Annual Accounts of Landesbank Hessen-Thüringen 2004 02 Management Report and Risk Report of the Bank and of the Group Management Report

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Helaba and the companies of the Helaba Group achieved highly satisfactory results overall in 2004 despite another year of less than straightforward economic conditions for the banking sector.

Landesbank Hessen-Thüringen Girozentrale (Helaba) exerts a dominant influence on the development and structure of the Helaba Group, accounting for approximately 94% of the Group’s business based on the Group balance sheet total after consolidation. The progress made by the Bank and the Group is therefore presented in a single Management Report.

The group of consolidated companies changed in the year under review as a result of the first-time inclusion of three companies active almost exclusively in residential construction business. Among these are Helaba subsidiary Helaba Immobilien GmbH (the HIG Group) and the HIG Group’s most important subsidiary Gemeinnützige Wohnungsbaugesellschaft Hessen (GWH). These additions and the first-time inclusion last year of OFB Projektentwicklungs-GmbH and its subsidiaries mean that a significant proportion of the Group’s residential real estate activities are now presented in Helaba’s consolidated accounts.

In real estate project business, two real estate project planning companies were included for the first time, and five companies were removed from the group of consolidated companies. In addition, one finance company based outside Germany that is no longer actively conducting business has likewise not been included.

Group business development Helaba’s consolidated balance sheet total rose from € 139.4 bn to € 143.6 bn in fiscal 2004. The main contributor to this increase in volume was the Bank, which grew its balance sheet total by € 3.6 bn to € 135.1 bn. The first-time consolidation of the HIG Group and its subsidiaries added € 1.1 bn.

The expansion of our securities portfolio accounted for most of the growth in the balance sheet total, with the most significant negative factor being a fall in loans and advances to banks. We maintained an appropriate funding position by increasing our issuing volume of securitised liabilities.

Key business development data for 2004

2004 2003 Variations Variations in u m in u m in u m%

Group Business volume 198,406 184,018 14,388 7.8 Balance sheet total 143,563 139,430 4,133 3.0 Operating result before risk provisions 313 243 70 28.8 Risk provisions/valuation gains or losses 167 149 18 12.1 Operating result after risk provisions 146 94 52 55.3

Bank Business volume 171,004 163,649 7,355 4.5 Balance sheet total 135,082 131,520 3,562 2.7 Operating result before risk provisions 292 246 46 18.7 Risk provisions/valuation gains or losses 165 147 18 12.2 Operating result after risk provisions 127 99 28 28.3 03 Management Report and Risk Report of the Bank and of the Group Management Report

Although Group business volume swelled by € 14.4 bn to € 198.4 bn, the balance sheet total increased by only € 4.1 bn. This discrepancy is attributable to the significant growth achieved by Helaba Invest Kapital- anlagegesellschaft mbH in special funds business. The Bank’s figures were also positive, with business volume up € 7.4 bn or 4.5% to € 171.0 bn and the balance sheet total up 2.7% to € 135.1 bn.

Lending and securities business

Development of Group assets

2004 2003 Variations Variations in u m in u m in u m%

Loans and advances to banks 37,789 39,983 –2,194 –5.5 Loans and advances to customers 58,089 58,080 9 0.0 Bonds and securities 39,788 34,803 4,985 14.3 Participations and shares in affiliated companies 990 1,643 –653 –39.7 Other assets 6,907 4,921 1,986 40.4 Balance sheet total 143,563 139,430 4,133 3.0

Loans and advances to banks, including money market trading, were down by a substantial € 2.2 bn to € 37.8 bn. Funding loans made available by Helaba to the Sparkassen in Hesse and Thuringia accounted for € 12.0 bn (2003: € 12.8 bn) of the total volume of loans and advances. The category of loans and advances to other banks includes € 6.5 bn (2003: € 4.5 bn) of security repurchase agreements.

Loans and advances to customers, which include loans extended by Landesbausparkasse under home loan and savings contracts (€ 1.8 bn), totalled € 58.1 bn and thus constituted the largest item on the assets side of the balance sheet. Little movement was seen in municipal loans business, which rose by just € 0.1 bn to € 14.5 bn, and loans and advances secured by real estate lien notes increased by € 0.3 bn to € 7.6 bn. The other item of loans and advances to customers shows a fall of € 0.3 bn to € 34.2 bn; however the Bank security repurchase agreements included here were cut by € 1.9 bn to € 3.0 bn, so this figure actually indicates a further increase in the strength of customer business, which grew by € 1.6 bn.

The volume of Group funds invested in securities increased by € 5.0 bn over the course of the year under review to € 39.8 bn. Bonds are the dominant investment vehicle, accounting for € 36.5 bn of the total figure. Money market paper makes up a further € 2.1 bn, with shares and other non-fixed income securities unchanged from last year at € 1.2 bn. The Group reports € 27.6 bn of its total securities portfolio in the trading portfolio and € 12.2 bn as securities held in the liquidity reserve.

No major changes were made to the list of shareholdings during the year under review. The fall in shares in affiliated companies apparent from the consolidated balance sheet stems largely from the first-time inclusion of the HIG Group and its subsidiaries. 04 Management Report and Risk Report of the Bank and of the Group Management Report

The contingent liabilities from guarantees and warranty agreements included in the business volume rose from € 6.2 bn to € 7.4 bn. This item includes € 1.4 bn (2003: € 1.0 bn) of credit default swaps managed as guarantees that are to be kept separate from the trading portfolio.

Helaba was able to increase placing and taking obligations and irrevocable loan commitments by € 2.6 bn year on year. Other liabilities total € 28.6 bn.

The specialist and other investment funds managed on behalf of shareholders were expanded from € 12.4 bn to € 18.8 bn, a substantial increase attributable largely to the success of the master investment trust company product.

Funding

Development of group liabilities

2004 2003 Variations Variations in u m in u m in u m% Liabilities to banks 48,638 48,360 278 0.6 Liabilities to customers 35,365 35,368 –3 0.0 Securitised liabilities 46,610 43,603 3,007 6.9 Own funds 4,123 4,127 –4 –0.1 Other liabilities 8,827 7,972 855 10.7 Balance sheet total 143,563 139,430 4,133 3.0

Deposits by banks, which also include international money market activities, saw only a moderate rise of € 0.3 bn to € 48.6 bn but remained Helaba’s largest funding position. Deposits by Sparkassen in Hesse and Thuringia contributed € 3.9 bn to this item.

Liabilities to customers, which include savings deposits of customers of Landesbausparkasse of € 2.9 bn (2003: € 2.7 bn), were unchanged year on year at € 35.4 bn.

The Group made greater use of securitised liabilities in the year under review as directed in its liquidity policy in order to fund on-balance-sheet business. An increase of € 3.3 bn here pushed the volume of bonds issued as shown on the balance sheet up to € 34.5 bn. The other securitised liabilities item, which is made up largely of the issue programmes for short-term money market paper worth € 11.6 bn, remained almost unchanged at € 12.1 bn (2003: € 12.4 bn).

Consolidated income statement The Helaba Group boosted its income from operations substantially in fiscal 2004 to achieve a new high water mark of € 960.7 m (2003: € 856.2 m). Our net operating result jumped € 51.7 m to € 145.7 m as a result, in the main, of the improvements in net profit on financial assets and the operating result from real estate business, which was lifted by the consolidation of the HIG Group. Including the HIG Group in the group of consolidated companies added € 10.8 m, so it is clear that the bulk of the improvement in results was generated by the Bank itself. 05 Management Report and Risk Report of the Bank and of the Group Management Report

Income items

2004 2003 Variations Variations in u m in u m in u m%

Net interest income 625 683 –58 –8.5 Net income from commissions 92 96 –4 –4.2 Net profit on financial assets 39 3 36 >100.0 Other operating profit/income including result from real estate business 205 74 131 >100.0 Income from operations 961 856 105 12.3 Administrative expenses 648 613 35 5.7 Operating result before risk provisions/ valuation gains or losses 313 243 70 28.8 Risk provisions/valuation gains or losses 167 149 18 12.1 Operating result after risk provisions/ valuation gains or losses 146 94 52 55.3 Taxes on income and profit 61 27 34 >100.0 Net income for the year 85 67 18 26.9

Net interest income remains the Helaba Group’s primary source of revenue. It should be noted in this connection that the servicing of silent participations is still included under the net interest income item and is not shown as a profit appropriation. The contribution to earnings of € 625.3 m achieved in what was generally a very difficult market environment falls € 57.8 m short of the previous year’s total of € 683.1 m. The fall at Group level is largely a result of the first-time consolidation of the HIG Group, whose earnings are included in the result from real estate business, which is reported separately, and not under net interest income, and whose excess interest expenses reduce this item at Group level. The Bank’s net interest income rose by a modest € 6.9 m to € 683.2 m despite the costs of building up equity and liquidity. We regard this as a most satisfactory result when we consider that the persistently flat interest rate structure and low level of interest rates have depressed our transformation results.

Net income from commissions was down by € 4.6 m overall to € 91.4 m. Improved contributions to earnings from the consolidated subsidiaries could not fully offset the increase in commissions paid following the outsourcing of securities settlement to LB Transaktionsbank GmbH (TxB). Fiscal 2004 marked the first time these increased commissions have applied for the entire year.

Our net profit on financial assets, which was very poor in the previous year, jumped € 36.2 m to € 39.0 m and we are able to report a positive contribution to earnings from trading in interest products as well as foreign exchange and shares.

Group personnel expenses rose by € 31.8 m to € 351.3 m, an increase that should be viewed against the backdrop of the first-time consolidation of the HIG Group and its subsidiaries, which contributed additional personnel costs of € 22.5 m.

The Group employed a total of 3,732 people (2003: 3,454) at the end of the year under review. The inclusion of the HIG Group added 397 people to the average annual headcount, which rose by 301 overall to 3,775. 06 Management Report and Risk Report of the Bank and of the Group Management Report

Non-personnel expenses, including depreciation of fixed assets, rose by € 2.6 m to € 296.5 m largely as a result of the first-time inclusion of the HIG Group. The change was particularly marked in the depreciation of fixed assets and intangible assets item, which almost doubled from € 25.1 m to € 48.6 m. Non- personnel expenses would have fallen by € 20.8 m without the effects of the first-time consolidation. This demonstrates the positive impact of both our strict management of costs and the successful outsourcing measures.

Administrative costs overall stood at € 647.8 m (2003: € 613.4 m). The Group improved its cost/income ratio to 63.5% (2003: 67.0%) excluding interest expenses for silent participations.

The difference between other operating expenses and other operating income amounts to € 205.0 m, up € 130.7 m on fiscal 2003. This balance includes a sum of € 142.6 m (2003: € 9.4 m) representing the results from the real estate business of the OFB group and the HIG Group, which are shown combined on the income statement in the result from real estate business position. These items specific to the real estate business have been added to the items shown on the Group’s statement of income owing to the strong focus of these companies on real estate project planning and letting business.

The income from operations of € 960.7 m and administrative expenses of € 647.8 m yield an operating result before risk provisions of € 312.9 m, which equates to a year on year improvement of € 70.1 m.

The figure for risk provisioning/valuation gains or losses including the increase in provision reserves in accordance with section 340 f HGB was up on the previous year at € 167.2 m and comprised the following elements:

Risk provisioning/Valuation gains or losses

2004 2003 Variations Variations in u m in u m in u m%

Result from lending business including allocation to reserves in accordance with section 340 f HGB –180 –172 –8 4.7 Result from trade investments –11 –5 –6 >100.0 Result from securities held in the liquidity reserve 24 28 –4 –14.3 Risk provisioning/valuation gains or losses –167 –149 –18 12.1

The balance of provisions for individual risks in the lending business as a whole amounted to € 163.9 m (2003: € 149.2 m) and related primarily to counterparty default risks at home and abroad associated with the state of the economy.

Significant influences on the result from trade investments include amounts written off on participations and shares in affiliated companies, expenses from the transfer of losses and gains on disposals.

The risk provisioning result for securities is the difference between the depreciation to the lower of cost or market of the portfolio held as a liquidity reserve, and sales proceeds and write-ups required under German commercial law pursuant to section 280 of the German Commercial Code (HGB). 07 Management Report and Risk Report of the Bank and of the Group Management Report

The Group overall posted an operating result after risk provisions and valuation adjustments of € 145.7 m, which raised its return on equity before taxes (excluding interest expenses for silent participations) from 9.3% to 12.0%.

The distributable profit of the Group is identical to that of the Bank, as the annual results of the subsidiaries were offset against revenue reserves.

Income statement of the Bank Net interest income amounted to € 683.2 m, which equates to a slight year on year rise of € 6.9 m or 1.0%. Higher terms contributions from the improvement in new business helped to increase earnings. The result from the investment of non-interest-bearing funds from deposits was essentially unchanged from the previous year. Net interest income was adversely affected by strategic activities to build up liquidity and equity and the reduced transformation result as a consequence of the flat interest rate curve. The Bank’s reported earnings from participations were also lower as a result of a one-off special distribution in the previous year from the sale of a real estate item previously used by the Bank.

Net income from commissions and service charges fell by € 13.7 m to € 47.5 m. Income from banking services was largely unchanged from the previous year and LBS actually increased its commission income significantly, but net income from commissions and service charges in securities business came under further pressure. The effect of outsourcing securities settlement to TxB was felt here over the entire fiscal year for the first time; this effect is offset by a corresponding reduction in non-personnel expenses.

Net profit on financial transactions amounted to € 36.9 m (2003: € 1.9 m). The Bank managed to increase the contribution to earnings from trading in interest products substantially despite the unexpectedly low level of interest rates at the end of 2004. Foreign exchange trading also yielded satisfactory results.

The trend in administrative expenses clearly illustrates the success of a sustained cost management program. The year under review brought a further saving of € 15.8 m to leave administrative expenses at € 526.4 m.

The Bank’s measured human resources policy – headcount was reduced slightly through natural fluctua- tion – more than offset the general cost increases and the effects of collectively agreed pay rises. Wage and salary costs fell by 7.1%, but personnel expenses still rose by € 7.5 m to € 276.5 m on account of the significant increase in the volume of funds that had to be allocated to pension provisions following the conclusion of a two-year collective pay agreement.

Non-personnel expenses including depreciation of fixed assets were trimmed by € 23.3 m to € 249.9 m, partly as a result of the fall in IT expenses following the outsourcing of securities settlement to TxB. The Bank managed to keep costs in the other categories at essentially the same level as in the previous year in spite of a wide range of challenges and demands (introduction of Basel II and IFRS accounting) thanks to its rigorous cost management regime.

The difference between other operating income and other operating expenses rose very slightly year on year to € 50.6 m (2003: € 48.7 m). This figure includes the provision for the repayment claim of the state of Hesse resulting from the EU state aid investigation.

The Bank’s operating result before risk provisions amounted to € 291.8 m, a gain of € 45.9 m on the previous year.

As expected, the volume of funds allocated to risk provisions in the lending business was slightly higher than in the previous year. The balanced value of risk provisions in lending business, including the transfer 08 Management Report and Risk Report of the Bank and of the Group Management Report

to reserves pursuant to section 340f of the German Commercial Code (HGB), now stands at a total of € 175.5 m. Net risk provisions including the positive result from securities held in the liquidity reserve (€ 18.6 m) and the negative balance from trade investments (€ 8.2 m) amounted to € 165.1 m.

Helaba has thus remained true to its valuation policy of previous years and made provisions for all discernible risks in lending business and trade investments. It has also made use of the maximum rates permitted under tax law in Germany for country risk provisions in respect of countries classed as critical in all cases in which adequate individual risk provisions had not already been made.

Overall the Bank was able to boost its operating result before tax to € 126.7 m (2003: € 98.7 m). Tax expenses rose by € 28.0 m to € 48.1 m, so net income for the year is unchanged from the previous year at € 78.6 m. The Bank allocated € 50.0 m from this total to other revenue reserves on 31 December 2004.

The proposal for the appropriation of profits provides, as in previous years, for the distribution to shareholders of a net common dividend of 6% from the reported balance sheet profit of € 28.6 m.

Liable funds of the Bank and of the Group Helaba has again made allocations to revenue reserves and the fund for general banking risks in accordance with section 340f of the German Commercial Code (HGB) in order to bolster its regulatory capital.

The Bank shows liable funds of € 3.6 bn on the balance sheet. Helaba also has capital from participation rights of € 0.4 bn at its disposal.

The Group has liable funds of € 4.1 bn, including participation rights outstanding and the fund for general banking risks.

The requirements of national and international capital adequacy standards were thus satisfied at all times during fiscal 2004.

Ownership structure Helaba has a guarantor structure that is unique in the Landesbank sector: the Savings Banks and Giro Association Hesse-Thuringia (SGVHT), to which the Sparkassen in Hesse and Thuringia and their municipal guarantors belong by treaty, holds 85% of the bank’s ordinary capital, the state of Hesse holds 10% and the state of Thuringia holds the remaining 5%. The two states have held their shares since 1 January 2001. The joint and several liability of the guarantors for the liabilities of the Bank (statutory guarantee) applies, pursuant to the agreement on the maintenance obligation and statutory guarantee in respect of public banks concluded with the European Commission on 17 July 2001, indefinitely to all existing liabilities in place on 18 July 2001. Liabilities created thereafter are in principle covered by the statutory guarantee until 18 July 2005, at which point coverage will cease unless the term of the liabilities affected does not extend beyond 31 December 2015. The maintenance obligation, which exists side by side with the statutory guarantee, will be replaced from 19 July 2005 by a “normal market ownership structure” between the owners and the Bank. 09 Management Report and Risk Report of the Bank and of the Group Management Report

Outlook

Macroeconomic conditions The global economy swelled by almost 5% in 2004 – its best performance for more than 20 years. This growth was facilitated by an expansive monetary and fiscal policy that triggered a pronounced upturn in the domestic economy in the USA and Asia. The eurozone achieved growth of just short of 2% thanks to more buoyant exports and the effects should gradually begin to fire up domestic economies in the region as well. The cycle of interest rate rises initiated by the Fed in the US may well dampen growth somewhat towards the end of 2005.

Germany can expect to see gross domestic product rise by around 1% in real terms in 2005. Export business is likely to remain brisk, especially in the first six months of the year, and the spark of recovery should also jump to investment in plant and equipment, which will help to stabilise the labour market. The reform of the tax system ought to begin to stimulate private consumption over the course of 2005 as well, and it is thus probable that the domestic economy will become slightly more active overall.

The state of Hesse continues to be on an upward path. Developments in the service sectors, which are particular important for Hesse, will pick up as the seeds of economic growth spread to more and more areas. It is anticipated that the rate of growth in Hesse will once again outstrip the average for Germany as a whole.

Thuringia’s industry is benefiting from the robust global economy and further above-average gains appear entirely realistic. However its very tight financial position and above average reverses in the construction sector will again hold the state back, so that growth in line with the average for Germany as a whole is likely the best that can be hoped for in 2005.

The Fed’s ongoing cycle of interest rate rises will drag capital market rates up as well between now and the end of 2005, which indicates a further widening of the gap between money and capital market rates. Another round of devaluation seems likely to affect the US dollar too in light of US foreign debt levels, so a temporary decoupling of euro capital market rates can be expected. It is anticipated that the ECB will leave interest rates unchanged for the moment, but increases during the second half of the year cannot be ruled out. The stock market will benefit during 2005 from sustained robust development in corporate profits and this should help to stabilise prices.

A rise in the price of oil remains a significant risk for 2005 and the possibility of a fall in the bond market in the USA cannot be discounted. Given a background of increasing price risks in the real estate market, the Fed therefore has no choice but to adopt a more restrictive monetary policy. The eurozone will not be able to isolate itself entirely from any turbulence affecting the US capital market.

The macroeconomic conditions for the banking sector in principle open up considerably greater scope to generate profits. 10 Management Report and Risk Report of the Bank and of the Group Management Report

Budget and profit planning for 2005 Based on these predictions, Helaba has prepared its budget and profit plans for fiscal 2005 in anticipation of rising contributions from the customer business. We have assumed that margins in medium- and long- term new business will decline somewhat, but that the volume of new business will rise slightly as compared with 2004. The core business areas of real estate lending, corporate finance and corporate loans, and financial institutions and international public finance will continue to be the primary contributors in medium- and long-term new business.

Helaba also expects a significant increase in earnings as a result of closer cooperation with the Sparkassen in the context of the New S-Group Concept. Planning activities for 2005 have therefore been focused on capital-market-based products for Sparkasse customer business and products for the Sparkasse Treasury.

The need to maintain the institution’s good risk profile moulds all profit planning activities. The discontinuation of the maintenance obligation and statutory guarantee and the resulting change in the rating have been incorporated into the planning process for 2005.

Cost planning for 2005 has concentrated on pressing ahead with the consistent active cost management regime on the one hand and accommodating the increased cost pressure expected in 2005 as a result of the need to implement strategic and regulatory requirements on the other. The Bank intends to maintain its overall headcount at current levels over the course of the year, but will further increase staffing levels in the area of sales in particular in keeping with its focus on strategic business areas.

In summary, Helaba believes that success in 2005 will depend largely on developing and strengthening its good position in the core business areas and cooperating more closely with the Sparkassen in the S-Group. The major sources of risks that could prevent it achieving the earnings targets are general macroeconomic developments and increased competition and the associated pressure on margins. Overall Helaba expects fiscal 2005 to bring a slight improvement in the operating result before risk provisions for both the Group and the Bank.

Continuing development of the strategic business model Helaba will press ahead with the consistent development of the three pillars of its strategic business model – commercial bank, S-Group bank and development bank – in 2005.

We will continue in our commercial bank operations to refine our focus on our core business areas and enhance our specialist activities throughout the Group. We aim to establish and consolidate a leading position in the market for products in selected market segments, and we also intend to improve the Bank’s profitability without forfeiting our conservative risk profile by using the successful customer- oriented client relationship management system and by stepping up support for target customers in selected EU Member States through our European sites. Helaba’s long term liquidity and refinancing strategy calls for high volume benchmark issues as well as the building up of liquid asset portfolios. Public mortgage bonds and mortgage-backed securities will in future become instruments of choice for medium- and long-term funding and we will accordingly obtain independent ratings for mortgage- backed-securities from the leading rating agencies to complement our existing AAA rating for public mortgage bonds. 11 Management Report and Risk Report of the Bank and of the Group Management Report

The primary task facing us in 2005 in our role as the S-Group central bank for the 51 Sparkassen in the Sparkassen-Finanzgruppe Hessen-Thüringen is the ongoing implementation of the New S-Group Con- cept. The New S-Group Concept has at its heart the single economic entity business model, which brings Helaba and the Sparkassen together under a common risk management system and a common regional liability fund, based on the principle of financial institution guarantee and legally enshrined creditor protection. Helaba and the Sparkassen will draw up consolidated joint accounts comprising an S-Group balance sheet, a consolidated S-Group income statement and a risk report. These furnish the basis for the group rating of the Sparkassen-Finanzgruppe Hessen-Thüringen and make it possible to measure the effects of our attempts to strengthen further the earning power of the S-Group. Efforts to develop the S-Group’s joint market position will concentrate in 2005 on the areas of SME business, interest rate and foreign exchange management, international business, funding business and structured customers’ security deposit business (Depot B) products. The S-Group Committee and the Risk Committee, which are staffed by representatives from Helaba, the Sparkassen and municipal guarantors, provide the Spar- kassen-Finanzgruppe Hessen-Thüringen with effective opinion-gathering and decision-making structures that are governed by mandatory rules and have a sound footing in statutory law.

Helaba discharges its function as a public development bank largely through the legally dependent Landestreuhandstelle Hessen and the joint undertakings Investitionsbank Hessen AG (IBH) and Thüringer Aufbaubank (TAB), in which the Bank holds a 50% stake along with the respective state. Helaba is working with the two states on measures to achieve further improvements in development business activities in 2005. It is planned to change the legal form of IBH, once the necessary legal conditions have been met, to make it an incorporated public law institution. This, in compliance with the Brussels agreement on the establishment of legally independent development institutions in Germany, will involve the acceptance of the maintenance obligation and statutory guarantee by the state of Hesse. The state will ensure that IBH is able to fulfil its obligations and will be liable for its liabilities. The change in legal form will not affect the Bank’s 50% stake in the ordinary capital of IBH.

Other relevant plans Polytechnische Gesellschaft e.V. and the City of Frankfurt am Main, the owners of Frankfurter Sparkasse, began talks with Helaba in December 2004 concerning the possibility of either linking the two institutions under commercial law or selling Frankfurter Sparkasse to Helaba. Helaba was granted an exclusive right in this respect for a limit period. Helaba submitted a purchase offer to the owners of Frankfurter Spar- kasse in mid-March 2005 providing for the acquisition of all holdings in the institution. Helaba would immediately initiate commercial activities through a subsidiary in the regional retail banking business area in line with the single economic entity business model introduced with the New S-Group Concept if it were to acquire a majority stake in Frankfurter Sparkasse.

The state of Hesse intends to transfer the Hesse Investment Fund (HIF) to the Bank as a silent contribution as per section 10 para. 4 of the German Banking Act (KWG) of approximately € 595 m in exchange for compensation at a market rate. The HIF is a special fund of the state of Hesse that grants revolving interest-free or low-interest loans to promote investment in communities across the state. The European Commission has been notified of the planned transfer and an agreement with the Commission is expected before the end of the year. The Bank also plans to raise hybrid equity to bolster its regulatory core capital further.

The new German law on mortgage bonds (PfandBG) is expected to come into force on 19 July 2005. It will replace the German law on mortgage bonds issued by public sector banks (ÖPG), which currently 12 Management Report and Risk Report of the Bank and of the Group Management Report

regulates the Bank’s activities in this area, and will introduce several additional requirements including the appointment of a fiduciary and the establishment of a separate risk management system for mortgage bond coverage. Helaba particularly welcomes the right extended in the new legislation to use real estate lien notes in the USA, Canada and Japan as cover. This will open up new opportunities to use mortgage- backed-securities for Bank funding, especially in connection with activities in US real estate lending business. The Bank has taken care to ensure that the steps necessary to ensure compliance with the new law will be completed in good time for its implementation.

Helaba is required from fiscal 2007 to publish its consolidated accounts in accordance with the Interna- tional Financial Reporting Standards (IFRS). Our internal preparations for this are already well advanced and the associated functional prerequisites will largely be in place by the end of 2005. 13 Management Report and Risk Report of the Bank and of the Group Risk Report

A risk strategy that addresses the Bank in its entirety and takes an earnings-oriented approach to risk acceptance, in full awareness of the organisation’s economic and regulatory capital, is essential if the Bank is to enter into and manage existing and future risks selectively and at the same time generate returns commensurate with the risk involved. It is thus of fundamental importance that management integrate the identification, quantification, supervision and management of risks as a central component of corporate management and control activities.

Helaba has shaped and refined its risk management process over the years. It now has at its disposal a range of fully developed tools and the necessary platform from which to realise the objectives defined above. The Bank strives to develop and improve on an ongoing basis not only the methods it uses to identify, quantify and control risks, but also its organisational rules and regulations, including process and system documentation and guidelines on competencies.

Principles

The development process described above has yielded principles that are essential for successful risk management and these consequently form an important part of Helaba’s corporate management and control procedures.

Responsibility of management The Board of Managing Directors is responsible for all risks incurred by Helaba and for devising and implementing the risk strategy. The decisions of the Board of Managing Directors are prepared and monitored in the Risk Committee. The corresponding strategies, processes and methods at the subsidiary companies are implemented through the competent corporate bodies, in which Helaba is represented.

Protection of assets The primary aim of the risk strategy is to ensure the continuous profitability of Helaba and safeguard its assets. The existing risk limit structures and the incentive systems and associated control mechanisms all serve this purpose.

Protection of the Bank’s reputation A functioning risk management system and the ability to avoid infringements of legal or regulatory provisions (compliance) that could damage its reputation are absolutely vital for the Bank if it is to preserve its positive image and achieve the best possible rating.

Clearly defined competencies Responsibility rests with the respective executives for ensuring that the relationship in the various business units between risks incurred and earnings achieved remains reasonable. The units exercising control must ensure that this duty is discharged properly and that the relevant executive is notified of any existing or potential discrepancies.

Separation of functions The independence of risk controlling and risk management must be ensured in the interests of objectivity and transparency. Independent control processes are to be implemented wherever the type and degree of risk so require.

Transparency The comprehensive and objective reporting and disclosure of risks is another important component of Helaba’s risk strategy. Adequate supervision and appropriate notification of the corporate bodies by the Board of Managing Directors is impossible without this basis. 14 Management Report and Risk Report of the Bank and of the Group Risk Report

Cost efficiency Another aspect is the cost efficiency of the units exercising control, and in particular, of the systems used. There is a reasonable relationship in each case between the expenditure incurred in connection with risk control (and also risk management) and the risks under review.

Compliance with regulatory provisions The particulars of the risk strategy are also significantly influenced by the need to implement regulatory requirements, which takes place in close cooperation with the regulatory authorities.

Risk-conscious behaviour The achievement of the objectives and compliance with legal standards depends on the discipline of all of those involved with regard to strategy, processes, control and compliance.

Auditing In principle, the Internal Audit organisational unit audits all operating activities and business processes. This promotes compliance with predefined processes. Assessments of the efficiency and adequacy of the internal control system assist the further development and improvement of the risk management processes.

Risk Classification

Categories of risk Helaba has identified and defined the following risk categories.

The risk of counterparty default is the risk of a loss or a profit not realised as a result of non-payment by a business partner or a deterioration of his or her creditworthiness. The risk of counterparty default includes the counterparty risk (risk from traditional lending business, replacement risk and the advance payment and settlement risk) and the specific country risk.

The market price risk involves the possibility of a negative change in value as a result of unexpected changes in underlying market parameters such as interest rates, share prices and foreign exchange rates and their volatility.

The liquidity risk is broken down into three categories. The short-term liquidity risk is the risk of insufficient liquidity for the performance of day-to-day payment obligations. Structural liquidity risks arise if an unbalanced medium- and long-term liquidity structure develops as a result of inadequate management of the cost risks associated with the procurement of funds and the earnings risks associated with investments. Market liquidity risks result from the insufficient liquidity of financial instruments, with the consequence that positions can be closed out only, if at all, at a disproportionately high cost.

Helaba defines the operational risk as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. Legal risks also form part of the operational risk. Legal risks arise from the unexpected modification of elementary legal provisions, disadvanta- geous contractual arrangements and (actual and potential) legal disputes with third parties.

The Other Risks category for Helaba’s purposes essentially comprises strategic risks. Strategic risks result from strategic decisions made on the basis of predictions of future developments. It may prove impos- 15 Management Report and Risk Report of the Bank and of the Group Risk Report

sible to realise long-term corporate objectives if underlying assumptions turn out to be inaccurate, targets are found to be unrealistic or there is inadequate supervision of strategy implementation.

Risk dimensions A distinction is drawn between the following two management approaches when quantifying risks.

Risks may be mapped on the basis of risk costs, which are derived from historical values and incorporated into the financial planning of the Bank’s organisational units and the calculation of earnings.

Alternatively, risks may be mapped on the basis of a prediction of the maximum loss over a certain period of time at a predefined level of probability (value or money at risk). The Bank keeps sufficient equity capital available to cover these losses.

Risk Management Process

Responsibility/Processes/Documentation

Risk identification Risks of counterparty default

Market price risks Risk quantification Liquidity risks

Risk management Operational risks

Risk controlling and reporting Other risks

Risk Management Process

Risk management at Helaba comprises four elements. These should be viewed as consecutive phases in a single continuous process.

1. Risk identification The aim is to identify the risks existing for Helaba as the basis for a classification. Comprehensive identification and incorporation into existing systems and processes is particularly important in connection with new products and complex transactions.

2. Risk quantification Different models and methods are used for risk measurement and assessment. Both quantitative and qualitative aspects are considered.

3. Risk management Risk management is the entirety of the measures aimed at incurring, reducing, limiting, avoiding or trans- ferring risks within the framework of the limits set by the Board of Managing Directors. 16 Management Report and Risk Report of the Bank and of the Group Risk Report

4. Risk controlling and reporting A comprehensive and objective reporting system keeps the relevant people within the organisation appraised of the existing risks as part of an independent risk controlling structure. The methods of the preceding process phases and the quality of the data used are also reviewed here, and plausibility checks are carried out on the results.

Risk Management Structure

The organisational units and corporate bodies involved in the risk management process at Helaba are described below.

The Supervisory Board or one of its committees bears responsibility for approving the risk strategy submitted by the Board of Managing Directors and for determining the major risk limits. The Board of Managing Directors is accountable in its entirety for all risks of Helaba and also bears responsibility for the implementation of the risk strategy right across the Group.

The Risk Committee, which is chaired by the member of the Board of Managing Directors with responsibility for finance and risk controlling, occupies a central position in Helaba’s organisational structure. All members of the Board of Managing Directors are represented on the Risk Committee along with the general managers from the main risk-monitoring specialist units.

The primary duty of the Risk Committee is the implementation and monitoring of Helaba’s risk strategy. It also falls to the Risk Committee to bring together and evaluate as a whole all of the market price, liquidity, counterparty default, country, operational and other risks incurred throughout the Bank. The committee aims to detect risks at the earliest possible stage and to derive measures to avoid risks and generate control mechanisms. It also approves the risk management and quantification methods of the various business lines and assesses the appropriateness of the tools applied in light of the extent of the risk.

Operating directly below the Risk Committee are the Asset/Liability Management Committee, the Credit Management Committee (KMA) and the Credit Committee of the Board of Managing Directors (VS-KA). The Asset/Liability Management Committee is charged with managing the strategic market risk portfolio and the portfolio of non-interest-bearing liabilities within the banking book. The KMA is charged with providing the central coordination function in syndication, structured finance and security placing business. The VS-KA is responsible for credit and settlement risks associated with counterparties and for country risks.

The written set of procedural rules states that the approval of the Supervisory Board or its committees is required for decisions of particular significance, such as loan decisions above a certain order of magni- tude or the specification of the overall limit for market price risks.

The duty of risk management is discharged by local management units in the various corporate business lines. The central monitoring units, for their part, are responsible for the identification, quantification and monitoring functions, including the reporting obligation, and the corresponding methodological competence. The separation of risk controlling and risk management has now been implemented in the organisational structure up to the Board level.

This clear division of duties and the close cooperation between the units concerned is designed to achieve the efficient implementation of risk policy management mechanisms. 17 Management Report and Risk Report of the Bank and of the Group Risk Report

Risk Management Structure

Risk Management/Incurring of Risks

Lending divisions, Global All Global Markets Markets division specialist units division

Local management units

Risks of counter- Liquidity Market price Operational Other party default risks risks risks risks

Central monitoring units

Central Board Strategic Controlling, Credit Service/ Risk Controlling Services and Internal Audit, Credit Risk Control Treasury Strategic Planning, Legal Strategy Taxes, Compliance

Risk Monitoring

The Risks in Detail

Risks of Counterparty Default

The lending business is a leading core business area at Helaba. The acceptance of risks of counterparty default and their control and management accordingly constitute one of Helaba’s core competencies. Recent events in the market and new developments in the regulatory environment for banks have together created a wealth of new challenges in respect of the internal management of counterparty default risks, and have necessitated a rigorous examination of the existing procedures and a reorganisation of credit risk management.

Guiding these steps is a comprehensive and universal risk strategy derived from the strategic corporate objectives. Drawn up with reference to the German Minimum Requirements for the Lending Activities of Credit Institutions (MaK), this risk strategy was adopted by the Board of Managing Directors on 2 April 2004 and has been noted and approved by the Bank’s corporate bodies. The credit risk strategy defines the risk propensity differentiated by product, customer segment and risk category for every business segment. It is reviewed annually and is developed gradually in step with the continuing extension of active lending portfolio management.

Basel II Both the Basel Committee for Banking Supervision’s revision of the capital adequacy standards (Basel II) and parallel moves underway in the EU are producing far-reaching new provisions on banking regulation. The new rules, which are expected to come into force at the beginning of 2007, are likely to have a signif- 18 Management Report and Risk Report of the Bank and of the Group Risk Report

icant impact on many areas, including internal procedures for managing risks of counterparty default. Helaba made an early start on preparatory work for Basel II as regards the internal management of risks of counterparty default, and some preliminary results have already been realised. The Bank aims to be in a position to apply the Foundation Approach for internal ratings across the whole of its organisation as soon as Basel II comes into force, and to switch to the Advanced Approach in the major business areas (to the extent that the provisions of Basel II so permit) over the medium term.

Risk monitoring with the Global Limit System Helaba uses a Global Limit System (GLS) for the prompt recording and structured processing of all risks of counterparty default. Responsibility for monitoring rests with Credit Service/Risk Control Credit. The counterparty limits are geared to both the creditworthiness (rating) of the counterparties and to the equity of the Bank and of the counterparties (exposures to banks and insurance companies). The Global Limit System enables the Bank to monitor, limit and manage risks of counterparty default by assigning each borrower an overall global limit at Group level that covers risks of counterparty default resulting from trading and investment activities. All types of loans defined in section 19 para. 1 of the German Banking Act (KWG) extended to a borrower are counted towards this overall limit. Advance payment risks and settlement risks that result from foreign exchange and securities transactions, and thus have to be authorised separately, are counted in full towards limits for settlement risks irrespective of their allocation to the trading book or the banking book.

Global limits are allocated to individual borrowers, product categories and the operating units concerned in accordance with the application for approval. The utilisation of the individual limits is monitored on a daily basis and appropriate measures are initiated immediately if any limit is exceeded.

Chart 1 shows lending volume broken down by business area for Helaba, including the wholly-owned subsidiary Helaba Dublin Landesbank Hessen Thüringen International PLC. Chart 2 shows lending volume by customer group.

Lending volume by business area Lending volume by costumer group (Chart 1) (Chart 2)

• 7.0% Corporate Customer Business • 3.8% Development Loans • 1.3% Private Customer Business • 0.8% Restructuring and • 21.9% German banks Workout • 7.7% German public authorities • 12.8% Real Estate Lending • 2.9% Private customers • 12.0% Financial Institions and • 21.4% German domestic companies International Public • 21.9% Banks outside Germany Finance • 6.9% Public authorities outside • 14.2% Corporate Finance Germany • 6.6% Other lending areas • 17.3% Companies outside Germany • 41.5% Banks and German Public Finance Institutions 19 Management Report and Risk Report of the Bank and of the Group Risk Report

Swaps, forward transactions and options are counted towards the global limit at their credit equivalent amounts calculated in accordance with the German Large Loans Directive (GroMiKV). All other trading book positions (e.g. money market trading, securities) are valued at market prices.

Secondary risks resulting, for example, from guarantees received under leasing commitments (lessees) or exporters’ risks are moreover also recorded for the respective bearer of the risk under “other commercial risks”.

Creditworthiness assessment Helaba currently uses a rating procedure based on nine credit segments (corporate loans, loans to banks including insurance companies, real estate loans, asset, project and acquisition finance, lending to foreign central, regional and local authorities and municipal corporations, and ABS investments/liquidity lines) to assess the Bank’s credit risks across the whole of the Group against a common standard. The existing rating procedure is based on expert knowledge and classifies loan commitments within a seven- band rating scale using a points system. Additional exposure-related factors (term, amount and structure of the overall exposure, collateral provided) are then incorporated to develop the creditworthiness classification into a credit rating or financing rating. Chart 3 shows lending volume broken down by rating category. A small proportion of the lending volume (for example loans to employees) is left out of the internal rating system.

Lending portfolio by rating category (Chart 3)

• 51.8% Rating category 1 • 25.9% Rating category 2 • 18.6% Rating category 3 • 1.9% Rating category 3/4 • 0.5% Rating category 4 • 0.9% Rating category 5 • 0.4% Rating category 6

The rating procedure has been reviewed in detail to ensure that it adequately reflects the concerns of the Basel Accord on Capital Standards (Basel II) and remains an effective tool for the forward-looking management and control of the lending portfolio. The rating procedures for the major lending segments have been redesigned to satisfy both internal management and control requirements and the strict requirements of banking supervision.

Helaba became involved in the Uniform Rating project set up by the German Savings Banks and Giro Association (DSGV) to develop state-of-the-art rating procedures for German domestic corporate customer and real estate loan business at the start of 2001 so that a start could be made on practical implementation. A group of Landesbanks, including Helaba, founded RSU Rating Service Unit GmbH & Co KG at the end of 2003 to maintain and refine the rating method previously developed in the Ratings for the Landesbanks joint project. We now have selective rating procedures (eligible under Basel II) available for 20 Management Report and Risk Report of the Bank and of the Group Risk Report

all relevant segments of our lending portfolio as a result of this project, and are gradually implementing them in the Bank’s processes. Helaba is also involved, along with other Landesbanks, in a project to assess figures for what is referred to in Basel II terminology as Loss-Given-Default (LGD). This project will fill the last remaining gap in the creditworthiness rating procedure and thereby help the Bank to effect a sustained improvement in internal credit risk management and continue its progress towards the medium- term goal of adopting the Basel II Advanced Approach for internal ratings.

System of collateral Like the creditworthiness of borrowers or counterparties, the collateral available to the Bank (or general risk mitigation techniques) is of major importance when determining the extent of risks of counterparty default. Collateral provided is valued in accordance with the lending principles of the Bank. The valuation is amended in the course of the loan review and monitoring procedure if any of the relevant factors changes.

The Bank has set up a subproject to introduce a new collateral system and facilitate more sophisticated recording of the collateral available as part of the internal Basel II project. Due to be introduced in 2005, the new system will enable the Bank to conduct the flexible analyses required for target-oriented management and bring it into compliance with the far-reaching requirements of Basel II.

Country risks The country risk consists of transfer, conversion and event risks (such as delivery risks). Helaba has a uniform methodology for the internal measurement and allocation of country risks. A Country Risk System (LRS) serves as the central instrument for the complete, prompt, risk-oriented and transparent recording, monitoring and management of country risks. The Bank’s total international exposure, excluding the countries of the eurozone, may not exceed six times the liable capital of the Bank. Utilisation as at 31 December 2004 amounted to less than three times the liable capital figure.

1. Determination of country limits Country limits are defined for all countries with the exception of the eurozone countries and other countries considered to be first-class borrowers in respect, in particular, of transfer risk (currently Switzerland, the UK and the USA). The overall limit assigned to a country is subdivided into a lending limit and a trading limit. The country risks for long-term transactions are also subject to additional sublimits.

Helaba employs the country rating procedure developed in the Ratings for the Landesbanks project, which provides 25 different country rating categories and is Basel II-compliant. The Bank’s Economic Research Department (a part of the Central Board Services and Strategic Planning unit) reviews all classi- fications at least once a year. Any significant deterioration in a country’s political or economic situation due to recent events triggers an extracurricular review of the classification. On the basis of these country ratings, proposals for country limits are submitted to the Country Limit Committee, whose members are senior officers of the Bank active in international business. The Country Limit Committee consolidates these proposals, which are based predominantly on economic factors, with bank-specific considerations concerning business policy and risk methodology; this yields an overall verdict that becomes the limit proposal for the Board of Managing Directors. The Board of Managing Directors concludes the process, taking into account the first opinion provided by the Economic Research Department and the second opinion provided by the Back Office Lending unit, by grouping the risks involved and setting limits for the different countries.

2. Classification of the countries into risk groups The types of transactions permitted in each of the country risk groups are laid down in a matrix. De- pending on the risk group concerned, this matrix includes the different forms of capital market financing 21 Management Report and Risk Report of the Bank and of the Group Risk Report

options, money market and foreign exchange trading transactions and derivatives trading in addition to short- and long-term lending and securities business and thus contains all of the lending transactions defined in section 19 para. 1 of the German Banking Act (KWG). Less favourable risk groups offer fewer business opportunities. The Bank has no defined country limits for countries falling into the weakest rating categories. The country risk by region is shown in Chart 4. Chart 5 shows the breakdown of the country risk by rating category, with the 25 country rating categories consolidated into seven country rating category bands in the interests of clarity.

Country risk by region Country risk by rating category (Chart 4) (Chart 5)

• 93.2% Country rating 1 • 2.2% Central and South America • 4.4% Country rating 2 • 1.7% Australia and Oceania • 1.8% Country rating 3 • 2.7% Asia • 0.4% Country rating 3/4 • 0.1% Africa • 0.2% Country rating 4–6 • 12.6% North America • 80.7% Europe

3. Classification of country risk positions The individual country risk positions are generally classified in accordance with the principle of domicile. However, this principle, which is based on the country of residence of the borrower, may be modified for economic reasons. If certain conditions are met, the risk may be transferred to the country in which the parent company, the lessee or, in the case of cash flow constructions and under consideration of collateral, the home country of the bearer of the economic risk.

Approval procedure The approval procedure followed by the Bank ensures that no credit risks are entered into without prior approval. The rules of procedure for the Board of Managing Directors state that loans above a certain value require the approval of the Supervisory Board or of one of its committees. Commitments in amounts below this value are approved at different authorising levels (Board of Managing Directors, staff members) depending on the amounts involved. Loans are approved on the basis of detailed risk assessments. Loan applications in what is known as risk-relevant business always involve a second opinion with a material lending plausibility check in accordance with the German Minimum Requirements for the Lending Activities of Credit Institutions (MaK).

This procedure is complemented by regulations on maximum limits for domestic and foreign personal loans and loans to banks and insurance companies which, subdivided into creditworthiness categories, additionally limit exposures. All loans, moreover, are subject to a review procedure that has to be carried out at least once a year. The Global Limit System, which aggregates all loans extended by the Helaba Group (limits and utilisations) to each borrower considered as one risk unit, is one method by which the Bank ensures the daily management of any overdrafts of credit limits. 22 Management Report and Risk Report of the Bank and of the Group Risk Report

Quantifying risks of counterparty default The Strategic Controlling unit prepares a calculative quantification of expected and unexpected risks of counterparty default. Expected risks of counterparty default are calculated in the form of standard risk costs on the basis of individual transactions. The calculation takes into account not only the amount, type and term of the exposure, but also the Bank’s internal rating system. The various standard risk costs are updated periodically in the course of a reconciliation between the standard risk costs used and actual loan losses.

Risk provisions Sufficient bad debt charges were made for risks of counterparty default. Specific charges for creditworthiness risks (excluding country and global valuation allowances) increased in the Group by € 81.8 m, year on year, to € 948.2 m. Chart 6 shows how this total is spread across business areas.

Specific charges for creditworthiness risks (Chart 6)

• 45.5% Real estate lending • 33.5% Corporate loans • 17.3% Corporate finance • 3.7% Other loans

Gross charges for creditworthiness risks in the year under review amounted to € 188.1 m (2003: € 183.2 m).

The net lending volume (after deducting collateral) with borrowers in countries where there are special transfer risks amounted to € 439.0 m (2003: € 450.6 m). Bad debt charges for country risks at the balance sheet date amounted to € 93.1 m (2003: € 104.6 m). Risk charges were taken at the following rates (in accordance with the maximum limits permitted under tax legislation) in relation to the net lending volume exposed to transfer risks:

• European countries 14.6% • Asiatic countries 12.6% • Latin American countries 24.2% • African countries 55.6%

Global valuation allowances of € 94.6 m (2003: € 83.9 m) have been made for latent credit risks. 23 Management Report and Risk Report of the Bank and of the Group Risk Report

Credit risk processes and organisation The Minimum Requirements for the Lending Activities of Credit Institutions (MaK) were officially introduced by the German Federal Financial Supervisory Agency (BaFin) on 20 December 2002. They contain precise rules and regulations on the organisation of the lending business and on lending processes and the configuration of the methods for identifying, managing and monitoring risks in the lending business. The BaFin has issued a two-phase transitional rule to help credit institutions comply with the new minimum requirements. Implementation of the first phase of the requirements was to be complete by 30 June 2004, but institutions will have until 31 December 2005 to complete the second phase, which covers implementation of the necessary IT modifications.

The Bank’s Board of Managing Directors decided on 18 March 2003 to initiate a MaK minimum requirements implementation project involving not only the Bank and its international branch offices, but also all of the Group’s subordinate banking institutions that are of relevance for the establishment of a Group- wide credit risk management and monitoring system.

Following prompt agreement on fundamental decisions on the need to separate market and back office functions, the Bank met the required deadline of 30 June 2004 with the completion of the changes necessary to its organisational and workflow structures in connection with the MaK-compliant reorganisation of credit risk management. The activities of Back Office Lending are now grouped together in the new Back Office department. These activities comprise the material plausibility checks for transactions defined by the Bank as complex (commercial real estate loans, corporate finance and public finance transactions), the processing of lending business considered to be less complex (companies and banks) or less significant in terms of risk (lending business with private customers and German domestic central, regional and local authorities) and the management of problem loan processing.

Away from the implementation of the structural organisation and the reorganisation and modification of the ground rules, the Bank also drew up and successfully implemented a series of additional measures concerning lending processes (loan processing, intensive support and problem loan processing) and credit risk management (including risk controlling, risk reporting and the new products process) during the year under review.

Market Price Risks

Risk management Helaba manages market price risks for the trading book and the banking book as part of its overall bank management. Clearly defined responsibilities and business processes provide an efficient framework for effective limitation and management of market price risks.

Responsibility for managing the positions in the Group-wide trading book rests with the Capital Markets unit. The Asset/Liability Management unit looks after the banking book, which consists primarily of Asset/Liability Management positions, positions taken for strategic reasons and the net balance of non- interest-bearing funds. The portfolio of own issues repurchased in the trading book also falls under the jurisdiction of the Asset/Liability Management unit. The market price risks of the lending units are transferred to the Asset/Liability Management unit by means of internal price quotes. 24 Management Report and Risk Report of the Bank and of the Group Risk Report

Limiting market price risks Helaba employs a common limit structure to limit market price risks. The process through which limits are allocated involves the Supervisory Board Credit Committee as well as the Bank’s internal corporate bodies. The overall limit for market price risks, which is proposed by the Board of Managing Directors on the basis of the Bank’s ability to assume risks, must be approved by the Supervisory Board Credit Commit- tee. The preparatory work leading up to this decision is carried out by the Risk Committee, which is responsible for the collation and overall evaluation of all of the risks taken on within Helaba.

Acting through the Asset/Liability Management Committee, the Board of Managing Directors allocates limits to the risk-incurring business units and the various types of market price risk within the scope of the overall limit for market price risks. Separate limits are defined, in addition, for the trading book and the banking book. Responsibility for the onwards allocation of limits to Helaba’s subordinate organisational units and its various sites rests with the business units to which a limit has been assigned. Stop-loss limits and volume limits are also used in the trading units to limit market price risks.

Risk monitoring The Risk Controlling Treasury unit is responsible for identifying, quantifying and monitoring market price risks across the whole of the Group. In addition to simple risk measurement, its duties include checking transactions for market conformity, determining the economic profit or loss and preparing the reconciliation account for the accounting department.

Helaba continuously develops the methods and systems used as part of its efforts to ensure adequate recording of market price risks. A special process owned by the New Products Committee (ANP) has to be completed whenever a new product is introduced. New products must be incorporated correctly into the relevant systems for position recording, processing, profit or loss determination, risk measurement and reporting before they can be released for sale.

A comprehensive reporting regime ensures that the responsible members of the Board of Managing Directors and the position-keeping units are notified daily of the risk figures calculated and the economic profit and loss generated on the basis of current market prices. In addition, information about the current risk and earnings situation is provided weekly for the entire Board of Managing Directors and the Asset/ Liability Management Committee and monthly for the Risk Committee. The escalation process to limit and reduce the risks comes into effect if any defined limit is found to have been exceeded.

Quantifying market price risks Market price risks are quantified using a money-at-risk method backed up by stress tests and sensitivity analyses. The money-at-risk (MaR) figure corresponds to what is deemed, with a certain confidence level, to be the upper threshold of the potential loss of a portfolio or position due to market fluctuations within a prescribed holding period. The MaR approach can thus be applied consistently to different categories of risk.

The risk measurement systems employed at Helaba for the various categories of market price risk (interest rates, share prices and foreign exchange rates) all use the same statistical parameters in order to facilitate comparisons across the different risk categories. This method also makes it possible to aggregate the risk categories to produce an overall risk, the underlying assumption here being that all of the individual losses could be incurred simultaneously.

A modified variance-covariance method is employed for almost all risk measurement systems, the only exception being the determination of the specific risks associated with interest rate options, for which a 25 Management Report and Risk Report of the Bank and of the Group Risk Report

Monte Carlo simulation is preferred. Non-linear risks in foreign exchange and equities trading are of only minor importance for Helaba and are monitored by means of sensitivity analyses.

The great flexibility of the MaR systems with respect to portfolio structure and interfaces means that necessary technical and organisational changes can be implemented quickly and effectively. At the same time, the continuous functional and technical development of the risk measurement systems and the associated interfaces helps, along with intensive maintenance and updating of market data and regular checking of the business data from the position-keeping systems, to ensure high quality risk measurement.

Internal model in accordance with Principle I Helaba calculates the regulatory capital required for the general interest risk using an internal model in accordance with Principle I. This model, which consists of the risk measurement systems MaRC 2 (linear interest rate risk) and ELLI (interest option risk), has been approved by the banking regulators. Rating- dependent interest rate curves are also used for evaluation within linear risk measurement in addition to swap, government and mortgage bond curves.

Technical and functional development efforts focused in fiscal 2004 on extending the stress test analyses for MaRC 2 and improving the precision of the outcome function in ELLI. Risk determination for internal controlling and regulatory reporting will be switched to the enhanced system once the additions to ELLI have been approved by the banking regulators.

Daily MaR calculation All market price risks at Helaba are calculated daily using a standard method across the whole of the Group based on the end-of-day position from the previous trading day and the current market parameter. Helaba uses the parameters prescribed by the banking supervisory authorities for its own internal controlling as well. The MaR figure calculated using the risk models thus constitutes a measure of the maximum loss for a position within ten trading days, with a probability of 99%, based on the underlying his- toric observation period of one year.

Chart 7 shows the MaR of the group-wide trading book for fiscal 2004. Chart 8 shows the MaR as at the end of the reporting period.

Daily MaR of the group-wide trading book in fiscal 2004 (Chart 7)

25 u 21.8 m max. MaR 25

20 20

15 15 u 15.5 m MaR 10 10 u 10.2 m min. MaR

5 5

0 0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 26 Management Report and Risk Report of the Bank and of the Group Risk Report

MaR of the trading book by risk category at the end of fiscal 2004 Amounts in u million (Chart 8)

Total risk Interest rate risk Currency risk Stock risk 14.6 12.4 1.6 0.6

Helaba’s international branch offices and its subsidiary in Dublin make the current business data from their position-keeping systems available to Group headquarters in a bottom-up process so that consolidated MaR figures can be calculated. The market parameters, in contrast, are made available in a standard form right across the Group in a top-down process. This arrangement means that it is possible to measure risk centrally at headquarters and locally at the sites.

Backtesting Helaba carries out clean backtesting daily for all categories of risk to check the forecasting quality of the risk models. This involves determining the MaR figure for a holding period of one trading day with an underlying one-tailed confidence level of 99% and a historical observation period of one year. The fore- cast risk figure is then compared with the hypothetical change in the net value of the trading book. The hypothetical change in the net value of the trading book represents the change in the value of the portfolio over one trading day for an unchanged position and on the basis of new market prices. Any case in which the decrease in the net value of the trading book exceeds the potential risk figure constitutes a backtesting outlier.

Chart 9 shows the backtesting results for the group-wide trading book in fiscal 2004.

Backtesting for the group-wide trading book in fiscal 2004 (Chart 9) Change in the net value of trading book

MaR 27 Management Report and Risk Report of the Bank and of the Group Risk Report

Fiscal 2004 yielded no negative outliers for either the group-wide trading book or the internal model, meaning that the forecasting quality of the internal model was not called into question.

Stress tests A proper analysis of the effects of extraordinary market situations requires the use of stress tests in addition to the daily risk measurement routine. Various portfolios are re-evaluated regularly under the assumption of extreme market scenarios. Some portfolios have to undergo stress testing in line with banking supervisory regulations, while others are selected as a result of the level of exposure (materiality) involved. Stress tests are carried out on Helaba’s options book every day. The results of the stress tests are included in market price risk reporting to the Board of Managing Directors and are taken into consideration in the limit allocation process.

Methods available for use in stress testing include historical simulation, Monte Carlo simulation, a modified variance-covariance approach and a variety of scenario calculations. Helaba introduced stress tests to capture spread risks more accurately in December 2004 in keeping with the ongoing work to develop the interest internal model, and developed a scenario analysis based on the principal components of the cor- relation matrix in use since January 2005.

Helaba also conducted stress tests for the trading book and the banking book as part of an analysis by Deutsche Bundesbank. These tests involved determining the hypothetical change in the value of the position assuming predefined changes in the yield curve, share prices, volatilities and exchange rates. The changes are based on the scenarios of the International Monetary Fund’s (IMF) Financial Sector Assess- ment Programme (FSAP).

Interest rate risks in the banking book The interest rate risks in Helaba’s banking book comprise Asset/Liability Management positions, the strategic positions taken by the Asset/Liability Management Committee, and the net balance of non-interest- bearing funds. Helaba quantifies and limits the market price risks associated with these positions using the same MaR method employed for the trading book. The risk figures calculated by this method are sup- plemented by daily gap reports, from which the maturity structure of the positions taken can be determined. Regular stress tests with holding periods of between ten days and up to twelve months back up the daily risk measurement activities in respect of the banking book.

The new requirements on capital adequacy introduced with Basel II specify that interest rate risks in the banking book must be quantified, and prescribe a risk calculation based on standardised interest rate shocks for this purpose. The inclusion of the banking book in the daily MaR calculation and the monthly stress test analysis means that Helaba is now well placed to meet the new requirements.

Performance measurement The Bank carries out risk-return comparisons at regular intervals in order to assess the performance of individual organisational units. These comparisons calculate the ratio of the performance achieved to the average money at risk. Other aspects, including qualitative factors, are also included in the assessment in acknowledgement of the fact that the short-term generation of profits is not the sole objective of the trading offices. The performance assessment considers not only the figures contained in the income statement established in accordance with the provisions of commercial law, but also changes in the value of the trading portfolio, which are not reflected in the income statement due to the realisation principle. Chart 10 compares the average daily performance with the average daily MaR figures. 28 Management Report and Risk Report of the Bank and of the Group Risk Report

Performance and MaR for the group-wide trading book in fiscal 2004 Number of trading days: 254 (Chart 10)

1st quarter 2004 2nd quarter 2004 3rd quarter 2004 4th quarter 2004 Total 2004

Avg. MaR Avg. daily Avg. MaR Avg. daily Avg. MaR Avg. daily Avg. MaR Avg. daily Avg. MaR Avg. daily performance performance performance performance performance (in m u) (in u ’000) (in m u) (in u ’000) (in m u)(in u ’000) (in m u) (in u ’000) (in m u)(in u ’000

Interest rate risk 14.1 859 17.2 277 12.5 258 10.3 236 13.5 408 Currency risk 0.9 35 1.0 19 1.2 17 1.9 46 1.3 30 Stock risk 0.9 19 0.8 39 0.6 6 0.7 17 0.7 20 Total risk 15.9 913 19.0 335 14.3 281 12.9 299 15.5 458

Liquidity Risks

Aside from the successful implementation of the new business model, Helaba’s most important objective for the period following the discontinuation of the state guarantees is to secure an adequate and cost- effective funding base. Helaba was accordingly quick not only to develop a suitable toolset with which to record and manage all liquidity risks, but also to take advantage of what once were very favourable market conditions to build up extensive liquidity reserves.

Liquidity and funding risk The Bank draws a distinction in liquidity risk management between short-term and structural liquidity management. The money market staff safeguard the day-to-day solvency of the Bank, while the Asset/ Liability Management unit is responsible for ensuring a balanced medium- and long-term liquidity structure in the context of structural liquidity management.

The Risk Controlling Treasury unit presents a monthly report to the Risk Committee concerning the liquidity risks incurred. Additional ad hoc reporting and decision-making processes for extreme market situations are also in place.

Short-term liquidity risk The tasks of money management and safeguarding short-term liquidity are carried out by the money market staff through borrowings/investments in the money market (interbank and customer business/ commercial paper), Lombard facilities with the European Central Bank (ECB) and the maintenance of a securities trading book that is as liquid as possible. The securities trading book serves not only to safeguard liquidity, but also to generate earnings from repo and arbitrage activities.

The current liquidity situation is presently managed using a short-term liquidity status (closing assessment) in which anticipated liquidity requirements are compared with the available liquidity reserve in the form of free collateral. This method for limiting short-term liquidity shortfalls was extended at the 29 Management Report and Risk Report of the Bank and of the Group Risk Report

start of 2005 to a horizon of 30 calendar days. Here too the limiting factor is the free collateral pool available in any given case. The Risk Controlling Treasury department monitors compliance with the limit.

Helaba once again complied in full with the liquidity requirements imposed by the banking supervisory authorities in fiscal 2004. The liquidity ratio in accordance with Principle II stood at 1.57 on the balance sheet date and was thus well above the minimum level of 1.0. The other group companies similarly complied in full with their local liquidity requirements.

Structural liquidity risk The Asset/Liability Management unit uses the Central Asset/Liability Management System (ZDS) to manage the liquidity risks associated with Helaba’s commercial banking business, which essentially comprises the lending business, including variable-interest rollover transactions, securities held in the liquidity portfolio, and medium- and long-term financing transactions. The management activities are based on liquidity statements that record the transactions on the basis of their capital commitment.

The major aim of funding management (procurement of funds) is to avoid cost risks in connection with the procurement of medium- and long-term borrowed funds, and limit dependency on short-term funding capital. The Money Market Desk becomes involved when liquidity shortages or excesses need to be funded or invested in the short term. These liquidity mismatches are limited as a function of the liable capital in the form of internal guidelines to help avoid cost and liquidity risks.

At the start of 2004 Helaba began regular analysis of the liquidity risks of off-balance-sheet loan commitments and placing obligations, which it had already been recording centrally for some time. Helaba’s off- balance-sheet loan commitments can be broken down into five main categories: current account and blanket credit lines, liquidity lines to improve the issuer rating, letters of credit, liquidity lines for asset- backed commercial paper transactions and liquidity lines in connection with aircraft financing. All commitments are integrated into short-term and structural liquidity management and their drawing potential and liquidity-relevant features are examined on a regular basis.

Liquidity costs are calculated and allocated to the relevant specialist unit in line with the internal risk classification for off-balance-sheet loan commitments. The Risk Committee is notified monthly about off- balance-sheet liquidity risks. A summary in the form of a liquidity status is prepared every quarter.

Market liquidity risk The market liquidity risk is assessed in the money at risk model for market price risks. The model is conservative in its treatment of the liquidity risk and assumes a holding period of ten days even though the majority of trading positions can be sold or closed out within one day.

Monthly scenario calculations using a variety of holding periods are also carried out to track the risk of inadequate market liquidity. There were no special market liquidity risks in fiscal 2004. 30 Management Report and Risk Report of the Bank and of the Group Risk Report

Operational Risks

Basics of risk control Operational risk arises in connection with general operating activities and is therefore an inevitable fea- ture of business. The increasing dynamism of banking business and the growing complexity of products and processes have focused the attention of financial service providers and the banking supervisory authorities alike on this particular type of risk and ways to identify, assess and manage it.

The requirements introduced by the banking regulators are entirely in line with Helaba’s traditional efforts to ensure adequate management of operational risk. Helaba has adopted the Basel Committee’s definition of operational risk: “The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events”. Helaba is currently working to develop an integrated universal approach for the management of operational risks based on the requirements laid down by the banking regulators with respect to the capital backing of operational risks. The Bank aims to be able to measure and manage operational risks using the three elements of risk categories, risk indicators and losses.

Helaba’s universal approach provides for the disciplinary and organisational separation of operational risk management and controlling. The various specialist units of Helaba accordingly have local responsibility for risk management, but are supported by central controlling units. Responsibility for controlling operational risks is held centrally by Strategic Controlling.

Helaba has representatives in a number of working groups set up by the Federal Association of German Public-Sector Banks (VÖB) to consider issues surrounding operational risks. The aim of these cooperative arrangements is to reach agreement on disciplinary implementation matters and develop a technical standard solution. Helaba regularly works with representatives of other Landesbanks to improve and add new functionalities to the IT system for managing operational risks, for example, while another working group is developing a joint data consortium to allow sharing of information on losses from operational risks. The incorporation of external loss data in the internal recording of loss events is intended to put in place at an early stage the advanced approach that will be required in future by the banking supervisory authorities.

Developing the toolset The risk management system for operational risks was refined in 2004 on the basis of lessons learned in previous years. Risk profiles of units from the Corporate Center area were added to the total risk profile in a highly significant step that leaves the total risk profile now almost complete. The risk profiles of the units captured in previous years were updated through a resubmission process and the systematic gathering of data pertaining to losses that was begun in 2003 was continued. The specialist units regularly report details of losses incurred as a result of operational risks that have materialised in a decentralised process. Risks and loss events are reported to the Risk Committee at the end of each quarter.

Operational risks are classified systematically using the Helaba risk model, which, at its highest level, breaks operational risks down into four risk categories analogous to the definition in the Basel II regulations. Work to establish an early warning system continued in 2004 with the identification and definition of suitable indicators on the basis of the risk profiles and loss events that have occurred. The risk indicators are being implemented in the risk management system from 2005. 31 Management Report and Risk Report of the Bank and of the Group Risk Report

Classification of operational risks at Helaba

People (internal)

Operating risks Integrity risks

Technology

Technical risks Information processing risks

Processes and project management

Information and Operating risks Management and integrity risks decision-making risks

External influences

Helaba introduced a Web-based application to provide technical support for operational risk management in 2003. The application combines a central database and local data access and is expanded at regular intervals in accordance with functional specifications.

Operational risks are avoided or limited through insurance policies that cover certain losses up to agreed maximum limits and by means of the additional measures described below.

Documentation system The documentation system employed by Helaba comprises the full set of written procedural rules for business operations. It lays down details of the due and proper organisation of business plus internal control procedures and security measures relating to the use of electronic data processing.

Clear responsibilities have been defined within Helaba for the creation and continuous updating of the various components of the documentation system. Bank Organisation helps the specialist units responsible for the business processes to create and publish the regulations.

IT security and contingency plans Helaba’s defined strategies and regulations on IT security ensure both that our internal controlling process remains compliant with the requirements of the banking regulators and that adequate precautions are taken to permit secure use of electronic data processing. We monitor and enhance compliance with these regulatory and internal requirements continuously in IT security audits.

Mandatory IT security concepts and IT standards for application development and operation ensure that risks are detected at an early stage and that appropriate measures to minimise these risks are then defined and implemented. Helaba refines these concepts and standards continuously to ensure that it always has all four pillars of IT security – availability, integrity, confidentiality and non-repudiation – firmly in place.

Helaba’s organisational units have drawn up formal process-based contingency plans for their critical business activities. These documents are subject to continuous development and regular testing to 32 Management Report and Risk Report of the Bank and of the Group Risk Report

ensure that essential business operations can be maintained in a properly ordered fashion in exceptional situations.

Helaba has agreed preventive and risk-limiting measures for both central and local systems covered by the data centre operation services outsourced to IZB Informatik-Zentrum. Helaba’s specialist units and IZB Informatik-Zentrum test the documented procedures for safeguarding operation and restoring IT systems at least once a year.

Legal risks The identification and management of legal risks are two of the tasks performed by the Legal Services unit, which is represented in an advisory capacity on the Risk Committee. Major undertakings with legal implications are cleared with the Legal Services unit as laid down in the basic principles of the Bank. As a contribution to preventive risk management, the Legal Services unit has, where possible, made available checklists and specimen agreements for reference when concluding contracts and other legally relevant declarations. The lawyers of the Legal Services unit must be consulted if deviations from the standard forms are required, if new rules and regulations come into force and in connection with other matters of a legal nature. If it becomes necessary to involve external lawyers in Germany or abroad, the Legal Services unit assumes responsibility for coordination. General rules and regulations exist for such cases and there is, once again, a duty to consult the Legal Services unit in the event of doubt or in matters of a fundamental nature.

The Legal Services unit drafts agreements, general business conditions and other relevant legal declarations as part of its legal consulting support services. If documents and declarations of this type are submitted by third parties, the Legal Services unit is involved in their examination and negotiation.

If any mistakes or unexpected developments detrimental to the Bank are encountered, the lawyers help to identify and remedy problems. They assume responsibility for examining events for legally relevant facts and conduct any proceedings launched. The same applies in respect of countering any claims asserted against the Bank. The legal team’s collaboration on submissions to the Board of Managing Direc- tors, documentation of pending and threatened proceedings and involvement in the formal conclusion of agreements with other units ensure effective reporting.

Other Risks

Strategic risks The Brussels I agreement concluded between the European Commission, the German federal government and the German states on 17 July 2001 provides for the abolition or replacement, following a transitional phase, of the maintenance obligation (Anstaltslast) and statutory guarantee (Gewährträgerhaftung) as instruments of guarantee. The maintenance obligation will be replaced from 19 July 2005 by a “normal market ownership structure” between the owners and the Bank. The provisions applying to the statutory guarantee state that liabilities in existence on 18 July 2001 will be covered by the statutory guarantee until the end of their term. Liabilities created after this date are in principle covered by the statutory guarantee until 18 July 2005, at which time such coverage will cease unless the term of the liabilities concerned does not extend beyond 31 December 2015.

Helaba has made extensive use of the available opportunities to build up liquidity under consideration of the collateral potential for public mortgage bonds and mortgage-backed securities, and has secured the funding base at market conditions for a transitional period until around 2008. Helaba released a public issue of unsecured bank bonds with a nominal value of € 200 m in December 2004. These bonds mature in December 2019 and are thus the Bank’s first issue not to be covered by the transitional rules 33 Management Report and Risk Report of the Bank and of the Group Risk Report

of the Brussels I agreement. These ‘unguaranteed’ bank bonds received an Aa2 rating from rating agency Moody’s Investors Service, an A+ from Fitch Ratings and an A from Standard & Poor’s Corp.

The deposit guaranty schemes with which Helaba is affiliated have undergone a substantial upvaluation in light of the Brussels I agreement:

• The Bank is involved in the deposit guaranty schemes of the German Sparkasse organisation via its membership of the security reserve of the Landesbanks and Girozentrale in Germany. Far-reaching improvements are to be introduced with effect from 1 January 2006. The changes, which have already been agreed, include the introduction of a risk monitoring system for the early detection of risks, a switch to risk-oriented contribution assessment and beefing up of the fund volume. The existing cross-guarantee system involving the deposit guaranty schemes of the Landesbanks, the Sparkassen and the Landesbausparkassen will remain.

• A regional reserve fund was created as an integral part of the risk transparency and management system set up to cover Helaba and 51 Sparkassen in Hesse and Thuringia on 1 January 2004 as part of the Sparkassen-Finanzgruppe Hessen-Thüringen’s New S-Group Concept. This reserve fund, which exists in addition to and independent of the deposit guaranty schemes of the German Sparkassen organisation at national level, protects creditors as well as the institutions. The fund has a total value of approximately 5‰ of the risk-weighted assets of the institutions in accordance with Principle I of sections 10 and 10a of the German Banking Act (KWG), which amounted to approximately € 550 m at the end of 2004. The Savings Banks and Giro Association Hesse-Thuringia (SGVHT) will be liable to make up the relevant shortfall should the fund be required before the initial contribution of the full amount has been completed.

A number of significant steps in the implementation of the New S-Group Concept were completed in 2004. A new member of the Helaba Board of Managing Directors with responsibility for S-Group business was appointed to reflect the increased significance of this area within the organisation. Joint working groups with the S-Group Sparkassen and the SGVHT undertook activities to implement a number of agreed elements of the S-Group project, including a joint funding strategy for the period after 2005, a new strategy for SME syndicated loans business and the creation of a first set of loan pools to diversify lending portfolios.

The strategic “single economic entity” business model for Helaba and the Sparkassen agreed in the New S-Group Concept is beginning to bear fruit and help the partners achieve their common market objectives, a development highlighted by the group ratings of A+ for medium- and long-term liabilities and F-1+ for short-term liabilities awarded by Fitch Ratings in early October 2004. The award of these group ratings was triggered largely by the preparation of financial statements for fiscal 2003 that for the first time consolidated the whole of the Sparkassen-Finanzgruppe Hessen-Thüringen in accordance with German commercial law. The group ratings are the first for a regional financial group in Germany and apply equally to all of the unguaranteed liabilities of every single one of the legally independent member institutions that make up the Sparkassen-Finanzgruppe Hessen-Thüringen. This means that the A+ group rating also applies to Helaba’s unguaranteed liabilities. Viewed together with the Aa2 and P-1 ratings issued by Moody’s Investors Service in March 2005, the A rating awarded to Helaba by Standard & Poor’s Corp. in summer 2004 for unguaranteed liabilities and the AAA rating from Standard & Poor’s Corp. for public mortgage bond issues, these ratings give the Bank a sound rating basis for the period beyond mid- 2005.

The European Commission opened a formal investigation in 2002 into the transfer to Helaba at the end of 1998 of the state of Hesse’s special housing fund of € 1.264 bn as a silent participation. The investigation 34 Management Report and Risk Report of the Bank and of the Group Risk Report

was intended to determine whether the transaction amounted to illegal state aid. Its decision, released on 20 October 2004, affirms the view asserted by Helaba and the state of Hesse that the state was in principle recompensed for its silent participation in keeping with market conventions. The only form of state aid identified by the Commission was the agreement in force between 1999 and 2003 concerning a compensation scale for the proportion of the contribution not used to provide security for competitive business activities. This was calculated to yield a repayment obligation of € 7.3 m (including interest) and the Com- mission is also demanding payment of a commission on guarantee of 0.3% for that share of the silent participation tied up under the terms of commercial law as security for the special housing fund. The decision on the state aid investigation was implemented in December 2004. The Association of German Banks has announced that it will ask for a legal review of the Commission’s decision at the European Court in Luxembourg.

Reputational risks Reputational risks that could lead, as a result of a deterioration of Helaba’s reputation, to direct and indirect losses, or profits not realised are taken into account by all specialist units. Any imminent reputational risks identified are reported to the Risk Committee immediately.

Taxes The Taxes department, which forms part of the Accounting &Taxes organisational unit, either carries out directly all activities in connection with taxes payable by the Bank and its subsidiaries, or provides professional support. External consultants are employed to help resolve any special issues. Changes in tax law following new legislation or court decisions both in Germany and abroad are monitored and the appropriate steps are implemented. Involvement in the development of tax legislation helps the Bank to ensure that tax risks are either avoided or covered by appropriate provisions.

Real estate Helaba’s various real estate affiliates (including Helaba Immobilien GmbH, OFB Projektentwicklungs- GmbH and GWH Gemeinnützige Wohnungsgesellschaft mbH Hessen) have risk management systems in place. Measures for the identification, analysis, control and assessment of risks are defined in these systems together with responsibilities and reporting structures. The reporting systems make it possible to allocate risks in detail on the basis of the originator and to carry out target/actual comparisons and sensitivity analyses. The managing directors and controlling units of the respective affiliate are responsible for monitoring risks. Reports on the current risk situation are submitted to the supervisory bodies and the Helaba Board of Managing Directors at regular intervals.

OFB will in future supplement the existing risk controlling tools with a summary of opportunities and risks drawn up four times a year to present and track the risks specific to individual projects. It will employ a structured process to ascertain opportunities as well as costs, earnings and other risks for the purposes of this summary, and will evaluate them in terms of their implications for the budget (as in an analysis of the ability to absorb risk) and their likelihood of occurrence (using certain occurrence scenarios). Helaba’s Real Estate Management unit will investigate whether this system should also be adopted for the Bank’s own project development activities and the real estate development business of the HIG Group.

Internal Audit

The activities of the Internal Audit organisational unit are laid down in the General Conditions for the Internal Audit Function adopted by the Board of Managing Directors. The General Conditions are based on the Minimum Requirements for the Internal Audit Function of Credit Institutions issued by the German Federal Banking Supervisory Office on 17 January 2000. 35 Management Report and Risk Report of the Bank and of the Group Risk Report

The Internal Audit organisational unit audits and assesses the activities of the Bank and its subsidiaries. Audits are planned and conducted with the emphasis on risk. The audit activities of Internal Audit extend in principle to all operations and business processes under consideration of the scope and risk content of each operation or business process. Audits pay particular attention to assessing the risk situation, the extent to which processing complies with the applicable regulations, and the efficacy of the internal control system.

The scope and results of the audit are recorded in the audit documentation. The appropriate members of the Board of Managing Directors and the managers responsible for the audited organisational units receive a comprehensive report. In principle all members of the Board of Managing Directors are in- formed of the overall result, including major audit findings, by means of an abridged report. The Board of Managing Directors reports semi-annually to the Supervisory Board on the major findings of the Inter- nal Audit unit.

Internal Audit uses IT tools to check that issued raised in audits are addressed promptly. It plays an integral role in the Bank’s major projects and can consequently contribute its ideas and suggestions to project work at an early stage.

Strategic training and development ensure that all of Internal Audit’s employees and managers are able to maintain the unit’s high professional standard. Internal and external seminars and special workshops provide staff with an opportunity to enhance their professional knowledge.

Summary

The controlled acceptance of risks forms an integral component of corporate management at Helaba. We accept and supervise risks on the basis of our comprehensive risk identification, quantification, control and management system. Although they are already very highly evolved and satisfy all statutory and supervisory requirements, we refine our methods and systems continuously. Our basic organisational principles put in place the structures necessary to ensure successful implementation of the risk strategy defined.

Helaba, in conclusion, has at its disposal a stock of proven and effective methods and systems with which to master the risks it chooses to accept. We feel, moreover, that we stand very well prepared for future developments in the supervisory environment in general and for those resulting from the German minimum requirements for risk management (MaRisk) and the Basel Capital Accord in particular.

Frankfurt am Main/Erfurt, 15 March 2005

Landesbank Hessen-Thüringen Girozentrale

The Board of Managing Directors

Dr. Merl Riener Bedranowsky Dr. Bräuer

Brenner Gröb Kobiela 36 Annual Accounts of Landesbank Hessen-Thüringen Consolidated Balance Sheet of Landesbank Hessen-Thüringen Girozentrale, Frankfurt am Main/Erfurt, as at 31 December 2004

ASSETS

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Cash reserve a) Cash in hand 3,546 4,591 b) Balances with central banks 176,264 60,238 including: Balances with Deutsche Bundesbank 161,829 (34,104) c) Balances on postal giro accounts – 2,729 179,810 67,558 Loans and advances to banks (3), (32) a) At call 2,633,006 2,020,749 b) Other loans and advances 35,156,466 37,962,245 37,789,472 39,982,994 including building loans of Landesbausparkasse: Building saving loans 5,638 (7,078) Loans and advances to customers (4), (32) 58,088,709 58,079,945 including: Real estate liens 7,640,477 (7,275,969) Municipal loans 14,540,626 (14,420,805) Building loans of Landesbausparkasse From allocations (building saving loans) 1,023,103 (1,061,519) For interim and bridge-over financing 788,599 (810,256) Others 10,370 (10,506) including: Real estate liens 1,281,364 (1,306,096) Bonds including other fixed income securities (5) a) Money market paper of third party issuers 2,059,539 2,024,825 including: Eligible for rediscounting with Deutsche Bundesbank – (99,844) b) Bonds ba) Issued by public sector borrowers 2,099,668 2,374,511 including: Eligible for rediscounting with Deutsche Bundesbank 2,005,518 (2,207,834) bb) Issued by other borrowers 33,114,357 27,941,580 including: 35,214,025 30,316,091 Eligible for rediscounting with Deutsche Bundesbank 25,451,710 (21,642,714) c) Own bonds 1,291,980 1,299,089 38,565,544 33,640,005 Nominal amount 1,285,700 (1,270,469) Carried forward: 134,623,535 131,770,502 37 Annual Accounts of Landesbank Hessen-Thüringen

LIABILITIES

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Liabilities to banks (16), (19) a) At call 4,068,399 6,225,758 b) With agreed maturities or at agreed notice period 44,562,076 42,126,830 c) Building savings deposits of Landesbausparkasse 7,473 7,121 including: On allocated contracts 426 (300) 48,637,948 48,359,709 Liabilities to customers (16), (20) a) Building saving deposits of Landesbau- sparkasse and other savings deposits aa) Building saving deposits of Landesbausparkasse 2,918,160 2,745,456 including: On terminated contracts 12,195 (10,580) On allocated contracts 58,732 (59,245) ab) Savings deposits at agreed notice period of three months 831 941 ac) Savings deposits at agreed notice period of more than three months 9 14 2,919,000 2,746,411 b) Other liabilities ba) At call 5,732,633 3,582,127 bb) With agreed maturities or at agreed notice 26,713,237 29,039,402 32,445,870 32,621,529 35,364,870 35,367,940 Securitized liabilities (21), (32) a) Bonds issued 34,513,271 31,198,378 b) Other securitized liabilities 12,096,732 12,404,168 including: 46,610,003 43,602,546 Money market paper 11,575,035 (11,655,353) Trust liabilities (22) 2,739,667 2,557,601 including: Loans on a trust basis 2,288,565 (2,321,107) Other liabilities (23) 1,576,034 1,940,475 Other liabilities from real estate business (24) 716,126 187,595 Deferred income (25) 566,103 569,420

Carried forward: 136,210,751 132,585,286 38 Annual Accounts of Landesbank Hessen-Thüringen

ASSETS

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Brought forward: 134,623,535 131,770,502 Shares and other non-fixed income securities (6) 1,222,243 1,162,536 Participations (7), (18), (46) 501,297 552,046 including: In banks 169,484 (190,593) In financial service institutions 425 (391) Shares in affiliated companies (8), (18), (46) 488,680 1,090,979 Trust assets 2,739,667 2,557,601 including: Loans on a trust basis 2,288,565 (2,321,107) Compensating loans and advances on the public authorities including debt securities 7,711 15,422 Intangible fixed assets (10) 25,255 – Fixed assets (11), (18) 1,465,769 169,956 including: Real estate investment from residential construction business 1,382,015 (–) Other assets (12) 1,643,660 1,561,058 Other assets from real estate business (13) 483,084 180,431 Deferred expenses (14) 361,929 369,399

Total assets 143,562,830 139,429,930 39 Annual Accounts of Landesbank Hessen-Thüringen

LIABILITIES

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Brought forward: 136,210,751 132,585,286 Provisions a) Provisions for pensions and similar obligations 434,232 380,065 b) Tax provisions 99,676 115,383 c) Other provisions 501,925 535,136 1,035,833 1,030,584 Fund for building-saving-related securitization 6,220 6,220 Subordinated liabilities (26) 2,158,823 1,652,318 Jouissance rights capital 421,495 481,214 including: Falling due within two years – (59,719) Fund for general banking risks 126,100 126,091 Equity (28) a) Subscribed capital aa) share capital 477,000 477,000 ab) deposits of silent partners 1,868,302 1,868,302 2,345,302 2,345,302 b) Capital reserve 642,563 642,563 c) Retained earnings 587,538 531,944 d) Balancing item for minority interests –415 –212 e) Distributable profit 28,620 28,620

3,603,608 3,548,217 Total liabilities 143,562,830 139,429,930

Contingent liabilities (16), (29) Contingent liabilities from guarantees and warranty agreements 7,416,199 6,176,602 Other liabilities (30) a) Placing and underwriting commitments 2,382,658 2,898,629 b) Irrevocable loan commitments 26,197,517 23,096,635 28,580,175 25,995,264 Specialist and other investment funds managed on behalf of shareholders (31) 18,846,405 12,416,688 40 Annual Accounts of Landesbank Hessen-Thüringen Consolidated Income Statement of Landesbank Hessen-Thüringen Girozentrale, Frankfurt am Main/Erfurt, for the year ended 31 December 2004

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Interest received from (34) a) Lending and money market transactions 4,539,512 4,633,877 including interest received by Landesbausparkasse: From building saving loans 49,755 (51,744) From interim and bridge-over loans 42,872 (44,545) From other loans of Landesbausparkasse 779 (929) b) Bonds and government inscribed stock 806,755 747,538 5,346,267 5,381,415 Interest paid 4,845,431 4,905,211 including: On savings deposits of Landesbausparkasse 77,673 (74,093) 500,836 476,204 Current revenue from (34) a) Shares and other non-fixed income securities 51,386 58,227 b) Participations 51,915 19,176 c) Shares in affiliated companies 15,283 88,135 118,584 165,538 Revenue from profit-and-loss pooling agreements, profit transfer agreements and agreements to transfer part of profits 5,902 41,327 Commissions received (34), (35) 195,409 174,302 including fees from business of Landesbausparkasse: On contracts signed and arranged 20,681 (26,151) From loans granted after allotment of building saving contracts 6,231 (6,288) From the commitment and administration of interim and bridge-over loans 6 (4) Commissions paid 103,990 78,327 including: Commissions on contracts signed and arranged of Landesbausparkasse 26,813 (32,846) 91,419 95,975 Net profit from real estate business (36) 142,605 9,462 Net profit on financial transactions (34) 39,025 2,797 Other operating income (34), (37) 97,004 98,723 Carried forward: 995,375 890,026 41 Annual Accounts of Landesbank Hessen-Thüringen

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Brought forward: 995,375 890,026 General administrative expenses a) Personnel expenses aa) Wages and salaries 248,779 246,533 ab) Social security pensions and other benefits 102,550 72,969 including: 351,329 319,502 For pensions 63,234 (36,725) b) Other administrative expenses 247,922 268,843 599,251 588,345 Amortization of and adjustments to intangible fixed assets and depreciation of and adjustment to fixed assets 48,607 25,051 including: For residential construction real estate 22,437 (–) Other operating expenses 33,685 32,490 Amounts written off and valuation allowances of loans and advances and certain securities, as well as allocations to accruals in the lending business (38) 156,553 143,597 Amounts written off and valuation allowances on participations and shares in affiliated companies 5,495 4,809 Expenses from the transfer of losses 5,185 351 Result on ordinary activities 146,599 95,383 Taxes on income and profits (39) 60,535 27,136 Other taxes unless shown under the item Other operating expenses 850 1,395 61,385 28,531 Net income for the year 85,214 66,852 Attributable to minority interests 406 –417 Transfer from retained earnings 41,403 41,137 Allocations to retained earnings 98,403 78,952 Consolidated profit 28,620 28,620 42 Annual Accounts of Landesbank Hessen-Thüringen Non-Consolidated Balance Sheet of Landesbank Hessen-Thüringen Girozentrale, Frankfurt am Main/Erfurt, as at 31 December 2004

ASSETS

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Cash reserve a) Cash in hand 2,383 3,011 b) Balances with central banks 161,512 33,816 including: 163,895 36,827 Balances with Deutsche Bundesbank 161,502 (33,798) Loans and advances to banks (3), (32) a) At call 2,557,294 1,831,697 b) Other loans and advances 34,304,709 36,805,647 36,862,003 38,637,344 including building loans of Landesbausparkasse: Building saving loans 5,638 (7,078) Loans and advances to customers (4), (32) 54,706,172 54,126,144 including: Real estate liens 7,503,337 (7,148,961) Municipal loans 14,233,411 (14,142,226) Building loans of Landesbausparkasse From allocations (building saving loans) 1,023,103 (1,061,519) For interim and bridge-over financing 788,599 (810,256) Others 10,370 (10,506) including: Real estate mortgage liens 1,281,364 (1,306,096) Bonds including other fixed-income securities (5) a) Money market paper of third-party issuers 2,034,585 2,024,825 including: Eligible for rediscounting with Deutsche Bundesbank – (99,844) b) Bonds ba) Issued by public-sector borrowers 1,892,457 2,245,250 including: Eligible for rediscounting with Deutsche Bundesbank 1,850,428 (2,132,115) bb) Issued by other borrowers 30,434,833 25,762,754 including: 32,327,290 28,008,004 Eligible for rediscounting with Deutsche Bundesbank 24,410,343 (20,986,513) c) Own bonds 1,282,552 1,286,235 35,644,427 31,319,064 Nominal amount 1,276,548 (1,258,025) Carried forward: 127,376,497 124,119,379 43 Annual Accounts of Landesbank Hessen-Thüringen

LIABILITIES

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Liabilities to banks (16), (19) a) At call 3,831,955 5,921,954 b) With agreed maturities or at agreed notice period 41,580,876 39,346,663 c) Building saving deposits of Landesbausparkasse 7,473 7,121 including: On allocated contracts 426 (300) 45,420,304 45,275,738 Liabilities to customers (16), (20) a) Building saving deposits of Landes- bausparkasse and savings deposits aa) Building saving deposits of Landesbausparkasse 2,918,160 2,745,456 including: On terminated contracts 12,195 (10,580) On allocated contracts 58,732 (59,245) ab) Savings deposits at agreed notice period of three months 831 941 ac) Savings deposits at agreed notice period of more than three months 9 14 2,919,000 2,746,411 b) Other liabilities ba) At call 5,606,843 3,384,462 bb) With agreed maturities or at agreed notice period 28,483,041 31,137,102 34,089,884 34,521,564 37,008,884 37,267,975 Securitized liabilities (21), (32) a) Bonds issued 29,567,186 25,909,271 b) Other securitized liabilities 11,441,790 11,748,473 including: 41,008,976 37,657,744 Money market paper 10,920,092 (10,999,658) Trust liabilities (22) 2,430,690 2,219,003 including: Loans on a trust basis 2,185,204 (2,218,980) Other liabilities (23) 1,545,982 1,920,135 Deferred income (25) 416,986 386,144

Carried forward: 127,831,822 124,726,739 44 Annual Accounts of Landesbank Hessen-Thüringen

ASSETS

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Brought forward: 127,376,497 124,119,379 Shares and other non-fixed income securities (6) 1,210,299 1,151,026 Participations (7), (18), (46) 772,363 806,884 including: In banks 464,401 (492,585) Shares in affiliated companies (8), (18), (46) 1,251,132 1,254,434 including: In banks 126,671 (126,671) In financial service institutions 5,273 (5,273) Trust assets 2,430,690 2,219,003 including: Loans on a trust basis 2,185,204 (2,218,980) Compensating loans and advances on the public authorities including debt securities from their conversion 7,711 15,422 Intangible fixed assets (10) 23,385 – Fixed assets (11), (18) 50,592 81,282 Other assets (12) 1,626,075 1,545,371 Deferred income (14) 333,420 327,311

Total assets 135,082,164 131,520,112 45 Annual Accounts of Landesbank Hessen-Thüringen

LIABILITIES

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Brought forward: 127,831,822 124,726,739 Provisions a) Provisions for pensions and similar obligations 407,983 376,689 b) Tax provisions 82,873 106,576 c) Other provisions 423,769 471,178 914,625 954,443 Fund for building-saving-related securitization 6,220 6,220 Subordinated liabilities (26) 2,154,981 1,648,475 Jouissance rights capital 421,495 481,214 including: Falling due within two years – (59,719) Fund for general banking risks 125,000 125,000 Equity (28) a) Subscribed capital aa) share capital 477,000 477,000 ab) deposits of silent partners 1,817,738 1,817,738 2,294,738 2,294,738 b) Capital reserve 642,563 642,563 c) Retained earnings 662,100 612,100 d) Distributable profit 28,620 28,620 3,628,021 3,578,021 Total liabilities 135,082,164 131,520,112 Contingent liabilities (16), (29) Contingent liabilities from guarantees and warranty agreements 7,771,937 6,496,044 Other liabilities (30) a) Placing and underwriting commitments 2,382,657 2,898,629 b) Irrevocable loan commitments 25,767,036 22,734,655 28,149,693 25,633,284 46 Annual Accounts of Landesbank Hessen-Thüringen Non-Consolidated Income Statement of Landesbank Hessen-Thüringen Girozentrale, Frankfurt am Main/Erfurt, for the year ended 31 December 2004

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Interest received from (34) a) Lending and money market transactions 4,264,973 4,341,741 including interest received by Landesbausparkasse: From building saving loans 49,755 (51,744) From interim and bridge-over loans 42,872 (44,545) From other loans of Landesbausparkasse 779 (929) b) Bonds and government inscribed stock 727,782 679,430 4,992,755 5,021,171 Interest paid 4,506,315 4,586,531 including: On savings deposits of Landesbausparkasse 77,673 (74,093) 486,440 434,640 Current revenue from (34) a) Shares and other non-fixed income securities 51,211 58,013 b) Participations 63,961 33,491 c) Shares in affiliated companies 37,062 100,051 152,234 191,555 Revenue from profit-and-loss pooling agreements, profit transfer agreements and agreements to transfer part of profits 44,508 50,133 Commissions received (34), (35) 138,981 135,311 including fees from business of Landesbausparkasse: On contracts signed and arranged 20,658 (26,128) From loans granted after allotment of building saving contracts 6,231 (6,288) From the commitment and administration of interim and bridge-over loans 6 (4) Commissions paid 91,511 74,123 including: Commissions on contracts signed and arranged of Landesbausparkasse 26,813 (32,846) 47,470 61,188 Net profit on financial transactions (34) 36,939 1,904 Other operating income (34), (37) 74,488 71,955 Income from the reversal of special account with reserve characteristics – 5,697 Carried forward: 842,079 817,072 47 Annual Accounts of Landesbank Hessen-Thüringen

see Notes, 2003 number u in thousands u in thousands u in thousands u in thousands u in thousands Brought forward: 842,079 817,072 General administrative expenses a) Personnel expenses aa) Wages and salaries 190,302 204,779 ab) Social security pension and other benefits 86,151 64,240 including: 276,453 269,019 For pension 56,376 (34,664) b) Other administrative expenses 232,548 253,170 509,001 522,189 Amortization of and adjustments to intangible fixed assets and depreciation of and adjustments to fixed assets 17,349 19,983 Other operating expenses 23,247 22,172 Amounts written off and valuation allowances of loans and advances and certain securities as well as allocations to accruals in the lending business (38) 156,964 141,660 Amounts written off and valuation allowances on participations and shares in affiliated companies 3,002 2,531 Expenses from the transfer of losses 5,185 8,709 Result on ordinary activities 127,331 99,828 Taxes on income and profits (39) 48,066 20,078 Other taxes unless shown under the item Other operating expenses 645 1,130 48,711 21,208 Net income for the year 78,620 78,620 Allocations to retained earnings 50,000 50,000 Distributable profit 28,620 28,620 48 Annual Accounts of Landesbank Hessen-Thüringen Consolidated equity movement schedule of Landesbank Hessen-Thüringen Girozentrale

Equity of Helaba Group equity generated by Helaba u in millions Share Dormant Capital Retained Group Equity of Group equity capital partners’ reserve earnings distributable minority at the end of equity profit shareholders the fiscal year contributions 2004 2003 Equity as at 1 January 477.0 1,868.3 642.6 531.9 28.6 –0.2 3,548.2 3,530.0 Dividend paid –28.6 –0.1 –28.7 –28.6 Utilization of consolidated net income 57.0 28.6 –0.4 85.2 66.8 Change in the group of consolidated companies 0.7 0.7 1.4 –27.0 Other changes –2.1 –0.4 –2.5 7.0 Equity as at 31 December 477.0 1,868.3 642.6 587.5 28.6 –0.4 3,603.6 3,548.2 49 Annual Accounts of Landesbank Hessen-Thüringen Consolidated Cash Flow Statement, for the year ended 31 December 2004

u in millions 2004 2003 Net income for the year 85.2 66.8 Non-cash positions included in net income for the year and adjustments to reconcile net income with net cash flow provided by operating activities Write-downs, write-ups, adjustments and depreciation on loans and advances and fixed and financial assets 197.2 173.5 Increase/decrease in provisions –41.4 147.6 Profit/loss from the sale of financial and fixed assets –6.5 –14.9 Other adjustments (net) –527.0 –728.4 Sub-total –292.5 –355.4 Changes in assets and liabilities from operating activities after adjustment to eliminate the effects of non-cash components Loans and advances to banks 2,193.5 6,532.0 Loans and advances to customers –158.8 1,789.6 Securities (except those held as investments) –4,972.7 –4,010.4 Other assets –98.2 604.7 Liabilities to banks 278.2 –5,171.9 Liabilities to customers –3.1 1,755.4 Securitized liabilities 3,007.5 –1,821.2 Other liabilities –811.6 –179.6 Interest and dividends received 5,470.8 5,588.3 Interest paid –4,845.4 –4,905.2 Income taxes paid –98.3 45.4 Net cash flow provided by operating activities –330.6 –128.3 Proceeds from the sale of financial assets 99.6 106.5 Proceeds from the sale of fixed assets 4.3 18.8 Payments for investments in financial assets –47.7 –22.9 Payments for investments in fixed assets –31.7 –48.4 Net cash flow provided by investing activities 24.5 54.0 Payments for owners and minority shareholders: Dividends paid –28.6 –28.6 Other financing activities (net) 446.8 –139.2 Net cash flow provided by financing activities 418.2 –167.8 Change in cash funds from cash inflows or outflows 112.1 –242.1 Change in cash funds due to exchange rate movements, changes in the group of consolidated companies and changes to the valuation methods 0.1 0.2 Cash funds at beginning of period 67.6 309.5 Cash funds at end of period 179.8 67.6

Notes relating to the cash flow statement may be found under item 41 in the Notes section. 50 Annual Accounts of Landesbank Hessen-Thüringen Consolidated Segment Report as at 31 December 2004

Primary breakdown

u in millions Real Corporate Financial Asset S-Group Develop- Others/ Group Estate Finance Markets Mgmt. business ment Consoli- Business dation Net interest income 157.8 205.3 164.8 25.8 98.1 25.2 –51.7 625.3 Risk provisions/ valuation gains or losses –116.2 –31.8 12.9 –0.7 –9.7 –1.4 –20.3 –167.2 Net income from commissions 18.6 21.9 14.9 33.8 15.8 6.5 –20.1 91.4 Net profit on financial transactions 0.0 0.0 29.9 1.4 7.7 0.0 0.0 39.0 Other income/ expenses 173.1 4.8 3.3 –1.6 3.3 15.7 6.4 205.0 Total risk-adjusted income 233.3 200.2 225.8 58.7 115.2 46.0 –85.7 793.5 Administrative expenses –143.6 –58.9 –105.4 –38.1 –149.4 –44.2 –108.2 –647.8 Result after risk provisions 89.7 141.3 120.4 20.6 –34.2 1.8 –193.9 145.7 Assets (in billions) 22.1 20.0 78.3 1.5 17.2 5.5 –1.0 143.6 Liabilities (in billions) 2.1 3.0 112.8 1.7 12.0 5.5 6.4 143.6 Risk position (in billions) 18.4 16.2 14.8 2.1 3.9 1.0 0.4 56.8 Allocated capital 422.7 341.3 312.3 44.5 81.8 20.0 484.1 1,706.7 Profitability of Not Not allocated capital (in %) 21.2 41.4 38.5 46.3 specified 8.8 specified 8.5 Cost/income ratio before risk Not provisions (in %) 41.1 25.4 49.5 64.1 119.6 93.3 specified 67.4

Secondary breakdown

u in millions Germany Europe World Others/ Group (excluding (excluding Consolidation Germany) Europe) Result before risk provisions 285.4 60.2 43.8 –76.5 312.9 Risk provisions/ valuation gains or losses –171.0 –3.3 7.0 0.1 –167.2 Result after risk provisions 114.4 56.9 50.8 –76.4 145.7 Assets (in billions) 115.8 39.8 8.0 –20.0 143.6 Allocated capital 1,215.4 262.3 229.0 not specified 1,706.7 Cost/income ratio before risk provisions (in %) 67.0 43.6 41.9 not specified 67.4

Notes relating to the segment report may be found under item 40 in the Notes section 51 Annual Accounts of Landesbank Hessen-Thüringen Consolidated Segment Report as at 31 December 2003

Primary breakdown

u in millions Real Corporate Financial Asset S-Group Develop- Others/ Group Estate Finance Markets Mgmt. business ment Consoli- Business dation Net interest income 179.2 161.0 181.8 27.4 96.5 23.4 13.8 683.1 Risk provisions/ valuation gains or losses –69.0 –66.4 15.4 –1.5 –7.9 1.1 –20.5 –148.8 Net income from commissions 13.4 16.2 17.4 27.6 19.5 7.0 –5.1 96.0 Net profit on financial transactions 0.0 0.0 –8.2 0.3 10.7 0.0 0.0 2.8 Other income/ expenses 43.9 0.3 3.3 –1.6 7.6 14.9 5.8 74.2 Total risk-adjusted income 167.5 111.1 209.7 52.2 126.4 46.4 –6.0 707.3 Administrative expenses –98.8 –64.6 –109.3 –44.2 –150.6 –42.2 –103.7 –613.4 Result after risk provisions 68.7 46.5 100.4 8.0 –24.2 4.2 –109.7 93.9 Assets (in billions) 18.1 18.9 73.4 1.6 17.9 5.5 4.0 139.4 Liabilities (in billions) 0.3 2.7 104.2 1.8 11.3 5.5 13.6 139.4 Risk position (in billions) 15.8 15.1 12.4 2.2 4.0 1.1 0.8 51.4 Allocated capital 352.7 330.8 272.2 48.7 87.6 24.8 534.3 1,651.3 Profitability of not not allocated capital (in %) 19.4 14.0 36.8 16.4 specified 16.7 specified 5.7 Cost/income ratio before risk not provisions (in %) 41.8 36.4 56.2 82.3 112.1 93.2 specified 71.7

Secondary breakdown

u in millions Germany Europe World Others/ Group (excluding (excluding Consolidation Germany) Europe) Result before risk provisions 214.5 15.9 51.9 –39.6 242.7 Risk provisions/ valuation gains or losses –128.0 –13.4 –9.9 2.5 –148.8 Result after risk provisions 86.5 2.5 42.0 –37.1 93.9 Assets (in billions) 109.8 43.9 6.6 –20.9 139.4 Allocated capital 1,157.2 289.3 204.8 not specified 1,651.3 Cost/income ratio before risk provisions (in %) 71.6 76.2 37.5 not specified 71,7 52 Annual Accounts of Landesbank Hessen-Thüringen Notes to the Annual Accounts and the Consolidated Accounts Frankfurt am Main/Erfurt, for the year ended 31 December 2004

The annual accounts and the consolidated accounts of Landesbank Hessen-Thüringen are prepared in accordance with the regulations of the German Commercial Code (HGB) and of the German Accounting Ordinance for Banks (RechKredV). The balance sheets and income statements are structured in accordance with these regulations and also contain the positions prescribed for home loan and saving asso- ciations. Items specific to real estate business have been added to the positions shown on the Group’s balance sheet and income statement owing to the first-time consolidation of companies focusing on residential construction business. The notes to the annual accounts and to the consolidated accounts have been combined; the explanatory notes relate to both the annual accounts and the consolidated accounts unless otherwise indicated.

(1) Accounting and valuation methods

Assets and liabilities are valued in accordance with the provisions of section 252 et seq. HGB and the special rules and regulations applying to credit institutions (sections 340e et seq. HGB). Loans and advances are reported at their nominal value, liabilities at their repayment amount. Differences between nominal values and repayment amounts or acquisition costs that have an interest character are reported as accruals and deferrals, respectively, and reversed pro rata. Discounted bonds and similar obligations issued on a discounted basis are stated at their net present value, as are securities and receivables ac- quired on a discounted basis.

Special valuation allowances or provisions have been created to cover all identified risks. Global valuation allowances and provisions in accordance with section 340f HGB have been made, in addition to the fund for general banking risks shown on the balance sheet, for latent (credit) risks.

Loans and advances to customers secured by real estate lien notes are shown in the accounts only if they satisfy the requirements of sections 11 and 12 (1) and (2) of the German Mortgage Bank Act (Hypotheken- bankgesetz).

The portfolios of the positions Bonds and other fixed-income securities and Shares and other non-fixed income securities are valued in accordance with the regulations pertaining to current assets of section 253 HGB in conjunction with section 280 (1) HGB. The legally prescribed write-ups were made. Securities swap combinations concluded for the purpose of long-term liquidity investment as well as a replacement for loans are valued concurrently.

Participations and holdings in affiliated companies are reported at acquisition cost. If permanent impair- ment appears probable, write-downs to the lower of cost or market are performed. If the reasons leading to a reduction in value in previous fiscal years no longer exist, write-ups are performed up to the lower of the current value and the updated acquisition cost.

Standard software purchased is shown first on the balance sheet date under the Intangible assets balance sheet item. Fixed assets and intangible assets with a limited useful life were depreciated as scheduled in accordance with the rates permitted by the tax authorities. Additions of residential real estate to the Group in conjunction with the first-time consolidation were evaluated promptly and the remaining useful economic lives in the Group were redefined (capital consolidation as per section 301 (1) 1 HGB). Depreciable movable fixed assets of low value are fully depreciated in the year of acquisition. 53 Annual Accounts of Landesbank Hessen-Thüringen

Provisions are adequate in size and take all discernible risks and undetermined liabilities into account. Pension provisions were calculated on the basis of an actuarial opinion, taking into account section 6a of the German Income Tax Act (EStG), the 1998 basic tables and comparable international rules and regulations. They also include pension-related obligations (such as early retirement obligations) and obligations connected with salary sacrifice pursuant to the German company retirement pension plan improvement act (BetrAVG).

The real estate and construction measures reported under the position Other assets from real estate project planning and development business are valued at the acquisition or production cost or, in keeping with the principle of no-loss valuation, at lower values. Production costs in certain multiyear projects also include directly attributable elements of overheads and interest on borrowed capital.

Assets (excluding participations and shares in affiliated companies) and liabilities denominated in foreign currency and spot transactions not yet settled on the balance sheet date are translated at the spot middle rates as at the balance sheet date. With regard to forward transactions in foreign currencies, accruals/deferrals of the realised profit/loss and a valuation of the profit/loss not yet realised are made after neutralisation of gains and losses, if any, from changes in the spot rate.

When calculating the result from foreign currency transactions, the Bank makes use of the option granted by section 340h HGB concerning the inclusion of unrealised gains in so far as these gains offset temporary losses. The net positions in each currency of the Bank and the other consolidated companies with foreign currency transactions are calculated daily. Derivatives (futures and options transactions in the interest rate, share and currency sectors as well as swap agreements) are allocated to the trading book or the banking book on conclusion. This allocation may only be changed by a decision of the Board of Managing Directors. Derivatives, being pending transactions, are not shown on the balance sheet. They are reported and valued in compliance with the pertinent expert opinions and accounting guidelines from the Institute of German Accountants and Auditors (IDW).

Derivative trading transactions are valued by the trading office as combined totals for each currency and risk category. Negative payment balances are offset against positive values until they reach zero. The valuations from London and Frankfurt for each currency are consolidated to facilitate centralised management. Securities valuations from the trading portfolio are included in order to map cross-product trading transactions adequately. Any profits remaining above and beyond this consideration of unrealised contributions to earnings are not shown; provisions are made for any remaining losses. The results from trading transactions are shown in the position Net profit on financial transactions.

Calculations involving derivative products use market prices or, if these are unavailable, values derived from market parameters determined on the basis of relevant option pricing formulas and present value calculations.

None of the derivatives used outside trading are valued. Gains or losses from swap transactions are allocated to accruals and deferrals pro rata and shown under Other assets and Other liabilities respectively. 54 Annual Accounts of Landesbank Hessen-Thüringen

(2) Definition of the group of consolidated companies and explanations concerning the group of consolidated companies

The group of consolidated companies changed in the year under review as a result of the first-time consolidation of three companies active primarily in the field of residential construction business. Other changes related in seven cases (five disposals and two first-time consolidations) to real estate project planning and development companies. One finance company based outside Germany that is no longer active in the issuing business was left out of the group of consolidated companies on the grounds of ir- relevance.

Capital accounts were once again consolidated under the book value method as per section 301 (1) 1 HGB. Pursuant to the provisions in force, this consolidation was carried out using the figures stated at the time of first inclusion. In the companies consolidated for the first time, silent reserves in existence on this date were considered up to the value of the differences between consolidated investment book values and the balance sheet equity of the affiliates.

Overall, the changes in the group of consolidated companies do not produce any major change in the economic situation of the Group as a whole as compared with the previous year.

Use was made of section 296 (2) HGB in respect of affiliated companies that have business areas not typi- cal of banking. Section 311 (2) HGB was also applied.

Receivables and liabilities and expenses and income between the companies included in the consolidated accounts were consolidated.

Amounts denominated in foreign currency were translated at the corresponding middle rates as at the balance sheet date. Any differences arising from translation were eliminated and not recognised in earnings.

(3) Loans and advances to banks

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 This position includes: Loans and advances to the Sparkassen in Hesse and Thuringia 11,936 12,764 11,981 12,809 Loans and advances to affiliated companies 283 19 – – Loans and advances to companies in which an interest is held 2,180 1,515 1,762 1,093 The sub-item – Other loans and advances – includes: Subordinated loans 24 24 19 19 including: to affiliated companies – – – – including: to companies in which an interest is held 12 11 7 7 Residual maturities of the sub-item – Other loans and advances – Up to three months 13,997 14,987 14,419 15,607 Over three months and up to one year 3,939 5,105 4,103 5,436 Over one year and up to five years 9,362 9,424 9,514 9,565 More than five years 7,007 7,290 7,120 7,354 Serving as cover 19,199 12,809 19,199 12,809 55 Annual Accounts of Landesbank Hessen-Thüringen

(4) Loans and advances to customers

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 This position includes: Loans and advances to affiliated companies 721 885 216 803 Loans and advances to companies in which an interest is held 520 649 544 685 Subordinated liabilities 30 117 30 117 including: to companies in which an interest is held 1 0 1 0 Residual maturities: Up to three months 5,850 8,006 6,254 8,398 Over three months and up to one year 4,264 4,568 4,416 4,782 Over one year and up to five years 14,153 13,885 15,012 15,084 More than five years 27,873 25,514 29,856 27,672 With indefinite term 2,566 2,153 2,551 2,144 Serving as cover 19,316 19,351 19,316 19,351

(5) Bonds and other fixed-income securities

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Securitised loans and advances To affiliated companies 8 8 0 14 To companies in which an interest is held 1,180 1,050 1,180 1,050 Marketable securities include Listed securities 31,807 28,508 34,572 30,538 Non-listed securities 3,799 2,810 3,934 3,089 Residual maturities: Amounts falling due in the following year 6,864 7,805 7,643 8,093 Subordinated assets 16 0 16 0 Eligible for repurchase agreements within the framework of open-market operations 5,000 1,500 5,000 1,500

(6) Shares and other non-fixed income securities

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Marketable securities include Listed securities 16 3 16 3 Non-listed securities 3 7 4 25 Subordinated assets 5 4 5 4 In companies in which an interest is held 4 4 4 4 56 Annual Accounts of Landesbank Hessen-Thüringen

(7) Participations

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Marketable securities include Listed securities – 21 – 21 Non-listed securities 225 232 2 13

(8) Shares in affiliated companies

The Group’s shares in affiliated companies as shown on the balance sheet fell by € 0.6 bn as compared with the previous year as a result of the first-time consolidation of companies whose book values are still included in the figures for the previous year.

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Marketable securities include Non-listed securities 8 8 3 3

(9) Trust assets

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Trust assets can be broken down as follows in accordance with the positions defined in the German Accounting Ordinance for Banks (RechKredV): Loans and advances to banks 6 6 189 232 Loans and advances to customers 2,179 2,213 2,283 2,315 Holdings in affiliated companies 245 – 245 – Other assets – – 22 10

The holdings shown under trust assets for the first time on the balance sheet date are the result of the service provider function for investors in real estate fund companies performed as a trust-type arrangement.

(10) Intangible assets

The amount shown in this position for the first time on the balance sheet date relates to the portfolios of standard software purchased. These resources were reported under Fixtures and fittings in the Fixed assets position in the previous year. 57 Annual Accounts of Landesbank Hessen-Thüringen

(11) Fixed assets

Also shown in this position is the residential real estate portfolio reported as fixed assets of the companies active primarily in the field of residential construction that are included in the group of consolidated companies for the first time.

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 This position includes: Real properties and buildings used within the scope of the Bank’s own activities 17 18 32 34 Fixtures and fittings 26 56 32 63

(12) Other assets

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Major items include: Interest receivable from swap agreements 1,296 1,155 1,300 1,157 Option premiums paid 182 262 380 262 Claims for tax refunds 75 52 75 53 Capitalised gains on asset swap transactions 32 43 32 43

(13) Other assets from real estate business

Cumulative figures are shown on the balance sheet and in the income statement for the specific positions of companies active primarily in the field of real estate project planning and development business and in residential construction.

Most of the growth in this item relative to the balance sheet for the previous year is attributable to the companies active primarily in the field of residential construction that are consolidated for the first time. 58 Annual Accounts of Landesbank Hessen-Thüringen

Group Group u in millions u in millions 2004 2003 This item on the balance sheet comprises the following key elements from companies active in the real estate business: Land and other holdings destined for sale 398 121 (including: Incomplete project plans and advance payments made in commercial construction) (121) (121) (including: Incomplete project plans and advance payments made in residential construction) (47) – (including: Land and rights equivalent to real property with real estate from commercial construction) (56) – (including: Land and rights equivalent to real property with real estate from residential construction) (107) – (including: Incomplete services from residential letting) (63) – Loans and advances and other assets 46 59 (including: Loans and advances to affiliated companies) (2) (2) (including: Loans and advances to companies in which an interest is held) (0) (2)

(14) Prepaid expenses

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 This position includes: Premiums on loans and advances 36 51 40 55 Discounts on liabilities and bonds issued 253 238 269 238

(15) Genuine repurchase agreements

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Assets issued under repurchase agreements 1,447 1,708 1,447 1,708

(16) Assets transferred as security

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 For the following liabilities, assets were transferred in the amount indicated: Liabilities to banks 2,8991) 4,010 2,899 4,0101) Liabilities to customers 2,9872) 4,157 2,889 4,1572)

1) Including u 1,205 m (2003: u 2,596 m) of securities accepted under repurchase agreements that were transferred on to banks in connection with genuine repurchase agreements. 2) Including u 2,987 m (2003: u 4,157 m) of securities accepted under repurchase agreements that were transferred on to customers in connection with genuine repurchase agreements. 59 Annual Accounts of Landesbank Hessen-Thüringen

(17) Assets denominated in foreign currency

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 39,556 31,677 41,507 33,683

(18) Fixed asset movement schedule

Bank

Fixed assets Intangible Fixed assets Participations Shares in Total – u in millions – assets affiliated companies Acquisition/production costs 1 January 2004 – 259 811 1,269 2,339 Additions – 13 2 8 23 Disposals – 22 30 10 62 Reassignments 71 –71 – – – Changes in exchange rates – –1 – – –1 Accumulated depreciation 48 127 11 16 202 Balance sheet value at 31 December 2004 23 51 772 1,251 2,097 Balance sheet value previous year – 81 807 1,254 2,142 Depreciation 2004 – 17 7 2 26

Group

Fixed assets Intangible Fixed assets Participations Shares in Total – u in millions – assets affiliated companies Acquisition/production costs 1 January 2004 – 384 566 1,106 2,056 Changes in the group of consolidated companies – 1,379 –2 –590 787 Additions –32341480 Disposals – 28 80 17 125 Reassignments 81 –115 – – –34 Changes in exchange rates – –1 – – –1 Accumulated depreciation 56 185 17 24 282 Balance sheet value at 31 December 2004 25 1,466 501 489 2,481 Balance sheet value previous year – 170 552 1,091 1,813 Depreciation 2004 – 49 8 4 61 60 Annual Accounts of Landesbank Hessen-Thüringen

(19) Liabilities to banks

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 This position includes: Liabilities to Sparkassen in Hesse and Thuringia 3,845 3,374 3,851 3,379 Liabilities to affiliated companies 9 95 – – Liabilities to companies in which an interest is held 814 916 1,247 806 Residual maturities in the sub-item – With agreed maturities or at agreed notice period – Up to three months 18,584 14,952 20,292 16,302 Over three months and up to one year 4,953 8,083 5,165 8,474 Over one year and up to five years 7,406 5,759 7,970 6,193 More than five years 10,638 10,553 11,135 11,158

(20) Liabilities to customers

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 This position includes: Liabilities to affiliated companies 4,766 5,198 62 137 Liabilities to companies in which an interest is held 51 57 51 90 Residual maturities in the sub-item – Other liabilities with agreed maturities or at agreed notice period – Up to three months 7,621 10,902 7,182 10,846 Over three months and up to one year 1,691 981 1,630 1,000 Over one year and up to five years 6,624 6,277 4,822 3,645 More than five years 12,547 12,977 13,079 13,548 61 Annual Accounts of Landesbank Hessen-Thüringen

(21) Securitised liabilities

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 This position includes: Liabilities to affiliated companies 1 7 1 7 Liabilities to companies in which an interest is held – 104 – 103 Residual maturities in the sub-item – Bonds issued – Amounts falling due in the following year 3,647 5,168 4,645 5,692 Residual maturities in the sub-item – Other securitised liabilities – Up to three months 8,874 5,921 9,529 6,526 Over three months and up to one year 2,568 5,826 2,568 5,877 Over one year and up to five years – 1 – 1 More than five years – – – –

(22) Trust liabilities

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Trust liabilities can be broken down as follows: Liabilities to banks 33 38 33 54 Liabilities to customers 2,398 2,180 2,707 2,504

(23) Other liabilities

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Major positions are: Interest liabilities from swap agreements 892 803 898 803 Balancing item from currency valuation 226 642 227 642 Option premiums received 263 328 263 328 62 Annual Accounts of Landesbank Hessen-Thüringen

(24) Other liabilities from real estate business

Group Group u in millions u in millions 2004 2003 This item on the balance sheet comprises the following key elements from companies active primarily in real estate project planning and development business and residential construction business: Liabilities to banks 423 145 (including: Secured by real estate lien notes) (351) (22) (including: To Sparkassen in Hesse and Thuringia) (17) (–) Liabilities to affiliated companies – 2 Liabilities to companies in which an interest is held 2 1 Liabilities to customers 144 – Advance payments received on orders 81 – Other liabilities 66 27

(25) Deferred income

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 This position consists chiefly of: Discounts from lending business 268 251 268 302 Premiums from liabilities 31 29 93 31

(26) Subordinated liabilities

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 This position includes: Pro rata interest 12 14 12 14 Interest expenses in the reporting year 83 82 83 82 Liabilities to companies in which an interest is held – – – –

The terms of subordinated borrowings that individually exceed 10% of total borrowings are as follows:

Currency amount Current interest rate Due in Early – in millions – – in % – repayment obligation Bank u 500 5.50 2015 –

The conditions for the subordination of these funds comply with the German Banking Act (Gesetz über das Kreditwesen). No conversion into equity or other forms of liability has been agreed or planned. 63 Annual Accounts of Landesbank Hessen-Thüringen

(27) Liabilities denominated in foreign currency

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 32,295 35,093 34,150 37,098

(28) Equity

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Equity (excluding distributable profit) according to the balance sheet as at 31 December 2004 is composed of the following: Subscribed capital 2,295 2,295 2,345 2,345 a) Share capital 477 477 477 477 b) Deposits of silent partners 1,818 1,818 1,868 1,868 Capital reserves 643 643 643 643 Revenue reserves/Consolidated revenue reserves (including minority interests in the consolidated figures) 662 612 588 532 Including jouissance rights capital 421 481 421 481 and the fund for general banking risks, 125 125 126 126 the liable equity capital as shown on the balance sheet amounted to 4,146 4,156 4,123 4,127

The equity of the Bank to be regarded for banking regulatory purposes as core capital was further strengthened by allocations to revenue reserves. The decline in the portfolios of jouissance rights is the result of maturities in 2004.

(29) Contingent liabilities

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Liabilities from guarantees and warranty agreements include guarantees for loans in an amount of 3,753 3,371 3,324 2,959 64 Annual Accounts of Landesbank Hessen-Thüringen

(30) Other liabilities

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 These include: Placing and underwriting commitments 2,383 2,899 2,383 2,899 Calls under placing and underwriting commitments – – – – Irrevocable loan commitments for book credit 24,189 21,317 24,313 23,097

(31) Specialist and other investment funds managed on behalf of shareholders

The increase in specialist and other investment funds managed in the Group stems largely from the growth in the business of Helaba Invest.

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 This position covered 229 specialist and other investment funds (2003: 215) on the balance sheet date – – 18,868 12,417

(32) Breakdown of liabilities requiring cover and assets serving as cover

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Liabilities requiring cover are broken down into Bearer securities 9,174 10,877 9,174 10,877 Registered securities 15,815 15,291 15,815 15,291 The following assets are earmarked as collateral for bonds issued: Loans and advances to banks 12,199 12,809 12,199 12,809 Loans and advances to customers 19,358 19,351 19,358 19,351 including: Real estate liens 8,496 7,547 8,496 7,547 Municipal loans 11,241 11,803 11,241 11,803

(33) Derivates business

Reporting of business with derivative products has been brought into line with the changed disclosure requirements (section 285 HGB) and the columns showing negative market values have been added. Credit risk equivalents in accordance with regulatory requirements are no longer given, as the increased use of internal models and netting and collateral agreements means that they are now less meaningful. 65 Annual Accounts of Landesbank Hessen-Thüringen

The differences between the values for the Group and for the Bank are very slight, so we have refrained from providing a second table specifically for the Bank. The figures for the Bank are around € 1.6 bn below those for the Group for nominal value, around € 14 m below those for the Group for positive market value and around €13 m above those for the Group for negative market value. Interest rate derivates account for most of these differences.

Derivative products business shrank by 6.8% year on year in terms of nominal volume (2003: up 8.9%). This is due to a reduction (of 70.6% year on year) in exchange-traded interest rate contracts caused essentially by a decline in exchange-traded interest rate option contracts for reasons associated with the reporting date. The nominal volume of instruments involving interest rate risks traded off-exchange actually rose slightly, as did the overall volume of transactions involving currency, share-related and other price risks.

Derivatives business – Volumes –

Group Nominal values Positive Negative market values market values u in millions u in millions u in millions 2004 2003 2004 2004 Interest rate risks Interest rate swaps 291,738 272,547 7,845 7,244 FRAs 17,040 8,055 3 2 Interest options 6,908 8,992 130 127 Purchases 3,661 5,812 130 0 Sales 3,247 3,180 0 127 Caps, floors 16,499 17,621 95 85 Exchange-traded contracts 24,014 81,543 6 7 Other interest rate futures transactions 764 1,814 11 1

Interest rate risks – total – 356,963 390,572 8,090 7,466

Currency risks FX futures 23,731 18,989 531 933 Currency swaps/Interest rate and currency swaps 11,598 11,110 724 452 FX options 1,514 2,302 12 10 Purchases 676 1,148 12 0 Sales 838 1,154 0 10 Exchange-traded contracts 0000 Other FX futures transactions 0000

Currency risks – total – 36,843 32,401 1,267 1,395

Stock-related and other price risks Share futures transactions 18100 Share options 424 1,191 35 40 Purchases 201 590 35 0 Sales 223 601 0 40 Exchange-traded contracts 50 32 0 1 Other futures transactions 0000

Share and other price risks – total – 492 1,224 35 41

Credit derivates Purchases 1,775 1,125 1 16 Sales 1,462 1,189 14 1

Credit derivates – total – 3,237 2,314 15 17 66 Annual Accounts of Landesbank Hessen-Thüringen

The positive and negative market values are now also shown separately in addition to the nominal volumes. Netting or collateral agreements are not considered here.

The positive market/cash values may be used as an indication of the potential risk of counterparty default associated with the transactions. The sum of the positive market values amounts to 2.4% of the nominal value.

The great majority of derivative transactions at Helaba are made to hedge or manage risks associated with other positions, so total market values are always to be viewed in conjunction with these underlying transactions.

The market values are in some cases offset by premium and special payment flows not yet shown and accrued interest from derivates reported on the balance sheet under other assets/liabilities. Some € 186 m of the € 1,540 m on the assets side comes from option premiums paid and € 263 m of the €1,329 m on the liabilities side comes from option premiums received.

Derivatives business – Breakdown by maturities (nominal values) –

Group Interest rate risks Currency risks Share-related Credit derivates and other price risks u in millions u in millions u in millions u in millions 2004 2003 2004 2003 2004 2003 2004 2003 Residual maturities up to three months 94,530 120,343 16,781 12,733 60 31 92 45 up to one year 47,724 71,837 8,802 7,239 203 881 80 20 up to five years 124,386 109,654 8,168 9,377 105 246 2,854 1,944 over five years 90,323 88,738 3,092 3,052 124 66 211 305 Total 356,963 390,572 36,843 32,401 492 1,224 3,237 2,314

The great majority of Helaba’s currency transactions fall into the short-term maturity range. The slight increase for reasons associated with the reporting date appears primarily in the three-month band.

The reduction in the volume of exchange-traded interest options affects the short-term items under interest rate transactions, and the proportion of total interest rate business accounted for by the short-term items (up to one year residual maturity) has accordingly fallen to 39.9% (2003: 49.2%). The increase in the longer-term bands is associated with rising swap volumes.

Derivatives business – Breakdown by counterparty –

Group Nominal values Positive Negative market values market values u in millions u in millions u in millions 2004 2003 2004 2004 Banks in the OECD 337,019 309,910 8,368 7,635 Banks outside the OECD 614 404 12 2 Public authorities in the OECD 3,391 4,236 133 92 Other counterparties 56,511 111,961 894 1,190 Total 397,535 426,511 9,407 8,919 67 Annual Accounts of Landesbank Hessen-Thüringen

The breakdown by counterparty helps to show the risks of counterparty default associated with derivative transactions. Helaba concludes the bulk of its derivative transactions with first-class counterparties, primarily OECD banks. Exchanged-traded transactions are included in the Other counterparties category, so the fall in the exchange-traded options positions is also evident here. The overwhelming majority of the positive market values and hence also of the replacement risks once again relate to OECD banks and exchange-traded contracts.

Derivatives business for the trading portfolio Derivative financial instruments are used both to hedge against market risks in non-trading business (asset/liability management) and for trading purposes.

Derivatives business – Trading transactions –

Group Nominal values Positive Negative market values market values u in millions u in millions u in millions 31.12.04 31.12.03 31.12.04 31.12.04 Interest rate contracts 226,905 293,648 4,969 5,214 Currency contracts 21,571 17,034 689 788 Stock contracts 488 1,209 35 41 Credit derivates 3,237 2,314 15 17 Total 252,201 314,205 5,708 6,060

That proportion of the total volume of derivatives made up of derivatives in the trading portfolio fell to 63.4% in the fiscal year ended (2003: 73.7%) as a result of the reduction in exchange-traded interest rate contracts.

Interest rate contracts continue to dominate trading activities. The trading portfolio accounts for 63.6% (2003: 75.2%) of interest rate contracts. The share of trading transactions for currency contracts rose from 52.6% to 58.5%.

The volume of credit derivatives concluded for trading purposes was again increased slightly. The associated risk of counterparty default remains very low.

(34) Breakdown by geographical markets

The total amount of the items Interest received, Current revenue from shares and other non-fixed income securities, Participations and shares in affiliated companies, Commissions received, Net profit on financial transactions and Other operating income can be broken down by geographical markets as follows:

Bank (u in millions) Group (u in millions) 2004 2003 2004 2003 Germany 4,550 4,710 4,513 4,748 European Union excluding Germany 708 572 1,106 895 Rest of the world 137 140 178 180 68 Annual Accounts of Landesbank Hessen-Thüringen

(35) Commissions received

This item essentially comprises commissions received from sureties and guarantees. Other components include commissions received from services provided for third parties in connection with securities transactions and other transactions customary in banking.

(36) Net profit from real estate business

Group Group u in millions u in millions 2004 2003 This item on the balance sheet comprises the following key elements from companies active primarily in real estate project planning and development business and residential construction business: Sales revenue 388 169 (including: From letting, servicing and building management in residential construction) (239) – (including: From the sale of land and project plans) (142) (112) (including: From other goods and services) (6) (50) Changes in the portfolio of land destined for sale, land with complete and incomplete buildings and incomplete services 53 –86 Expenses for goods and services purchased –260 –76 Other operating income from real estate business 52 19 Other operating expenses from real estate business –91 –18

(37) Other operating income

Earnings recorded under this position in the year under review included revenues for the Bank of € 31 m (2003: € 28 m) from letting activities, cost refunds from third party job orders of € 15 m (2003: € 12.1 m) and € 6 m from IT services (2003: € 8 m).

The consolidated Other operating income and Other operating expenses positions each include € 6 m representing income and expenses from a leasing transaction of a subsidiary.

(38) Amounts written off and valuation allowances on loans and advances and certain securities, as well as allocations to accruals in the lending business

Provision reserves in accordance with section 340f HGB were created in fiscal 2004 as in previous years. These allocations made by the Bank are, like other risk provisions in lending business, shown here. 69 Annual Accounts of Landesbank Hessen-Thüringen

(39) Taxes on income and profits

The tax expenses item reported for taxes on income and profits relates mainly to the profit from ordinary activities. It comprises primarily tax payable for the fiscal year.

(40) Notes on the segment report

The segment report has been prepared in accordance with DRS 3 and 3–10 (German Accounting Stan- dards). It provides information about the Group’s various business areas and geographical focuses.

The business areas are shown in the primary segment report. The segment breakdown is based on the internal organisational and reporting structure of the Bank. The Group companies and the Back Office Lending unit are allocated to the organisational units – and hence to the segments – in line with their business structure.

The S-Group activities conducted together with Landesbausparkasse Hessen-Thüringen are for the first time reported in a separate S-Group business segment. The figures for the previous year have been adjusted accordingly.

The segment report uses the seven primary segments detailed below:

• The real estate segment comprises the Real Estate Lending and Real Estate Management business lines. The Other income/expenses item for this segment includes the result of the real estate project planning and development business of OFB Projektentwicklungs-GmbH and Helaba Immobilien GmbH, including their consolidated subsidiaries.

• The corporate finance segment comprises the Front Office Corporate Loans and Corporate Finance business lines.

• The financial markets segment brings together the results of the Capital Markets, Sales Public Authori- ties, Equity Business, Asset/Liability Management and Financial Institutions & International Public Finance business lines.

• The Asset Management corporate business line is shown under the asset management segment. LB(Swiss) Privatbank AG and the investment management operations of Banque LBLux S.A. also appear in this segment.

• The S-Group business segment shows the figures for Landesbausparkasse Hessen-Thüringen and the S-Group Bank.

• The development business segment includes the LTH Landestreuhandstelle business area together with InvestitionsBank Hessen (IBH) and Thüringer Aufbaubank.

• The others/consolidation segment comprises contributions to earnings that cannot be allocated to the other segments. These include the profits from the central investment of equity and from strategic asset/liability management decisions. The transfer and consolidation amounts between the segment data and the Group are also shown in this segment. 70 Annual Accounts of Landesbank Hessen-Thüringen

The secondary segment breakdown uses geographical criteria, with allocations made on the basis of where the branch office or Group member company headquarters is located.

The information about the segments comes from the contribution income statement prepared in business administration and from external accounting. Net interest income is calculated in internal controlling using the market interest method from the difference between the customer interest rate and the market interest rate for a structurally congruent alternative transaction. Risk provisions/valuation gains or losses and the net profit on financial transactions are determined in accordance with the applicable principles of German commercial law. Directly attributable costs and the Corporate Center costs allocated to the relevant originator through internal activity accounting and cost distribution are included in administrative expenses. Balance sheet assets are included under assets, and balance sheet liabilities including the equity of the relevant units in each case are shown under liabilities. All figures relate to the balance sheet date. The risk position covers the risk position from the banking book and the trading book including the market risk position as per Principle I of the German Banking Act (KWG). The allocated capital is distributed in accordance with the tied regulatory capital and, for real estate business activities, in accordance with the balance sheet assets. Silent participations’ capital contributions are not included under allocated capital, as they are already covered under Net interest income. The capital not assigned is allocated in full to the others/consolidation segment.

We determine the profitability figure by comparing the operating result after risk provisions and the allocated capital. The cost/income ratio is calculated by comparing administrative expenses and income before risk provisions and valuation gains or losses.

(41) Notes on the cash flow statement

Helaba’s cash flow statement is structured in accordance with the recommendations of DRS 2–10 (Ger- man Accounting Standards). The cash funds include cash or cash equivalents in an amount of € 2.8 m (2003: € 15.4 m) of companies included on a pro-rata basis in the consolidated accounts. The cash funds are unaffected by the first-time inclusion of Helaba Immobilien GmbH and its subsidiaries, as their cash and cash equivalents are shown in the Group under the Other assets from real estate business item on the balance sheet.

(42) Other financial obligations

At the balance sheet date, the Bank had call commitments on subscribed capital towards six (2003: five) companies in an overall amount of € 34.9 m (2003: € 5.3 m) and in the capital reserve towards two companies in an overall amount of € 20.63 m (2003: € 1.3 m). There was also one instance of joint liability in accordance with section 24 of the German Limited Liability Company Act (GmbHG) towards one company for not yet fully paid-in partner’s contributions of € 16.7 m (just as in the previous year). The Bank has statutory or legal obligations to provide additional capital in respect of four companies in an overall amount of € 57.0 m. Call commitments pursuant to section 172 (4) HGB exist in respect of three companies and amount to a total of € 51.2 m as in the previous year.

The Bank is also jointly liable for discharging obligations to pay further capital of other shareholders who are members of the German Savings Banks and Giro Association (DSGV). Helaba is obliged to provide an internal, pro-rata equalisation of liabilities in the event that claims are made on any of the guarantors of DekaBank.

The Bank holds an interest as a shareholder with unlimited liability in GLB GmbH & Co. OHG, Frankfurt am Main. 71 Annual Accounts of Landesbank Hessen-Thüringen

The Bank is involved in the deposit guaranty schemes of the German Sparkasse organisation via its membership of the security reserve of the Landesbanken and Girozentrale in Germany. This reserve, which serves to protect the institutions and safeguard their existence, has a total volume of 3‰ of the basis for determination. The basis for determination consists of the loans and advances to customers made by the institutions as per the balance sheet values of the most recent annual accounts, excluding the loans made by the legally dependent Landesbausparkassen and, in the great majority of cases, municipal loans. Half of the security reserve comes from liquid funds paid in and half from the obligation of the institutions to provide additional capital. Extensive improvements are to be implemented on 1 January 2006. The changes, which have already been approved, include a switch to risk-oriented contribution assessment and enlargement of the fund volume.

Helaba has also been a part of the reserve fund of the Savings Bank and Giro Association Hesse-Thuringia since 1 January 2004. This fund, which represents an additional provision independent of the existing deposit guaranty schemes and protects creditors as well as the institutions, is being built up gradually by Landesbank Hessen-Thüringen and the Sparkassen until it reaches 5‰ of the basis for determination (the risk-weighted assets of the institutions determined in accordance with Principle I). The call commitment of each institution is established on the basis of risk taking into account bonus and penalty factors. The Savings Banks and Giro Association Hesse-Thuringia will be liable to make up the relevant shortfall should the fund be required before such time as the full amount has been contributed.

Certain banks affiliated with the Group have additional obligations as members of deposit protection schemes in accordance with the provisions applicable to such arrangements.

Helaba has issued a Letter of Comfort in favour of Helaba Dublin vis-à-vis the Irish Central Bank. OFB Projektentwicklungs-GmbH has issued a Letter of Comfort for a company active in real estate project planning and development business vis-à-vis the purchaser of a particular item of real estate.

The Group and Helaba had total assets of € 8.3 bn deposited as security on the balance sheet date. Open- market loans with Deutsche Bundesbank accounted for securities worth € 5.0 bn of this total. Pledged assets of € 2.4 bn were deposited for the processing of transactions through Euroclear Bank in Brussels. Receivables and securities worth € 678.5 m were pledged to securitise OTC derivative transactions. The Bank provided securities in an amount of € 79.2 m and the Group in an amount of € 81.7 m with Clear- stream Banking AG, Frankfurt (Main), as security in connection with transactions on futures exchanges. Securities in an amount of € 17.4 m were deposited for Clearstream Banking. In accordance with foreign legal regulations, the Bank and the Group collateralised assets equivalent to € 68.4 m as security.

Helaba ensures, to an extent proportionate to its respective holdings in these companies, that Banque LBLux. S.A., Luxembourg, LB(Swiss) Privatbank AG, Zurich, and consolidated subsidiaries that are active in the banking business or carry out supplementary functions are able to satisfy their obligations. Politi- cal risks are excluded from this provision.

As at the balance sheet date, the Bank had obligations under conditional and unconditional forward transactions

• on the foreign currency side (foreign currency futures transactions and foreign currency option transactions as well as currency and interest/currency swaps), 72 Annual Accounts of Landesbank Hessen-Thüringen

• on the interest rate side (forward and options transactions with fixed-income securities and loans against borrower’s note, forward rate agreements, finance swaps and options thereon, interest futures contracts including options thereon, as well as interest cap and floor agreements),

• in the area of other price risks (share and index options as well as index futures contracts/options), and

• in the area of creditworthiness risks (credit derivatives).

The great majority of the variety of different transaction types concluded in trading business led, for reasons of risk, to closed positions. Transactions involving the holding of derivative instruments in non- trading business are concluded largely to hedge against interest rate and currency market risks.

(43) Remuneration of the Board of Managing Directors, the Supervisory Board and the Advisory Boards and loans granted

The remuneration of the members of the Board of Managing Directors totalled € 4.2 m (2003: € 3.9 m). The remuneration paid by the Group in 2004 to the members of the Supervisory Board and of the Advisory Boards was unchanged from last year at € 0.4 m and € 0.1 m respectively. A total of € 3.0 m (2002: € 2.6 m) was paid to former members of the Board of Managing Directors and their surviving dependants. Pension provisions for this group totalled € 27.3 m (2003: € 26.1 m). Loans granted to members of the Board of Managing Directors throughout the Group amounted at the end of 2004 to € 2.2 m (2003: € 2.4 m) and loans granted to members of the Supervisory Board totalled € 6.0 m (2003: € 6.2 m).

(44) Average number of staff during the year

female male total Bank 952 1,381 2,333 Landesbausparkasse 211 179 390 Bank total 1,163 1,560 2,723 Group subsidiaries 292 406 698 Joint ventures included pro-rata 208 146 354 Helaba Group 1,663 2,112 3,775 73 Annual Accounts of Landesbank Hessen-Thüringen

(45) Corporate Bodies of the Bank

Supervisory Board

Gregor Böhmer Dieter Brosey Stefan Lauer Executive President of the Chief Administrative Officer, Member of the Board of Savings Banks and Giro County District of Werra- Managing Directors, Association Hesse-Thuringia, Meissner, Deutsche Lufthansa AG, Frankfurt am Main/Erfurt, Eschwege Cologne Chairman

Fritz Kramer Jens B. Fischer Fred Mittler Chief Administrative Officer, Chairman of the Board of Senior Vice-Chairman of the County District of Fulda, Managing Directors, Board of Managing Directors, Vice-Chairman Nassauische Sparkasse, Sparkasse Mittelthüringen, Wiesbaden Erfurt – until 31 July 2004 –

Karlheinz Weimar Dr. Martin Frühauf Dietrich Möller Minister of State, Former member of the Lord Mayor, Ministry of Finance of Supervisory Board Marburg the State of Hesse, of Aventis S.A., Wiesbaden, Strasbourg Vice-Chairman

Detlef Wiertz Heiko Gentzel Frank Nickel Chairman of the Board of Member of the State Parliament Chairman of the Board of Managing Directors, of Thuringia, Managing Directors, Sparkasse Arnstadt-Ilmenau, Erfurt Sparkasse Werra-Meissner, Ilmenau, Eschwege Vice-Chairman

Hans Adler Gerhard Grandke Dr. Harald Quensen Chairman of the Board of Lord Mayor, Chairman of the Board of Managing Directors, Offenbach am Main Managing Directors, Bezirksparkasse Heppenheim, Frankfurter Sparkasse, Heppenheim Frankfurt am Main – since 3 November 2004 – – since 3 November 2004 –

Dieter Bauhaus Dr. Werner Henning Clemens Reif Chairman of the Board of Chief Administrative Officer, Chairman of the Board of Managing Directors, County District of Eichsfeld, Managing Directors, Sparkasse Mittelthüringen, Heiligenstadt VfW AG, Cologne, Erfurt Member of the State – since 1 August 2004 – Parliament of Hesse, Wiesbaden

Dr. h.c. Ludwig G. Braun Stephan Illert Dr. Peter Röhlinger Chairman of the Board of Secretary of State, Lord Mayor, Managing Directors, Thuringian Ministry of Health, Jena B. Braun Melsungen AG, Family and Social Affairs, Melsungen Erfurt – until 21 October 2004 – 74 Annual Accounts of Landesbank Hessen-Thüringen

Supervisory Board Staff representatives

Petra Roth Horst Biadala Wilfried Carl Lady Mayoress, Deputy Vice-President, Assistant Vice-President, Frankfurt am Main Frankfurt am Main, Kassel Vice-Chairman – until 30 June 2004 –

Michael Schneider, Dirk Dietrich Roland Haas Secretary of State, Bank Officer, Bank Officer, Ministry of Finance of the State Kassel Frankfurt am Main of Thuringia, Erfurt – since 22 October 2004 –

Horst Schnur Susanne Noll Heinz Düringer Chief Administrative Officer, Bank Officer, Assistant Vice-President, County District of Odenwald, Frankfurt am Main Frankfurt am Main Erbach

Georg Sellner Bärbel Ohlwein Reinhard Hündersen Chairman of the Board of Assistant Vice-President, Deputy Vice-President, Managing Directors, Kassel, Frankfurt am Main Stadt- und Kreissparkasse Vice-Chairwoman Darmstadt, – since 22 September 2004 – Darmstadt – until 30 September 2004 –

Jürgen Walter Martina Endisch Chairman of the parliamentary Bank Officer SPD party in the State Kassel Parliament of Hesse, – since 1 July 2004 – Wiesbaden

Ulrich Zinn Ute Opfer Chairman of the Board of Bank Officer, Managing Directors, Kassel Sparkasse Grünberg, Grünberg Wilfried Abt Deputy Vice-President, Frankfurt am Main

Gabriele Fuchs Bank Officer, Frankfurt am Main

Hans Peschka Assistant Vice-President, Frankfurt am Main 75 Annual Accounts of Landesbank Hessen-Thüringen

Board of Managing Directors

Dr. Günther Merl Chairman

Heinz Riener Vice-Chairman

Ralf Bedranowsky – since 1 September 2004 –

Dr. Norbert Bräuer

Hans-Dieter Brenner

Klaus-Dieter Gröb – since 1 October 2004 –

Peter Kobiela

Kurt-Dieter Schrauth – until 31 August 2004 – 76 Annual Accounts of Landesbank Hessen-Thüringen (46) Holdings of Landesbank Hessen-Thüringen Girozentrale in companies according to section 285 11 HGB, section 313 (2) HGB and section 340a (4) 2 HGB (extract)

Consolidated Subsidiaries

No.Name and registered office of the company Share in Capital Annual capital reserves result % 1 in millions 1 in thous. 1 AlphaHaus GmbH&Co. KG, Frankfurt am Main 100.0 –0.2 –1,163 2 Banque LBLux S.A., Luxembourg 25.0 470.6 30,000 2) 3 BHT-Baugrund Hessen-Thüringen GmbH, Kassel 100.0 0.1 – 1) 4 GGM Gesellschaft für Gebäudemanagement mbH, Erfurt 100.0 0.3 – 1) 5 GKH-Gesellschaft für Kommunalbau in Hessen mbH, Frankfurt am Main 100.0 0.3 – 1) 6 GKT-Gesellschaft für Kommunalbau in Thüringen mbH, Erfurt 100.0 0 – 1) 7 GOB Dritte E&A Grundbesitz GmbH, Eschborn 100.0 0 – 1) 8 GOB Erste E&A Grundbesitz GmbH, Eschborn 100.0 0 – 1) 9 GOB Projektentwicklung E&A GmbH&Co. Erste Rhein-Main KG, Eschborn 100.0 0 –30 10 GOB Projektentwicklung E&A GmbH&Co. Sechste Rhein-Main KG, Eschborn 100.0 0 –37 11 GOB Projektentwicklung E&A GmbH&Co. Siebte Rhein-Main KG, Eschborn 100.0 0.4 503 12 GOB Projektentwicklung E&A GmbH&Co. Vierte Rhein-Main KG, Eschborn 55.0 –0.3 4 13 GOB Projektentwicklung E&A GmbH&Co. Zweite Rhein-Main KG, Eschborn 100.0 0 –30 14 GOB Zweite E&A Grundbesitz GmbH, Eschborn 100.0 0 – 1) 15 Grundstücksgesellschaft Limes-Haus Schwalbach mbH, Wiesbaden 100.0 –0.5 –340 3) 16 Grundstücksgesellschaft Nahversorgungszentrum Marzahn mbH&Co. KG, Frankfurt am Main 100.0 0 –12 17 Grundstücksverwaltungsgesellschaft Kaiserlei mbH&Co. Projektentwicklung Epinayplatz KG, Frankfurt am Main 100.0 0 –1,916 18 Grundstücksverwaltungsgesellschaft Kaiserlei mbH, Frankfurt am Main 100.0 0 –171 19 GWH Gemeinnützige Wohnungsgesellschaft mbH Hessen, Frankfurt am Main 100.0 277.7 – 1/3) 20 Haus am Brüsseler Platz GmbH&Co. KG, Frankfurt am Main 100.0 0 –215 21 Helaba Dublin Landesbank Hessen-Thüringen International, Dublin 100.0 134.9 17,416 22 Helaba Immobilien GmbH, Frankfurt am Main 100.0 689.9 – 1/3) 23 Helaba International Finance plc, Dublin 100.0 5.2 1,939 24 Helaba Invest Kapitalanlagegesellschaft mbH, Frankfurt am Main 100.0 5.2 – 1) 25 Helaba Investment (Schweiz) AG, Zürich, Schweiz 100.0 2.8 69 26 Helaba Trust Beratungs- und Management-Gesellschaft mbH, Frankfurt am Main 100.0 5.2 – 1) 27 Immobiliengesellschaft Geschäftshaus Kellnerblock KG, Mühlheim am Main 100.0 0 –1,752 28 InvestitionsBank Hessen AG (IBH), Frankfurt am Main 50.0 42.5 –898 2) 29 LB(Swiss) Privatbank AG, Zürich, Schweiz 50.0 83.5 13,106 2) 30 OFB Projektentwicklungs-GmbH, Frankfurt am Main 100.0 1.1 – 1) 31 Projektentwicklungs-GmbH&Co. Landratsamt KG, Wolfhagen 94.0 0.1 –8 32 DKB Beteiligung GmbH und Co. KG, München 94.9 34.0 1,874 1/3) 33 Rettberg GmbH&Co. KG, Frankfurt am Main 88.0 0.1 –113) 77 Annual Accounts of Landesbank Hessen-Thüringen

No.Name and registered office of the company Share in Capital Annual capital reserves result % 1 in millions 1 in thous. 34 Thüringer Aufbaubank, Erfurt 50.0 87.2 4,026 2) 35 Westhafen Haus GmbH&Co. Projektentwicklungs-KG, Frankfurt am Main 50.0 0.1 10 36 Westhafen Tower GmbH&Co. Projektentwicklungs-KG, Frankfurt am Main 90.0 –0.3 106

1) There is a profit transfer agreement with a Group company. 2) Pro-rata inclusion in accordance with section 310 HGB. 3) Consolidated for the first time in 2004.

A full list of holdings as per section 285 11 and section 313 (2) HGB may be found in the Commercial Register at the district court in Frankfurt am Main and in Erfurt. 78 Annual Accounts of Landesbank Hessen-Thüringen (47) Mandates held in Supervisory Boards pursuant to section 340a (4) 1 HGB

Holder of the mandate Agaplesion gemeinnützige AG, Frankfurt am Main Dr. Rudolf Kriszeleit Authenthos GmbH, Berlin Dr. Norbert Schraad Banque LBLux S.A., Luxemburg Dr. Günther Merl Bundesdruckerei GmbH, Berlin Dr. Norbert Schraad DekaBank Deutsche Girozentrale, Frankfurt am Main/Berlin Dr. Günther Merl DekaBank Deutsche Girozentrale S.A., Luxemburg Rainer Krick Florida Office Property Company Inc, Chicago Kurt-Dieter Schrauth Helaba Dublin Landesbank Hessen-Thüringen International, Dublin Rainer Krick, Dr. Norbert Schraad, Lothar Steinborn-Reetz Helaba International Finance plc, Dublin Rainer Krick, Lothar Steinborn-Reetz InvestitionsBank Hessen AG (IBH), Frankfurt am Main Dr. Günther Merl, Hans-Dieter Brenner, Heinz Riener LB(Swiss) Privatbank AG, Zürich, Schweiz Dr. Günther Merl, Herbert Hans Grüntker TAB Thüringer Aufbaubank, Erfurt Dr. Günther Merl, Hans-Dieter Brenner, Klaus-Dieter Gröb TxB Transaktionsbank GmbH, Dornach Hans-Dieter Brenner, Ralf Bedranowsky

Frankfurt am Main/Erfurt, 15 March 2005

Landesbank Hessen-Thüringen Girozentrale

The Board of Managing Directors

Dr. Merl Riener Bedranowsky Dr. Bräuer

Brenner Gröb Kobiela 79 Annual Accounts of Landesbank Hessen-Thüringen WiedergabeReproduction des of theBestätigungsvermerks Certificate of Audit

“Auditor’s Report We have audited the annual financial statements, together with the bookkeeping system, and the consolidated financial statements of Landesbank Hessen-Thüringen Girozentrale, Frankfurt am Main/Erfurt, with combined notes, as well as the combined management report of the Bank and the Group for the business year from January 1 to December 31, 2004. The bookkeeping system and the preparation of these documents in accordance with German commercial law and the supplementary provisions of the Bank’s charter are the responsibility of the Board of Managing Directors of the Bank. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, as well as on the consolidated financial statements and the combined management report of the Bank and the Group based on our audit.

We conducted our audit of the annual and consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer in Deutschland (IDW). Those 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 und consolidated financial statements in accordance with German principles of proper accounting and in the combined management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Bank and the Group and evaluations of possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the books and records, the annual and consolidated financial statements and the combined management report are examined primarily on a test basis within the framework of the audit. The audit includes for the annual financial statements assessing the accounting principles used and for the consolidated financial statements 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 as well as for both statements the evaluation of significant estimates made by the Bank’s Board of Managing Directors, and evaluating the overall presentation of the annual and consolidated financial statements and the combined 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 and the consolidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Landesbank Hessen- Thüringen Girozentrale and the Group, respectively, in accordance with German principles of proper accounting. On the whole the combined management report provides a suitable understanding of the Bank’s and the Group’s position and suitably presents the risks of future development.”

Frankfurt am Main, 23 March 2005

PwC Deutsche Revision Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

Struwe ppa. Henneberger German Public Auditor German Public Auditor