk management system.
Within a portfolio, unrealized valuation losses are offset against unrealized valuation gains. Furthermore,
realized losses are offset against residual valuation gains within the same portfolio provided the required
criteria are fulfilled. A balancing item is included in the balance sheet under the other assets heading to the
value of the unrealized profits offset against realized losses.
In all cases, dividend income from shares and other variable-yield securities is shown under the heading of
“Current income from shares and other variable-yield securities”.
F-59
Participations and shares in related companies
Shares in related companies and participations are shown at updated cost of acquisition. The shares in
associated companies include participating interests valued by the at-equity method.
Tangible and intangible fixed assets
Intangible fixed assets are capitalized at updated cost of acquisition. Tangible fixed assets (property and
equipment) are valued at cost of acquisition or production less regular depreciation over their expected
service life, based in all cases on the values shown in the tables published by the German tax authorities.
Minor-value assets are written off in full in the year of acquisition.
The property and equipment heading includes leasing assets as well as office and plant equipment. As a rule
office and plant equipment, including office furniture, are depreciated on a straight-line basis. Depreciation
is taken for the full year on acquisitions made in the first half of the year and for a half-year on additions in
the second half of the year.
Where value diminutions are expected to be enduring in nature, exceptional write-downs are made. If the
causes of the write-down cease to apply, the value is written up again.
Liabilities
Liabilities are shown at their repayment value. The difference between their nominal and repayment values
has been taken to accruals and deferrals and apportioned pro rata.
Provisions
Provisions for pensions and similar obligations are calculated according to actuarial principles. Current
pension commitments to retired pensioners and contributions on behalf of ex-employees with pension entitlement are shown at their pro-rata value. The pension entitlements of still-active future beneficiaries are
shown in accordance with section 6a of the Income Tax Act (Einkommenssteuergesetz - EStG). To ensure
that its current pension obligations are covered from independent resources, DZ BANK AG availed itself of
the good offices of DZ BANK Mitarbeiter-Unterstützungseinrichtung GmbH during 2003 in respect of a
significant proportion of its current pension obligations.
F-60
Provisions for actual tax liabilities and other provisions were formed in accordance with the German tax
regulations or on the basis of prudent business judgment to correspond with the group’s uncertain liabilities
or threatened losses from uncompleted transactions.
Unrealized losses on uncompleted transactions aggregated together with other trading transactions in crossproduct portfolios, are only shown as separate provisions in the consolidated financial statements if they are
exceptional in scale and cause a loss “excursion”.
Insurance-specific positions
Investments made for the account and at the risk of holders of life assurance policies are shown at their
present value.
The shares and equity funds treated as fixed assets under the terms of section 341b HGB are valued at cost
of acquisition or the stock market value at the accounting date if lower. This principle is not followed if the
accounting date market price of securities treated as fixed assets is based on a merely transitory value diminution. This has to be demonstrated using a discounted cash flow valuation based on the IBES (Institutional Brokers Earnings System) consensus earnings estimates. Both direct holdings and special funds are
valued by aggregating the values of the individual stocks they contain. If the DCF value identified as sustainable is marginally higher than the stock market value on the accounting date, the DCF value is shown. If the
identified DCF value is lower, the stock exchange price is shown.
Receivables from directly concluded insurance business are shown at their nominal value. Where necessary,
value adjustments are undertaken.
The formation of actuarial reserves encompasses the following positions and approaches: the insurance
cover provisions reflect the individual value of all policies; the calculation of the provisions for outstanding
insurance claims is also individualized; the provision for premium reimbursements (“bonus reserve”) was
formed in accordance with statutory requirements as well as contractual agreements; the equalization reserve and similar provisions were formed in accordance with the relevant statutory requirements; the other
actuarial provisions were dimensioned to cater for the anticipated need.
Tax valuations / Special items in the Consolidated Financial Statements
The setting aside of section 308.3 HGB by the Transparency and Public Information Law (TransPuG) has
removed the option to incorporate valuations grounded in tax law or include special items with reserve
character motivated by tax considerations in commercial consolidated financial statements. This is to prevent
tax considerations overriding commercial accounting considerations. The new version of section 308 HGB
applies first to the financial year commencing after December 31, 2002.
F-61
The most immediate consequences of the setting aside of section 308.3 HGB are fixed-asset write-ups
totaling € 75 million and deferred tax liabilities of € 30 million. The valuation adjustments and the deferred
tax positions are earnings-neutral.
Miscellaneous
Following a presentation change, DZ BANK AG’s net interest income includes negative price effects from
the premature redemption of issued borrower note loans to the value of € -108 million (PY: € -67 million),
reflecting the economic relationship with the effects of closing countervailing hedging transactions.
To ensure the accurate relation of earnings to operating units, for the first time these Consolidated Financial
Statements show the interest and dividend income from securities held for dealing purposes and the
refinancing expenses assignable to dealing transactions as part of the net trading result. Moreover, the firsttime inclusion of the interest result on repurchase agreements at DZ BANK AG results in an additional
amount of € 33 million (PY: € 12 million) in the same heading.
Investment expenses are offset against the corresponding income; equally, valuation income and expense
from lending transactions and securities held as part of the liquidity reserve are shown net.
The revaluation of assets and liabilities acquired from Genossenschaftsbank Berlin in 1990 resulted in a
claim for compensation against the currency conversion compensation fund (Ausgleichsfonds Währungsumstellung) under the terms of section 40 of the Accounting Act (DM-Bilanzgesetz - DMBilG). The values
shown for these items are subject to future adjustment under the terms of section 36 of the same act.
The fund for general banking risks required under the terms of section 340g HGB amounts to € 743 million;
the € 2 million increase from the end-2002 figures results from the first-time consolidation of norisbank AG,
Nürnberg, into the DZ BANK Group. Prudential reserves have also been established within the meaning of
section 340f HGB.
F-62
Application of German Accounting Standards (DRS)
The German Standardisation Council (Deutscher Standardisierungsrat, DSR) develops recommendations for
the correct application of consolidated accounting principles in order to achieve greater harmonisation with
international accounting standards. The Federal Justice Ministry (BMJ) has contractually recognised the DSR
as a private accounting standards body to promote this end. Standards approved by the DSR and published
by the BMJ in the Federal Gazette are assumed to constitute principles of orderly group accounting within
the meaning of section 342.2 HGB. DZ BANK’s Consolidated Financial Statements comply consistently with
the following German Accounting Standards (DRS):
DRS 2
Cash flow statements
DRS 2-10
Banks’ cash flow statements
DRS 3
Operating segment reports
DRS 3-10
Banks’ operating segment reports
DRS 5
Risk reports
DRS 5-10
Banks’ and financial services institutions’ risk reports
DRS 7
Consolidated equity and consolidated earnings
DRS 8
Accounting for shares in associated companies in consolidated financial statements
DRS 10
Deferred taxation in consolidated financial statements
DRS 11
Reporting dealings with related persons
DRS 12
Intangible fixed assets
DRS 13
Continuity principle and correcting errors
DRS 4 Company acquisitions in consolidated financial statements (applied where consistent with the
German Commercial Code (HGB – see also 3 | Consolidation Principles).
F-63
5 | Deferred taxation in the
Under the provisions of sections 274 and 306 HGB, deferred tax positions have been formed solely in
Consolidated Financial
respect of differences between the results shown in the commercial (HGB) financial statements and the tax
Statements
accounts that are expected to be neutralized in the subsequent financial years (timing differences concept).
In addition to the HGB rules, DZ BANK has also applied German Accounting Standard No. 10 (DRS 10)
”Deferred Taxation in Consolidated Financial Statements”.
DRS 10 was approved by the German Standardisation Council (Deutscher Standardisierungsrat, DSR) on
January 18, 2002 and formally promulgated under the powers of section 342.2 HGB by the Federal Justice
Ministry (BMJ) on April 9, 2002, and must be applied to all financial years commencing after December 31,
2002. On the assumption however that the new regime constitutes best practice for drawing up consolidated accounts (GAAP), this standard was already applied to the 2002 financial year.
Deferred tax entitlements and obligations have to be derived from the reported valuation differences
between an asset or liability in the balance sheet and in the tax balance sheet.
Deferred tax positions are shown for timing differences whose resolution can be expected to generate tax
liabilities or reliefs in future years. These timing differences also include quasi-permanent differences. Assetside deferred tax positions are reported for timing differences and also for tax-allowable loss carryovers and
tax credits whose realization is sufficiently probable.
Deferred tax credits and debits are valued by reference to the tax rate that is anticipated will apply at the
date when the timing differences are resolved. With the exception of section 340 HGB reserves, individual
tax rates are applied for each company.
Deferred tax credits are shown under tax deferrals and deferred tax liabilities are shown as part of tax
provisions.
The aggregate value of exceptional income is shown in the income statement after the deduction of taxes
on income (i.e. net).
F-64
6 | Currency Translation
Assets and liabilities, and rights and delivery obligations arising from foreign exchange transactions, are
translated in accordance with the principles defined in section 340h HGB and Statement BFA 3/1995 of the
German Institute of Public Accountants (IDW).
For the purposes of the Consolidated Financial Statements, the accounting data of foreign group subsidiaries are translated using the relevant official ESCB reference rate on the balance sheet date as announced
by the European Central Bank. Gains and losses arising out of the translation of the consolidated capital,
liabilities and income and expense are taken through the balance sheet and offset against the surplus
reserves and minority interests.
Book receivables, securities holdings, liabilities and open spot transactions denominated in foreign currency
are in all cases translated in the preconsolidation accounts of DZ BANK AG and its consolidated subsidiaries
at the ESCB reference rate on the balance sheet date. Income and expenses arising from currency translation
are reported in the income statement in compliance with section 340h HGB.
Unrealised gains on open foreign currency forward transactions are offset against unrealised losses in the
same currency across all maturities until the unrealised losses are exhausted. The remaining unrealised gains
are set against realised losses from currency translation where permissible through to equalisation. A balancing item equal to the offset unrealised gains is included in the balance sheet. Provisions for pending losses
on open transactions are formed in the Consolidated Financial Statements in respect of any remaining unrealised losses. Any balance of unrealised gains remaining after these offsets is ignored.
Where forward exchange deals are connected with the hedging of interest-bearing balance sheet items,
the resulting swap expense and income is treated as interest expense and interest income, reflecting its
character.
F-65
B. Notes to the Balance Sheet
7 | Maturity structure of
asset positions
in € million
12.31.2003
12.31.2002
Other claims on banks
86,175
90,730
- less than 3 months
22,200
24,313
- between 3 months and 1 year
10,413
10,389
- between 1 year and 5 years
28,253
27,796
- more than 5 years
25,309
28,232
102,462
106,935
9,518
9,955
Claims on non-bank customers
- less than 3 months
- between 3 months and 1 year
9,621
10,088
- between 1 year and 5 years
33,349
29,297
- more than 5 years
46,687
53,599
3,287
3,996
82,732
78,090
6,625
5,172
- between 3 months and 1 year (= maturing in the subsequent year)
10,907
12,509
- between 1 year and 5 years
42,744
35,774
- more than 5 years
22,456
24,635
12.31.2003
12.31.2002
(excluding savings deposits under save-to-build plans)
87,438
92,725
- less than 3 months
40,675
45,417
7,960
8,810
- between 1 year and 5 years
19,926
19,521
- more than 5 years
18,877
18,977
22
105
6
16
12
79
4
10
Other liabilities with an agreed term or notice period
40,598
38,923
- less than 3 months
11,885
9,821
- between 3 months and 1 year
2,891
2,128
- between 1 year and 5 years
8,681
9,321
17,141
17,653
- no fixed term
Bonds and other fixed-interest securities
- less than 3 months (= maturing in the subsequent year)
liability positions
in € million
Liabilities to other banks with an originally agreed term or notice period
- between 3 months and 1 year
Liabilities to non-bank customers:
Savings deposits with an agreed notice period of more than three months
- less than 3 months
- between 3 months and 1 year
- between 1 year and 5 years
- more than 5 years
F-66
in € million
12.31.2003
12.31.2002
Bonds issued
70,772
77,785
of which: Maturing in subsequent year
13,654
11,826
Other certificated liabilities
4,840
5,250
- less than 3 months
2,138
2,954
871
1,296
1,339
852
Liabilities in certificate form:
- between 3 months and 1 year
- between 1 year and 5 years
- more than 5 years
492
148
3,067
2,873
- less than 3 months
742
823
- between 3 months and 1 year
517
379
Provisions
- between 1 year and 5 years
503
551
- more than 5 years
1,305
1,120
Subordinated liabilities
3,567
3,602
- less than 3 months
100
288
- between 3 months and 1 year
280
463
- between 1 year and 5 years
1,485
1,316
- more than 5 years
1,702
1,535
Participatory capital
2,680
2,685
169
172
- less than 3 months
- between 3 months and 1 year
8 | Arrears of interest and
108
51
- between 1 year and 5 years
1,141
919
- more than 5 years
1,262
1,543
The ‘Loans and advances to non-bank customers’ heading includes arrears of € 73 million
capital repayments on
(2002: € 63 million) outstanding on the interest and capital payments on building loans advanced
building loans advanced
by Bausparkasse Schwäbisch Hall.
by Bausparkasse Schwäbisch Hall
F-67
9 | Building loans agreed
The following construction loans were committed but not yet paid out on the accounting date:
but not yet paid out by
Bausparkasse Schwä-
in € million
bisch Hall
To banks
of which: allocated
12.31.2002
323
412
323
412
To non-bank customers
2,880
2,579
of which: a) allocated
2,272
2,123
569
413
39
43
12.31.2003
12.31.2002
b) preliminary or bridging finance
c) other
10 | Related companies and
12.31.2003
Claims and liabilities in respect of related companies:
companies with which a
participation relationship
in € million
exists
Deposits with, and loans and advances to, other banks
248
181
Loans and advances to non-bank customers
543
663
–
109
Amounts owed to other banks
274
1,393
Amounts owed to non-bank customers
520
503
3,357
3,055
102
104
Bonds and other fixed-interest securities
Certificated liabilities
Subordinated liabilities
Claims and liabilities in respect of companies with which a participation relationship exists:
in € million
Deposits with, and loans and advances to, other banks
Loans and advances to non-bank customers
Bonds and other fixed-interest securities
Amounts owed to other banks
Amounts owed to non-bank customers
Certificated liabilities
Subordinated liabilities
F-68
12.31.2003
12.31.2002
19,204
18,504
1,130
1,111
248
3,315
16,948
19,372
743
348
2,397
5,477
101
76
11 | Claims and liabilities in
The reported claims and liabilities totals include the following sums due from or to affiliated banks:
respect of affiliated
banks 1
in € million
Due from affiliated banks
of which: from cooperative central banks
Due to affiliated banks
of which: to cooperative central banks
1
12 | Subordinated assets
12.31.2003
12.31.2002
41,455
42,505
737
578
39,716
43,631
137
191
Defined as local cooperative banks (Volksbanken and Raiffeisenbanken).
Subordinated assets are included in the following headings:
in € million
12.31.2003
12.31.2002
Placements with, and loans and advances to, other banks
352
341
Loans and advances to non-bank customers
167
224
Bonds and other fixed-interest securities
588
901
Equity shares and other variable-yield securities
291
402
F-69
13 | Insurance-related
The structure of the insurance-related investments is as follows:
investments
a) Own-account investments:
Balance
Additions
sheet value
in € million
Reclassifi-
Disposals
Write-ups
cations
Write-
Balance
downs
sheet value
12.31.2002
12.31.2003
Land, leasehold rights and buildings including buildings
on third-party land
994
161 1
–
50
–
74
1,031
Participations, shares in related companies
517
130
–
25
–
3
619
2,510
2,489
–
2,521
–
2
2,476
variable-yield securities
7,835
1,568
–
743
44
387
8,317
Bearer bonds and other fixed-interest securities
4,111
3,292
–
2,884
4
32
4,491
3,806
270
–
280
–
1
3,795
12,330
4,190
–
3,433
–
1
13,086
Lending to companies with which a participation
relationship exists and to related companies
Equity shares, investment holdings and other
Claims secured by mortgages, land charges and
annuity land charges
Registered bonds, promissory notes, loans and
other lending
Deposits with other banks
171
–
–
8
–
2
161
Other investments
214
46
–
33
–
–
227
506
–
–
157
–
–
349
32,994
12,146
–
10,134
48
502
34,552
Custody receivables from reinsurance business
Total
1
The additions total includes € 53 million of earnings-neutral write-ups taken to the Balance Sheet due to the setting aside of section 308.3 HGB effective January 1, 2003.
F-70
b) Investments for the account and at the risk of life insurance policy holders:
Specialist funds
in € million
Shares
12.31.2003
R+V Aktien Europa
6,689,420
44
R+V Anleihen Europa
2,602,173
32
R+V-Kurs
42,598,368
195
R+V-Zins
31,864,019
166
UniDeutschland
92,187
7
UniEuroKapital
285,778
17
28,945
30
UniEuropaRenta
399,225
17
VR-VermögensKonzept (A30, A50, A70, A100)
646,605
23
VR-VermögensKonzept R
279,021
12
PIU' FUTURO (PRUDENTE + CRESCENTE + BRILLANTE)
736,006
3
EUROQUOTA (PRUDENTE + EQUILIBRATA + AGGRESSIVA)
11,128,794
48
RAIFFPLANET (PRUDENTE + EQUILIBRATA + AGGRESSIVA)
21,294,362
86
UniEuropa
VALORE UNICO NIKKEI I + II
45
VALORE UNICO MIX
23
PIANETA BORSA
62
PIANETA BORSA 1-99
15
PIANETA BORSA 2-99
33
PIANETA BORSA 1-00
13
INDEX AUREO
9
INDEX SHARE
22
NEW INDEX SHARE
20
INDEX EUROPE
17
INDEX BEST EUROPE
10
INDEX 4 YOU
9
INDEX FOR 8
6
INDEX USA&EUROPE
6
INDEX LIGHT
28
INDEX LIGHT NOVEMBRE
14
INDEX TOP FIFTY
24
INDEX EASY VALUE
12
INDEX TITANIUM
45
INDEX EASY GOLD
28
INDEX EASY GOLD 2
10
Miscellaneous
32
1,163
Total
F-71
14 | Other insurance-specific
assets
in € million
12.31.2003
12.31.2002
Receivable on directly written insurance business
335
323
- from insurance customers
235
208
- from insurance intermediaries
100
115
Settlement receivables on reinsurance business
312
138
Other receivables
1,502
1,683
Total
2,149
2,144
The ‘Other assets of insurance companies’ heading comprises mainly entitlements arising from insurance
transactions and due from policy holders, intermediaries and reinsurance providers, current balances with
banks, plus interest and rent receivables.
15 | Trust operations
The total value of the group’s trust assets and liabilities is apportioned between the following assets-side
and liabilities-side headings:
in € million
12.31.2003
12.31.2002
602
623
Trust assets
- Placements with, and loans and advances to, other banks
- Loans and advances to non-bank customers
399
282
- Participations
1,410
1,421
Total
2,411
2,326
Trust liabilities
- Deposits from other banks
- Amounts owed to other depositors
816
715
1,561
1,577
- Other
Total
16 | Foreign currency
34
34
2,411
2,326
Assets and liabilities denominated in foreign currencies exist in the following amounts:
positions
in € million
F-72
12.31.2003
12.31.2002
Assets
31,899
40,162
Liabilities
23,744
32,138
17 | Business subject to
repurchase agreements
18 | Assets assigned as
security for liabilities
As at December 31, 2003 the book value of assets sold subject to a repurchase agreement amounted to
€ 16,806 million (2002: € 18,939 million).
Assets with the (aggregate) value stated below were assigned in respect of the following liabilities and
contingent liabilities:
in € million
Deposits from other banks
Amounts owed to other depositors
12.31.2003
12.31.2002
32,603
36,058
3,009
1,869
2,278
2,720
37,890
40,647
Other obligations such as liabilities arising from securities loan
transactions
Total value of assigned security
19 | Structure of securities
The securities portfolio breaks down into the following categories according to the purpose of the holding:
portfolio by purpose
in € million
12.31.2003
12.31.2002
Bonds and other fixed-interest securities
82,732
78,090
- Investment portfolio
31,901
24,590
- Trading portfolio
18,509
16,978
- Liquidity reserve
32,322
36,522
3,212
7,798
Equity shares and other variable-yield securities
- Investment portfolio
380
5,216
- Trading portfolio
1,078
1,229
- Liquidity reserve
1,754
1,353
F-73
20 | Securities eligible for
stock exchange listing
The following assets-side headings include securities eligible for stock exchange listing in the
amounts stated:
in € million
12.31.2003
12.31.2002
Bonds and other fixed-interest securities
82,705
78,072
of which: listed
74,984
70,786
1,839
1,694
Equity shares and other variable-yield securities
F-74
of which: listed
843
922
Participations
171
147
of which: listed
160
138
Participations in associated companies
–
9
of which: listed
–
–
Shares in related companies
65
84
of which: listed
65
83
21 | Fixed asset structure and
movements
Property and Equipment
Cost of
Additions
Disposals
acquisition/
Reclassifi-
Cumulative
Book value
Book value
Depreciation
depreciation
at
at
and write-
and write-
12.31.2003
12.31.2002
Write-ups
cations
production
in € million
Intangible fixed assets
Land and buildings
downs
in 2003
downs
35
7
0
–
–
21
21
21
7
822
114
184
10
0
297
465
470
21
(669)
(100)
(120)
(8)
(0)
(250)
(407)
(369)
(18)
1,491
112
234
32
0
1,089
312
345
149
Of which: used for own
operations
Operating and office
equipment
Other physical assets
Leasing assets
Prepayments made
Total
7
12
4
–
–
0
15
7
0
6,740
1,597
1,540
–
0
2,399
4,398
4,407
901
80
18
40
-42
–
–
16
80
–
9,175
1,860
2,002
–
0
3,806
5,227
5,330
1,078
The depreciation on leasing assets is included in other operating expenses.
The Additions total includes € 22 million of earnings-neutral write-ups due to the setting aside of section 308.3 HGB effective January 1, 2003.
The Disposals heading includes € 39 million transferred to the current assets of DZ BANK AG.
Financial asset structure and movements
Net changes
in € million
Book value at
Book value at
12.31.2003
12.31.2002
Bonds and other fixed-interest securities
7,311
31,901
24,590
Shares and other variable-yield securities
-4,836
380
5,216
-20
420
440
Participations
Participations in associated companies
Shares in related companies
Total
71
251
180
-81
824
905
2,445
33,776
31,331
F-75
22 | Own shares
At the accounting date, group companies held a total of 3,665,569 of our own registered unit shares representing in total € 9,530,479.40 or 0.3311 percent of the DZ BANK Group’s share capital. All these own
shares are held at DZ BANK AG.
Of this total, 200,000 shares had passed from the federal government to DG BANK AG on August 19, 1998
under the terms of section 2.2 of the DG BANK Transformation Act. This is equivalent to € 520,000.00 or
0.0181 percent of the share capital. DG BANK AG had also acquired a further 293,000 of its own shares
on September 30, 1999 under the powers of a time-limited authority to acquire its own shares, approved
by the general meeting held on June 15, 1999 and effective through October 31, 2000. This is equivalent
to € 761,800.00 or 0.0265 percent of the company‘s share capital. Subsequently, DG BANK AG acquired a
further 1,220,000 of its own unit shares on November 15, 1999. This is equivalent to € 3,172,000.00 or
0.1102 percent of the share capital.
On the strength of the resolution passed by the extraordinary general meeting held on August 16, 2001
to approve a time-limited authority, effective through January 31, 2003, permitting DZ BANK AG to acquire
its own shares for purposes other than securities trading (section 71.1.8 AktG) up to an aggregate ceiling
of 10 percent of the current share capital, DZ BANK AG acquired a further 5,082 of its own shares on
December 28, 2001 equivalent to € 13,213.20 or 0.0005 percent of the share capital. This purchase was
in connection with the partial consolidation of DZ BANK AG’s circle of shareholders following the merger.
On the basis of the aforementioned resolution DZ BANK AG in January 2002 additionally acquired
475,648 own shares equivalent to € 1,236,684.80 of the registered capital and a share of the registered
capital of 0.0430 percent. In February 2002 DZ BANK AG acquired 536,772 own shares equivalent to
€ 1,395,607.20 of the registered capital and a share of the registered capital of 0.0485 percent. In March
2002 DZ BANK AG acquired 859,848 own shares equivalent to € 2,235,604.80 of the registered capital
and a share of the registered capital of 0.0777 percent. In April 2002 DZ BANK AG acquired 75,219 own
shares equivalent to € 195,569.40 of the registered capital and a share of the increased registered
capital of 0.0068 percent. These purchases were effected in connection with the partial consolidation of
DZ BANK AG’s circle of shareholders.
F-76
23 | Authorised capital
The group’s subscribed capital consists of DZ BANK AG’s registered capital of € 2,878,427,240.00. The subscribed capital is divided into 1,107,087,400 registered shares each conveying a notional proportional entitlement in the share capital of € 2.60.
The general meeting held on August 16, 2001 authorized the Board of Managing Directors, with the consent
of the Supervisory Board, to increase the share capital of DZ BANK AG by up to € 50 million in total by issuing shares against cash contributions or contributions in kind on one or more occasions through to July 31,
2006. Provided the Supervisory Board agrees, the Board of Managing Directors may exclude the right of
existing shareholders to subscribe to either a capital increase against cash contributions or a capital increase
against contributions in kind where the capital increase is intended to finance the issue of new staff shares,
the acquisition of companies or equity stakes in companies, or to make available equity interests in the company to underpin strategic partnerships. Furthermore the Board of Managing Directors is empowered, with
the consent of the Supervisory Board, to exclude the right of existing shareholders to subscribe in relation to
fractional amounts (“Authorized capital I“).
The general meeting also authorized the Board of Managing Directors, with the consent of the Supervisory
Board, to increase the share capital of DZ BANK AG by up to € 100 million in total by issuing shares against
cash contributions on one or more occasions through to July 31, 2006. The Board of Managing Directors
may, with the consent of the Supervisory Board, exclude the right of existing shareholders to subscribe in
relation to fractional amounts (“Authorized capital II“).
The Board of Managing Directors did not make use of these authorities during the year under report.
The changes in the group’s capital structure are shown in the Capital Structure and Movement statement.
24 | Shareholder disclosures
The proportion of the share capital held by cooperative undertakings at the end of the financial year under
report was approximately 92.9 percent. Cooperative undertakings include the cooperative societies, the cooperative central banks and other corporate entities and trading companies.
25 | Other assets
The ‘Other assets’ heading primarily comprises valuation gains on trading transactions after the offset of
realised losses (€ 1,168 million) and premiums for acquired option rights (€ 1,133 million).
F-77
26 | Tax deferrals and
provisions for deferred
Deferred tax entitlements and provisions for deferred tax liabilities are shown for the valuation differences
between the commercial and the tax balance sheets in respect of the following balance-sheet headings:
tax liabilities
Deferred tax entitlements
in € million
12.31.2003
12.31.2002
462
626
Assets-side positions
- Tax-allowable loss carryovers
- Placements with, and loans and advances to, other banks
- Loans and advances to non-bank customers
- Securities
- Participations/Shares in related companies
- Intangible fixed assets
20
–
372
439
25
30
1
4
13
3
- Property and equipment
3
3
- Other assets
5
2
- Provisions
529
347
- Fund for general banking risk and building savings & loan guarantee fund
473
471
30
35
1,933
1,960
12.31.2003
12.31.2002
- Placements with, and loans and advances to, other banks
6
7
- Loan and advances to non-bank customers
5
6
- Securities
118
85
- Participations/Shares in related companies
114
54
7
–
33
45
2
1
- Amounts owed to other depositors
6
5
- Provisions
4
6
- Other liabilities
6
7
301
216
Liabilities-side positions
- Other liabilities
Total
Deferred tax liabilities
in € million
Assets-side positions
- Intangible fixed assets
- Property and equipment
- Other assets
Liabilities-side positions
Total
F-78
Deferred tax credits on unutilized tax-allowable loss carryovers are taken to the balance sheet when
it appears probable that the company concerned will generate sufficient taxable profits in the future.
DZ BANK AG and its subsidiaries and affiliates have claimed deferred tax assets on tax-allowable loss
carryovers that will reduce their actual future tax expenses.
Thanks to the management action taken in the area of risk provisioning and to limit credit risks, coupled
with the group’s cost-cutting drive and the synergy benefits that will flow from the merger, and assuming
an improvement in the wider economic framework, the group is confident of achieving a level of sustained
taxable earnings that will allow it to realize the tax benefits of its brought-forward losses. This process will
also be assisted by initiatives to extend the circle of the group’s tax unity.
Under the terms of DRS 10, deferred tax entitlements have not been shown in respect of € 61 million (2002:
63 million) of tax-allowable loss carryovers.
27 | Accruals and deferrals
in € million
12.31.2003
12.31.2002
Assets side
903
766
- Discounts on payables
531
402
- Premiums on receivables
125
110
- Other deferred expenses and accrued income
247
254
2,661
2,460
244
268
Liabilities side
- Discounts on receivables
- Premiums on issued bonds
- Deferred proceeds from sales of leasing receivables
- Other deferred income and accrued expenses
88
108
1,422
1,632
907
452
28 | Other liabilities
This heading includes most importantly deferred option premiums received totaling € 3,007 million.
29 | Provisions
The aggregate deferred tax provisions pursuant to sections 274.1 and 306 HGB in conjunction with DRS 10
amounted to € 301 million (2002: € 216 million) and correspond with the anticipated tax liability arising
from the differences between the fiscal and commercial income statements based on the applicable national
tax rates.
Provisions relating to leasing business totaled € 95 million (PY: € 99 million).
F-79
30 | Actuarial reserves
in € million
Actuarial reserves
- Premium transfers
12.31.2003
12.31.2002
31,377
30,056
997
1,009
23,845
22,812
- Outstanding claims reserve
3,327
3,096
- Reserve for refund of premiums (bonus fund)
2,489
2,517
671
574
48
48
1,163
782
- Level premium reserve
- Equalization fund and similar reserves
- Other actuarial reserves
Life-assurance-related actuarial reserves on which the
policy holders bear the investment risk
Level premium reserve
Total
1,163
782
32,540
30,838
The actuarial reserves represent the insurer’s obligations to policy holders and qualifying claimants and are
backed by investments on the assets side of the balance sheet.
31 | Other insurance-specific
liabilities
in € million
12.31.2003
12.31.2002
763
731
Payable on directly written insurance business
2,523
2,491
- to insurance customers
2,445
2,435
78
56
Settlement payables on reinsurance business
311
143
Other liabilities
783
776
4,380
4,141
Custody liabilities from reinsurance business
- to insurance intermediaries
Total
The ‘Other liabilities of insurance companies’ heading comprises mainly liabilities arising from insurance
transactions and payable to policy holders, intermediaries and reinsurance providers. The liabilities to
policyholders essentially include guaranteed with-profits bonuses and premium reserve accounts for withprofit life assurance policies.
F-80
32 | Participatory capital
The total volume of participatory capital recognized as qualifying (liable) capital within the definition of
section 10.5 of the German Banking Act (KWG) was € 2,385 million.
Participation certificate holders’ entitlements to repayment of their capital are subordinate to the rights of
other creditors. DZ BANK AG has issued the following series of bearer participation certificates:
Year of issue
Nominal amount
Interest rate
in € million
in percent
Due
1984
133
8.50
2011
1987
102
7.25
2006
1989
42
7.50
2009
1993
26
7.00
2008
1994
36
6.75
2006
1994
26
6.25
2005
1994
26
7.25
2004
1995
64
7.50
2006
1996
51
7.50
2006
1996
41
7.25
2007
1997
9
6.50
2004
1997
38
6.75
2008
1998
1
3.27
2004
1998
22
6.50
2010
1999
160
3.55 1
2009
1999
1
7.00
2010
2000
60
6.25
2009
2000
1
2.75
2006
2001
100
5.50
2008
2001
61
7.60
2002
28
6.50
2006
2011
2
1
tied to market rate: H1: 4.29 percent, H2: 3.55 percent
2
Distribution in respect of FY 2002 is scheduled to be paid together with 2003 payout on July 1, 2004.
The issue terms of the 1984, 1987, 1998 (maturing through 2004), and 2000 participatory capital tranches
(maturing through 2006) make the eventual distribution dependent on the dividend declared.
F-81
Other issues by group companies:
Year of issue
Nominal amount
Interest rate
in € millions
in percent
Due
1993
26
7.25
2004
1993
51
7.25
2009
1993
51
7.00
2014
1994
26
6.50
2007
1994
38
6.75
2004
1994
9
7.50
2004
1995
15
7.75
2005
1995
51
= dividend (min. 7.00)
2011
1998
51
6.27
2007
1998
6
6.00
2008
2000
75
7.59
2009
2001
11
6.50
2011
2002
11
6.50
2012
2003
11
5.25
2013
Registered participation certificates with an aggregate nominal volume of € 1,051 million have been issued
by DZ BANK Group companies. This total is composed of 440 separate issues with original terms of between
6 and 30 years and bearing interest of between 5.38 per cent and 7.63 per cent.
Servicing the interest on the participation certificate stock involved expense of € 171 million in 2003 (2002:
€ 172 million).
Deferred interest of € 169 million payable after the end of 2003 is included in the “Participatory capital“
total.
F-82
33 | Subordinated liabilities
The subordinated borrowings do not involve any early redemption obligation on the part of the issuers. The
rights arising from these liabilities (including entitlement to interest) are secondary to the claims of all the
issuer’s other, non-subordinated creditors in the event of bankruptcy or liquidation.
There is no agreement or intention to convert these funds to capital or another form of debt.
Subordinated liabilities are mainly issued in the form of fixed-interest securities, variable-rate securities and
reverse floaters.
This heading does not include any single item which exceeds 10 per cent of the total value of the subordinated liabilities.
The interest expense on the group’s subordinated liabilities amounted to € 189 million (2002: € 234 million).
Deferred interest totaling € 95 million (2002: € 99 million) payable in a later period is included in the ‘Subordinated liabilities’ heading.
34 | Off-balance-sheet
futures business by
The following table shows the breakdown of the DZ BANK Group’s off-balance-sheet futures transactions
by product area:
product structure
F-83
Nominal amount
Residual term
Replacement costs
Total
in € million
≤1 year
>1 – 5 years
> 5 years
12.31.2003
12.31.2002
12.31.2003
12.31.2002
Interest-based transactions
210,315
277,914
205,002
693,231
634,294
13,583
13,391
8,189
50
–
8,239
16,152
2
8
157,516
224,171
178,375
560,062
478,138
12,772
12,754
- Interest options - calls
9,559
21,977
10,834
42,370
37,767
805
626
- Interest options – puts
15,448
30,701
15,777
61,926
45,877
–
–
64
–
16
80
694
4
3
- Interest futures
19,038
1,015
–
20,053
55,261
–
–
- Interest options
501
–
–
501
405
–
–
22,132
8,793
3,685
34,610
42,509
1,016
1,003
OTC products
- FRAs
- Interest swaps (same currency)
- Other interest contracts
Exchange-traded products
Forex-based transactions
OTC products
- Forward exchange transactions
16,610
1,021
87
17,718
19,732
618
376
- Cross currency swaps
2,813
7,439
3,590
13,842
18,159
343
608
- Forex options – calls
1,391
166
8
1,565
2,610
55
19
- Forex options – puts
1,300
167
–
1,467
2,007
–
–
Exchange-traded products
- Forex futures
18
–
–
18
1
–
–
2,421
1,500
2,259
6,180
2,199
216
62
- Equity and index options - calls
56
1,194
1,941
3,191
327
216
62
- Equity and index options – puts
307
277
318
902
219
–
–
Equity and index-based transactions
OTC products
Exchange-traded products
- Equity and index futures
907
–
–
907
933
–
–
- Equity and index options
1,151
29
–
1,180
720
–
–
25
–
–
25
4
5
–
Other transactions
- Precious metals transactions
25
–
–
25
4
5
–
868
5,454
1,281
7,603
5,276
125
58
- DZ BANK as hedge beneficiary
217
2,906
1,137
4,260
2,735
115
34
- DZ BANK as hedge provider
608
2,499
144
3,251
2,449
7
20
43
19
–
62
62
3
4
–
30
–
30
30
0
–
235,761
293,661
212,227
741,649
684,282
14,945
14,514
Credit derivatives
Credit Default Swaps
Total return swaps
- DZ BANK as hedge beneficiary
- DZ BANK as hedge provider
Total
A substantial proportion of the transactions listed here were entered into to hedge interest rate, exchange rate or market price fluctuations. The
bulk of these transactions related to trading activities.
F-84
35 | Off-balance-sheet
The following table shows the breakdown by counterparty:
futures business by
counterparties structure
Replacement costs
in € million
OECD governments
Banks in OECD countries
Financial services institutions in OECD countries
Other companies and private individuals
Banks in non-OECD countries
Total
12.31.2003
12.31.2002
–
16
13,717
13,981
0
217
1,228
297
0
3
14,945
14,514
F-85
C. Notes to the Income Statement
36 | Breakdown of income by
geographical markets
The origin of the sum total of interest income, current income from equity shares and other variable-yield
securities, participations and shares in related companies, commission income, net proprietary trading
income and other operating income is as follows:
37 | Commission income
in percent
2003
2002
Germany
83.76
81.95
International
16.24
18.05
The surplus of commission income over commission expense resulted from the following services:
and expense
in € million
2003
2002
738
764
Lending and guarantees business
17
30
International payments business
115
124
15
12
Securities business
Asset management
Other
Building savings & loan business
Total
38 | Net income from
116
115
- 228
- 192
773
853
The group’s surplus on proprietary dealing activities derived from the following risk classes:
financial transactions
in € million
2002
281
216
Share price risk
15
-7
Currency risk
39
5
0
2
335
216
Interest risk
Other risks
Total
F-86
2003
39 | Income from insurance
operations
40 | Expenses from insurance
operations
in € million
2003
2002
Earned net premiums
6,811
6,262
- Property and casualty insurance
3,328
3,074
- Life and health insurance
3,483
3,188
Income from investments
2,415
3,036
Other actuarial income
132
262
Other non-actuarial income
115
153
Total
9,473
9,713
in € million
2003
2002
Claims
4,922
4,649
- Property and casualty insurance
2,388
2,479
- Life and health insurance
2,534
2,170
Change in actuarial net reserves
1,592
1,562
121
107
- Property and casualty insurance
- Life and health insurance
1,471
1,455
Premium refunds (bonus fund)
334
279
- with-profits bonuses
320
271
14
8
- non-profit-related bonuses
Operating expenses
1,327
1,233
Investment expenses
548
1,061
Other actuarial expenses
310
124
Other non-actuarial expenses
258
214
9,291
9,122
Total
The group’s final result from insurance operations was € 182 million. A more detailed comparison with the
previous year is not informative since the prior-year outcome (€ 591 million) was distorted by changes in the
group’s structure and the resulting realisation of substantial disposal gains.
F-87
41 | Administration and
agency services provided
Services to third parties relate most significantly to asset management and securities custody administration
and trust assets administration.
for third parties
42 | Other operating income
and expense
The ‘Other operating income’ heading in the consolidated financial statements includes most importantly
current income from leasing business, but also income from sales of fixed assets, from the writing back of
provisions, rent revenues, income from the VISA card operations, revenues from organized seminars and
publications, fees for non-banking-related services, and refunds of tax.
The group’s ‘Other operating expenses’ resulted primarily from sundry leasing expenses and depreciation on
leased assets. The heading also includes losses on sales of fixed assets and depreciation on sundry assets,
non-personnel costs in relation to buildings not used for banking, expenses from the VISA card operations,
and ex gratia payments.
43 | Exceptional income
and expense
The ‘Exceptional expenses’ heading essentially includes personnel and non-personnel restructuring
expenses, costs from ongoing early retirement obligations under the social plan currently in force, and
expenses arising from the spin-off of the Payments Handling division into Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG, Frankfurt am Main. The reported exceptional result includes a tax effect of
€ 31 million (2002: € 89 million).
F-88
44 | Taxes on income
The ‘Taxes on income’ heading encompasses the current tax liabilities on income and earnings plus the
positive value of deferred taxation:
Tax expense
in € million
2003
2002
Taxes on actual income
228
50
of which: relating to result from ordinary operations
259
139
of which: relating to exceptional result
-31
-89
86
- 1,368
Balance of deferred tax credits and debits
of which: relating to result from ordinary operations
Final taxes on income
86
-1,368
314
- 1,318
During the year under report deferred taxes totaling € 26 million (2002: € 92 million) were taken to the
balance sheet and booked against shareholders´ equitiy.
The following reconciliation statement shows the relationship between the reported tax outcome and the
tax outcome calculated using the currently applicable German tax rate:
Reconciliation
in € million
Net income for year before taxes on income
Group effective tax rate
Notional income tax expense
2003
2002
696
- 967
40.143%
40.143%
279
- 388
Tax effects:
- Tax mitigation from tax-exempt income streams
-166
-818
- Increase in tax liability from non-deductible expenses
195
67
- Variances in tax rates
-28
-16
- Tax in respect of earlier years
58
-49
- Effects from lagacy differences
5
-465
- Miscellaneous
-29
351
Final taxes on income
314
- 1,318
Under German corporation tax law, the uniform tax rate applicable to corporations during the year under
report was 26.5 percent, reverting to 25 percent as from 2004. The applied basis for calculating the deferred
tax effects in the 2003 financial statements was an effective corporation tax rate of 26.375 percent (including the solidarity surcharge) for German companies plus an effective municipal trade tax of 13.768 percent
for DZ BANK and its tax-integrated companies.
F-89
D. Other information
45 | Other financial
obligations
The total amount of the group’s other financial obligations is € 875 million (2002: € 762 million). The commitments essentially relate to rental contracts, investment projects and unsettled transactions.
This amount does not include liabilities of € 7 million from capital shares of cooperative societies
(2002: € 8 million).
DZ BANK AG has also indemnified the protection scheme operated by the Federal Association of German
Cooperative Banks (BVR) in respect of any obligations incurred by the guarantee fund in relation to
Deutsche Genossenschafts-Hypothekenbank Aktiengesellschaft, VR DISKONTBANK GmbH, DVB Bank Aktiengesellschaft, or Frankfurt Bukarest Bank AG.
Furthermore, DG BANK AG has given transfer guarantee declarations to domestic companies and public
institutions in respect of certain deposits at its branches in Great Britain and the USA for the event that the
branches are prevented by national decision from discharging their repayment obligations.
46 | Placing and underwriting
obligations
47 | Declaration of backing
As last year, no claims have been made against the companies of the DZ BANK Group under guarantees
given to issuers over the placement or underwriting of financial instruments.
In respect of its directly and indirectly held equity interests in banks, financial services providers, finance
companies and companies providing banking-related ancillary services and which are listed in DZ BANK AG’s
List of Shareholdings and identified therein as falling within the ambit of this declaration of responsibility,
DZ BANK AG will ensure the ability of these companies to fulfill their contractual obligations in proportion
to its shareholding and excluding political risk. During the year under report, DZ BANK AG has also issued a
subordinated declaration of responsibility in respect of DZ BANK Capital Funding LLC I, Wilmington, USA.
F-90
48 | Employees
Grouped by gender and time commitment, the average number of persons employed in 2003 was as follows:
2003
2002
11,395
11,431
of which: Full-time employees
8,633
8,747
Part-time employees
2,762
2,684
Male staff
13,918
13,816
of which: Full-time employees
13,549
13,334
Part-time employees
369
482
25,313
25,247
Female staff
Total employees
49 | Cover statement for
DZ BANK AG
The following cover is in place for the total value of DZ BANK AG bonds in circulation (including registered
bonds):
in € million
12.31.2003
12.31.2002
24,818
22,421
9,426
10,329
877
1,359
14,440
10,596
75
137
22,129
19,653
- bearer bonds
8,434
8,580
- bonds registered to banks
5,936
3,438
- bonds registered to non-bank customers
7,007
7,152
Currently unissued bonds (held in treasury)
640
339
Regular cover
Loans and advances
- to banks
- to non-bank customers
Bonds and other fixed-interest securities
Equalization claims
Cover requirement
Issued, covered
Registered bonds given over as collateral
- to banks
15
8
- to non-bank customers
97
136
2,689
2,768
Excess cover
F-91
50 | Cover assets trustees
The trustees are appointed by the German financial services regulator (Bundesanstalt für Finanzdienstleistungsaufsicht, BAFin) and their statutory duty is to ensure that the issuance, administration and
collateralization of DZ BANK AG’s covered bonds comply with the legal requirements and the provisions
of the bank’s own statutes as well as the bonds’ terms and conditions.
51 | Cover statement for the
Trustee:
Deputy Trustee:
Dr Ekkehard Buchwaldt
Dr Dieter Eschke
Presiding Judge, Superior Provincial Court
Presiding Judge, Superior Provincial Court
Frankfurt am Main, (retd.)
Frankfurt am Main, (retd.)
The liabilities listed below are collateralized as follows:
mortgage bank’s mortgage and local authority
Mortgage pfandbriefe
lending business
in € million
Public-sector pfandbriefe
12.31.2003
12.31.2002
12.31.2003
12.31.2002
19.540
19,419
33,167
37,018
156
162
–
19,329
19,165
- to other banks
–
–
480
609
- to non-bank customers
–
–
22,761
24,722
–
–
9,863
11,284
Regular cover
Mortgage loans
- to other banks
- to non-bank customers
63 1
11
402 1
State-sector loans
Securities
- of other banks
Charges over bank-owned land
55
92
–
–
Substitute cover
–
13
–
1
Other claims on banks
–
13
–
1
Total cover
19,540
19,432
33,167
37,019
Cover requirement
17,814
17,668
31,413
34,156
Pfandbriefe requiring cover
17,814
17,668
31,413
34,156
1,726
1,764
1,754
2,863
Excess cover
1
F-92
Subject to state-sector guarantees
52 | Information on leasing
The composition of the leasing business is essentially as follows:
business
in € million
12.31.2003
12.31.2002
4,398
4,407
Deposits from other banks
928
904
Amounts owed to non-bank customers
160
195
Other liabilities
200
198
1,422
1,632
95
99
Leasing assets
Accrued expenses and deferred income from leasing business
Provisions
1,878
1,810
Depreciation on leasing assets
901
913
Other expenses from leasing business
785
715
Current income from leasing business
F-93
53 | Changes in the business
book of Bausparkasse
Overview of the changes in the number of existing (allocated and unallocated) save-to-build contracts and
savings balances
Schwäbisch Hall
Loan not allocated
Number of
Loan allocated
Cumulative
Number of
Total
Cumulative
Number of
Cumulative
Cumulative savings target in € million
contracts savings target
contracts savings target
contracts savings target
Position at end of previous year
5,074,738
121,047
2,036,130
44,487
7,110,868
165,534
1,123,696
27,256
–
–
1,123,696
27,256
27,077
607
5,327
162
32,404
769
5,793
147
–
–
5,793
147
118,937
–
711
–
119,648
–
Additions during year through:
a) New business (activated contracts) 1
b) Transfers
c) Loan not requested or revoked
d) Splits
e) Loan acceptances
–
–
481,295
9,209
481,295
9,209
181,830
4,358
–
–
181,830
4,358
1,457,333
32,368
487,333
9,371
1,944,666
41,739
a) Loan acceptances
481,295
9,209
–
–
481,295
9,209
b) Target reductions
–
1,063
–
–
–
1,063
c) Cancellations
334,901
6,276
298,089
4,858
632,990
11,134
d) Assignments
27,077
607
5,327
162
32,404
769
f) Other
Total
Retirements during year through:
e) Combinations
130,325
–
52
–
130,377
–
f) Contract maturities
–
–
369,224
7,710
369,224
7,710
g) Loan not requested or revoked
–
–
5,793
147
5,793
147
1
h) Other
Total
1
181,830
4,358
–
–
181,830
4,358
1,155,428
21,513
678,485
12,877
1,833,913
34,390
Net additions/retirements
301,905
10,855
-191,152
-3,506
110,753
7,349
Position at end of year
5,376,643
131,902
1,844,978
40,981
7,221,621
172,883
Number of
Cumulative
includes target increases
Contracts not activated:
contracts savings target
in € million
a) Accounts opened prior to 01.01.2003
b) Accounts opened during year
33,993
1,186
291,195
8,034
For information on changes at different levels of the tariff structure, please refer to the annual report of Bausparkasse Schwäbisch Hall.
F-94
54 | Change in the loan
in € million
A. Additions
allocation volume
I.
Brought-forward from previous year (surplus)
of Bausparkasse
Not yet advanced loans
Schwäbisch Hall
II. Additions during the year
14,519
a) Savings inputs (including credited house building premiums)
6,864
b) Capital repayments (including credited house building premiums) 1
3,186
c) Interest on save-to-build deposits
d) Building savings & loan guarantee fund
687
30
2
Total
25,286
B. Withdrawals
I.
Withdrawals during the year
a) Allocated loans paid out
aa) Save-to-build deposits
5,010
ab) Construction loans
1,975
b) Repayment of save-to-build deposits on unallocated save-to-build contracts
953
c) Balancing of reduced capital repayments through term extension (debt reduction)
2
II. Surplus of additions
17,346
(not yet advanced volume) at end of financial year 3
Total
25,286
1
Capital repayments are those portions of installments used solely for loan redemption.
2
The additional funds allocation to the building savings & loan guarantee fund at the group level was the minimum statutory
endowment of € 3 million.
3
The additions surplus includes inter alia:
a) the not yet returned save-to-build deposits of savers who have been allocated a loan
b) the not yet paid out loan components of allocated saver’s building loans
€ 109 million
€ 2,595 million
F-95
55 | Statutory bodies
The total remuneration for members of the Board of Managing Directors of DZ BANK AG during 2003
amounted to € 5,647,000 (2002: € 5,191,000) and € 428,000 for members of the Supervisory Board
(2002: € 462,000).
Total emoluments of € 7,343,000 were paid to former members of the Board of Managing Directors or their
surviving dependents (2002: € 6,866,000), and pension reserves of € 72,743,000 (2002: € 67,236,000)
were endowed to their benefit.
Board of Managing Directors
DZ BANK AG
Dr Ulrich Brixner
Uwe E. Flach
(Chairman)
(Deputy Chairman,
to December 31, 2003)
F-96
Peter Dieckmann
Dr Thomas Duhnkrack
(to December 31, 2003)
(from January 1, 2003)
Heinz Hilgert
Wolfgang Kirsch
Albrecht Merz
Dietrich Voigtländer
Supervisory Board
DZ BANK AG
Dr Christopher Pleister
Chairman
President
Bundesverband der Deutschen Volksbanken
und Raiffeisenbanken e.V.
Helga Preußer
Rolf Hildner
First Deputy Chairwoman
Second Deputy Chairman
Employee
Chairman of the Board of Managing Directors
DZ BANK AG
Wiesbadener Volksbank eG
Deutsche Zentral-Genossenschaftsbank
Members
Wolfgang Apitzsch
Rüdiger Beins
Attorney at law
Employee
DZ BANK AG
Deutsche Zentral-Genossenschaftsbank
Werner Böhnke
Gerhard Bramlage
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
WGZ-Bank
Emsländische Volksbank eG
Westdeutsche Genossenschafts-Zentralbank eG
Carl-Christian Ehlers
Dipl.-Kfm. Gerhard Engler
Chairman of the Board of Managing Directors
Bank Director (retd.)
Kieler Volksbank eG
Volksbank Müllheim eG
Helmut Gottschalk
Michael Groll
Speaker of the Board of Managing Directors
Management Employee
Volksbank Herrenberg-Rottenburg eG
DZ BANK AG
(from May 28, 2003)
Deutsche Zentral-Genossenschaftsbank
F-97
Siegfried Hägele
Walter Kaufmann
Employee
Secretary
VR Kreditwerk Hamburg-Schwäbisch Hall AG
ver.di United Services Trade Union
Sigmar Kleinert
Klaus Lambert
Employee
President & Chairman of the Board of
DZ BANK AG
Managing Directors
Deutsche Zentral-Genossenschaftsbank
Genossenschaftsverband Frankfurt e.V.
Hessen/Rheinland-Pfalz/Saarland/Thüringen
Dr Rainer Märklin
Adolf Rückl
Bank Director retd.
Operations Manager
Volksbank Reutlingen eG
Schwäbisch Hall Facility Management GmbH
(to May 28, 2003)
F-98
Gudrun Schmidt
Bernhard Sorge
Regional Group Director
Member of the Board of Managing Directors
ver.di United Services Trade Union
Raiffeisen-Volksbank Grafing-Ebersberg eG
Winfried Willer
Dr h. c. Uwe Zimpelmann
Employee
Member of the Board of Managing Directors
VR Kreditwerk Hamburg-Schwäbisch Hall AG
Landwirtschaftliche Rentenbank
56 | Appointments held by
members of the Board of
Bank officers and directors served on the supervisory boards of the following major German corporations at
December 31, 2003 (group companies are identified by (*)):
Managing Directors
and employees on the
supervisory boards
of major corporations
Members of the Board of Managing
Directors and employees of
DZ BANK AG:
Dr Ulrich Brixner
Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall,
(Chairman)
Deputy Chairman of the Supervisory Board (*)
Deutsche Genossenschafts-Hypothekenbank
Aktiengesellschaft, Hamburg,
Chairman of the Supervisory Board (*)
R+V Versicherung AG, Wiesbaden,
Deputy Chairman of the Supervisory Board (*)
Südzucker AG, Mannheim/Ochsenfurt,
Member of the Supervisory Board
Uwe E. Flach
Andreae-Noris-Zahn AG, Frankfurt am Main,
(Deputy Chairman,
Member of the Supervisory Board
to December 31, 2003)
Deutsche Börse AG, Frankfurt am Main,
Member of the Supervisory Board
STADA-ARZNEIMITTEL AG, Bad Vilbel,
Member of the Supervisory Board
F-99
Dr Thomas Duhnkrack
DVB Bank Aktiengesellschaft, Frankfurt am Main,
Chairman of the Supervisory Board (*)
VR-LEASING Aktiengesellschaft, Eschborn,
Chairman of the Supervisory Board (*)
Heinz Hilgert
norisbank Aktiengesellschaft, Nürnberg,
Chairman of the Supervisory Board (*)
ReiseBank Aktiengesellschaft, Frankfurt am Main,
Chairman of the Supervisory Board (*)
R+V Versicherung AG, Wiesbaden,
Member of the Supervisory Board (*)
SÜDWESTBANK Aktiengesellschaft, Stuttgart,
Deputy Chairman of the Supervisory Board (*)
Union Asset Management Holding AG, Frankfurt am Main,
Chairman of the Supervisory Board (*)
F-100
Wolfgang Kirsch
BAG Bankaktiengesellschaft, Hamm,
Member of the Supervisory Board
Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall,
Member of the Supervisory Board (*)
Deutsche Genossenschafts-Hypothekenbank
Aktiengesellschaft, Hamburg,
Member of the Supervisory Board (*)
Deutsche WertpapierService Bank AG, Frankfurt am Main,
Member of the Supervisory Board (*)
DVB Bank Aktiengesellschaft, Frankfurt am Main,
Member of the Supervisory Board (*)
EDEKABANK AG, Hamburg,
Member of the Supervisory Board
norisbank Aktiengesellschaft, Nürnberg,
Deputy Chairman of the Supervisory Board (*)
Südfleisch Holding Aktiengesellschaft, Munich,
Member of the Supervisory Board
VR-LEASING Aktiengesellschaft, Eschborn,
Member of the Supervisory Board (*)
Albrecht Merz
BayWa Aktiengesellschaft, Munich,
Member of the Supervisory Board
R+V Allgemeine Versicherung AG, Wiesbaden,
Member of the Supervisory Board (*)
SÜDWESTBANK Aktiengesellschaft, Stuttgart,
Chairman of the Supervisory Board (*)
Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG,
Frankfurt am Main,
Member of the Supervisory Board (*)
F-101
Dietrich Voigtländer
Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall,
Member of the Supervisory Board (*)
Deutsche WertpapierService Bank AG, Frankfurt am Main,
Chairman of the Supervisory Board (*)
FIDUCIA IT AG, Karlsruhe,
Member of the Supervisory Board
Karlsruher Hinterbliebenenkasse Aktiengesellschaft, Lebensversicherung für Beamte und Angestellte der öffentlichen
Verwaltung, Karlsruhe,
Deputy Chairman of the Supervisory Board
Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG,
Frankfurt am Main,
Chairman of the Supervisory Board (*)
VR Kreditwerk Hamburg-Schwäbisch Hall AG, Hamburg und
Schwäbisch Hall,
Member of the Supervisory Board (*)
Employees of DZ BANK AG
Ulrich Dexheimer
Raiffeisen-Warenzentrale Kurhessen-Thüringen GmbH, Kassel,
Member of the Supervisory Board
Dr Wilhelm Esselmann
LOHMANN & CO. AG, Visbek,
Member of the Supervisory Board
NFZ Norddeutsche Fleischzentrale GmbH, Hamburg,
Member of the Supervisory Board
RHG Nord Raiffeisen Hauptgenossenschaft Nord AG, Kiel,
Member of the Supervisory Board
Frank Westhoff
Stuttgarter Volksbank AG, Stuttgart,
Member of the Supervisory Board
F-102
Board members and employees of
other DZ BANK Group companies
Dr Alexander Erdland
Deutsche Genossenschafts-Hypothekenbank
Chairman of the Board of Managing
Aktiengesellschaft, Hamburg,
Directors
Member of the Supervisory Board (*)
(Bausparkasse Schwäbisch Hall AG)
WL-BANK WESTFÄLISCHE LANDSCHAFT
Bodenkreditbank AG, Münster,
Member of the Supervisory Board
Dr Matthias Metz
GWG Gesellschaft für Wohnungs- und Gewerbebau
Member of the Board of Managing
Baden-Württemberg AG, Stuttgart,
Directors
Member of the Supervisory Board (*)
(Bausparkasse Schwäbisch Hall AG)
VR Kreditwerk Hamburg-Schwäbisch Hall AG, Hamburg
und Schwäbisch Hall,
Chairman of the Supervisory Board (*)
Dr Wolf Schumacher
M.M. Warburg & CO Hypothekenbank AG, Hamburg,
Speaker of the Board of Managing
Member of the Supervisory Board
Directors
(Deutsche Genossenschafts-Hypothekenbank Aktiengesellschaft)
Friedrich Piaskowski
Gillardon AG financial software, Bretten,
Member of the Board of Managing
Chairman of the Supervisory Board
Directors
(Deutsche Genossenschafts-Hypotheken-
VR Kreditwerk Hamburg-Schwäbisch Hall AG, Hamburg
bank Aktiengesellschaft)
und Schwäbisch Hall,
Deputy Chairman of the Supervisory Board(*)
F-103
Wolfgang F. Driese
CashExpress Gesellschaft für Finanz- und Reisedienst-
Chairman of the Board of Managing
leistungen mbH, Frankfurt am Main,
Directors
Deputy Chairman of the Supervisory Board (*)
(DVB Bank Aktiengesellschaft)
KRAVAG-SACH VVaG, Hamburg,
Member of the Supervisory Board
ReiseBank Aktiengesellschaft, Frankfurt am Main,
Deputy Chairman of the Supervisory Board (*)
Dagfinn Lunde
CashExpress Gesellschaft für Finanz- und Reisedienst-
Member of the Board of Managing
leistungen mbH, Frankfurt am Main,
Directors
Member of the Supervisory Board (*) (to December 31,
(DVB Bank Aktiengesellschaft)
2003)
ReiseBank Aktiengesellschaft, Frankfurt am Main,
Member of the Supervisory Board (*) (to December 31,
2003)
Dr Jürgen Förterer
Hermes Kreditversicherungs-AG, Cologne,
Chairman of the Board of Managing
Member of the Supervisory Board
Directors
(R+V Versicherung AG)
KRAVAG-LOGISTIC Versicherungs-AG, Hamburg,
Chairman of the Supervisory Board (*)
R+V Allgemeine Versicherung AG, Wiesbaden,
Chairman of the Supervisory Board (*)
R+V Krankenversicherung AG, Wiesbaden,
Chairman of the Supervisory Board (*)
R+V Lebensversicherung AG, Wiesbaden,
Chairman of the Supervisory Board (*)
R+V Pensionsfonds AG, Wiesbaden,
Chairman of the Supervisory Board (*)
R+V Rechtsschutzversicherung AG, Wiesbaden,
Chairman of the Supervisory Board (*)
F-104
Hans-Christian Marschler
R+V Krankenversicherung AG, Wiesbaden,
Member of the Board of Managing
Member of the Supervisory Board (*)
Directors
(R+V Versicherung AG)
R+V Rechtsschutzversicherung AG, Wiesbaden,
Deputy Chairman of the Supervisory Board (*)
Bernhard Meyer
KRAVAG-ALLGEMEINE Versicherungs-AG, Hamburg,
Chairman of the Board of Managing
Member of the Supervisory Board (*)
Directors
(R+V Allgemeine Versicherung AG)
KRAVAG-LOGISTIC Versicherungs-AG, Hamburg,
Member of the Supervisory Board (*)
Securitas Sicherheitsdienste Holding GmbH, Düsseldorf,
Member of the Supervisory Board
Dr Manfred Mücke
DVB Bank Aktiengesellschaft, Frankfurt am Main,
Chairman of the Board of Managing
Member of the Supervisory Board (*)
Directors
(KRAVAG-SACH VVaG)
KRAVAG-ALLGEMEINE Versicherungs-AG, Hamburg,
Chairman of the Supervisory Board (*)
KRAVAG Holding AG, Hamburg,
Member of the Supervisory Board
F-105
Rainer Neumann
GWG Gesellschaft für Wohnungs- und Gewerbebau
Member of the Board of Managing
Baden-Württemberg AG, Stuttgart,
Directors
Member of the Supervisory Board (*)
(R+V Versicherung AG)
KRAVAG-LOGISTIC Versicherungs-AG, Hamburg,
Member of the Supervisory Board (*)
Paul Hartmann AG, Heidenheim,
Member of the Supervisory Board
Protektor Versicherung AG, Mannheim,
Member of the Supervisory Board
Hans-Dieter Schnorrenberg
R+V Pensionsfonds AG, Wiesbaden,
Member of the Board of Managing
Member of the Supervisory Board (*)
Directors
(R+V Versicherung AG)
Peter Weiler
R+V Pensionsfonds AG, Wiesbaden,
Member of the Board of Managing
Member of the Supervisory Board (*)
Directors
(R+V Versicherung AG)
Dr Rüdiger Ginsberg
DIFA Deutsche Immobilien Fonds AG, Hamburg,
Speaker of the Board of Managing
Chairman of the Supervisory Board (*)
Directors
(Union Asset Management Holding AG)
Ulrich Köhne
Union Investment Service Bank AG, Frankfurt am Main,
Member of the Board of Managing
Chairman of the Supervisory Board (*)
Directors
(Union Asset Management Holding AG)
F-106
Hans Joachim Reinke
Union Investment Service Bank AG, Frankfurt am Main,
Managing Director
Member of the Supervisory Board (*)
(Union Investment Privatfonds GmbH)
Oliver Best
Union Investment Service Bank AG, Frankfurt am Main,
Employee
Member of the Supervisory Board (*)
(Union Asset Management Holding AG)
Reinhard Gödel
KRAVAG-LOGISTIC Versicherungs-AG, Hamburg,
Chairman of the Board of Managing
Member of the Supervisory Board (*)
Directors
(VR-LEASING Aktiengesellschaft)
F-107
Frankfurt am Main, March 9, 2004
DZ BANK AG
Deutsche Zentral-Genossenschaftsbank
Board of Managing
Directors
Dr Brixner
Dr Duhnkrack
Hilgert
Kirsch
Merz
Voigtländer
F-108
Independent audit opinion
Based on the conclusive findings of our audit, we have issued the following unqualified audit opinion dated March 15, 2004:
“We have audited the consolidated financial statements and the Group management report prepared by DZ BANK AG Deutsche
Zentral-Genossenschaftsbank, Frankfurt am Main, for the financial year from 1 January to 31 December 2003. The preparation of
the consolidated financial statements and the Group management report in compliance with German commercial law is the
responsibility of the Company’s Board of Managing Directors. Our responsibility is to express an opinion on these consolidated financial statements and the Group management report based on our audit.
We conducted our audit in accordance with section 317 HGB and in compliance with the generally accepted audit principles
defined by the Institut der Wirtschaftsprüfer (IDW). These standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with German principles of proper accounting and in the Group management report are detected
with reasonable assurance. Knowledge of the business activities of the Company and the economic and legal environment of the
Company and evaluations of possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the internal control system and the evidence supporting the disclosures in the consolidated financial statements and the
Group management report are examined primarily on a test basis within the framework of the audit. An audit includes assessing
the annual financial statements of the companies included in consolidation, the determination of the companies to be included in
consolidation, the accounting and consolidation principles used and significant estimates made by the company’s Board of Managing Directors, as well as evaluating the overall presentation of the consolidated financial statements and the Group management
report. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion the consolidated financial statements give a fair and true view of the net assets, financial position and results of
operations of the Group in accordance with German principles of proper accounting. On the whole the Group management report
provides a suitable understanding of the Group’s position and suitably presents the risks of future development.”
Stuttgart, March 15, 2004
Frankfurt am Main, March 15, 2004
Ernst & Young AG
Deloitte & Touche GmbH
Wirtschaftsprüfungsgesellschaft
Wirtschaftsprüfungsgesellschaft
(Müller-Tronnier)
(Prof. Dr Caduff)
(Prof. Dr Kläs)
(Apweiler)
Wirtschaftsprüfer
Wirtschaftsprüfer
Wirtschaftsprüfer
Wirtschaftsprüfer
F-109
Advisory Committees of DZ BANK AG
Members of the Baden-Württemberg
Advisory Committee of DZ BANK AG
Wilfried Freiherr von Enzberg (to 02/2003)
Chairman:
Heinz Frankenhauser
Willy Köhler
Speaker of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank Nagoldtal eG
Speaker of the Board of Managing Directors
Volksbank Donau-Neckar eG
Volksbank Rhein-Neckar eG
Horst Gauggel
Deputy Chairman:
Member of the Board of Managing Directors
Hans-Georg Leute
Raiffeisenbank Donau-Iller eG
Chairman of the Board of Managing Directors
Volksbank Tübingen eG
Dr Roman Glaser
Chairman of the Board of Managing Directors
Dr Peter Aubin
Volksbank Baden-Baden-Rastatt eG
Speaker of the Board of Managing Directors
Volksbank Göppingen eG
Dr Wolfgang Heinle
Chairman of the Board of Managing Directors
Manfred Basler
Volksbank Kraichgau eG
Chairman of the Board of Managing Directors
Volksbank Lahr eG
Horst Heller
Chairman of the Board of Managing Directors
Rainer Bauer
Volksbank Hochrhein eG
Chairman of the Board of Managing Directors
Volksbank Ludwigsburg eG
Claus Hepp
Member of the Board of Managing Directors
Winfried Baumann (from 03/2003)
Volksbank Allgäu-West eG
Speaker of the Board of Managing Directors
Volksbank Donau-Neckar eG
Dr Albrecht Hermann (to 06/2003)
Speaker of the Board of Managing Directors
Richard Bruder
Filderbank Stuttgart eG
Chairman of the Board of Managing Directors
Volksbank Offenburg eG
Ludwig Hofmann
Member of the Board of Managing Directors
Arnhold Budick
Volksbank Möckmühl-Neuenstadt eG
Chairman of the Board of Managing Directors
Volksbank Schwarzwald-Neckar eG
Klaus Holderbach
Member of the Board of Managing Directors
Wolfgang Burger
Chairman of the Board of Managing Directors
Bruhrainer Volksbank eG
F-110
Volksbank Franken eG
Fritz Karcher
Dr Wolfgang Müller
Speaker of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank Breisgau Nord eG
BBBank eG, Karlsruhe
Edgar Kipper
Adolf Oppermann
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank Karlsruhe eG
Volksbank Heilbronn eG
Hans Kircher
Wolfgang Riedlinger
Speaker of the Board of Managing Directors
Member of the Board of Managing Directors
Raiffeisenbank Bretzfeld eG
Volksbank Baiersbronn eG
Dr Rainer Kunadt
Gerd Rothenbacher
Chairman of the Board of Managing Directors
Member of the Board of Managing Directors
Volksbank Pforzheim eG
Raiffeisenbank Rottal eG
Manfred Kuner
Paul-Erich Schaaf
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank Triberg eG
Untertürkheimer Volksbank eG
Peter Lächler
Werner Schmidgall
Speaker of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank Kirchheim-Nürtingen eG
Volksbank Backnang eG
Dr Franz G. Leitner
Wolfgang Traut (to 06/2003)
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank Freiburg eG
Vereinigte Volksbank AG, Sindelfingen
Werner Luz
Peter Vetter
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank Region Leonberg eG
Volksbank Wilferdingen-Keltern eG
Walter Mauch
Siegfried Wolber
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank eG Überlingen
Volksbank eG Villingen
Martin Mayer
Otto Zoller
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank Tailfingen eG
Raiffeisenbank Eberhardzell-Ummendorf eG
F-111
Members of the Bavaria Advisory
Committee of DZ BANK AG
Wilhelm Frankenberger
Association President
Genossenschaftsverband Bayern
(Raiffeisen/Schulze-Delitzsch) e.V.
Chairman:
Richard Steiner (to 11/2003)
Dr Christoph Glenk (from 10/2003)
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Raiffeisenbank Dinkelsbühl-Hesselberg eG
Volksbank Dinkelsbühl eG
Dietmar Küsters (from 11/2003,
Michael Haas
previously Deputy Chairman)
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank-Raiffeisenbank Dachau eG
Volksbank Straubing eG
Friedrich Hertle
Deputy Chairman:
Member of the Board of Managing Directors
Konrad Irtel (from 11/2003)
Raiffeisen-Volksbank Donauwörth eG
Speaker of the Board of Managing Directors
Raiffeisenbank Rosenheim eG
Eugen Hurler
Member of the Board of Managing Directors
Walter Alt
Raiffeisenbank-Volksbank Meitingen eG
Deputy Chairman of the Board of Managing Directors
LIGA Bank eG Regensburg
Franz Inkmann
Chairman of the Board of Managing Directors
Hans Berger
VR-Bank Uffenheim-Neustadt eG Raiffeisen-Volksbank
Chairman of the Board of Managing Directors
Volksbank Raiffeisenbank Ismaning eG
Friedrich Küffner (to 06/2003)
Chairman of the Board of Managing Directors
Peter Daxenberger
Volksbank Pfaffenhofen a.d. Ilm eG
Chairman of the Board of Managing Directors
Freisinger Bank eG Volksbank-Raiffeisenbank
Bernhard Link
Chairman of the Board of Managing Directors
Andreas Dichtl
Volksbank Raiffeisenbank Nürnberg eG
Chairman of the Board of Managing Directors
Volksbank Raiffeisenbank
Walter Müller (from 09/2003)
Berchtesgadener Land eG
Chairman of the Board of Managing Directors
Volksbank Raiffeisenbank Fürstenfeldbruck eG
Josef Murr
Chairman of the Board of Managing Directors
Raiffeisenbank Parkstetten eG
F-112
Leonhard Roßmann
Rainer Wiederer
Chairman of the Board of Managing Directors
Member of the Board of Managing Directors
Volksbank-Raiffeisenbank Oberhaching-Wolfratshausen eG
Volksbank Raiffeisenbank Würzburg eG
Rainer Schaidnagel
Josef Wilhelm
Member of the Board of Managing Directors
Chairman of the Board of Managing Directors
Raiffeisenbank Kempten eG
Raiffeisenbank München-Feldmoching eG
Erich Schaller
Helmut Wölfel
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Raiffeisenbank Hof eG
Raiffeisen-Volksbank Kronach-Ludwigsstadt eG
Norbert Schmidt
Günther Zollner
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank-Raiffeisenbank Amberg eG
Raiffeisenbank Cham eG
Siegfried Schuberth
Chairman of the Board of Managing Directors
Raiffeisenbank Hallstadt eG
Claudius Seidl
Chairman of the Board of Managing Directors
VR-Bank Rottal-Inn eG
Georg Sell
Chairman of the Board of Managing Directors
Raiffeisenbank Hammelburg eG
Elmar Staab
Member of the Board of Managing Directors
Raiffeisenbank Aschaffenburg eG
Johann Weigele
Chairman of the Board of Managing Directors
Raiffeisenbank Pfaffenhausen eG
F-113
Members of the Central Germany
Advisory Committee of DZ BANK AG
Hans-Werner Diehl
Chairman:
Peter Eisermann
Hans-Josef Hoffmann
Member of the Board of Managing Directors
Chairman of the Board of Managing Directors
Raiffeisenbank eG Wolfhagen
Chairman of the Board of Managing Directors
Mainzer Volksbank eG
Bank1Saar eG, Saarbrücken
Erwin Failing
Deputy Chairman:
Chairman of the Board of Managing Directors
Georg Kleinschmidt
Volksbank Heuchelheim eG
Chairman of the Board of Managing Directors
Kasseler Bank eG
Heinrich Fülberth
Speaker of the Board of Managing Directors
Claus-Rüdiger Bauer
Volksbank Odenwald eG
Speaker of the Board of Managing Directors
Raiffeisenbank eG, Baunatal
Manfred Gerhard
Member of the Board of Managing Directors
Herbert Bauer
VR Genossenschaftsbank Fulda eG
Chairman of the Board of Managing Directors
Volksbank Neunkirchen eG
Ina Görbing
Chairwoman of the Board of Managing Directors
Dr Dr Claus Becker
Volksbank Erfurt eG
Chairman of the Board of Managing Directors
Volksbank Darmstadt eG
Peter Haffelt
Member of the Board of Managing Directors
Kurt Becker
Dresdner Volksbank Raiffeisenbank eG
Chairman of the Board of Managing Directors
VEREINIGTE VOLKSBANK AG, Cochem
Peter Hanker
Speaker of the Board of Managing Directors
Helmut Colloseus
Volksbank Gießen-Friedberg eG
Chairman of the Board of Managing Directors
Rheingauer Volksbank eG
Andreas Hof
Chairman of the Board of Managing Directors
Heiner J. Conrad
Chairman of the Board of Managing Directors
Groß-Gerauer Volksbank eG
F-114
Volksbank Raiffeisenbank Main-Kinzig eG
Gerhard Holstein
Harro Meurer
Member of the Board of Managing Directors
Chairman of the Board of Managing Directors
Bankverein Bebra eG
Volksbank Riesa eG
Erich Isele
Harald Meyer
Chairman of the Board of Managing Directors
Speaker of the Board of Managing Directors
PSD Bank RheinNeckarSaar eG
Marburger Bank Volksbank Raiffeisenbank eG
Dieter Jurgeit
Jakob Müller
Chairman of the Board of Managing Directors
Speaker of the Board of Managing Directors
PSD Bank Hamburg eG
VR Bank Biedenkopf-Gladenbach eG
Walfried Kauffmann (to 06/2003)
Karl Oppermann
Member of the Board of Managing Directors
Member of the Board of Managing Directors
Kreuznacher Volksbank eG
Waldecker Bank eG
Gabriele Klöpfel
Dieter Rembde
Chairwoman of the Board of Managing Directors
Member of the Board of Managing Directors
GERAER BANK eG
VR-Bank Schwalm-Eder Volksbank-Raiffeisenbank eG
Günter Köhler
Volker Remmele (to 09/2003)
Member of the Board of Managing Directors
Member of the Board of Managing Directors
Evangelische Kreditgenossenschaft eG
Volksbank Gießen-Friedberg eG
Dr Wolfgang Licht
Karl-Hermann Rininsland-Schröder (to 03/2003)
Chairman of the Board of Managing Directors
Member of the Board of Managing Directors
Freiberger Bank eG Volks- und Raiffeisenbank
Raiffeisenbank eG Borken
Hans-Theo Macke
Werner Röhrig
Chairman of the Board of Managing Directors
Speaker of the Board of Managing Directors
Westerwald Bank eG Volks- und Raiffeisenbank
VVB Vereinigte Volksbank Maingau eG
Heinrich Mai
Tilman Römpp
Member of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank Lauterbach-Schlitz eG
Volksbank Bautzen eG
F-115
Jürgen Schlesier
Bernhard Slavetinsky
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
Raiffeisenbank Vogelsberg eG
PSD Bank Karlsruhe-Neustadt eG
Fritz-Ludwig Schmidt
Dr Wolfgang Thomasberger
Chairman of the Board of Managing Directors
Member of the Board of Managing Directors
Volksbank Kreis Bergstraße eG
VR Bank eG Ludwigshafen
Paul-Heinz Schmidt
Ulrich Tolksdorf
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
VR Bank eG Alsfeld Kirchhain Schwalmstadt
vr bank Untertaunus eG
Erhard Schmitt
Horst Weyand (from 10/2003)
Member of the Board of Managing Directors
Member of the Board of Managing Directors
Volksbank Alzey eG
Volksbank Nahetal eG
Günter Schmitt
Laurent Wolf (to 10/2003)
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
VR Bank Südliche Weinstraße eG
Volksbank Sonneberg-Neuhaus eG
Peter Schmitt
Chairman of the Board of Managing Directors
Raiffeisenbank eG Großenlüder
Hans-Georg Schneider
Speaker of the Board of Managing Directors
Raiffeisenbank Kirtorf eG
Reinhold Schreck
Chairman of the Board of Managing Directors
VR Bank Südpfalz eG
Hans-Jürgen Simon
Speaker of the Board of Managing Directors
Volksbank Wetzlar-Weilburg eG
F-116
Members of the North/East Germany
Advisory Committee of DZ BANK AG
Fritz Buck
Chairman:
Eckard Busch (to 11/2003)
Alfred Runge
Member of the Board of Managing Directors
Chairman of the Board of Managing Directors
Raiffeisenbank Butjadingen-Abbehausen eG
Member of the Board of Managing Directors
Spar- und Kreditbank eG, Hammah
Volksbank Burgdorf-Celle eG
Jürgen Dämmig (to 10/2003)
Deputy Chairman:
Member of the Board of Managing Directors
Dr Bernd Hübner
Ostfriesische Volksbank eG
Chairman of the Board of Managing Directors
Raiffeisen-Volksbank Oder-Spree eG
Josef Dahl
Speaker of the Board of Managing Directors
Rüdiger Adamy
Ostharzer Volksbank eG
Speaker of the Board of Managing Directors
Brandenburger Bank Volksbank-Raiffeisenbank eG
Dr Paul Albert Deimel
Chairman of the Board of Managing Directors
Günther Bartels
Volksbank Helmstedt eG
Speaker of the Board of Managing Directors
Volksbank Stadthagen eG
Henning Deneke-Jöhrens
Member of the Board of Managing Directors
Bernd Borchers
Volksbank eG Lehrte-Springe-Pattensen-Ronnenberg
Member of the Board of Managing Directors
Volksbank Wolfenbüttel-Salzgitter eG
Helmut Dommel
Member of the Board of Managing Directors
Dr Michael Brandt
Raiffeisenbank Waren eG
Member of the Board of Managing Directors
Volksbank Lübeck-Landbank von 1902 eG
Karl-Heinz Driehorst
Member of the Board of Managing Directors
Martin Brödder
Volksbank Solling eG
Member of the Board of Managing Directors
Volks- und Raiffeisenbank Prignitz eG
Heinrich Ehlers
Member of the Board of Managing Directors
Eckehard Brüning
Volksbank-Raiffeisenbank im Kreis Rendsburg eG
Member of the Board of Managing Directors
Haldensleber Bank-Raiffeisenbank eG
F-117
Berthold Engelke
Gerhard Husmann
Chairman of the Board of Managing Directors
Member of the Board of Managing Directors
Volksbank eG, Stolzenau
Volksbank Obergrafschaft eG
Carsten-Peter Feddersen
Walter Jaeger
Member of the Board of Managing Directors
Member of the Board of Managing Directors
Raiffeisenbank Südstormarn eG
Volksbank Wittenberg eG
Heinrich Fenne
Heinz-Dieter Katze
Member of the Board of Managing Directors
Speaker of the Board of Managing Directors
Volksbank Osnabrück eG
Volksbank Oldenburg eG
Alfons Fennen
Detlef Kentler
Chairman of the Board of Managing Directors
Speaker of the Board of Managing Directors
Volksbank Bösel eG
Volksbank eG, Seesen
Dr Rolf Flechsig
Heinz-Harold Kleen
Member of the Board of Managing Directors
Member of the Board of Managing Directors
Berliner Volksbank eG
Raiffeisenbank Hatten-Wardenburg eG
Detlef Großweischede
Gerd Köhn
Association Director
Executive Board Member
Genossenschaftsverband Norddeutschland e.V.
Volksbank Jever eG
Johann Heins
Johannes Kux
Member of the Board of Managing Directors
Member of the Board of Managing Directors
Zevener Volksbank eG
Volksbank Neumünster eG
Michael Hietkamp
Hans-Heinrich Langholz
Member of the Board of Managing Directors
Member of the Board of Managing Directors
Volksbank Raiffeisenbank eG Greifswald
Volksbank Raiffeisenbank eG Schleswig
Klaus Hinsch
Georg Litmathe (from 04/2003)
Member of the Board of Managing Directors
Association Director
Raiffeisenbank eG, Hagenow
Genossenschaftsverband Weser-Ems e.V.
F-118
Norbert Lohmann
Günther Scheffczyk
Member of the Board of Managing Directors
Member of the Board of Managing Directors
Volksbank Spelle-Freren eG
Hümmlinger Volksbank eG
Ubbo Lorenz
Christian Scheinert
Member of the Board of Managing Directors
Member of the Board of Managing Directors
Raiffeisenbank-Volksbank eG Fresena
Volksbank eG, Elmshorn
Herman Mehrens
Werner Schierenbeck
Speaker of the Board of Managing Directors
Speaker of the Board of Managing Directors
Hannoversche Volksbank eG
Volksbank eG, Syke
Henning Melcher
Friedrich Schmidt
Member of the Board of Managing Directors
Member of the Board of Managing Directors
Volksbank eG Bremerhaven-Wesermünde
Volksbank Ostkreis Uelzen eG
Heinz-Horst Meyer
Reinhard Schoon
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
VR-Bank Halstenbek-Schenefeld eG
Raiffeisen-Volksbank eG, Uplengen
Dr Dieter Radtke (to 03/2003)
Michael Schwarz
Deputy Chairman of the Board of Managing Directors
Member of the Board of Managing Directors
Evangelische Darlehensgenossenschaft eG, Kiel
Volksbank Lüneburg eG
Eckard Rave
Michael Siegers
Member of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank Raiffeisenbank eG, Husum
Volksbank Hildesheim eG
Paul Reisdorf
Dieter Soechtig
Speaker of the Board of Managing Directors
Member of the Board of Managing Directors
VR Bank Lausitz eG
Volksbank eG Wolfsburg
Stephan Schack
Heinz Tabeling
Member of the Board of Managing Directors
Chairman of the Board of Managing Directors
Volksbank eG Itzehoe
Volksbank Visbek eG
F-119
Peter Weihe (to 03/2003)
Member of the Board of Managing Directors
Volksbank Nordharz eG
Heinz-Walter Wiedbrauck
Chairman of the Board of Managing Directors
Volksbank Hameln-Pyrmont eG
Bernd-Michael Williges (from 10/2003)
Member of the Board of Managing Directors
Volksbank Celler Land eG
Holger Willuhn
Speaker of the Board of Managing Directors
Volksbank Eichsfeld-Northeim eG
Bernd Wolfram
Member of the Board of Managing Directors
Volksbank Celler Land eG
F-120
Members of the Employers Advisory
Committee of DZ BANK AG
Hans-Jürgen Burkert
Chairman:
Prof. Dr Hans Heinrich Driftmann
Prof. Dr Wolfgang König
Managing Partner
Johann Wolfgang Goethe-Universität
Peter Kölln KGaA, Elmshorn
Member of the Board of Managing Directors
Hymer AG, Bad Waldsee
Institut für Wirtschaftsinformatik
Frankfurt am Main
Stefan Durach
Managing Director
Deputy Chairman:
Develey Senf+Feinkost GmbH, Unterhaching
Dr Wilhelm Bender
Chairman of the Board of Managing Directors
Konsul Anton-Wolfgang, Graf von Faber-Castell
Fraport AG, Frankfurt am Main
Chairman of the Board of Managing Directors
Faber-Castell AG, Stein
Carl Fritz Bardusch
Managing Director
Manfred Finger
Bardusch GmbH&Co., Ettlingen
Member of the Board of Managing Directors
Villeroy & Boch AG, Mettlach
Dr Wolfgang Baur
Member of the Board of Managing Directors
Alfons Frenk (from 2004)
Schuler AG, Göppingen
Chairman of the Board of Managing Directors
(previously Member of the Board of Managing Directors
EDEKA AG & Co. KG, Hamburg
Dürr AG, Stuttgart)
Dr Hans-Jörg Gebhard
Dr Werner Brandt
Chairman of the Supervisory Board
Member of the Board of Managing Directors
SZVG Süddeutsche Zuckerrübenverwertungs-
SAP Aktiengesellschaft,Walldorf
Genossenschaft eG, Ochsenfurt
Gerhard Erwin Bruckermann
Karl-Heinz Glauner
Chairman
Chairman of the Board of Managing Directors
CEO DEPFA BANK plc., Dublin
Aareal Bank AG, Wiesbaden
Gerd Bruse
Rüdiger A. Günther
Member of the Board of Managing Directors
Executive Board Speaker
REWE-Zentral AG, Köln
CLAAS KGaA mbH, Harsewinkel
F-121
Dr Jochen Gutbrod
Dr Gerd Krick
Managing Director
Chairman of the Supervisory Board
Verlagsgruppe Georg von Holtzbrinck GmbH,
Fresenius AG, Bad Homburg
Stuttgart
Andreas Lapp
Dr Jürgen Heraeus
Chairman of the Board of Managing Directors
Chairman of the Supervisory Board
LAPP HOLDING AG, Stuttgart
Heraeus Holding GmbH, Hanau
Roland Mack
Dr Dirk Hoffmann
Managing Partner
Chairman of the Board of Managing Directors
EUROPA-PARK Freizeit- und Familienpark Mack KG, Rust
ALLGEMEINE HYPOTHEKENBANK
RHEINBODEN AG, Frankfurt am Main
Peter Mager
Chairman of the Supervisory Board
Ernst-Albert Holzapfel
Nordenia International AG, Steinfeld
Managing Partner
friedola Gebr. Holzapfel GmbH & Co. KG,
Dr Arno Mahlert (to 2003)
Meinhard-Frieda
Member of the Supervisory Board
Verlagsgruppe Georg von Holtzbrinck GmbH, Stuttgart
Volker T. Husmann (to 2003)
Former Member of the Board of Managing Directors
Ludwig Merckle
Kennametal Hertel AG, Fürth
Executive Board Chairman
Merckle/ratiopharm Arzneimittel GmbH, Ulm
Wolfgang Jeblonski (from 2004)
Member of the Board of Managing Directors
Dr Klaus Naeve
STADA ARZNEIMITTEL AG, Bad Vilbel
Member of the Central Board of Managing Directors
Schörghuber Stiftung & Co. Holding KG, Munich
Dr Dagobert Kotzur
Executive Board Chairman
Manfred Nüssel
Schunk GmbH, Thale
President
Deutscher Raiffeisenverband e.V., Bonn
Prof. Dr Jan Pieter Krahnen
Johann Wolfgang Goethe-Universität
Dipl. Kfm. Kommerzialrat
Lehrstuhl für Kreditwirtschaft und Finanzierung
Gerhard Ortner
Frankfurt am Main
President of the Supervisory Board
Österreichische Volksbanken-AG, Salzburg
F-122
Prof. Dr Rolf Peffekoven
Joachim Siebert
Johannes Gutenberg-Universität Mainz,
Chairman of the Board of Managing Directors
Lehrstuhl für VWL und Finanzwissenschaft, Mainz
anwr Ariston-Nord-West-Ring eG, Mainhausen
Manfred Renner
Gerd Sonnleitner
Chairman of the Board of Managing Directors
President
Sanacorp Pharmahandel AG, Planegg
Deutscher Bauernverband e.V., Bonn
Hartmut Retzlaff (to 2003)
Dr Theo Spettmann
Chairman of the Board of Managing Directors
Speaker of the Board of Managing Directors
STADA ARZNEIMITTEL AG, Bad Vilbel
SÜDZUCKER AG Mannheim/Ochsenfurt, Mannheim
Jürgen Rudolph
Dr Friedrich-Leopold Freiherr v. Stechow
Managing Partner
Executive Board Chairman
Rudolph Logistik Gruppe/Rudolph Holding GmbH, Baunatal
Partner für Berlin
Hauptstadtmarketing mbH, Berlin
Diethelm Sack
Member of the Board of Managing Directors
Dr Thomas Strüngmann
Deutsche Bahn AG, Frankfurt am Main
Member of the Board of Managing Directors
Hexal AG, Holzkirchen
Prof. Dr Christian Schlag
Johann Wolfgang Goethe-Universität
Hans Wall
Professur für Derivate und Financial Engineering
Chairman of the Board of Managing Directors
Frankfurt am Main
Wall Aktiengesellschaft, Berlin
Dr Werner Schreglmann (to 2003)
Paul-Heinz Wesjohann
Former Member of the Board of Managing Directors
Chairman of the Board of Managing Directors
Schuler AG, Goeppingen
PHW-Gruppe, Visbek
Dr Eric Schweitzer
Alexander von Witzleben
Member of the Board of Managing Directors
Chairman of the Board of Managing Directors
ALBA AG, Velten bei Berlin
Jenoptik AG, Jena
F-123
Major subsidiaries and participating
interests of DZ BANK AG
Banks
Name/head office
Consolidated1
Share of capital
in percent
Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall (indirectly)
•
82.8
Bellevue and More AG, Hamburg
50.0
Ceskomoravska stavebni sporitelna a.s., Praha
45.0
Fundamenta Magyar-Nemet Lakastakarekpentar Rt., Budapest
51.2
Prva stavebna sprital´na a.s., Bratislava
32.5
VR Kreditwerk Hamburg-Schwäbisch Hall AG, Hamburg und Schwäbisch-Hall
(jointly with Deutsche Genossenschafts-Hypothekenbank AG)
•
60.0
cosba private banking ag, Zürich (indirectly)
•
65.0
Deutsche Genossenschafts-Hypothekenbank AG, Hamburg
•
100.0
Deutsche WertpapierService Bank, Frankfurt am Main
DVB Bank AG, Frankfurt am Main
2
Nedship Bank N.V., Rotterdam
40.0
•
92.3
•
100.0
DZ Financial Markets LLC, New York
DZ BANK International S. A., Luxembourg-Strassen 2
100.0
•
89.7
•
100.0
•
100.0
DZ CAPITAL MANAGEMENT GmbH, Frankfurt am Main
DZ BANK Ireland plc, Dublin 2
96.7
46.9
Magyar Takarékszövetkezeti Bank Részvénytársaság, Budapest
norisbank AG, Nürnberg
25.001 3
Österreichische Volksbanken AG, Wien (indirectly)
SÜDWESTBANK AG, Stuttgart
•
1
Consolidated under terms of section 294.1 HGB; aggregate capital shares held by DZ Bank AG or the respective parent company
2
Declaration of backing by DZ BANK AG
3
Share of voting rights
F-124
89.6
Other specialist service providers
Name/head office
Consolidated1
Share of capital
in percent
Betriebswirtschaftliches Institut der Deutschen Kreditgenossenschaften
73.6
BIK GmbH, Frankfurt am Main
100.0
DZ Equity Partner GmbH, Frankfurt am Main
EURO Kartensysteme GmbH, Frankfurt am Main
19.6
Genossenschaftlicher Informationsservice GIS GmbH, Frankfurt am Main
97.0
GVA GENO-Vermögens-Anlage-Gesellschaft mbH, Frankfurt am Main
66.7
GZS Gesellschaft für Zahlungssysteme, Frankfurt am Main
20.0
Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG, Frankfurt am Main
•
100.0
VR-LEASING AG, Eschborn
•
83.5
BFL LEASING GmbH, Eschborn
•
70.9
VR-BAUREGIE GmbH, Eschborn
•
100.0
VR DISKONTBANK GmbH, Eschborn
•
100.0
•
100.0
VR FACTOREM GmbH, Eschborn
VR-IMMOBILIEN-LEASING GmbH, Eschborn
49.0
VR MEDICO LEASING GmbH, Eschborn
1
100.0
Consolidated under terms of section 294.1 HGB; aggregate capital shares held by DZ BANK AG or the respective parent company
F-125
Investment trusts
Name/head office
Consolidated1
Share of capital
in percent
1
Union Asset Management Holding AG, Frankfurt am Main
•
64.8
DEFO Deutsche Fonds für Immobilienvermögen GmbH, Frankfurt am Main
•
90.0
DIFA DEUTSCHE IMMOBILIEN FONDS AG, Hamburg
•
94.5
Union Investment Institutional GmbH, Frankfurt am Main
•
100.0
Union Investment Luxembourg S.A., Luxembourg
•
100.0
Union Investment Privatfonds GmbH, Frankfurt am Main
•
100.0
UNICO Asset Management S.A., Luxembourg
•
100.0
Consolidated under terms of section 294.1 HGB; aggregate capital shares held by DZ BANK AG or the respective parent company
Insurance companies
Name/head office
Consolidated1
Share of capital
in percent
R+V Versicherung AG, Wiesbaden
•
73.0
KRAVAG-Allgemeine Versicherungs-AG, Hamburg
•
76.0
KRAVAG-LOGISTIC Versicherungs-AG, Hamburg
•
51.0
R+V Allgemeine Versicherung AG, Wiesbaden
•
88.6
R+V Krankenversicherung AG, Wiesbaden
•
100.0
R+V Lebensversicherung AG, Wiesbaden
•
100.0
R+V Pensionsfonds AG, Wiesbaden
1
(jointly with Union Asset Management Holding)
•
51.0
R+V Rechtsschutzversicherung AG, Wiesbaden
•
100.0
Consolidated under terms of section 294.1 HGB; aggregate capital shares held by DZ BANK AG or the respective parent company
F-126
DZ BANK AG
Annual Financial Statements 2003
F-127
Management Report on the 2003
financial year for DZ BANK AG
I. Overview of trading in fiscal 2003
2. Continuation of the strategic
realignment launched in 2001
Other specialist service providers
Name/head office
1. Macroeconomic framework
Consolidated1
Share of capital
in percent
During the year under report DZ BANK has successfully main-
Betriebswirtschaftliches Institut der Deutschen Kreditgenossenschaften
tained our strategy of focusing our business activity more
BIK GmbH, Frankfurt am Main
The fraught economic environment continued to present
closely on the cooperative primary banks and applying a risk-
DZ Equity Partner GmbH, Frankfurt am Main
DZ BANK AG (DZ BANK) with exceptional challenges during
aware lending policy. At the same time we were able to make
EURO Kartensysteme GmbH, Frankfurt am Main
19.6
the year under report. Most importantly, the uncertainty
further progress on the projects launched at the time of the
Genossenschaftlicher Informationsservice GIS GmbH, Frankfurt am Main
97.0
stemming from the Iraq crisis dashed the hopes of an econo-
merger in 2001 to migrate our databases and harmonise our
GVA GENO-Vermögens-Anlage-Gesellschaft mbH, Frankfurt am Main
66.7
mic upturn that had emerged at the start of the year. The out-
IT platforms, and to bring many of these projects to a success-
GZS Gesellschaft für Zahlungssysteme, Frankfurt am Main
20.0
put of the economy even weakened by a further 0.3 percent.
ful conclusion during 2003.
Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG, Frankfurt am Main
•
100.0
VR-LEASING AG, Eschborn
•
83.5
•
70.9
73.6
100.0
The persistently difficult conditions on the labor market
There have also been changes in DZ BANK’s portfolio of busi-
BFL LEASING GmbH, Eschborn
weighed on consumer sentiment and private household
nesses during the year, all of them aimed at strengthening the
VR-BAUREGIE GmbH, Eschborn
•
100.0
demand fell again by 0.1 percent in 2003. Corporate invest-
effectiveness of the integrated cooperative financial services
VR DISKONTBANK GmbH, Eschborn
•
100.0
ment activity also remained well below expectations as
sector as a whole:
VR FACTOREM GmbH, Eschborn
•
100.0
VR-IMMOBILIEN-LEASING GmbH, Eschborn
companies cut their plant and equipment investment by
3.0 percent year-on-year.
- Spin-off of payments processing division
Domestic GDP did expand in the second half of 2003 – albeit
The separating out of DZ BANK’s payments processing division
at the exceptionally modest rate of just 0.2 percent – thanks
into a newly-founded specialist company Transaktionsinstitut
to higher exports, which defied the strong appreciation of the
für Zahlungsverkehrsdienstleistungen AG, Frankfurt am Main,
euro to record an overall gain of 1.2 percent over the full year.
(Transaktionsinstitut) with effect from September 1, 2003
This rise was helped by strong economic growth in the USA,
has created the nucleus for a neutral processing platform to
eastern Europe and Asia. The first tentative progress on
service national and international payments transactions. The
the economic policy reform front at the end of the year also
benefit of efficiency gains achieved through the expansion of
helped produce a gradual improvement in the economic
transaction volumes and the modernisation of processing
climate.
technologies will feed through to the local cooperative banks
49.0
VR MEDICO LEASING GmbH, Eschborn
1
100.0
Consolidated under terms of section 294.1 HGB; aggregate capital shares held by DZ BANK AG or the respective parent company
in the form of significantly reduced unit costs. In December
2003 WestLB AG, Düsseldorf, announced it is interested in
partnering with Transaktionsinstitut. Between them, these
banks handle no less than 26 percent of the total domestic
payments traffic measured by numbers of transactions.
F-128
71
- Acquisition of norisbank AG, Nürnberg
- Amalgamation of factoring business with France-based
Natexis Factorem S. A., Paris
DZ BANK’s takeover of the specialist consumer credit provider
norisbank AG as from October 1, 2003 has created the neces-
In November 2003 Natexis Banque Populaire, Paris, and
sary foundation for increasing the cooperative financial servi-
VR-LEASING AG, Eschborn, signed a joint-venture agreement
ces sector’s share of this fast-growing market segment.
to establish VR FACTOREM GmbH, Eschborn. The new under-
norisbank’s partner banks model gives local cooperative banks
taking, 51 percent owned by our French partner and 49 per-
the opportunity to distribute its high-profile “easyCredit” brand
cent owned by VR-LEASING AG, will specialise in the provision
product. norisbank has installed a high-grade risk manage-
of factoring services for small and midsize enterprises and also
ment system and modern, low-cost processing technology.
absorb the factoring operations of VR DISKONTBANK GmbH,
By the end of 2003 no less than 438 partner banks had
Eschborn, a subsidiary of VR-LEASING AG. DZ BANK and
already registered their interest in distributing “easyCredit”.
Natexis Banque Populaire have also agreed to intensify our
existing cooperation in the areas of research, asset manage-
- Cross-sector merger of securities processing businesses
ment and private equity.
The merger of the municipal savings bank sector’s specialist
- Investment custody business
service provider WPS WertpapierService Bank AG, Düsseldorf,
with its cooperative sector equivalent Bank für Wertpapier-
In January of the current year, Union Asset Management
service and -systeme AG, Frankfurt am Main, to form Deutsche
Holding AG, Frankfurt am Main, and DekaBank Deutsche
WertpapierService Bank AG, Frankfurt am Main, (dwpbank) in
Girozentrale, Frankfurt am Main, started to jointly explore
August 2003 has created Germany’s biggest specialist secu-
the possibility of pooling their investment custody activities.
rities processor. The involvement of further partners in future
and the harmonisation of processing platforms will deliver per-
In order to further the structural streamlining of the DZ BANK
manent efficiency advances. At the end of November the new
Group, in addition to the initiatives described DZ BANK has
entity was able to sign an agreement on future cooperation
also acquired (effective December 31, 2003) ReiseBank AG,
with Dresdner Bank AG, Frankfurt am Main. The shares of
Frankfurt am Main, and CashExpress Gesellschaft für Finanz-
dwpbank are held in equal proportions by the cooperative
and Zahlungsverkehrsdienstleistungen mbH, Frankfurt am
sector (40 percent by DZ BANK, 10 percent by WGZ-Bank
Main, from DVB Bank AG, Frankfurt am Main. These moves
Westdeutsche Genossenschafts-Zentralbank eG, Düsseldorf)
will free DVB Bank to focus on its core international transport
and the savings bank sector. The intention is to bring further
finance and consultancy business.
equity partners on board in the future.
F-129
3. Key results overview
The cost-income ratio is 64.0 percent (2002: 85.4 percent).
DZ BANK’s key income statement measures evolved as follows
€ 518 million. Allowing for the previously mentioned adjust-
in the year under report:
ments to the prior-year figures, this represents a € 355 million
Operating profit before risk provisions amounted to
increase. Risk provisions were substantially reduced to
Our operating income totaled € 1,440 million in the year
€ -371 million (2002: € -1,709 million).
under report (2002: € 1,883 million). Excluding the exceptional
income of € 513 million under the previous year’s share
Operating profit came in at € 147 million in 2003. After the
of affiliates heading and correcting the previous year’s profit
balance of non-operating expenses and income of € -198 mil-
positions to reflect subsequent changes in accounting methods,
lion, the net profit on the year was € 80 million.
this represents a change of +29.3 percent.
We will propose the annual general meeting approves the
distribution of a dividend of € 0.05 per share.
Administrative expense moderated by 3.0 percent to
€ 922 million.
Income statement DZ BANK AG 2003/2002
2003
2002
Change
Net interest income 1
753
1,223
- 38.4
Net commission income
285
254
12.2
Net earnings from financial activities
322
205
57.1
Personnel expense
435
455
- 4.4
Other administrative expenses 2
487
496
-1.8
General and administrative expense
922
951
- 3.0
80
201
- 60.2
in € million
in%
Balance of other operating expense/
income
518
932
- 44.4
Risk provisions
- 371
-1,709
-78.3
Operating result
147
-777
> 100.0
income 3
-198
807
> 100.0
Taxes
-131
- 25
> 100.0
80
55
45.5
Operating result before risk provisions
1
Balance of other expenses/
Net profit on period
Includes current earnings, earnings from profit transfer
agreements
2
Other administrative expenses plus depreciation and
write-downs on fixed and intangible assets
3
Result from financial investments, special items with
reserve character, extraordinary expenditure/income
and other items
F-130
The detailed breakdown of the fiscal 2003 results is as
from the oil and gas sector – even though the domestic and
follows:
European markets were marked by constrained demand and
slow growth. We were also able to further strengthen our
Net interest income
leading position in Germany as a provider of two-way-tradebacked export finance, in which the bank supports its custo-
DZ BANK’s net interest income (excluding shares of affiliates)
mers’ export business through financing arrangements that are
was 14.6 percent lower year-on-year at € 409 million. It
then paid down against deliveries of marketable goods. The
should be noted that this change is essentially the result of the
specialist market position we have established in earlier years
two presentation methodology changes described below that
in the financing of Hermes-backed export transactions also
were implemented last year and which are more consonant
enabled us to sign additional framework agreements with
with the operating logic. Unlike last year, the expenses arising
foreign banks in India, Indonesia, Russia and the Ukraine;
from prepayment penalties on the premature redemption of
these will also provide the basis for future business.
note loans and registered bonds are no longer shown as part
of the balance of other (non-operating) expenses and income,
The reported income from participations (share of affiliates)
but as part of the interest result. Furthermore, the net trading
fell by 53.8 percent to € 344 million. It should be noted that
income total for 2003 includes for the first time the balance of
the total for the 2002 year includes an amount of € 513 mil-
income and expense from repurchase agreements that in the
lion arising from the previously mentioned strategic reorganiz-
previous year was still part of the net interest income heading.
ation of the DZ BANK Group’s entire businesses portfolio.
If we adjust the previous year to reflect these two method
Excluding this exceptional effect, our income from participa-
changes, net interest income increased by 2.3 percent in 2003.
tions was € 113 million or 48.9 percent higher than the
preceding year.
The credit and money market operations made a significant
contribution to the overall interest result. The structured trade
finance business in particular was able to make impressive
progress. It was able to expand its market position thanks
primarily to the encouraging growth of the demand for finance
Total operating income of DZ BANK AG 2003/2002
in € million
2.000
1.750
1,883
1.500
1.250
1,440
1.000
(- 23.5 %)
750
500
250
0
2003
2002
F-131
Net commission income
Net earnings from financial activities
The parent bank’s fees and commissions surplus increased by
Our net earnings from financial activities increased by
12.2 percent to € 285 million.
57.1 percent to € 322 million. If we adjust the prior-year total
by the net result of repurchase agreements, the increase is
DZ BANK’s securities-related business was exceptionally profit-
48.4 percent.
able overall last year and was able to substantially more than
compensate for the earnings contributions of the other busi-
Substantial increases were recorded both in the area of equity-
ness lines, payments handling, lending and international
price-sensitive products and in the net income from trading
operations.
exchange-rate risks and interest-rate risks.
During the year under report we significantly advanced the
General and administrative expenses
process of accelerating and concentrating our retail banking
sales activities that was launched in 2002. The twin priorities
The parent bank’s general and administrative expenses were
were to extend our product offering and increase our product
reduced by 3.0 percent to € 922 million. Within this total, per-
specialisation, in both cases centrally driven by customer inte-
sonnel expenses moderated by 4.4 percent and non-personnel
rests. The uncertainty emanating from the Iraq crisis and the
expenses reduced by 1.8 percent.
resulting slump of the stock market indices to multi-year lows
in March 2003 combined with the difficult economic environ-
The cost-cutting program launched in 2001, the year of the
ment in Germany to shatter investors’ confidence in risk assets
merger, was continued in a systematic and focused manner
and further reinforce our customers’ pronounced need for se-
during the year under report. The total savings volume in the
curity. Continuing the previous year’s evident trend of increa-
area of personnel costs in 2003 was € 20 million; non-person-
sing demand for structured products that offer capital guaran-
nel costs reduced by € 9 million.
tees coupled with the chance to participate in the rising value
of selected baskets of stocks or indices, our certificates offering
We expect the concentration of “back-office” services pro-
attracted exceptional interest – especially the MultiZins and
vision into the specialist companies Transaktionsinstitut,
VarioZins versions and the product innovation of the year in
dwpbank and VR Kreditwerk Hamburg-Schwäbisch Hall AG,
2003, the MaxiRend Tracker. We were delighted in November
Hamburg and Schwäbisch Hall, to strengthen the competitive-
2003 when the readers of the specialist magazine “Zertifikate
ness of DZ BANK and the entire integrated cooperative
Journal” voted DZ BANK “Issuer of the Year” and the jurors of
financial services sector.
the “Welt am Sonntag” prize panel awarded us the distinction
of “Best Issuer of Protected-Capital Products”.
F-132
Administrative expense DZ BANK AG 2003/2002
territory can take advantage of this online service to support
their investment advisers. “VR-Networld Brokerage” now
in € million
provides a single system for dealing in securities for the custo-
1.000
750
mers of the local cooperative banks covered by the computing
922
951
center of FIDUCIA IT AG at Karlsruhe. Integrating this capability
into our systems landscape has released substantial synergies.
(- 3.0 %)
The now nationwide availability of “VR Marktplatz”, our market
500
information platform designed for end customers, also represents a further substantial quality enhancement of our internet
250
brokerage package.
0
The essential prerequirement for reorganising DZ BANK’s
2003
2002
IT systems was to reduce the wealth of different systems
deployed in investment banking and to switch to the standard
software of the SAP Banking Platform. One result was that we
have already reduced our IT costs by 30 percent compared
We passed further milestones and did further groundwork in
with 2001, the first year of the merger. By 2004, when we will
2003 on harmonising and integrating IT systems across the
have completed our technology harmonisation in less than
companies that make up the integrated cooperative financial
three years, the total savings will be more than 50 percent.
services system. Having successfully introduced our central
information and communications medium “DZ-InfoNet” in
In the year under report we were able to improve our cost-
2002, we expanded the functionality and performance spec-
income ratio, adjusted for the exceptional factors in the prior-
trum of this platform during 2003 to transform it into the all-
year profit headings, to 64.0 percent compared with 85.4 per-
round information portal “VR-BankenPortal”. Since the end of
cent in 2002.
last year, the primary banks now have a central point of access
to the product and service offerings of virtually all the cooperative financial services sector’s household-name “product
providers”. The “Konto-Online” application integrated into the
“VR-BankenPortal” site also allows local cooperative banks to
obtain a close-to-real-time overview of their credit and current
account positions vis-à-vis DZ BANK, and provides access to
end-to-end-supported online transaction processing.
Additionally, the nationwide availability of the “GENO-Broker”
application means all the cooperative banks within DZ BANK’s
F-133
Net other operating income
Operating profit
The positive balance of other operating income and expense
Operating profit before provisions for risk totaled € 518 million
reduced last year by 60.2 percent to € 80 million. This was
for the year just ended.
essentially due to the reclassification of corporation tax and
municipal trade tax transfers arising from DZ BANK’s tax unity
If we correct the 2002 figures for the exceptional effects
with Group constituents. These transfers are reported in the
previously described, operating income increased by
2003 financial statements under the taxes heading, whereas
€ 326 million to € 1,440 million. This rise contrasts with the
in the preceding year they were still a component of other
€ 29 million reduction of our general and administrative costs
operating income.
to € 922 million. On this basis therefore, our operating profit
before provisions for risk improved in 2003 by € 355 million
Provisions for risk
compared with the adjusted prior-year value of € 163 million.
The € 1,338 million reduction in our net new risk provisioning
The 2003 net risk provisioning of € -371 million is only around
to € -371 million includes an endowment of the prudential
one-fifth of the prior-year total of € -1,709 million. These
reserve (section 340f HGB).
figures demonstrate the progress we have made on cleaning
non-strategy-conformant risks out of the credit portfolio.
Valuation corrections were still necessary however, especially
on exposures in the commercial real estate lending business
and the energy sector.
Our new business, which as far as Germany is concerned was
once again overshadowed by the clear signs of demand and
growth weakness, remained subject to the binding risk limits
and profitability criteria imposed immediately after the merger.
We have continued to systematically refine our credit risk
strategy and risk management procedures; another priority
was to redesign the organisation of our credit management
structures and processes in anticipation of the more demanding credit processing quality requirements that Basel II will
impose as well as the Minimum Requirements for the Conduct
of Lending Business (MaK).
F-134
The balance of other expenses and income closed 2003 at the
Regulatory capital
amount of € -198 million (2002: € 807 million). This includes
net earnings from financial activities in the sum of € -99 million
The detailed composition of DZ BANK’s regulatory capital
(2002: € 1,094 million); this includes most importantly value
was as follows at December 31, 2003:
adjustments on securities treated as fixed assets and an in-
- Tier 1 capital stood at € 5,988 million
come contribution from the transactions surrounding the dwpbank joint venture. The sharp fall from the 2002 total primarily
reflects the fact that the prior-year value was significantly
distorted by an income contribution of € 1,168 million resulting from the fundamental strategic realignment of DZ BANK’s
(12.31.2002: € 5,985 million);
- Supplementary capital totaled € 5,163 million
(12.31.2002: € 4,350 million);
- Tier 3 capital totaled € 6 million
(12.31.2002: € 123 million).
participations portfolio. The extraordinary expenses total
of € 78 million (2002: € 220 million) essentially comprises
In aggregate, our regulatory capital totaled € 10,992 million
personnel and non-personnel restructuring expenses of
(12.31.2002: € 10,275 million) on the closing day of the year
€ 60 million, expenses arising under the existing social plan
under report. Our KWG total capital ratio is now 17.0 percent
from ongoing early retirement obligations of € 14 million, plus
(12.31.2002: 14.5 percent) and our core capital ratio is
expenses of € 4 million in connection with the spin-off of the
12.2 percent (12. 31.2002: 10.5 percent).
payment handling operation to the new Transaktionsinstitut .
Number of branches
The net profit on the year is € 80 million compared with
€ 55 million in 2002.
As of December 31, 2003, the bank had four branch establishments in Germany and five abroad. The four German branch
establishments oversee a further six business offices.
F-135
4. Balance sheet
Placements with, and loans and advances to, other banks
Placements with, and loans and advances to, other banks
reduced by € 4.4 billion to € 76.0 billion. Most of the decline
Total assets
related to claims on non-affiliated banks, which decreased by
The bank’s total assets as at December 31, 2003 were
€ 4.3 billion or 10.0 percent to € 38.7 billion. By contrast,
€ 12.8 billion or 6.9 percent lower than a year earlier, at
deposits with and loans to affiliated banks only decreased by
€ 172.0 billion. The total volume of business amounted at
€ 0.1 billion or 0.3 percent to € 37.3 billion.
the year-end to € 186.4 billion (12.31.2002: € 202.6 billion).
The foreign branches accounted for around 10.7 percent of
Loans and advances to other (non-bank) customers
the balance sheet total or a volume of € 18.4 billion.
Loans and advances to non-bank customers reduced by
€ 6.3 billion to € 26.0 billion. The principal causes of this
Balance sheet total of DZ BANK AG
12.31.2003/12.31.2002
decline were the low-demand, low-growth character of the
economic environment and DZ BANK’s prudent and strict
control of new business through the application of demanding
in € billion
risk and profitability criteria.
200
Securities
150
184.8
172.0
(- 6.9 %)
At € 54.8 billion, the value of the parent bank’s securities
100
holdings was € 3.4 billion lower than the prior-year figure. An
increase of € 1.7 billion in the bonds and other fixed-interest
50
securities heading compares with a decline of € 5.1 billion in
the holdings of equity shares and other variable-yield securities.
0
12.31.2003
12.31.2002
Off-balance-sheet futures transactions
Deposits from other banks
Liabilities to banks reduced by € 8.7 billion to € 97.9 billion.
While the liabilities to affiliated banks declined by € 3.3 billion
The nominal volume of off-balance-sheet futures transactions
or 8.3 percent to € 36.3 billion, deposits from non-affiliated
was € 61.8 billion higher at € 697.3 billion as at
banks fell year-on-year by € 5.4 billion or 8.1 percent to
December 31, 2003, while the replacement costs increased
€ 61.6 billion.
by € 0.5 billion to € 14.0 billion.
F-136
Non-bank customer deposits
Capital and reserves
At € 30.5 billion, customer deposits were € 0.9 billion higher
The reported equity of € 4.6 billion represents an increase of
than a year earlier due to a sharp rise in the volume of time
€ 28 million. Of this total, € 25 million stems from the endow-
deposits coupled with slightly higher current deposits and
ment of the surplus reserves and a further € 3 million stems
overnight funds.
from the marginal increase in the cumulative earnings total.
Certificated liabilities
Certificated liabilities closed the year at € 26.1 billion (2002:
€ 31.1 billion). The issuance of own bonds was reduced by
€ 3.9 billion to € 24.0 billion in the year under report, while
that of other certificated liabilities fell by € 1.1 billion to
€ 2.1 billion.
Share ownership structure of DZ BANK AG
in € million
Total share capital: 2,878.43
Credit cooperatives (direct and indirect) 2,328.63 (80.90%)
WGZ-Bank Westdeutsche Genossenschafts-Zentralbank eG (direct and indirect) 191.53 (6.65%)
Other cooperative organisations 153.18 (5.32%)
Others 205.09 (7.13%)
F-137
II. Risk Report
Separation of functions
At DZ BANK we distinguish between risk management and
1. DZ BANK’s risk supervision system
risk controlling. Risk management encompasses the measures taken locally by the risk-bearing operating units to implement the risk strategy. The business units responsible for risk
The systematic and controlled acceptance of risks in relation to
management decide whether to consciously assume or reduce
return targets is an integral component of corporate manage-
risk. In doing so they observe the centrally prescribed universal
ment at DZ BANK AG (DZ BANK). The operating activities
prescriptions and the relevant risk limits. The risk management
resulting from our business model require the capability to
units are kept organisationally and functionally separate from
effectively identify, measure and manage risk together with
the units they oversee. This applies most importantly in the
adequate capital backing. Our activities are guided by the
areas of controlling, accounting and processing.
principle that we only take on the minimum risk required to
achieve our business-policy goals. We have implemented and
The separate risk controlling function is responsible for
we apply a risk monitoring and management system that fully
ensuring the permanent transparency of the risks entered into
complies with the statutory requirements while also going
across all risk categories. Risk Control monitors limit compli-
further and assisting our internal commercial management
ance and produces all risk reports. This unit is additionally
requirements.
responsible for ensuring that the risk measurement approaches, procedures and models employed are methodologically
Committees
up-to-date.
The Treasury Committee is responsible for managing
A Risk Manual is made available to all staff via the bank’s
DZ BANK’s market price risk and liquidity risk. The Treasury
Intranet. In addition to listing the universal prescriptions
Committee meets weekly to discuss the management of the
governing the management of risk capital and risk types, this
bank-wide risk and performance parameters as well as capital
manual also provides extensive description and explanations
ratios, and prepares corresponding action proposals for sub-
of the methods and processes deployed and of DZ BANK’s
mission to the full Board of Managing Directors.
responsibilities as group parent.
The Board of Managing Directors has formed a Credit
Internal Audit
Committee from amongst its own members tasked with
managing the bank’s overall credit portfolio. The Credit
Internal Audit is a second independent component of the
Committee decides on significant loan commitments in
bank’s risk management and supervision system. It performs
relation to the bank’s credit risk strategy.
systematic and regular audits. Internal Audit is tasked with
ensuring the functionality and effectiveness of the risk supervision system and also the rectification of established shortcomings. Internal Audit reports directly to the Chairman of the
Board of Managing Directors. Germany’s defined Minimum Requirements for the Organisation and Performance of Banks’ Internal Audit Function are fully complied with.
F-138
2. Risk capital management
Risk types
Default risk is the most important category of risk for DZ BANK.
It results from our corporate banking and investment banking
One objective of DZ BANK’s risk management is to ensure that
activities. Market price risk stems primarily from our trading
the bank’s overall risk exposure remains in harmony with its
operations and capital market investments. Liquidity risks are
capital underpinning at all times. We do this by actively
the typical risks of on-balance-sheet banking transactions.
managing both our regulatory capital adequacy as defined by
Finally, operational risks and strategic risks are associated with
Principle I KWG and also the economic capital adequacy that
all forms of business activity.
results from our own internal risk measurement methods. We
also integrate their risk capital requirements into our measure-
The relative significance of each risk type was as follows at
ment of the performance of DZ BANK’s main business lines
December 31, 2003:
and thereby extend the conventional earnings components by
also factoring in the capital tied up by their risk exposures.
DZ BANK AG’s risk positions
Managing regulatory capital adequacy
Risk position
in € million
Default risk
Share
For the purposes of managing DZ BANK’s regulatory capital
12.31.2003
1,511
81%
Market price risk
36
2%
Operational risk
231
12 %
89
5%
Strategic risk
adequacy, we work with significantly higher internal targets
than the minimum standards defined by the regulators of
4 percent for the Tier 1 capital ratio and 8 percent for the total
capital ratio. We perform an annual risk assets planning process to avoid unforeseen stressing of these capital ratios and
ensure that the growth or reduction of our risk assets is in
conformance with our defined strategy. This process ends with
We measure default and market price risk using internal
the specification of a planning target regulatory capital
models based on value-at-risk approaches. We use the Basel II
requirement. The covering of this need and the performance
standard approach to estimate the loss potential arising from
of the resulting issuance transactions is coordinated by our
operational risk. The quantification of strategic risk is based on
Treasury function.
empirical benchmark analyses.
F-139
DZ BANK’s regulatory capital ratios on the KWG definition
We use simple addition to aggregate the various types of risk
were as follows at December 31, 2003:
in order to identify DZ BANK’s risk capital requirement. This
reflects our conservative assumptions that extreme losses
occur simultaneously across all risk categories and that the
DZ BANK AG’s regulatory capital requirement
and regulatory capital ratios
in € billion
various risk types correlate completely.
12.31.2003
We derive the bank’s risk tolerance capacity from the avail-
56.3
able risk cover assets. This value is determined on the basis of
Risk positions
a commercial analysis of the group’s capital after allowing for
Capital
- Tier I capital
6.0
all relevant consolidation effects. Regulatory capital compo-
- Tier II and Tier III
5.2
nents that are external capital in character are excluded from
the risk cover assets total. To this extent, our internal risk
Ratios
- Tier I capital ratio
12.2%
tolerance formula is more narrowly defined than the regula-
- Total capital ratio
17.0%
tors’ concept.
The risk tolerance capacity and the economic risk capital made
available by the Board of Managing Directors of DZ BANK AG
These ratios were significantly higher than the prescribed
for the DZ BANK Group for the 2004 financial year were as
minimum values at all times during 2003.
follows:
Managing economic capital adequacy
DZ BANK Group’s risk tolerance capacity
In addition to regulatory capital management, we have also
in € million
2004
established a system of economic capital management based
Risk cover assets
7,500
on our internal risk measurement methods. This factors in not
Economic risk capital
5,500
just the risk types defined by the present KWG Principle I,
but all the relevant risk categories, in other words default risk,
market price risk, operational risk and strategic risk. Default
risk and market price risk are quantified using value-at-risk
Within DZ BANK and before consolidation, the risk capital
approaches. There is still a need for further methodological
provided was allocated to the risk categories as follows:
improvement, most importantly to ensure the economically
adequate measurement of operational and strategic risk.
DZ BANK AG’s risk capital according to
risk categories
Risk capital
F-140
Share
in € million
2004
Default risk
1,800
69 %
Market price risk
400
15 %
Operational risk
275
11 %
Strategic risk
124
5%
Our risk management process and operating risk limit systems
3. Default risk
are based on this framework.
Risk-capital-based performance management
We understand default risk as the risk of loss arising from
the failure of a business partner to fulfill its contractual
To ensure that the risk capital requirement is also factored
obligations. The risk of a loss can however also result from a
into the measurement of performance, the Board of Managing
downgrade of the counterparty’s credit rating.
Directors of DZ BANK has decided to introduce two riskcapital-based performance ratios – RORAC (return on risk
Risk strategy
adjusted capital) and EVA (economic value added) to assist
the management of the bank’s principal business lines. RORAC
We aim to engage in lending business primarily as the
is a relative return measure that shows the extent to which the
subsidiary partner of local cooperative banks. Building on this
respective business line has achieved a positive rate of return
fundamental business policy decision, since 2003 DZ BANK
on the capital tied up by the risk it has entered into. EVA is
has been implementing a credit risk strategy that concentrates
an absolute performance measure that shows the business
on customers that offer a good credit standing and cross-
line’s absolute earnings contribution after servicing the share-
selling potential. The starting point for applying this risk
holders’ return entitlement and therefore identifies the busi-
strategy is our risk tolerance capacity.
ness line’s economic value contribution to the overall success
of DZ BANK. Both ratios are reciprocally reconcilable through
MaK-conformant structural and process organisation
the application of straightforward logic.
The structural requirements defined by the banking regulators
We will start reporting these ratios by operating segments
are already an integral component of our lending business
in 2004. The first stage of the rollout is to use the regulatory
organisation. We have implemented forward-looking structural
capital requirement as a method of capital allocation. The
and processing organisational arrangements that create the
changeover to Basel II will significantly, if not completely
necessary foundation for the future risk-oriented conduct of
harmonise the measurement of economic and regulatory cap-
our credit operations. For instance we have implemented a
ital. Our objective is to put the main business lines’ economic
graduated competences scale that clearly defines credit pro-
capital requirement right at the center of their performance
cess authorities from application through approval to ongoing
management. We will do this by continuing to progressively
contract processing including periodic loan monitoring with
refine the bank’s internal risk measurement procedures and
regular credit quality analysis, the whole system being docu-
the essential data foundations they are built on.
mented in organisation manuals. Established reporting and
review processes help keep the decision makers promptly in-
We also see the ongoing strengthening of DZ BANK’s risk cap-
formed of changes in the risk structures of our credit portfolios
ital management as helping to prepare the ground for us to
and provide the basis for the active management of default
meet the requirements of Basel II. Under the rubric of pillar 2
risk.
especially, the banking regulators will expect us to implement
an internal capital adequacy process that encompasses all
material risks and meshes seamlessly with other bank-wide
management processes.
F-141
Rating systems and pricing in the lending operations
Early-warning systems and the work out unit
We are developing credit rating procedures in collaboration
DZ BANK has built up a wide range of tools for monitoring
with the BVR cooperative banking industry association and the
and managing problem credit exposures in the classic lending
other cooperative central bank WGZ-Bank. The so-called BVR
business. These includes reports that assist the early detection
II rating is intended to produce a harmonised rating system for
of at-risk cases, the monitoring of exposures at latent risk of
use right across the cooperative banking sector. BVR II ratings
default, and the observation of acute default-threatened
are differentiated by customer segments and we are success-
credits. These reports permit highly informative, target-group-
ively extending them to cover all relevant customer groups.
specific and close-to-real-time reporting to the management
In developing these ratings, we have already taken account of
levels and Board of Managing Directors. Credit structure
the future Basel II requirements. Our goal is that when the
analyses are also performed regularly to support the portfolio
development work is completed, all the new rating modules
managers; these identify risk concentrations in the lending
will satisfy the Basel II requirements for internal-ratings-based
portfolio. As part of our rating-linked credit monitoring pro-
approaches. The credit analysis procedures also provide the
cess, we also review the size of the agreed lines as the need
basis for the introduction of risk-adjusted pricing in our lend-
arises, but always within maximum twelve-monthly intervals.
ing operations and for the expansion of our activities in the
area of securitising credit risks.
Identified problem loans are transferred to our work out unit
at a very early critical stage. By providing hands-on “intensive
To ensure lending business is profitable we calculate standard
care” and applying tailor-made rehabilitation concepts to
risk costs. Standard risk costs are intended to cover the
critical problem cases, this specialist unit creates the necessary
average anticipated losses. The procedure involves estimation
basis for rescuing and optimising problem risk positions.
coupled with post facto verification, i.e. pre- and post-calculation. The SRC are factored as a cost component into the
Portfolio management
contribution costing of transactions and are determined using
empirical default probabilities. Other factors influencing the
The implementation of a portfolio management organisation
calculation of standard risk costs are the credit take-up rate
structure in 2003 has created the foundation for an aggregat-
(utilisation of the agreed facility) and the anticipated loss at
ed management level that supplements specific risk manage-
the time of the default adjusted for customer-provided collate-
ment. The initial focus of our portfolio management effort
ral. The aim of this approach is to permit credit-differentiated
during 2004 will be to establish a new structural limits system
pricing. At the same time we want to ensure that in actuarial
that will be centered on the lending operations’ economic
terms, our net risk provisioning – principally loan loss provisions
risks. Most importantly, this will allow us to adequately inte-
and direct write-downs – is covered by the standard risk costs
grate the effects of correlated default risks into the operational
we receive on a long-term average basis. The integration of
management of our credit business. Based on detailed quanti-
capital costs into the contribution margin calculation makes it
tative analyses and the ongoing assessment of our current ag-
possible to identify a risk-sensitive return on tied-up capital.
gregated credit risk position, this will also provide us with new
opportunities to utilise the increasingly more liquid credit markets to actively manage DZ BANK’s credit portfolio structure.
F-142
As part of our toolkit for actively managing default risk, we
Measuring the default risk on trading transactions
use the securitisation of receivables to optimise our riskreturn ratio. Our ABS primary market activities are additionally
Default risk on trading transactions takes the forms of counter-
intended to lighten the load on our economic and regulatory
party risk and issuer risk. Counterparty risk is made up of
capital. We plan to further intensify these activities in the
replacement risk and fulfillment risk.
future. We will focus on multiseller transactions that will be
designed to also provide our local cooperative bank partners
To calculate the accepted value of the counterparty risk
with a vehicle for risk transfer and thereby improve the spread
component of the replacement risk arising from the bank’s
of their risks.
trading operations, the current market value of the transaction
concerned is increased by a so-called “add-on” – i.e. the
Managing credit exposures and lines
markup for potential market price fluctuations during the lifetime of the transaction – based on the global add-on factors
We further improved our exposure management system in
defined by Principle I. To calculate the exposure, we recognise
2003. Our established credit exposure reports system provides
the risk-reducing effects of both netting agreements and
quarterly credit portfolio reporting. The report provides a
collateral agreements. Automating our collateral management
breakdown of the various portfolios by exposure size, country
process has enabled us to significantly increase the number
assignment, residual term, sector and risk rating. It also
of collateral agreements signed compared with 2002 and to
analyses the ten biggest exposures by a range of risk para-
steadily expand the circle of our collateral counterparties. We
meters
plan to extend the collateral management process to repo
and securities lending transactions.
DZ BANK has installed framework limits for individual business
partners and borrower units. To support portfolio-level limit
management, we also use analyses of selected strategic portfolios by parameters such as country, country group, product
type or sector. Early warning processes have been implemented as the essential key to timely limit reviews. We have also
defined processes for handling overdraft situations.
The basis for assessing country risks is DZ BANK’s own
country risk model. Each country’s risk factors – essentially,
macroeconomic risk ratios and certain political risk measures –
are evaluated by the country risk model on the basis of a
scoring approach that automatically generates a country risk
index, whose reading determines the assignment of that state
to one of the seven country risk classes. The best risk class A
expresses a very low long-term risk, while the worst risk
class G implies acute danger of losses.
F-143
The accepted value of the counterparty risk component of the
We use a centralised DP system to ensure the methodologi-
fulfillment risk is the payment owed, in other words the size
cally consistent measurement and supervision of the default
of the amount the counterparty is due to actually pay to
risk from trading transactions. The vast majority of our front-
DZ BANK. The fulfillment risk is related to an assumed fulfill-
office systems are linked into this software. Linking the collate-
ment period. The accepted value of the issuer risk is the sum
ral management system to this DP system ensures that collate-
of the current market values of the relevant securities.
ral provided on OTC derivatives and forex transactions is
automatically counted against the default risk arising from
Line management of default risk on trading transactions
trading transactions. From 2004 onward, we will also be
using this software to measure and monitor issuer risk.
To limit the default risk arising from trading transactions, we
have implemented a volume-oriented limits system. These
Analysing the credit portfolio
non-product-specific volume limits are further subdivided
into maturity bands to help manage replacement risk at the
An initial pointer to the inherent riskiness of the lending port-
counterparty level. A daily limit is assigned to manage fulfill-
folio can be obtained by analysing the risk-weighted assets.
ment risk and each issuer is assigned a rating-dependent
The risk assets structure as defined by Principle I provides a
global or specific limit to help manage issuer risk.
clue to the relative risk of the credit portfolio based on at least
a rough credit weighting. The changeover to Basel II and the
As in the classic lending business, we have also implemented
significantly more highly differentiated risk weightings under
adequate early warning and overdrawn processes in respect of
the internal ratings-based approach means that this sort of
the trading operations. Daily reports notify the member of the
analysis will in future generate much more risk-sensitive out-
Board of Managing Directors responsible for risk monitoring of
comes. The Basel committee will make the publication of what
any infringement of the counterparty and issuer risk lines. We
it calls the “average risk weight” of banks’ credit portfolios
also have monthly reports of all open forward transactions
mandatory in future under Basel II’s pillar 3. DZ BANK’s
with significant counterparties. The Board of Managing Direc-
average risk weight has reduced compared with 2002:
tors is additionally notified of counterparty risks through the
monthly report required under the Minimum Requirements for
DZ BANK AG: Average risk weight
the Conduct of Trading Transaction by Banks (MaH Report).
Weighted
Average
risk assets
risk weights
12.31.2003
€ 49.3 billion
12.31.2003
12.31.2002
43.5 %
45.0 %
Our work on the economic management of the credit portfolio
draws a distinction between the anticipated losses on individual transactions and unexpected credit portfolio losses. Firstly
we pre-empt “creeping” capital erosion by pre-calculating the
F-144
anticipated loss per discrete transaction. We will have already
The following summary shows the bank’s risk potential based
performed the necessary calculation of the rating-dependent
on this internal model:
standard risk costs. Secondly we quantify the unforeseen loss
on our credit portfolio using a credit value-at-risk approach.
Risk potential of DZ BANK AG’s lending business
This is the basis for our economic capital adequacy analysis.
in € million
12.31.2003
Since the fourth quarter of 2003 we have been calculating our
Anticipated loss
400
credit value-at-risk on the basis of the data for the trans-
Unexpected loss
1,511
action-specific reporting date. This involves using our internal
rating techniques to assign customers 1-year default probabilities. Transaction- and customer-specific loss rates are taken
into account and default correlations between customers
We also regularly analyse our credit portfolio with regard to
assigned according to their sector memberships. These para-
a wide range of differentiated discrete criteria such as risk
meters permit the direct determination of the anticipated value
structures based on our internal rating methodologies, sector
and standard deviation of the portfolio loss during the assumed
structures or country risk groupings.
one-year retention period. The loss distribution quantiles and
the economic capital requirement are established using market-
The chart below shows the take-up of credit facilities by BVR I
standard procedures.
credit rating classes, with the ascending order of ratings on
the horizontal axis indicating reducing borrower credit quality.
Risk structure of DZ BANK AG’s credit portfolio
Take-up of facilities (in € billion) at December 31, 2003
100
90
80
70
60
50
40
30
20
10
0
Miscell-
1
aneous
2
credit rating classes
3
4
5
6
7
F-145
Under DZ BANK AG’s default risk strategy, new lending busi-
As a central bank, we invest free liquidity into high-grade
ness can be taken on up to a qualifying rating class ceiling of
securities. This results in the exceptionally high proportion of
3, provided the other ancillary conditions are fulfilled. Existing
claims on other banks in the assets total. Another of our
credit exposures that conflict with the credit risk strategy ac-
central bank functions is the provision of refinancing resources
cordingly need to be reduced. All credit exposures subject to a
to the local cooperative banks. This is the second-biggest
specific risk provision are assigned to rating classes 6 and 7.
assets position in our credit portfolio. We also assist the local
The “critical” rating classes 4 through 7 account for 6 percent
cooperative banks in major financing deals for their corporate
of the total credit volume. The “miscellaneous” heading covers
customers on a syndication basis. This and our direct business
business partners that did not require a credit quality judg-
with domestic and international corporate customers explains
ment under the provisions of section 18 KWG or internal rules.
the sector composition of the rest of the credit portfolio.
The credit portfolio’s sector structure reflects our role within
the cooperative financial services group:
Sector structure of DZ BANK AG’s credit portfolio
Credit volume (in € billion) at December 31, 2003
100
90
80
70
60
50
40
30
20
10
0
Banks 1
Services
Retail
Real estate
Public
Manufac-
Miscell-
Other financial Local
sector
turing
aneous
institutions
cooperative
banks
1
Excluding cooperative banks
F-146
The following overview shows the geographical distribution
of our credit portfolio by country risk groups.
The term gross utilisation relates to the types of business defined in section 19.1 KWG. We deduct collateral and allow for
third-country insurance cover to identify the net utilisation
rate. As of December 31, 2003 more than 98 percent of the
bank’s net foreign credit volume was assigned to the country
risk groups A through C, for which we do not form country
risk provisions. The 16 percent year-on-year reduction in the
net utilisation results from our conservative risk policy and
exchange rate effects. At present the country limits for Ivory
Coast, Georgia, Uruguay and Venezuela have been suspended.
No new business can be transacted in these countries until
further notice.
Country risk structure of DZ Bank AG’s total credit extended
in € million
Country limit utilisation
Group country
12.31.2003
12.31.2003
12.31.2002
12.31.2002
limit
Gross
Net
Gross
Net
A
Unlimited
48,463
47,061
62,258
56,317
B
2,256
1,011
989
954
960
C
4,617
1,748
1,404
1,853
1,450
D
1,887
1,066
525
1,167
700
E
523
524
133
989
310
F
70
143
29
126
24
G
Case by case
70
32
80
9
Unrated
208
23
7
6
0
Offshore
Unlimited
3
3
157
157
53,051
50,183
67,590
59,927
CR group
Total
F-147
DZ BANK AG: Default risk on trading transactions
12.31.2003
12.31.2003
12.31.2002
12.31.2002
in € billion
Lines
Utilisation
Lines
Utilisation
Replacement risk
134.5
18.7
131.5
25.4
Fulfillment risk
86.9
9.6
70.9
8.4
Issuer risk
88.3
27.5
109.5
30.0
Analysing default risk on trading transactions
Risk provisioning and write-downs
Utilisation was significantly reduced in the area of replace-
Under the terms of our internal guidelines, a specific loan loss
ment risk over the course of the year, primarily as a result of
provision must be formed when a borrower’s unsatisfactory
the recognition of close-out netting and collateral agreements
financial circumstances or lack of adequate collateral provide
to reduce risk. Moreover, the setting of restrictive limits result-
reasonable grounds to question the collectibility of the out-
ed in a higher utilisation rate while simultaneously reducing
standing entitlements when there are indications that the
risk. Our conservative limits policy also reduced our exposure
borrower will not be able to service the loan long-term. The
in the area of issuer risk. The year-on-year increase in fulfill-
specific risk provision must comply with the requirements of
ment risk was due to the first-time inclusion of cross currency
the Commercial Code, and most importantly comply with the
swaps. Our participation in the so-called Continuous Linked
prudential principle. In other words, it must be sufficiently
Settlement initiative, a procedure for the worldwide clearing
dimensioned to at least cover the probable loss in the circum-
of foreign-currency trading payments, substantially reduced
stances of the individual case. This requirement also applies
the risk arising from spot and forward foreign exchange trans-
for the valuation of collaterals.
actions.
The table below shows DZ BANK’s provisions for risk compared with the preceding year.
DZ BANK AG: Risk provisioning
in € million
Position at 12.31. 2002
Change during 2003
Position at 12.31. 2003
F-148
Specific loan
Country risk
Global loan
Collective loan
loss provisions
provisions
loss provisions
loss provisions
2,971
95
115
3
-120
- 21
-13
0
2,851
74
102
3
Summary and outlook
4. Market price risk
During 2003 we took further steps to improve the risk situation in DZ BANK’s credit operations that had been put under
By market price risk we understand the risk of loss that can
strain in earlier years. The year’s significant milestones include
result from detrimental changes in market prices or price-
the progress made towards building a high-performance credit
determining parameters. Market price risk further subdivides
organisation, the improvements in our rating procedures and
according to the underlying factors into the following compo-
the resulting adoption of risk-sensitive pricing, and the
nent categories: interest rate and exchange rate change risk,
expansion of our exposure management and risk early detect-
share price risk and commodity price risks.
ion systems. The success of these initiatives is also reflected in
the significantly lower level of new risk provisioning despite
Risk strategy
the persistently difficult economic environment. Based not
least on the modestly positive outlook for the national eco-
We engage in proprietary trading in fixed-income, equity and
nomy, we expect this positive trend to continue in 2004.
forex products primarily to support our customer business. In
contrast to “traditional” own-account trading, which centers
During 2004 we intend to further refine and extend our expo-
on the achieving of profit through risk-taking, we see the
sure and line management. A central building block in this pro-
bank’s core expertise as the ability to enter into and manage
cess will be the implementation of integrated data economies.
risk in order thereby to be in a position to offer a customer-
We will also complete the coverage of our main customer
demand-driven product range.
segments by rolling out further BVR II rating modules. We will
accompany this by introducing differentiated standard risk
Market price risks are inherent in DZ BANK’s customer-account
cost and capital cost sets specific to these segments. We will
and own-account trading activities. Market price risks also
also continue to work on enhancing our credit value-at-risk
arise from our own securities issuance. Interest rate change
management.
risk is the most significant category of market price risk for
DZ BANK.
Organisation and responsibilities
We manage market price risk on a distributed basis by portfolios, with the risk and performance responsibilities assigned
to the individual portfolio managers. As a routine part of
management reporting, the Risk Control unit provides daily,
weekly and monthly information on the key market price risk
and performance measures to both the members of the Board
of Managing Directors responsible for risk management and
risk controlling and the portfolio managers themselves.
F-149
Measuring and limiting market price risks
Back tests and stress tests
We measure market price risk using the value-at-risk concept
We perform back tests to verify the predictive quality of the
(VaR). As required by principle I, we calculate the value-at-risk
value-at-risk approaches. This involves a comparison of the
in our trading portfolios at a 99 percent confidence level
actual daily losses and gains with the VaR values calculated
and assuming a retention period of ten business days, inclu-
using the internal risk model. The model assumption for cal-
ding for internal risk management purposes. A value at risk
culating the loss potential stipulates that the actual loss must
calculation is performed daily for all levels of the portfolio hier-
not exceed the simulated VaR on more than one percent of
archy with the aid of an historic simulation over a one-year
trading days. During 2003, losses in excess of the simulated
observation period. We do this using an internal risk model
VaR at the entire trading portfolio level were experienced on
that has been approved by the German banking regulator
three trading days.
(BaFin) for calculating the capital backing required for market
price risk positions based on VaR – in line with Principle I. The
We also run stress tests to factor extreme market movements
add-on factor (relevant to the capital backing calculation) re-
into the internal risk model. The crisis scenarios tests involve
quired by Clause 33 of Principle I is currently 0.6.
simulating high-magnitude fluctuations in the risk factors and
serve to identify potential losses not shown up by the daily
The market price risk arising from our non-trading operations
VaR approach. These stress tests model both extreme market
is essentially dominated by our lending and issuance business
movements that have actually occurred in the past and also
and by separately assumed strategic positions. This risk is
crisis scenarios which – irrespective of the market data history
managed through the Central Planning and Strategic Positions
– are deemed to be economically relevant. The value losses
portfolios. The Treasury division is responsible for operational
simulated through this stress testing are used as the basis for
risk management in respect of Central Planning.
continuously reviewing the adequacy of the internal limits
hierarchy.
We manage market price risk by means of a limits system
that applies to all the sub-portfolios and which sets limits for
Analysis of market price risks
both the market price risk entered into and also the losses that
potentially accumulate over the course of the year. To support
The value-at-risk in the trading portfolios amounted at
operational risk management within the trading divisions,
December 31, 2003 to € 30.0 million (December 31, 2002:
during 2003 we introduced a sensitivities- and scenarios-
€ 27.0 million). The chart shows the changes of the daily
oriented limits structure to supplement the existing value-at-
value-at-risk of the trading divisions over the course
risk-based risk management tools.
of 2003:
F-150
Change in DZ BANK AG’s trading divisions’ daily value-at-risk
in € million
50
Maximum (43.5)
40
30
Mean (20.3)
20
10
Minimum (8.8)
0
Jan 03
Feb 03
Mar 03
Apr 03
May 03
Jun 03
Jul 03
Aug 03 Sept 03
Oct 03
Nov 03
Dec 03
The increased risk after September is primarily the result of
€ 400 million, were complied with at all times in 2003. On
including general credit spread risks in the risk calculation and
December 31, 2003 our all-portfolios correlated market price
essentially relates to our holdings of securities for trading
risk amounted to € 36 million.
purposes.
We will continue to maintain the market price risk strategy we
Our non-trading portfolios produced the following value-at-
have applied in previous years during 2004 as well and will
risk results for 2003.
continue to base the limits we assign on the bank’s risk tolerance capacity. As in previous years, our trading operations will
The increased risk in the Central Planning portfolio is also pri-
continue to focus basically on customer servicing.
marily the result of including general credit spread risks in the
In recognition of the significance of the bank’s credit products
risk calculation.
activities, a start was made in 2002 on creating a database of
historic credit spread time series. We integrated general credit-
Summary and outlook
spread risks into DZ BANK AG’s internal risk model during
The prescribed framework limits for the assumption of
2003. We plan to integrate the trading divisions’ specific inte-
market price risks, expressed as the allocated risk capital of
rest rate risks into the internal risk model during 2004.
Value-at-risk in DZ BANK AG’s non-trading portfolios
2003
2003
2003
Mean
Minimum
Maximum
8.9
5.7
1.4
12.4
1.5
20.7
20.3
11.0
31.3
16.5
12.31.2003
in € million
Central Planning
Strategic Positions
12.31.2002
F-151
5. Liquidity risk
day through to 3 months. The resulting countermeasures to
procure additional liquidity or reduce the need for liquidity can
then be initiated in a timely manner.
By liquidity risk we mean the danger that insufficient funds
will be available to fulfill due payment obligations (liquidity
As part of the daily liquidity reporting system, the size of the
risk as strictly defined) or that funds can only be procured on
intraday liquidity position is limited using a traffic light
more demanding conditions when needed (refinancing risk).
model. The management of intraday liquidity is established
Market liquidity risk is created by the holding of financial in-
within the framework of the ongoing planning of the accounts
struments that cannot be sold or settled at all, or only at a
maintained at central banks and other nostro accounts.
loss, due to insufficient market depth or disturbances of the
market.
Our short and medium-term refinancing is built on the principle of appropriately broad diversification across investor
We subdivide liquidity risk into the following three maturity
groups, regions and products. Our principal source of refinanc-
categories according to the periodicity of the liquidity proces-
ing is placements by local cooperative banks. Over the course
ses involved: short-term (same business day up to 3 months),
of fiscal 2003 we reduced our unsecured refinancing by
medium-term (3 months up to 2 years) and long-term (over 2
11 percent. The following table shows the changes in the
years).
composition of the most important headings of our unsecured
short and medium-term refinancing compared with 2002:
Risk strategy
We manage our liquidity with the objective of ensuring our
Unsecured short and medium-term refinancing
of DZ BANK AG by investor groups
solvency (our capacity to pay) at all times. We also strive to
sustainably minimise our liquidity costs.
12.31.2003
12.31.2002
banks
50 %
51 %
Interbanks
29 %
29 %
The strategic framework requirements for liquidity manage-
Corporate customers
16 %
13 %
ment are defined and approved by the Treasury Committee.
Commercial
5%
7%
Local cooperative
Managing short and medium-term liquidity
The operational management of short and medium-term
liquidity is performed by our Treasury unit and covers both the
euro and foreign-currency positions.
To assist liquidity management we use a daily analysis prepared by the Controlling unit of the bank’s predicted and
unforeseen liquidity flows. We use this report to monitor shortterm liquidity risk including the most significant deterministic
and stochastic cash-flows. Cover surplus and shortfall positions can be promptly detected in the maturity range from one
F-152
paper/certificates of
deposit
Since our ability to raise unsecured liquidity from the money
market is restricted, our liquidity management function performs weekly and monthly analyses of the structure of our
differentiated liabilities-side resources. These analyses provide
management information and are the basis for the active
management of our liabilities profile.
In addition to our internal management tools, the bank’s
short-term liquidity risk is also limited by regulator-imposed
rules. We complied with the requirements of principle II KWG
at all times during 2003:
Liquidity ratios of DZ BANK AG as per Principle II
Band I (up to 1 month)
12.31.2003
09.30.2003
06.30.2003
03.31.2003
12.31.2002
1.25
1.26
1.33
1.37
1.33
To act as a liquidity-risk early warning indicator we use an
Managing long-term liquidity
internally defined planning threshold value of 1.20 for the
maturity band I liquidity ratio. This value is based on empirical
We use the liquidity process balance tool to manage the
experience and is designed to provide a lower limit that
bank’s long-term liquidity processes. We draw up a liquidity
secures the bank permanent liquidity discretion. Targeted
process balance at least once a month and report it to the
countervailing measures are triggered as soon as the liquidity
Treasury Committee. Strategically undesirable liquidity gaps are
ratio reaches or falls below the level of the planning threshold.
closed by managing the pattern of our issuance and repurchases. We also help to manage our liquidity by defining inter-
To secure its day-to-day liquidity, the bank’s liquidity manage-
nal buying-in rates for liquidity-binding assets and liabilities
ment function has a portfolio of qualifying securities for central
balancing transactions.
bank repurchase operations at its disposal that it can sell at
short notice or deposit as security for refinancing transactions
Our long-term funding is generated through structured and
with central banks.
unstructured capital market products that are mostly distributed via local cooperative banks’ own- and third-party securities
account operations. We are authorised to raise liquidity by
issuing covered bonds – so-called DZ BANK Briefe.
F-153
Managing market liquidity risk
Summary and outlook
Market liquidity risk refers to our management of both market
The liquidity gaps identified by the liquidity process balance do
price risk and liquidity risk. In the context of liquidity risk
not constitute potentially existence-threatening incongruences
management, the market liquidity of financial instruments is
in DZ BANK’s refinancing structure. We do not expect our
especially relevant when liquidity-binding positions need to be
liquidity risk to increase in 2004.
sold to raise short-term funds- for instance, during a liquidity
crisis. As we would never expect the entire securities portfolio
We are currently in the process of further upgrading our non-
to be sold immediately and without loss in such circumstances,
trading-related liquidity reporting. As well as completing our
we on principle treat as not liquidatable all securities that can-
data picture of deterministic cash flows, we intend most im-
not be used as refinancing-eligible collateral for open-market
portantly to improve our modeling of stochastic cash flows
transactions with central banks.
and refine our understanding and definition of position limits
in respect of unforeseen liquidity processes both in the normal
In the context of market price risk management by contrast,
scenario and in crisis scenarios. We also hope to further refine
market liquidity risk does not relate to the selling of liquidity-
our modeling and management of market liquidity risks in
binding positions but to the hedging of open market risk
2004.
positions. Portfolio managers bear the responsibility for, and
manage, hedging-related market liquidity risk. Any losses
incurred under this heading count towards the relevant
manager’s annual loss limit. Moreover market liquidity risks
over the assumed retention period of 10 trading days are
included in the value-at-risk calculated for the purposes of
supervising market price risks. Significant hedging-related
market liquidity risks only exist in relation to certain credit-riskladen securities and credit derivatives positions. These are
mainly asset backed securities held on the basis of strategic
considerations.
F-154
6. Operational risk
The fundamental management responsibility for operational
risks has been distributed to the individual organisation units.
Specified universal issues, such as personnel or IT manage-
We have made a start in 2003 on a large-scale project to
ment, are centrally supported by specialised units. To preserve
design and implement sophisticated tools for controlling and
the necessary separation of functions, a dedicated unit has
managing operational risks. This involves overhauling all our
been set up to perform independent controlling of operational
existing methodologies and tools.
risk; this unit is charged with developing and implementing
methodologies for the controlling and management of opera-
Basing our approach closely on the banking regulators’ defini-
tional risks and with supervising risk management.
tion, we understand operational risk as the threat of losses
caused through human actions, technological failures, process
Management tools
or project management weaknesses or external events. This
definition includes legal risks, but excludes strategic risks and
We gather loss data so that we can promptly analyse historic
reputation risks.
loss events in order to be able to identify trends in the development of risks and concentrations of operational risks in specific
Risk strategy
operating units. We are also using the collected loss data to
build up the necessary data history to quantify operational
Our strategy for handling operational risk is based on the
risks in future.
bank’s risk tolerance capacity. At present the implementation
of the risk strategy is predominantly qualitative in nature since
In order to identify all operational risks and create the maxi-
our risk quantification system is still under development.
mum possible transparency as to our risk situation, we have
implemented a self-assessment process. This involves
Organisation and responsibilities
experts from the responsible units making judgments on their
operational risk with the aid of prescribed questionnaires.
Our functional organisation model provides a key point of
reference for all our other tools, in that it comprehensively
Finally we deploy a system of risk indicators based on
describes the roles and responsibilities of all process parti-
prescribed thresholds combined with a traffic light system that
cipants. The model distinguishes four top-level dimensions:
enables us to draw conclusions about trends and thereby
functions as an early warning screen.
- Distributed risk management
- Central risk management
- Independent risk controlling
- Internal Audit
F-155
7. Strategic risk
As a result of important decisions of principle to reposition
DZ BANK as a central bank, as a business bank and as a group
holding company, significant steps were taken during 2003 to
By strategic risk we understand the danger of losses that result
limit and actively manage our strategic risks. Substantial stra-
from management decisions on the business-policy positioning
tegic risks arising from the merger that created DZ BANK were
of DZ BANK. Strategic risks are realised when important chan-
finally eliminated during the 2003 financial year. Among other
ges in environmental conditions or market trends are not
achievements, we have realised almost all the synergy poten-
recognised early enough or their impact is wrongly assessed
tial that we predicted on the non-personnel costs front, and
and as a consequence disadvantageous fundamental decisions
we have largely completed the optimisation of our personnel
are made that are then difficult to reverse.
structure.
An important sub-aspect of strategic risk is business risk. By
this we understand the potential for losses that results from
8. Summary
the fact that falling revenue cannot be fully compensated by
equivalent cost reductions. This risk is also referred to as fixed
cost cover risk or cost overhang risk. We have made prelimi-
DZ BANK has consistently operated within the boundaries of
nary quantifications of our business risk using an earnings-at-
our risk tolerance capacity during 2003. We will ensure the
risk approach coupled with intra-sector comparisons. The con-
same is true in 2004. Our economic risk-taking is commensu-
struction of suitable methods for measuring strategic risks has
rate with our capital backing. We also satisfied, and continue
been flagged as a bolt-on development priority for our Risk
to satisfy, the regulatory capital adequacy requirements at all
Control unit. There are still no industry standards for quantify-
times; our capital ratios were and are substantially higher than
ing strategic risk.
the regulators’ minimum standards.
The management of strategic risks is the primary role of the
We are deploying modern management and monitoring tools
Board of Managing Directors of DZ BANK. Our present system
in every area of risk, and we will continue to progressively
for managing strategic risk relies on the forward-looking
refine and improve them. We will be guided in this process
evaluation of success factors coupled with the definition from
by the future Basel II requirements for risk management.
these of performance targets for the business lines. This is
founded on a revolving planning process that periodically updates the strategic multi-year plan and the annual operating
plans. The core components of the planning process are the
observation of market trends – most importantly in the area
of customers, products and competitors – and environmental
conditions, such as changes in the legal framework, plus
critical analyses of our own strengths and weaknesses profile.
A management information system monitors the achievement
of targets.
F-156
III. Outlook
DZ BANK’s administration costs are set to fall again, assuming
the measures we are taking to boost the cost effectiveness of
the Group’s processes and functions deliver the anticipated
Using our combined strength to reap synergies and make
positive effects. Thanks to our high-throughput central proces-
the most of the economic upturn
sing service providers such as Transaktionsinstitut für
Zahlungsverkehrsdienstleistungen and dwpbank, the local
We see more favorable economic omens for the 2004 financial
cooperative banks will also share the benefit of these effects.
year. We have developed a wealth of new products and simultaneously regrouped both processes and resources at the
We are convinced of the effectiveness of the parent bank’s
parent bank and across the DZ BANK Group during the year
and the Group’s upgraded credit management systems. With
under report specifically to equip ourselves to actively exploit –
new business now margin and risk-oriented, we have built a
together with our partners in the integrated cooperative
good foundation for further reducing our risk provisioning
financial services sector – the opportunities the market is
costs. We will continue to optimise our corporate portfolio in
about to offer us. In this light, we expect 2004 to bring
2004 in line with our defined strategy.
improved results across the board.
To summarise these economic trends and this internal progress
This outlook is based on the anticipated brightening of the
in a sentence, we believe the 2004 financial year will bring
economic climate this year. After a year of economic stagna-
improved trading and results for DZ BANK and the DZ BANK
tion in 2003 when consumer demand and corporate invest-
Group and we are confident – especially in the light of our
ment both contracted, we are confident that 2004 will see a
subsidiary role within the integrated cooperative financial
slightly stronger contribution from the domestic component
services sector – that all our business partners are also set
and a substantially stronger contribution from the export com-
to share in this positive trend.
ponent of the German economy. The consequential effects
of the government’s program of legal reforms coupled with
a cyclical recovery of corporate investment are likely to
moderately stimulate overall domestic economic output.
Our chosen focus on the integrated cooperative financial services sector requires us both to continuously develop our products and most importantly to provide effective support for the
local cooperative banks’ sales organisation. We expect the
product innovations that the Group companies put so much
effort into last year and some of which will only come to market this year – including DZ BANK’s new business customer
products – to produce significant volume growth that should
help the cooperative banking sector to increase our market
share. Moreover, boosting the efficiency of our sales effort is
a key focus of our drive to harvest synergies between the
constituents of the cooperative sector, and we are confident
of further positive progress on this front in the current year.
F-157
Report of the Supervisory Board
The Supervisory Board was also kept informed about the
bank’s and the Group’s risk situation and the refinement of
their systems and procedures for controlling risks, especially
market price and default risks and the other risks typical of the
banking industry. Significant individual business transactions
were submitted to the Supervisory Board for approval.
To enable it to perform its duties and comply with the statutory requirements, the Supervisory Board formed a Personnel
Sub-committee, an Audit Sub-committee, a Credit and Investments Sub-committee and a Mediation Sub-committee pursuant to section 27.3 of the German Codetermination Act.
The first three sub-committees met on several occasions. The
full Supervisory Board was kept regularly informed about the
Dr Christopher Pleister
Chairman of the Supervisory Board
activities of its sub-committees.
of DZ BANK AG
Outside of formal meetings, the chairman of the Supervisory
Board and the chairmen of the Audit and the Credit and
As required by the law and the Articles of Association, the
Investments Sub-committees were kept informed of key
Supervisory Board and its sub-committees have monitored the
decisions and exceptional business occurrences through
conduct of the business by the Board of Managing Directors
regular discussions with the chairman of the Board of Manag-
during the 2003 financial year and have discussed and voted
ing Directors.
on the proposed transactions requiring their consent.
Dr Rainer Märklin resigned from the Supervisory Board with
The Supervisory Board was kept regularly informed by the
effect from the end of the ordinary general meeting of share-
Board of Managing Directors about the situation and progress
holders held on May 28, 2003. Mr Helmut Gottschalk was
of the bank and the Group and the general trend of trading.
elected as a new member of the Supervisory Board.
The Supervisory Board held a total of six meetings whose
primary focuses, in addition to the in-depth discussion of
Dr Thomas Duhnkrack was appointed as a full member of the
current business developments, were the future business policy
Board of Managing Directors with effect from January 1, 2003.
of the bank including its principal strategic and organizational
Mr Uwe E. Flach and Mr Peter Dieckmann resigned from the
dimensions, and key issues concerning the integrated co-
Board of Managing Directors of DZ BANK as of December 31,
operative financial system.
2003.
F-158
Deloitte&Touche GmbH, Wirtschaftsprüfungsgesellschaft,
Frankfurt am Main, and Ernst&Young AG, Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, jointly audited the
bookkeeping records, annual financial statements and
management report of DZ BANK for the year to December 31,
2003 presented by the Board of Managing Directors as well as
the consolidated financial statements and the Group management report, and found them to be in conformance with the
statutory regulations. The auditors accordingly issued an unqualified audit certificate in both cases. The audit reports were
submitted to the members of the Supervisory Board and comprehensively examined and discussed. The Supervisory Board is
in agreement with the findings of the auditors.
Representatives of the auditors attended the meeting of the
Supervisory Board called to approve the annual financial statements in order to report in detail on the key audit outcomes.
They also made themselves available to the members of the
Supervisory Board to answer any queries.
The Supervisory Board and the Audit Sub-committee chaired
by Mr Rolf Hildner have examined in detail the annual and
consolidated financial statements and management reports for
DZ BANK and the DZ BANK Group as well as the proposed appropriation of profits. We have no objections to raise.
Frankfurt am Main, April 14, 2004
At its meeting on April 14, 2004 the Supervisory Board approved the annual financial statements for the year to Decem-
DZ BANK AG
ber 31, 2003 prepared by the Board of Managing Directors,
Deutsche Zentral-Genossenschaftsbank,
which are therefore formally adopted. The Supervisory Board is
Frankfurt am Main
in agreement with the proposal from the Board of Managing
Directors for the appropriation of the available profits.
The Supervisory Board thanks the Board of Managing Directors
and all employees for their exceptional personal commitment
Dr Christopher Pleister
and efforts on behalf of the bank and the Group in 2003.
Chairman, Supervisory Board
F-159
Annual Financial Statements of DZ BANK AG
Balance Sheet of DZ BANK AG as at December 31, 2003: Assets
in € million
(Notes)
1. Cash reserve
a) Cash on hand
b) Balances with central banks
of which: with Deutsche Bundesbank
12.31.2003
12.31.2002
317
221
5
8
312
213
(188)
296
2. Debt instruments of public-sector entities and bills of
exchange eligible for refinancing at national central banks
57
17
Treasury bills as well as non-interest-earning treasury notes and
51
of which: eligible for refinancing at Deutsche Bundesbank
3. Placements with, and loans and advances to, other banks
(2)
(3, 5)
75,948
a) Repayable on demand
b) Term deposits and loans
4. Loans and advances to non-bank customers
17
57
similar debt instruments of public-sector entities
2,531
73,199
77,833
(3)
of which: secured by mortgages
local authority loans
80,364
2,749
26,044
32,278
873
(1,029)
1,793
(2,121)
5. Bonds and other fixed-interest
(3, 11)
securities
53,343
a) Money market instruments issued by
60
5
5
other issuers
of which: qualifying as repo collateral at Deutsche Bundesbank
(60)
(20)
0
b) Bonds issued by
49,031
51,050
ba) public sector issuers
(4,355)
4,109
of which: qualifying as repo collateral at Deutsche Bundesbank
(3,870)
3,523
bb) other issuers
(44,676)
46,941
of which: qualifying as repo collateral at Deutsche Bundesbank
(30,309)
32,457
c) Own bonds
2,625
2,288
Nominal volume
6. Equity shares and other variable-yield securities
(2,539)
2,205
(11)
51,716
1,424
6,501
of which: own participation shares
2
(25)
Nominal value
3
(24)
(11, 12)
7. Participations
of which: in banks
in financial services institutions
8. Shares in related companies
in financial services institutions
of which: trust loans
F-160
300
(187)
(3)
3
(11, 12)
of which: in banks
9. Assets held on trust basis
423
304
9,185
8,292
1,557
(1,196)
26
(34)
(7)
1,824
447
1,857
(470)
in € million
(Notes)
12.31.2003
12.31.2002
133
221
10. Equalization claims against government agencies
including claims converted into bonds
11. Intangible assets
(12)
0
0
12. Property and equipment
(12)
212
321
13. Own equity or partnership shares
(13)
Nominal value
24
10
24
(10)
14. Other assets
(15)
2,519
2,274
15. Accrued income and deferred expenses
(16)
517
376
171,970
184,762
Total Assets
F-161
Balance Sheet of DZ BANK AG as at December 31, 2003: Equity and Liabilities
in € million
1. Deposits from other banks
(Notes)
12.31.2003
12.31.2002
(3, 5)
97,912
106,647
a) Repayable on demand
25,810
28,093
b) Fixed-term or agreed notice
72,102
78,554
2. Amounts owed to other depositors
(3)
30,451
a) Saving deposits
0
0
aa) With three month notice term
29,584
0
(0)
0
(0)
ab) With more than three month
notice term
b) Other liabilities
ba) Repayable on demand
bb) Fixed-term or agreed notice
3. Liabilities in certificate form
5,434
(5,294)
25,017
(24,290)
(3)
26,051
a) Issued bonds
3,199
2,115
2,115
of which money market instruments
(3,199)
(7)
1,824
447
of which: trust loans
31,113
27,914
23,936
b) Other certificated liabilities
4. Liabilities arising from trust operations
29,584
30,451
1,857
(470)
5. Other liabilities
(17)
3,190
3,093
6. Accrued expenses and deferred income
(16)
324
350
1,240
1,214
7. Provisions
a) Provisions for pensions and similar obligations
b) Provisions for taxes
454
439
38
101
748
c) Other provisions
8. Subordinated liabilities
(18)
9. Participatory capital
(19)
2,649
2,178
2,205
172
of which: maturing within two year
(175)
10. Fund for general banking risks
11. Capital and reserves
674
2,722
(14)
a) Subscribed capital
1,428
1,428
4,650
4,622
2,879
2,879
b) Capital reserve
803
803
c) Surplus reserves
913
888
9
(5)
cb) Reserve for own shares
24
(24)
cc) Other surplus reserves
880
ca) Statutory reserve
d) Cumulative earnings
Total Equity and Liabilities
F-162
(859)
52
55
171,970
184,762
in € million
(Notes)
1. Contingent liabilities
12.31.2003
12.31.2002
3,188
4,921
11,277
12,881
Liabilities arising from guarantees and
warranties provided*
3,188
2. Other liabilities
Irrevocable credit commitments
4,921
11,277
12,881
* See also disclosure in Note 31 “Other financial obligations”
F-163
Income Statement of DZ BANK AG
for the period from January 1 to December 31, 2003
in € million
(Notes)
1. Interest income from
2003
(22)
2002
6,383
5,096
a) Lending and money market operations
3,844
4,926
b) Fixed-interest securities and government-inscribed debt
1,252
1,457
2. Interest expense
4,870
3. Current income from
a) Equity shares and other variable-yield securities
226
6,166
429
893
183
b) Participations
c) Shares in associated companies
262
6
18
240
613
4. Income from profit pools and profit transfers or
profit-sharing agreements
98
5. Commission income
113
447
495
285
193
7. Net income form financial transactions
(22)
322
205
8. Other operating income
(24)
105
264
839
862
6. Commission expense
210
9. General administrative expenses
a) Personnel expenses
435
aa) Wages and salaries
455
331
(357)
for pension benefits and welfare
104
(98)
of which: for pensions provision
57
(48)
ab) Compulsory social security contributions and expenses
b) Other administrative expenses
407
404
10. Depreciation and write-downs on tangible
and intangible assets
11. Other operating expenses
(25)
83
89
25
63
371
1,709
99
–
–
1,094
12. Depreciation and write-downs on loans and advances
and certain securities, plus additions to provisions
on lending business
13. Amortisation of participations,shares in related
companies and revaluation of securities treated
as fixed assets
(26)
14. Income from write-ups on participations,
shares in related companies and securities treated
as fixed assets
15. Expenses from the assumption of losses
16. Result of ordinary operations
F-164
43
69
5
248
in € million
(Notes)
17. Exceptional income
(28)
18. Exceptional expenses
(27)
(29)
2002
2
78
- 56
19. Net exceptional result
20. Taxes on income
2003
22
220
- 56
-123
- 218
- 29
21. Other taxes not included under
“Other operating expenses” heading
-8
22. Net income on period
-131
4
80
55
23. Prior year's earnings carried forward
0
0
24. Withdrawls from surplus reserves
–
5
25
8
from other surplus reserves
–
25. Allocations to surplus reserves
5
a) to statutory reserve
4
3
b) To own-shares reserve
–
5
c) To other surplus reserves
26. Cumulative earnings
–
21
55
F-165
52
Notes to the financial statements of DZ BANK AG
for the year to December 31, 2003
Basis
The financial statements of DZ BANK AG for the year ending December 31, 2003 have been prepared in
accordance with the requirements of the German Commercial Code (HGB) and the Order on the Accounting
of Credit Institutions and Financial Services Institutions (RechKredV). At the same time, the financial
statements are in compliance with the provisions of Germany’s Joint Stock Corporations Act (AktG), the
DG BANK Transformation Act and DZ BANK AG’s own statutes.
All monetary values are shown in millions of euro (€ m). For the sake of clarity, certain balance sheet and
income statement headings have been aggregated.
Separate notes have been prepared for DZ BANK AG and the DZ BANK Group.
1 | Presentation and
valuation methods
Claims on banks and non-bank customers (placements, loans and advances) are shown at their nominal
value or cost of acquisition. Differences between their nominal value and disbursement value are shown
under accrued and deferred items. Note receivables, registered bonds and lease receivables purchased from
third parties are shown at purchase cost. Without exception, all receivables fall under current assets and
are valued strictly at the lower of cost or market. The total shown for loans and advances to non-bank
customers includes registered bonds and lease receivables assigned to the bank’s investment book that
are matched by corresponding hedge transactions that respectively constitute distinct valuation units.
Appropriate provision at the level of the anticipated loss was made in respect of all identifiable credit and
country risks. Latent risks in the lending business are covered by global provisions, applied in accordance
with the responsible authority’s rules for the tax recognition of general provisions by banks. The basis of
calculation is the average actual loan loss incurred in the preceding five financial years.
All securities held as current or fixed assets were valued in the reporting period strictly at the lower of
cost or market. In the case of specifically identified securities held as fixed assets or as part of the liquidity
reserve, their valuation has been linked with corresponding hedging transactions.
F-166
Financial trading transactions including note loans and registered bonds were valued at market prices or
their synthetic valuations at the end of the year. Where standardized, exchange-traded products are concerned, the valuation is based on the end-of-year closing prices of the relevant stock exchanges. Swap
trading positions were valued on the basis of the prevailing yield curves using the present value method.
Following a presentation policy change, price results on the premature redemption of issued note loans are
now shown as part of the interest surplus in order to make clear their economic relationship with the results
of closing the corresponding hedge transactions.
Current interest payments on swaps (including accrued and deferred items) and price gains and losses on
note loans and registered bonds held for trading purposes were shown in the income statement under the
heading of net income from financial activities. Those trading transactions in foreign exchange, securities
and derivatives which are subject to the same market price change risk or credit risk (interest, exchange rate
and other price risks plus spread risks) are also aggregated for accounting purposes into cross-product
portfolios that form part of the bank’s harmonized risk management system.
Within a portfolio, unrealized valuation losses are offset against unrealized valuation gains. Furthermore,
realized losses are offset against residual valuation gains within the same portfolio provided the required
criteria are fulfilled. A balancing item is included in the balance sheet under the other assets heading to the
value of the unrealized profits offset against realized losses.
To ensure the accurate relation of earnings to operating units, these financial statements show the interest
and dividend income from securities held for dealing purposes and for the first time from repurchase agreements, and the refinancing expenses assignable to dealing transactions, as part of net trading income.
Shares in related companies and participations are shown at cost of acquisition or updated book value.
The revaluation of assets and liabilities acquired from Genossenschaftsbank Berlin (GBB) in 1990 resulted in
a claim for compensation against the currency conversion compensation fund (Ausgleichsfonds Währungsumstellung) under the terms of section 40 of the Accounting Act (DM-Bilanzgesetz – DMBilG). The values
shown for these items are subject to future adjustment under the terms of section 36 of the same act.
Intangible fixed assets are capitalized at cost of acquisition or production. Tangible fixed assets are valued at
cost of acquisition or production less regular depreciation over their expected service life, based in all cases
on the values shown in the tables published by the German tax authorities. Minor-value assets are written
off in full in the year of acquisition.
F-167
Operating equipment and systems, including office furniture, is depreciated on a straight-line basis.
Depreciation is taken for the full year on acquisitions made in the first half of the year and for a half-year
on additions in the second half of the year.
Liabilities are shown at their repayment value. The difference between their nominal and actual amounts has
been taken to accruals and deferrals.
Provisions were made in the amount required on the basis of reasonable commercial judgment. Unrealized
losses on uncompleted transactions aggregated together with other trading transactions in cross-product
portfolios, are only shown as separate provisions in the commercial financial statements to the extent that
they are not offset by unrealized profits.
Pension reserves are calculated according to actuarial principles. Current pension commitments to retired
pensioners and contributions on behalf of ex-employees with pension entitlement are shown at their prorata value. The pension entitlements of still-active future beneficiaries are shown in accordance with section
6a of the Income Tax Act (Einkommenssteuergesetz – EStG). To ensure that current pension obligations are
covered from independent resources, a substantial proportion of the current annuity obligations were
transferred in 2003 to DZ BANK Mitarbeiter-Unterstützungseinrichtung GmbH.
The value of the fund for general banking risks required by section 340g HGB is unchanged at
€ 1,428 million. Prudential reserves have also been created pursuant to section 340f HGB.
Expense from financial investments is set off against corresponding income; in the same way expense and
income from the valuation of lending business and securities in the liquidity reserve are shown net.
F-168
2 | Currency translation
In the financial statements of DZ BANK AG, foreign book assets, liabilities and securities holdings are translated into euro using the European Central Bank’s official “ESCB reference rate” on the balance sheet date.
Currency translation is fully in harmony with section 340h HGB and Statement 3/95 of the German Institute
of Public Accountants (IDW).
Where specifically covered, shares in related companies and participations denominated in foreign currencies are translated using the official “ESCB reference rate” at the valuation and accounting date in line with
section 340h HGB. “Specifically covered” refers to all investment assets internally released from Treasury to
the care of the forex dealing unit for the purposes of managing currency risks.
Sufficient unrealized profits from unsettled foreign currency forward transactions in the trading portfolio
are offset against unrealized losses in the same currency across all maturities to cancel out said losses. The
remaining unrealized profits are offset against the realized losses from currency translation until exhausted,
provided the required criteria are fulfilled. A balancing item is included in the balance sheet to the value of
the unrealized profits offset in this way. Provisions for impending losses from unsettled transactions are
made in the commercial accounts in respect of the remaining unrealized losses. No entry is made in respect
of the balance of any unrealized profits remaining after offsetting.
Where foreign currency forward transactions were entered into for the purpose of hedging interest-bearing
assets and liabilities, then their swap income and expense are treated as interest income or expense, reflecting their interest character.
F-169
Notes to the Balance Sheet
3 | Maturity structure of
asset positions
in € million
12.31.2003
12.31.2002
- less than 3 months
25,083
27,860
- between 3 months and 1 year
10,603
10,723
- between 1 year and 5 years
19,723
19,659
- more than 5 years
17,790
19,591
- less than 3 months
4,227
5,364
- between 3 months and 1 year
3,594
4,499
- between 1 year and 5 years
8,232
10,030
- more than 5 years
7,254
8,763
- no fixed term
2,737
3,622
13,519
12,374
Claims on other banks
Claims on non-bank customers
Bonds and other fixed-interest securities
- maturing in the subsequent year
F-170
3 | Maturity structure of
liability positions
in € million
12.31.2003
12.31.2002
33,260
38,083
6,283
8,288
- between 1 year and 5 years
15,846
16,045
- more than 5 years
16,713
16,138
- between 3 months and 1 year
0
0
- between 1 year and 5 years
0
0
- less than 3 months
9,013
7,569
- between 3 months and 1 year
1,739
1,268
Liabilities to other banks with an originally agreed term
or notice period
- less than 3 months
- between 3 months and 1 year
Liabilities to non-bank customers
a) Savings deposits with an agreed notice period of more than three months
b) Other liabilities with an agreed term or notice period
- between 1 year and 5 years
- more than 5 years
4,205
4,286
10,060
11,167
7,524
7,957
1,581
2,631
534
568
Liabilities in certificate form
a) Bonds issued
- maturing in the subsequent year
b) Other certificated liabilities
- less than 3 months
- between 3 months and 1 year
F-171
4 | Related companies and
Claims and liabilities in respect of related companies:
companies with which a
participation relationship
in € million
12.31.2003
12.31.2002
exists
Placements with, and loans and advances to, other banks
8,639
11,323
Loans and advances to non-bank customers
2,256
1,709
Bonds and other fixed-interest securities
3,985
3,343
Amounts owed to other banks
5,083
4,587
Amounts owed to non-bank customers
1,671
1,280
15
208
320
24
Certificated liabilities
Subordinated liabilities
Claims and liabilities in respect of companies with which a participation relationship exists:
in € million
Placements with, and loans and advances to, other banks
Loans and advances to non-bank customers
12.31.2003
12.31.2002
18,972
17,996
1,118
1,099
180
3,246
16,725
19,336
Bonds and other fixed-interest securities
Amounts owed to other banks
724
328
2,397
5,477
88
63
Amounts owed to non-bank customers
Certificated liabilities
Subordinated liabilities
A complete list of the investment holdings is lodged in the Commercial Register in Frankfurt am Main.
A summary of the principal holdings is available on request from DZ BANK AG direct.
F-172
5 | Claims and liabilities
The reported claims and liabilities totals include the following sums due from or to affiliated banks:
in respect of affiliated
banks
in € million
Due from affiliated banks
of which: from cooperative central banks
Due to affiliated banks
of which: to cooperative central banks
6 | Subordinated assets
12.31.2002
37,252
37,419
434
82
36,351
39,619
36
27
12.31.2003
12.31.2002
316
305
16
–
Subordinated assets are included in the following headings:
in € million
Placements with, and loans and advances to, other banks
Of which: due from related companies
due from participation-relationship companies
Loans and advances to non-bank customers
Of which: due from participation-relationship companies
Bonds and other fixed-interest securities
Of which: due from related companies
Shares and other variable-yield securities
Of which: due from related companies
due from participation-relationship companies
7 | Trust operations
12.31.2003
16
–
157
197
26
–
567
844
3
0
291
400
72
72
–
7
The total value of the bank’s trust assets and liabilities is apportioned between the following assets-side
and liabilities-side headings:
in € million
Deposits with, and loans and advances to, other banks
12.31.2003
12.31.2002
446
469
1
1
Participations
1,377
1,387
Trust assets
1,824
1,857
447
470
Amounts owed to other depositors
1,377
1,387
Trust liabilities
1,824
1,857
Loans and advances to non-bank customers
Amounts owed to other banks
F-173
8 | Foreign-currency
Values of assets and liabilities in foreign currencies:
positions
in € million
9 | Business subject to
repurchase agreements
10 | Assets assigned as security
12.31.2003
12.31.2002
Assets
19,133
24,684
Liabilities
17,771
21,354
The book value at December 31, 2003 of the assets committed to sale and repurchase operations was
€ 13,454 million (2002: € 14,879 million).
Assets with the value stated below were assigned in respect of the following liabilities:
in € million
Amounts owed to banks
Amounts owed to other depositors
12.31.2003
12.31.2002
31,337
33,997
2,881
1,869
A total of € 2,278 million (2002: € 2,696 million) was additionally deposited as security for stock exchange
forward transactions and under the terms of collateral agreements for OTC trading transactions.
11 | Securities eligible for
Listed securities as a proportion of the total securities eligible for stock exchange listing in each category:
stock exchange listing
in € million
12.31.2003
12.31.2002
53,343
51,716
47,174
46,160
1,283
1,472
697
806
154
138
154
138
1,974
1,813
316
291
Bonds and other fixed-interest securities eligible for
stock exchange listing
of which: listed
Shares and other variable-yield securities eligible for stock exchange listing
of which: listed
Participations eligible for stock exchange listing
of which: listed
Shares in related companies eligible for stock exchange listing
of which: listed
F-174
12 | Fixed asset structure
and movements
Cost of acquisition/production
01.01.2003
Additions
Disposals
Depreciation
Reclass.
Revalution
in € million
I. Intangible fixed assets
Residual book value at
Current
Cumula-
year
tive
12.31.2003 12.31.2002
0
0
0
0
0
0
0
0
0
1,015
53
240
- 40
0
83
576
212
321
1. Land and buildings
139
3
55
-39
0
2
17
31
95
2. Equipment
876
50
185
-1
0
81
559
181
226
25,488
24,603
II. Tangible fixed assets
Net changes
III. Financial assets
1. Participations
2. Shares in related companies
25,011
477
395
28
423
300
8,329
856
9,185
8,292
16,287
- 407
15,880
16,011
3. Securities forming part of
fixed assets
The book value of the land and buildings in use by DZ BANK AG in the course of its own operations amounted on December 31, 2003
to € 22 million (12.31.2002: € 83 million).
F-175
13 | Own shares
At the accounting date, DZ BANK AG held a total of 3,665,569 of its own registered unit shares representing in total € 9,530,479.40 or 0.3311 percent of the company’s share capital.
Of this total, 200,000 shares had passed from the federal government to DG BANK AG on August 19, 1998
under the terms of section 2.2 of the DG BANK Transformation Act. This is equivalent to € 520,000.00 or
0.0181 percent of the company’s share capital. DG BANK AG had also acquired a further 293,000 of its
own shares on September 30, 1999 under the powers of a time-limited authority to acquire its own shares,
approved by the general meeting held on June 15, 1999 and effective through October 31, 2000. This is
equivalent to € 761,800.00 or 0.0265 percent of the company’s share capital. Subsequently, DG BANK AG
acquired a further 1,220,000 of its own unit shares on November 15, 1999. This is equivalent to
€ 3,172,000.00 or 0.1102 percent of the company’s share capital.
On the strength of the resolution passed by the extraordinary general meeting held on August 16, 2001 to
approve a time-limited authority, effective through January 31, 2003, permitting DZ BANK AG to acquire its
own shares for purposes other than securities trading (section 71.1.8 AktG) up to an aggregate ceiling of
10 percent of the current share capital, DZ BANK AG acquired a further 5,082 of its own shares on December 28, 2001 equivalent to € 13,213.20 or 0.0005 percent of the company’s share capital. This purchase
was in connection with the partial consolidation of DZ BANK AG’s circle of shareholders following the
merger.
On the basis of the aforementioned resolution DZ BANK AG in January 2002 additionally acquired 475,648
own shares equivalent to € 1,236,684.80 of the registered capital and a share of the registered capital of
0.0430 percent. In February 2002 DZ BANK AG acquired 536,772 own shares equivalent to € 1,395,607.20
of the registered capital and a share of the registered capital of 0.0485 percent. In March 2002 DZ BANK AG
acquired 859,848 own shares equivalent to € 2,235,604.80 of the registered capital and a share of the
registered capital of 0.0777 percent. In April 2002 DZ BANK AG acquired 75,219 own shares equivalent to
€ 195,569.40 of the registered capital and a share of the increased registered capital of 0.0068 percent.
These purchases were effected in connection with the partial consolidation of DZ BANK AG’s circle of shareholders.
F-176
14 | Changes in capital
structure
The subscribed capital of DZ BANK AG consists of its registered capital of € 2,878,427,240.00. The
Company’s subscribed capital is divided into 1,107,087,400 registered shares each conveying a notional
proportional entitlement in the Company’s share capital of € 2.60.
The parent bank’s equity capital evolved as follows during the year under report:
01.01.2003
in € million
Additions/
12.31.2003
(-)Withdrawals
2,879
2,879
Capital reserve
803
803
Surplus reserves
888
913
- Statutory reserve
5
Subscribed capital
4
9
- Reserve for own-shares
24
–
24
- Other surplus reserves
859
21
880
4,570
25
4,595
Cumulative profit
52
- Appropriation/distribution from prior year
52
-52
–
–
55
55
4,622
28
4,650
- Cumulative profit 2003
55
The general meeting held on August 16, 2001 authorized the Board of Managing Directors, with the consent
of the Supervisory Board, to increase the share capital of DZ BANK AG by up to € 50 million in total by
issuing shares against cash contributions or contributions in kind on one or more occasions through to
July 31, 2006. Provided the Supervisory Board agrees, the Board of Managing Directors may exclude the
right of existing shareholders to subscribe to either a capital increase against cash contributions or a capital
increase against contributions in kind where the capital increase is intended to finance the issue of new staff
shares, the acquisition of companies or equity stakes in companies, or to make available equity interests in
the bank to underpin strategic partnerships. Furthermore the Board of Managing Directors is empowered,
with the consent of the Supervisory Board, to exclude the right of existing shareholders to subscribe in relation to fractional amounts (“Authorized capital I”).
The general meeting also authorized the Board of Managing Directors, with the consent of the Supervisory
Board, to increase the share capital of DZ BANK AG by up to € 100 million in total by issuing shares against
cash contributions on one or more occasions through to July 31, 2006. The Board of Managing Directors
may, with the consent of the Supervisory Board, exclude the right of existing shareholders to subscribe in
relation to fractional amounts (“Authorized capital II”).
The Board of Managing Directors did not make use of these authorities during the year under report.
F-177
15 | Other assets
The “Other assets” heading most importantly reports valuation gains from trading transactions after the
offset of realized losses (€ 1,168 million) plus premiums for acquired option rights (€ 958 million).
The asset and liability side accruals and deferrals headings include premiums/discounts totaling as follows:
16 | Accruals
and deferrals
in € million
12.31.2003
12.31.2002
Discount on payables
292
149
Discount on receivables
119
132
40
37
Premium on payables
17 | Other liabilities
This heading includes most importantly deferred option premiums received totaling € 3,005 million.
18 | Subordinated
Out of the total volume of subordinated liabilities as at December 31, 2003, € 2,420.2 million is recognized
as qualifying (liable) capital within the definition of section 10.5a of the German Banking Act (KWG) and
liabilities
€ 5.8 million as third-tier capital within the definition of section 10.7 KWG.
The subordinated borrowings do not involve any early redemption obligation. The rights arising from these
liabilities (including entitlement to interest) are secondary to the non-subordinated claims of all the issuer’s
other creditors in the event of bankruptcy or liquidation.
There is no agreement or intention to convert these funds to capital or another form of debt.
The subordinated liabilities have an average interest rate of 5.17 percent (2002: 6.06 percent) and initial
terms of between 4 and 30 years.
The overall figure includes one single item which exceeds 10 per cent of the aggregate value of the subordinated liabilities. This € 300 million registered bond pays interest at the 3-month EURIBOR rate and
matures in 2033, though the issuer has an annual call option first exercisable in 2008.
In the year under review, the liabilities shown under this heading resulted in expense amounting to
€ 135 million at DZ BANK AG (2002: € 171 million).
F-178
19 | Participatory capital
Out of the total volume of participatory capital as at December 31, 2003, € 1,968.2 million is recognized as
qualifying (liable) capital within the definition of section 10.5 of the German Banking Act (KWG).
Participatory capital participates to the full extent in potential losses. Interest payments are only made
subject to the availability of unappropriated profit. Participation certificate holders’ entitlements to
repayment of their capital are subordinate to the rights of other creditors.
The following series of bearer participation certificates have been issued:
Year of issue
Nominal amount
Interest rate
in € million
in percent
Due
1984
133
8.50
2011
1987
102
7.25
2006
1989
42
7.50
2009
1993
26
7.00
2008
1994
36
6.75
2006
1994
26
6.25
2005
1994
26
7.25
2004
1995
64
7.50
2006
1996
51
7.50
2006
1996
41
7.25
2007
1997
9
6.50
2004
1997
38
6.75
2008
1998
1
3.27
2004
1998
22
6.50
2010
1999
160
3.55*
2009
1999
1
7.00
2010
2000
60
6.25
2009
2000
1
2.75
2006
2001
100
5.50
2008
2001
61
7.60
2006
2002
28
6.50**
2011
* Tied to market rate: H1: 4.29 percent, H2: 3.55 percent.
** Distribution in respect of FY 2002 is scheduled to be paid together with 2003 payout on July 1, 2004.
F-179
The issue terms of the 1984, 1987, 1998 (maturing through 2004), and 2000 participatory capital tranches
(maturing through 2006) make the eventual distribution dependent on the dividend declared.
Registered participation certificates with an aggregate nominal volume of € 1,016 million have been issued.
This total is composed of 430 separate issues with original terms of between 6.6 and 15.6 years and
bearing interest of between 5.38 per cent and 7.63 per cent.
Servicing the interest on the participation certificate stock involved expense of € 138 million in 2003
(2002: € 151 million).
F-180
20 | Off-balance-sheet futures business by product structure
The following table shows the breakdown of off-balance-sheet futures transactions by product area:
Nominal amount
Residual term
Replacement costs
Total
in € million
≤ 1 year
> 1 – 5 years
> 5 years
12.31.2003
12.31.2002
12.31.2003
12.31.2002
Interest-based transactions
205,188
260,322
186,611
652,121
587,896
12.775
12,569
8,121
50
–
8,171
15,772
2
8
OTC products
FRAs
- Interest swaps (same currency)
152,453
206,701
159,469
518,623
432,401
11,993
11,962
- Interest options – calls
9,556
21,917
10,163
41,636
36,512
776
596
- Interest options – puts
15,453
30,639
16,943
63,035
46,851
–
–
66
–
36
102
694
4
3
19,038
1,015
–
20,053
55,261
–
–
- Other interest contracts
Exchange-traded products
- Interest futures
- Interest options
501
–
–
501
405
–
–
16,777
9,010
3,724
29,511
37,551
799
805
11,174
1,010
87
12,271
14,753
392
194
- Cross-currency swaps
3,033
7,667
3,629
14,329
18,229
353
592
- Forex options – calls
1,321
166
8
1,495
2,586
54
19
- Forex options – puts
1,231
167
–
1,398
1,982
–
–
18
–
–
18
1
–
–
2,714
1,501
3,790
8,005
4,820
246
62
- Equity and index options – calls
101
1,194
1,941
3,236
327
246
62
- Equity and index options – puts
416
278
1,849
2,543
2,841
–
–
- Other equity and index contracts
142
–
–
142
–
0
–
- Equity and index futures
907
–
–
907
933
–
–
- Equity and index options
1,148
29
–
1,177
719
–
–
11
–
–
11
–
3
–
Forex-based transactions
OTC products
Forward exchange transactions
Exchange-traded products
- Forex futures
Equity and index-based transactions
OTC products
Exchange-traded products
Other transactions
11
–
–
11
–
3
–
868
5,454
1,281
7,603
5,276
125
58
- DZ BANK as hedge beneficiary
217
2,906
1,137
4,260
2,735
115
34
- DZ BANK as hedge provider
608
2,499
144
3,251
2,449
7
20
43
19
–
62
62
3
4
–
30
–
30
30
0
–
225,558
276,287
195,406
697,251
635,543
13,948
13,494
- Precious metal transactions
Credit derivatives
Credit default swaps
Total return swaps
- DZ BANK as hedge beneficiary
- DZ BANK as hedge provider
Total
F-181
A substantial proportion of the transactions listed here were entered into to hedge interest rate, exchange
rate or market price fluctuations. The bulk of these transactions related to trading activities. The nominal
volume of all transactions totaled € 697,251 million (2002: € 635,543 million). The replacement-purchase
cost (the sum of positive market values) amounted to € 13,948 million without taking netting agreements
into account (2002: € 13,494 million).
Off-balance-sheet futures
The following table shows the breakdown by counterparty:
business by counterparties
structure
Replacement costs
in € million
OECD central governments
Banks in OECD countries
Financial services institutions in OECD countries
Other companies and private individuals
Banks in non-OECD countries
Total
F-182
12.31.2003
12.31.2002
–
16
12,752
12,783
–
416
1,196
276
0
3
13,948
13,494
Notes to the Income Statement
21 | Breakdown of income
by geographical markets
The following table shows the breakdown between the domestic and international markets for the
aggregate of interest income, current income from shares and other variable-yield securities, participations
and shares in related companies, commission income, net income from financial transactions, and other
operating income:
in € million
2003
2002
Germany
5,567
7,128
727
1,063
International
22 | Change in the reporting
of net interest and net
The net income from financial transactions total includes a sum of € 33 million due to the first-time
inclusion of the interest result on repurchase agreements under this heading.
trading income
23 | Administration and
agency services provided
Services to third parties relate most significantly to securities custody administration and trust assets
administration, plus the intermediation of insurance business.
for third parties
24 | Other operating
income
The “Other operating income” heading in the financial statements includes (amongst other items), income
from fixed-asset disposals totaling € 44 million, income from the writing back of provisions totaling
€ 13 million, rent revenues of € 9 million, income from the Visa card operation totaling € 6 million,
revenues from organized seminars and publications totaling € 6 million, fees for non-banking services
totaling € 4 million, and tax refunds totaling € 4 million.
25 | Other operating
expenses
The “Other operating expenses” heading includes (amongst other items) losses on fixed-asset disposals and
write-downs on sundry assets totaling € 7 million, expenses arising from the Visa card operations totaling
€ 4 million, non-personnel costs in relation to buildings not used for banking totaling € 4 million, and
compensation for performance failures totaling € 3 million.
F-183
26 | Write-downs on
securities held as fixed
The strict application of the lower-of-cost-or-market valuation principle to all fixed-asset securities resulted
in additional write-downs totaling € 53 million during the year.
assets
27 | Exceptional expenses
The “Exceptional expenses” heading essentially includes personnel and non-personnel restructuring
expenses totaling € 60 million, costs totaling € 14 million from ongoing early retirement obligations under
the social plan currently in force, and total € 4 million expenses arising from the spin-off of the Payments
Handling division into Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG.
28 | Exceptional income
The exceptional income heading includes an amount of € 22 million in consideration for the transfer of the
Payments Handling division to Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG.
29 | Taxes on income
Revenues arising from taxes on income essentially comprise the corporation and municipal trade tax
contributions received on the basis of tax unity relationships; such transfers amounted to € 101 million
in the year under report and are shown under this heading for the first time. In 2002 tax transfers were
included under other operating income.
F-184
Other disclosures
30 | Shareholder
information
The proportion of DZ BANK AG’s share capital held by cooperative enterprises was approximately
92.9 percent at December 31, 2003. The definition of cooperative enterprises includes the cooperative
societies, the central cooperative institutions and other corporate entities and trading companies.
31 | Other financial
The total amount of these liabilities is € 235 million (2002: € 274 million).
obligations
This amount does not include liabilities of € 7 million from capital shares of cooperative associations
(2002: € 8 million).
DZ BANK AG has indemnified the protection scheme operated by the BVR cooperative banks association
in respect of any obligations incurred by the guarantee fund in relation to Deutsche GenossenschaftsHypothekenbank AG, VR DISKONTBANK GmbH, DVB Bank Aktiengesellschaft, or Frankfurt Bukarest Bank AG.
Furthermore, DG BANK AG has given transfer guarantee declarations to domestic companies and public
institutions in respect of certain deposits at its branches in Great Britain and the USA for the event that the
branches are prevented by national decision from discharging their repayment obligations.
In respect of three subordinated, consolidated credit institutions that are listed in the list of shareholdings
required by section 285.11 HGB and identified therein as falling within the ambit of this declaration of
responsibility, DZ BANK AG will ensure the ability of these companies to fulfill their contractual obligations
in proportion to its shareholding and excluding political risk. During the year under report, DZ BANK AG
has also issued a subordinated declaration of responsibility in respect of DZ BANK Capital Funding LLC I,
Wilmington.
F-185
The average number of persons employed in fiscal 2003 was as follows:
32 | Number of
employees
2003
2002
Full-time employees
1,538
1,896
Part-time employees
508
565
Full-time employees
2,436
2,742
Part-time employees
80
97
4,562
5,300
Female staff
Male staff
Total employees
33 | Cover statement
The following cover is in place for the total value of bonds in circulation (including registered bonds):
in € million
12.31.2003
12.31.2002
9,426
10,329
Regular cover
Loans and advances
to banks
to non-bank customers
Bonds and other fixed-interest securities
Equalization claims
877
1,359
14,440
10,596
75
137
24,818
22,421
bearer bonds
8,434
8,580
bonds registered to banks
5,936
3,438
bonds registered to non-bank customers
7,007
7,152
21,377
19,170
640
339
Total cover
Issued, covered
Currently unissued bonds (held in treasury)
Registered bonds given over as collateral
to banks
15
8
to non-bank customers
97
136
22,129
19,653
2,689
2,768
Cover requirement
Excess cover
F-186
34 | Cover assets
trustees
The trustees are appointed by the German financial services regulator (Bundesanstalt für Finanzdienstleistungsaufsicht, BAFin) and their statutory duty is to ensure that the issuance, administration and
collateralization of DZ BANK AG’s covered bonds comply with the legal requirements and the provisions
of the bank’s own statutes as well as the bonds’ terms and conditions.
35 | Statutory bodies
Trustee:
Deputy Trustee:
Dr Ekkehard Buchwaldt
Dr Dieter Eschke
Presiding Judge, Superior Provincial Court
Presiding Judge, Superior Provincial Court
Frankfurt am Main, (retd.)
Frankfurt am Main, (retd.)
The total remuneration for members of the Board of Managing Directors of DZ BANK AG during 2003
amounted to T€ 5,647 (2002: T€ 5,191) and T€ 428 for members of the Supervisory Board (2002: T€ 462).
Total emoluments of T€ 7,343 were paid to former members of the Board of Managing Directors or their
surviving dependents (2002: T€ 6,866), and pension reserves of T€ 72,743 (2002: T€ 67,236) were
endowed to their benefit.
Board of Managing Directors:
Dr Ulrich Brixner
Uwe E. Flach
(Chairman)
(Deputy Chairman,
to December 31, 2003)
Peter Dieckmann
Dr Thomas Duhnkrack
(to December 31, 2003)
(from January 1, 2003)
Heinz Hilgert
Wolfgang Kirsch
Albrecht Merz
Dietrich Voigtländer
F-187
Supervisory Board:
Dr Christopher Pleister
(Chairman)
President
Bundesverband der Deutschen Volksbanken
und Raiffeisenbanken e.V.
Helga Preußer
Rolf Hildner
(First Deputy Chairwoman)
(Second Deputy Chairman)
Employee
Chairman of the Board of Managing Directors
DZ BANK AG
Wiesbadener Volksbank eG
Deutsche Zentral-Genossenschaftsbank
Members:
Wolfgang Apitzsch
Rüdiger Beins
Attorney at law
Employee
DZ BANK AG
Deutsche Zentral-Genossenschaftsbank
Werner Böhnke
Gerhard Bramlage
Chairman of the Board of Managing Directors
Chairman of the Board of Managing Directors
WGZ-Bank
Emsländische Volksbank eG
Westdeutsche Genossenschafts-Zentralbank eG
Carl-Christian Ehlers
Dipl.-Kfm. Gerhard Engler
Chairman of the Board of Managing Directors
Bank Director (retd.)
Kieler Volksbank eG
Volksbank Müllheim eG
Helmut Gottschalk
Michael Groll
Speaker of the Board of Managing Directors
Management employee
Volksbank Herrenberg-Rottenburg eG
DZ BANK AG
(from May 28, 2003)
Deutsche Zentral-Genossenschaftsbank
Siegfried Hägele
Walter Kaufmann
Employee
Secretary
VR Kreditwerk Hamburg-Schwäbisch Hall AG
ver.di
United Services Trade Union
F-188
Sigmar Kleinert
Klaus Lambert
Employee
President & Chairman of the Board of Managing
DZ BANK AG
Directors
Deutsche Zentral-Genossenschaftsbank
Genossenschaftsverband Frankfurt e.V.,
Hessen/Rheinland-Pfalz/Saarland/Thüringen
Dr Rainer Märklin
Adolf Rückl
Bank Director (rtd.)
Operations Manager
Volksbank Reutlingen eG
Schwäbisch Hall Facility Management GmbH
(to May 28, 2003)
Gudrun Schmidt
Bernhard Sorge
Regional Group Director
Member of the Board of Managing Directors
ver.di
Raiffeisen-Volksbank Grafing-Ebersberg eG
United Services Trade Union
Winfried Willer
Dr h.c. Uwe Zimpelmann
Employee
Member of the Board of Managing Directors
VR Kreditwerk Hamburg-Schwäbisch Hall AG
Landwirtschaftliche Rentenbank
F-189
36 | Appointments held by
members of the Board
Bank officers and directors served on the supervisory boards of the following major German corporations
at December 31, 2003 (Group companies are identified by (*)):
of Managing Directors
and employees on the
supervisory boards of
Members of the Board of Managing
major corporations
Directors
Companies
Dr Ulrich Brixner
Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall,
(Chairman)
Deputy Chairman of the Supervisory Board (*`)
Deutsche Genossenschafts-Hypothekenbank
Aktiengesellschaft, Hamburg,
Chairman of the Supervisory Board (*)
R+V Versicherung AG, Wiesbaden,
Deputy Chairman of the Supervisory Board (*)
Südzucker AG, Mannheim/Ochsenfurt,
Member of the Supervisory Board
Uwe E. Flach
Andreae-Noris-Zahn AG, Frankfurt am Main,
(Deputy Chairman,
Member of the Supervisory Board
to December 31, 2003)
Deutsche Börse AG, Frankfurt am Main,
Member of the Supervisory Board
STADA-ARZNEIMITTEL AG, Bad Vilbel,
Member of the Supervisory Board
Dr Thomas Duhnkrack
DVB Bank Aktiengesellschaft, Frankfurt am Main,
Chairman of the Supervisory Board (*)
VR-LEASING Aktiengesellschaft, Eschborn,
Chairman of the Supervisory Board (*)
F-190
Heinz Hilgert
norisbank Aktiengesellschaft, Nürnberg,
Chairman of the Supervisory Board (*)
ReiseBank Aktiengesellschaft, Frankfurt am Main,
Chairman of the Supervisory Board (*)
R+V Versicherung AG, Wiesbaden,
Member of the Supervisory Board (*)
SÜDWESTBANK Aktiengesellschaft, Stuttgart,
Deputy Chairman of the Supervisory Board (*)
Union Asset Management Holding AG, Frankfurt am Main,
Chairman of the Supervisory Board (*)
Wolfgang Kirsch
BAG Bankaktiengesellschaft, Hamm,
Member of the Supervisory Board
Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall,
Member of the Supervisory Board (*)
Deutsche Genossenschafts-Hypothekenbank
Aktiengesellschaft, Hamburg,
Member of the Supervisory Board (*)
Deutsche WertpapierService Bank AG, Frankfurt am Main,
Member of the Supervisory Board (*)
DVB Bank Aktiengesellschaft, Frankfurt am Main,
Member of the Supervisory Board (*)
EDEKABANK AG, Hamburg,
Member of the Supervisory Board
norisbank Aktiengesellschaft, Nürnberg,
Deputy Chairman of the Supervisory Board (*)
Südfleisch Holding Aktiengesellschaft, München,
Member of the Supervisory Board
F-191
VR-LEASING Aktiengesellschaft, Eschborn,
Member of the Supervisory Board (*)
Albrecht Merz
BayWa Aktiengesellschaft, München,
Member of the Supervisory Board
R+V Allgemeine Versicherung AG, Wiesbaden,
Member of the Supervisory Board (*)
SÜDWESTBANK Aktiengesellschaft, Stuttgart,
Chairman of the Supervisory Board (*)
Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG,
Frankfurt am Main,
Member of the Supervisory Board (*)
Dietrich Voigtländer
Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall,
Member of the Supervisory Board (*)
Deutsche WertpapierService Bank AG, Frankfurt am Main,
Chairman of the Supervisory Board (*)
FIDUCIA IT AG, Karlsruhe,
Member of the Supervisory Board
Karlsruher Hinterbliebenenkasse Aktiengesellschaft,
Lebensversicherung für Beamte und Angestellte der
öffentlichen Verwaltung, Karlsruhe,
Deputy Chairman of the Supervisory Board
Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG,
Frankfurt am Main,
Chairman of the Supervisory Board (*)
VR Kreditwerk Hamburg-Schwäbisch Hall AG,
Hamburg und Schwäbisch Hall,
Member of the Supervisory Board (*)
F-192
Employees of DZ BANK AG
Companies
Ulrich Dexheimer
Raiffeisen-Warenzentrale KurhessenThüringen GmbH, Kassel,
Member of the Supervisory Board
Dr Wilhelm Esselmann
LOHMANN&CO. AG, Visbek,
Member of the Supervisory Board
NFZ Norddeutsche Fleischzentrale GmbH, Hamburg,
Member of the Supervisory Board
RHG Nord Raiffeisen Hauptgenossenschaft Nord AG, Kiel,
Member of the Supervisory Board
Frank Westhoff
Stuttgarter Volksbank AG, Stuttgart,
Member of the Supervisory Board
F-193
Frankfurt am Main, March 9, 2004
DZ BANK AG
Deutsche Zentral-Genossenschaftsbank
Board of Managing Directors
Dr Brixner
Dr Duhnkrack
Hilgert
Kirsch
Merz
Voigtländer
F-194
Independent audit opinion
Based on the conclusive findings of our audit, we have issued the following unqualified audit opinion dated March 15, 2004:
“We have audited the financial statements, together with the bookkeeping system, and the management report of DZ BANK AG
Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main, for the business year from 1 January to 31 December 2003. The
maintenance of the books and records and the preparation of the annual financial statements and management report in accordance with German commercial law (and supplementary provisions in the Articles of Association) are the responsibility of the
Company’s Board of Managing Directors. Our responsibility is to express an opinion on the annual financial statements, together
with the bookkeeping system, and the management report based on our audit.
We conducted our audit of the annual financial statements in accordance with section 317 HGB and the generally accepted
standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). These standards require
that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial
position and results of operations in the annual financial statements in accordance with German principles of proper accounting
and in the management report are detected with reasonable assurance. Knowledge of the business activities and the economic
and legal environment of the Company and evaluations of possible misstatements are taken into account in the determination of
audit procedures. The effectiveness of the internal control system and the evidence supporting the disclosures in the books and
records, the annual financial statements and the management report are examined primarily on a test basis within the framework
of the audit. The audit includes assessing the accounting principles used and significant estimates made by the Company’s Board
of Managing Directors, as well as evaluating the overall presentation of the annual financial statements and the management
report. We believe that our audit provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion the annual financial statements give a fair and true picture of the net assets, financial position and results of
operations of the Company in accordance with German principles of proper accounting. On the whole the management report
provides a suitable understanding of the Company’s position and suitably presents the risks of future development.”
Frankfurt am Main, March 15, 2004
Ernst & Young AG
Deloitte & Touche GmbH
Wirtschaftsprüfungsgesellschaft
Wirtschaftsprüfungsgesellschaft
(Müller-Tronnier)
(Wagner)
(Prof. Dr Kläs)
(Apweiler)
Wirtschaftsprüfer
Wirtschaftsprüfer
Wirtschaftsprüfer
Wirtschaftsprüfer
F-195
Major subsidiaries and participating
interests of DZ BANK AG
Banks
Name/head office
Consolidated1
Share of capital
in percent
Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall (indirectly)
•
82.8
Bellevue and More AG, Hamburg
50.0
Ceskomoravska stavebni sporitelna a.s., Praha
45.0
Fundamenta Magyar-Nemet Lakastakarekpentar Rt., Budapest
51.2
Prva stavebna sprital´na a.s., Bratislava
32.5
VR Kreditwerk Hamburg-Schwäbisch Hall AG, Hamburg und Schwäbisch-Hall
(jointly with Deutsche Genossenschafts-Hypothekenbank AG)
•
60.0
cosba private banking ag, Zürich (indirectly)
•
65.0
Deutsche Genossenschafts-Hypothekenbank AG, Hamburg
•
100.0
Deutsche WertpapierService Bank, Frankfurt am Main
DVB Bank AG, Frankfurt am Main
2
Nedship Bank N.V., Rotterdam
40.0
•
92.3
•
100.0
DZ Financial Markets LLC, New York
DZ BANK International S. A., Luxembourg-Strassen 2
100.0
•
89.7
•
100.0
•
100.0
DZ CAPITAL MANAGEMENT GmbH, Frankfurt am Main
DZ BANK Ireland plc, Dublin 2
96.7
46.9
Magyar Takarékszövetkezeti Bank Részvénytársaság, Budapest
norisbank AG, Nürnberg
25.001 3
Österreichische Volksbanken AG, Wien (indirectly)
SÜDWESTBANK AG, Stuttgart
•
1
Consolidated under terms of section 294.1 HGB; aggregate capital shares held by DZ Bank AG or the respective parent company
2
Declaration of backing by DZ BANK AG
3
Share of voting rights
F-196
89.6
Management Report on the 2003
financial year for DZ BANK AG
I. Overview of trading in fiscal 2003
2. Continuation of the strategic
realignment launched in 2001
Other specialist service providers
Name/head office
1. Macroeconomic framework
Consolidated1
Share of capital
in percent
During the year under report DZ BANK has successfully main-
Betriebswirtschaftliches Institut der Deutschen Kreditgenossenschaften
tained our strategy of focusing our business activity more
BIK GmbH, Frankfurt am Main
The fraught economic environment continued to present
closely on the cooperative primary banks and applying a risk-
DZ Equity Partner GmbH, Frankfurt am Main
DZ BANK AG (DZ BANK) with exceptional challenges during
aware lending policy. At the same time we were able to make
EURO Kartensysteme GmbH, Frankfurt am Main
19.6
the year under report. Most importantly, the uncertainty
further progress on the projects launched at the time of the
Genossenschaftlicher Informationsservice GIS GmbH, Frankfurt am Main
97.0
stemming from the Iraq crisis dashed the hopes of an econo-
merger in 2001 to migrate our databases and harmonise our
GVA GENO-Vermögens-Anlage-Gesellschaft mbH, Frankfurt am Main
66.7
mic upturn that had emerged at the start of the year. The out-
IT platforms, and to bring many of these projects to a success-
GZS Gesellschaft für Zahlungssysteme, Frankfurt am Main
20.0
put of the economy even weakened by a further 0.3 percent.
ful conclusion during 2003.
Transaktionsinstitut für Zahlungsverkehrsdienstleistungen AG, Frankfurt am Main
•
100.0
VR-LEASING AG, Eschborn
•
83.5
•
70.9
73.6
100.0
The persistently difficult conditions on the labor market
There have also been changes in DZ BANK’s portfolio of busi-
BFL LEASING GmbH, Eschborn
weighed on consumer sentiment and private household
nesses during the year, all of them aimed at strengthening the
VR-BAUREGIE GmbH, Eschborn
•
100.0
demand fell again by 0.1 percent in 2003. Corporate invest-
effectiveness of the integrated cooperative financial services
VR DISKONTBANK GmbH, Eschborn
•
100.0
ment activity also remained well below expectations as
sector as a whole:
VR FACTOREM GmbH, Eschborn
•
100.0
VR-IMMOBILIEN-LEASING GmbH, Eschborn
companies cut their plant and equipment investment by
3.0 percent year-on-year.
- Spin-off of payments processing division
Domestic GDP did expand in the second half of 2003 – albeit
The separating out of DZ BANK’s payments processing division
at the exceptionally modest rate of just 0.2 percent – thanks
into a newly-founded specialist company Transaktionsinstitut
to higher exports, which defied the strong appreciation of the
für Zahlungsverkehrsdienstleistungen AG, Frankfurt am Main,
euro to record an overall gain of 1.2 percent over the full year.
(Transaktionsinstitut) with effect from September 1, 2003
This rise was helped by strong economic growth in the USA,
has created the nucleus for a neutral processing platform to
eastern Europe and Asia. The first tentative progress on
service national and international payments transactions. The
the economic policy reform front at the end of the year also
benefit of efficiency gains achieved through the expansion of
helped produce a gradual improvement in the economic
transaction volumes and the modernisation of processing
climate.
technologies will feed through to the local cooperative banks
49.0
VR MEDICO LEASING GmbH, Eschborn
1
100.0
Consolidated under terms of section 294.1 HGB; aggregate capital shares held by DZ BANK AG or the respective parent company
in the form of significantly reduced unit costs. In December
2003 WestLB AG, Düsseldorf, announced it is interested in
partnering with Transaktionsinstitut. Between them, these
banks handle no less than 26 percent of the total domestic
payments traffic measured by numbers of transactions.
2
F-197
Contents
Key Figures
Investment trusts
Name/head office
Consolidated1
Share of capital
2
Management Report 2003 of DZ BANK AG
2
Overview of trading in fiscal 2003
in percent
1
Union Asset Management Holding AG, Frankfurt am Main
•
64.8
DEFO Deutsche Fonds für Immobilienvermögen GmbH, Frankfurt am Main
•
90.0
DIFA DEUTSCHE IMMOBILIEN FONDS AG, Hamburg
•
94.5
Union Investment Institutional GmbH, Frankfurt am Main
•
100.0
Union Investment Luxembourg S.A., Luxembourg
•
100.0
Union Investment Privatfonds GmbH, Frankfurt am Main
•
100.0
UNICO Asset Management S.A., Luxembourg
•
100.0
Risk report
31
Outlook
32
Report of the Supervisory Board
34
Annual Financial Statements of DZ BANK AG
34
Balance Sheet
38
Income Statement
40
Notes to the Financial Statements
69
Auditor’s Report
70
Major Subsidiaries of DZ BANK AG
Consolidated under terms of section 294.1 HGB; aggregate capital shares held by DZ BANK AG or the respective parent company
Insurance companies
Name/head office
Consolidated1
Share of capital
in percent
R+V Versicherung AG, Wiesbaden
•
73.0
KRAVAG-Allgemeine Versicherungs-AG, Hamburg
•
76.0
KRAVAG-LOGISTIC Versicherungs-AG, Hamburg
•
51.0
R+V Allgemeine Versicherung AG, Wiesbaden
•
88.6
R+V Krankenversicherung AG, Wiesbaden
•
100.0
R+V Lebensversicherung AG, Wiesbaden
•
100.0
R+V Pensionsfonds AG, Wiesbaden
1
12
(jointly with Union Asset Management Holding)
•
51.0
R+V Rechtsschutzversicherung AG, Wiesbaden
•
100.0
Consolidated under terms of section 294.1 HGB; aggregate capital shares held by DZ BANK AG or the respective parent company
F-198
Principal Place of Business of the Bank
DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main
Platz der Republik
60265 Frankfurt am Main
Federal Republic of Germany
The Company
The Trust
DZ BANK Capital Funding LLC II
609 Fifth Avenue
New York, New York 10017-1021
United States of America
DZ BANK Capital Funding Trust II
609 Fifth Avenue
New York, New York 10017-1021
United States of America
Principal Paying Agent, Transfer Agent, Registrar and Calculation Agent
Deutsche Bank Aktiengesellschaft
Grosse Gallusstraße 10 - 14
60272 Frankfurt am Main
Federal Republic of Germany
Property Trustee
Delaware Trustee
Deutsche Bank Trust Companies Americas
60 Wall Street
27th Floor
New York, New York 10005
United States of America
Deutsche Bank Trust Company Delaware
c/o Deutsche Bank Services New Jersey, Inc.
100 Plaza One
Jersey City
New Jersey 07311
United States of America
Legal Advisors to the Bank
As to German and United States Federal Law
As to Delaware Law
Freshfields Bruckhaus Deringer
Taunusanlage 11
60329 Frankfurt am Main
Federal Republic of Germany
Richards, Layton & Finger
One Rodney Square, 10th Floor
Wilmington, New Castle County
Delaware 19801
United States of America
Structuring Advisor to the Bank
Lehman Brothers International (Europe)
25 Bank Street
London E14 5LE
United Kingdom
Listing Agent
DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main
Platz der Republik
60265 Frankfurt am Main
Federal Republic of Germany