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Annual Report 08 Christoph.Indd Annual Report 2008 04 Business activity and general conditions 10 Economic report 12 Risk report 15 Forecast report 20 Miscellaneous 24 Balance-sheet as at 31 December 2008 26 Profit and loss account for the period from 1 January to 31 December 2008 28 Report of the Réviseur d’Entreprises 29 Assurance from the legal representatives 32 General notes 32 Balance-sheet and valuation methods 34 Notes on the asset items 36 Notes on the liability items 38 Notes on the off-balance-sheet items 39 Notes on items of the profit and loss account 39 Other explanatory notes 39 Asset overview 40 Special information 44 Board of Directors 44 Management 44 Réviseur Spécial 01 The German version of the Annual Report is the original and authoritative version. Management Report 02–21 Annual Accounts 22–29 Notes 30–41 Executive Bodies 42–44 02 04 1. Business activity and general conditions 04 1.1. General economic conditions 05 1.2. Branch-specific conditions 06 1.3. Group- and company-specific business conditions 10 2. Economic report 10 2.1. Development of the earnings position 11 2.2. Development of the assets situation 11 2.3. Development of the financial situation 12 3. Risk report 12 3.1. Organisation, responsibilities and tasks 12 3.2. Risk measurement, control and management with respect to major types of risk 15 4. Forecast report 15 4.1. General economic situation 17 4.2. Sector-specific situation 17 4.3. Group- and company-specific situation 21 5. Miscellaneous 03 Management Report 04 Management Report 1. Business activity and general conditions stant 4.0 % in the first half of the year and even tempo- rarily increased it in July 2008 by 25 base points as a 1.1. General economic conditions The year 2008 saw mas- result of the risk of inflation driven mainly by oil prices. sive macroeconomic problems, which reached a signifi- Only after the aforementioned events on the financial cant peak in particular in October 2008. Although a markets in autumn 2008 were interest rates in the euro- financial crisis was already being mentioned in 2007, in zone also decreased to 2.5 % in several steps between 2008, it began to have a more or less vehement effect on the middle of October and the end of the year. At the the real economy. beginning of 2009, this expansive monetary course con- tinued. The same could also be said with regard to fiscal As a result, global economic growth in 2008 sank by policy, which is clearly on an expansive course in both almost half to just 2.1 %. Economic momentum became the USA and the eurozone, and more recently in Asia, significantly weaker in all important national econo- with action being taken to support economies. mies. In the USA, growth in the real gross domestic product was again recorded at around 1.2 % and in Ger- The stock markets, which had been experiencing growth many at around 1.4 %. In the Asian countries too, the worldwide up to and including 2007, suffered badly dur- rate of growth fell to 3.4 %. Even China, which was still ing 2008. During the course of the year, the American experiencing robust growth of 9 %, failed to achieve benchmark index (Dow Jones Industrials) lost a good double-digit growth for the first time since 2003 – third of its value, while both Germany and Japan record- despite the Olympic Games. The important aspect here ed a loss in excess of 40 %. From these figures alone, it is that in real economic terms, 2008 began significantly can be seen that there has been a high level of correla- better in all respects, but the economic problems around tion between developments on the various stock ex- the world became more clearly noticeable throughout changes. the course of the year. After oil prices rose by more than 50 % in 2007, they The problems in the financial sector that have become reached an all-time high in July 2008. The price for a apparent since summer 2007 reached a massive peak in barrel of Brent oil on 11 July 2008 was US$ 145.61. After 2008. The collapse of the Lehman Brothers investment that, however, prices began to drop to an extent that had bank in September 2008 was “only” the most high-pro- not been anticipated, with the nominal price reaching file of these. Even before that, the two large American US$ 36.24 at the end of the year – less than a quarter (!) real estate financing bodies Fannie Mae and Freddie of the highest price. This also shows that OPEC’s cartel Mac were subject to de facto nationalisation. On the day power, about which so many claims are often made, after Lehman Brothers went bankrupt, the US govern- does not really have such a significant influence. All the ment had to take over the majority of the country’s larg- same, this resulted in a significant reduction in the est insurer, AIG. Even though Europe has been able to inflation pressure from the middle of the year. For the avoid insolvency on the part of larger financial institu- European Central Bank, this was a necessary require- tions, there were still huge problems here. Banks were ment for the aforementioned interest rate reduction offered very extensive government assistance both in steps. the USA and Europe in order to avoid a crisis in the sys- tem, which, by autumn of 2008, was no longer complete- ly unthinkable. A significantly expansive monetary policy played an important role in relieving the financial industry, with support from the real economy. During the year, the base rate in the USA was reduced in several stages from an initial rate of 4.25 % to its historically lowest level of 0.25 %. The European Central Bank, on the other hand, kept interest rates for the main refinancing rate at a con- Management report 05 Business activity and general conditions n Real GDP growth for the World, USA, Asia, the Euro- n Unemployment rates for OECD, USA, the Eurozone, pean Union, the Eurozone, Germany Germany Real GDP growth 2008 Unemployment rates 2008 in % in % 3.4 3.5 8.0 7.4 7.4 3.0 7.0 5.9 2.5 6.0 5.7 2.1 2.0 5.0 1.4 1.5 4.0 1.2 1.0 3.0 0.8 0.7 0.5 2.0 0 1.0 Germany Euro- Euopean Asia USA World zone Union Source: EIU 0 Germany Euro- USA OECD zone Source: OECD Economic Outlook, No. 84, Nov. 2008 n Consumer price inflation for the World, USA, Asia, the European Union, the Eurozone, Germany 1.2. Branch-specific conditions The market for state financ- ing is not uniform within Europe – not all market par- Consumer price inflation 2008 ticipants are active in all country. Despite scattered in % market distortions in the first half of 2008, the public 6.0 5.8 5.8 financing market continued, although margins increased. In the second half of 2008, in particular as a result of the 5.0 credit problems after the Lehmann bankruptcy, there was enormous commotion in this market. 4.0 3.6 3.2 3.3 In the time following September 2008, which was criti- 3.0 2.8 cal, several traditional investment banks withdrew from the market in the large public finance markets – Ger- 2.0 many, France, Italy and the Iberian Peninsula. At the same time, special institutions active in this sector suf- 1.0 fered massive refinancing difficulties, resulting in not much liquidity being available in December 2008. The 0 only participants who were able to act during this time Germany Euro- Euopean Asia USA World were government-controlled banks and agencies (some zone Union Source: EIU of them have been commissioned with the task of mak- ing money available to the public sector as a “last resort”). In some EU countries, the public sector was not 06 Management Report obliged to take on larger sums (e.g. in Germany, to a less- The conduct of the market participants changed signifi- er extent in France, the Iberian peninsula and in Scan- cantly. Firstly, the transactions on the money and inter- dinavia). In these countries, the effects of the crisis were bank market or reverse repos were not prolonged. therefore not felt so strongly at this time. Many market Secondly, the intraday lines, meaning very short-term participants are staying away from the capital markets. credit lines, were eliminated. Thirdly, the banks, akin Some of those who were obliged to obtain financing to the Hypo Real Estate Group, had to offer higher cash attempted to negotiate bilateral agreements with the collaterals, i.e. cash deposits. As a result, the DEPFA corresponding lenders. In fact, there were also real “vic- Bank PLC, which has been a 100 % subsidiary of the tims”, such as Iceland. Towards the end of 2008, capital Hypo Real Estate Holding AG since 2 October 2007, markets offered clients very limited possibilities for experienced a liquidity squeeze that jeopardised its refinancing, investors’ increasing risk aversion reduced survival. The DEPFA Bank PLC had, in the past, the sources of financing enormously, and transactions expanded its business volume. To a significant extent, in the area of guaranteed securities and structured the refinancing was dependent on the interbank market bonds were hardly being performed even in the most and other short-term, unsecured refinancing possibili- well known companies. ties, especially deposits of US-American money market funds. Short-term refinanced funds were issued over 1.3. Group and company-specific business conditions long-term in great measure.
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