Annual Accounts and Management Report of Landesbank Hessen-Thüringen Girozentrale 2008

annual accounts and management report of Landesbank Hessen-Thüringen Girozentrale 2008

Management report of Landesbank Hessen-Thüringen 004 Management Report of Landesbank Hessen-Thüringen

Management Report of Landesbank Hessen-Thüringen Girozentrale

Business and background

Operations of Helaba Landesbank Hessen-Thüringen (Helaba) is one of the credit institutions which has coped relatively well with the effects of the international financial market crisis in 2007 and 2008. The main factors of Helaba’s success are as follows:

• The sustainable strategic business model of an integrated universal bank with a regional focus and selected international presence, • A conservative risk profile, • Virtually no contact with credit derivatives, • Long-term liquidity management, • Major importance of business with S-Group Sparkassen as well as public development and infrastructure business.

The strategic business model of Helaba is based on the three pillars “Wholesale Business and Invest- ment Banking”, “Private Customers and SME Business” and “Public Development and Infrastructure Business”.

In the business line “Wholesale Business and Investment Banking”, Helaba focuses its activities on the six core business units Real Estate, Corporate Finance, Financial Institutions and Public Finance, Global Markets, Asset Management and Transaction Business. The national and international aim of these focussed business unit strategies is to achieve or expand leading market positions in selected market segments. In terms of sales, Helaba follows a twin strategy: The first strategy is to focus on product customers from the various product fields, and the second strategy involves focussing customer sales on target customers. Major companies, institutional clients as well as central, regional and local government authorities and municipal enterprises constitute the main target customers in wholesale banking. Based on the positive experience of recent years, the sales activities in the core areas of business will continue to be selectively strengthened in future in the countries of the European Union (EU). Helaba is represented in the EU with offices in London, Madrid, Paris and Dublin. It also has a direct market presence via its New York branch in the USA, its international representative offices opened in the previous year in Moscow and Shanghai and also via the institutions in which it owns an equity participation in Zurich and Luxembourg.

The S-Group Bank function of Helaba, which is part of Helaba’s “Private Customers and SME Business” segment, serves as a central product supplier and service provision platform for the S-Group Sparkassen in Hesse and Thuringia. With gross domestic product of € 300 bn and approx. 10 million inhabitants, the Hesse-Thuringia region is also an attractive economic region in the European context, with strong future potential. All products and customers in the joint business area are covered within the framework of the business model of the “economic entity” with the 50 S-Group Sparkassen. Via the legally dependent Landesbausparkasse Hessen-Thüringen, Helaba holds a leading position in Bausparkassen business in both of these federal states. Frankfurter Sparkasse, a wholly-owned subsidiary of Helaba, is the market leader in retail banking in the Frankfurt/Main region. Via Frankfurter Sparkasse and its sales company 1822direkt, Helaba Group also has a significant base in national direct bank business, with approx. 500,000 customers and a customer volume of € 5 bn at the end of 2008.

In the “Public Development and Infrastructure Business” segment, Helaba is responsible for administra tion of public development programmes of the Federal State of Hesse via “Landestreuhandstelle Hessen – Bank for Public Infrastructure – rechtlich unselbstständige Anstalt in der Helaba” (LTH – Bank for Public 005 Management Report of Landesbank Hessen-Thüringen

Infrastructure) as a legally dependent business unit, particularly in the fields of housing, the environment and public infrastructure. LTH – Bank for Public Infrastructure exercises guarantor liability of the Federal State of Hesse, operates in accordance with the principle of competition neutrality and is tax-exempt. In the field of economic development, Helaba has so far held a 50 % stake in Investitionsbank Hessen (IBH). The state government of Hesse intends to merge IBH with LTH – Bank for Public Infrastructure in order to further combine and strengthen public development business and infrastructure business, and to equip the latter with equity funds for backing the development business. Helaba holds equity participations in numerous other development institutions in Hesse and Thuringia, particularly in the private equity fund Thüringen GmbH & Co. KG as well as in guarantee banks and SME investment companies.

Owners, capital endowment and executive bodies of the Bank The Sparkassen- und Giroverband Hessen-Thüringen (SGVHT), to which the Sparkassen in Hesse and Thuringia and their local authority sponsors belong on the basis of state treaties, holds an 85 % stake in Helaba, and the Federal State of Hesse and the Free State of Thuringia own 10 % and 5 % respectively of the share capital of the Bank.

In addition, the Federal State of Hesse has contributed permanent dormant contributions of € 1.92 bn to Helaba as liable core capital; the Sparkassen in Hesse and Thuringia have provided temporary and permanent hidden contributions of € 395 m, and private and institutional investors have provided temporary and permanent contributions of € 658 m in this respect.

Helaba is a public-sector association with legal capacity with registered offices in Frankfurt am Main and Erfurt. The executive bodies of the Bank are the Board of Managing Directors, the Board of Owners, in which the owners are represented, and the Supervisory Board which is responsible for the super visory function.

Rating The three leading rating agencies Moody’s Investors Service (Moody’s), FitchRatings (Fitch) and Stan- dard & Poor’s Corp. (S & P) have awarded Helaba the following ratings for liabilities which are not subject to the guarantor liability (as of 31 December 2008):

Moody’s Fitch S & P Long-term Aa2 A+* A** Short-term P–1 F1+* A–1** Public Pfandbriefe Aaa AAA AAA Mortgage Pfandbriefe Aaa AAA – Financial strength/individual rating C– B/C* –

* Joint S-Group rating of the Sparkassen-Finanzgruppe Hessen-Thüringen. ** S & P also extended this rating to all S-Group Sparkassen on the basis of the common regional reserve fund Hessen- Thüringen.

The ratings issued by the rating agencies come with a stable outlook. In mid-2008, Standard & Poor’s upgraded its rating outlook to “positive”; this was returned to “stable” at the beginning of October 2008 in view of the general development on the financial markets. As a result of the high quality of the cover funds of Helaba for public and mortgage Pfandbriefe, the requirements of the rating agencies for surplus cover of the cover funds which is required by law are relatively low. The S-Group ratings issued by Fitch 006 Management Report of Landesbank Hessen-Thüringen

and Standard & Poor’s for Helaba and the Sparkassen are based on the joint business model of the economic unit of the Sparkassen-Finanzgruppe Hessen-Thüringen.

Management tool set and non-financial performance indicators As part of overall bank management, Helaba has integrated systems for business and productivity management. This is based on a multiple-stage margin accounting system, which is used for assessing the present value of new business and also for presenting the result of the portfolio for specific periods. Individual-transaction management is applied for defined core portfolios of the Group and completed by additional steering groups. This is also the system which is used for setting up the annual budget which is then used as the basis for a balance sheet budget and an income statement budget. A management statement results in a margin format which is prepared at regular intervals during the year and is used as the starting point for generating the various budget-actual comparisons of earnings components and for carrying out variance analyses. Particularly for the purpose of monitoring budget competences, the business units are provided with detailed reports relating to budget utilisation on a timely basis. A systematic precalculation of credit transactions is carried out particularly for risk- and profitability- oriented management of new business.

Motivated and qualified employees are a key factor of success for Helaba. The attractiveness of Helaba as an employer is enhanced in many ways. A qualified personnel management system recognises the potential of employees, who are then developed and encouraged in a structured manner. Individual training measures ensure that the employees are able to meet the changing challenges. The training scheme for future managers also ensures that approximately half of open positions have been filled by internal employees.

Various parameters, such as a low staff fluctuation rate, the length of company service and a low sickness rate confirm the satisfaction and strong commitment of employees.

As a regionally based credit institution with a public sector legal form, Helaba also assumes social responsibility – in addition to its lending duties and objective – particularly in the Federal States of Hesse and Thuringia. The Bank is active directly or via its subsidiary Frankfurter Sparkasse as a sponsor in many areas of public life, and supports outstanding cultural, educational, environmental, sports and social projects. Helaba and Frankfurter Sparkasse are founder members of the association “Frankfurt Main Finance e. V.” which is backed by leading finance companies; the objective of this association is to promote the international location marketing of the financial centre Frankfurt am Main. The rating agency oekom research AG again performed a sustainability rating test for the Bank in 2007, and reviewed the ecologically and socially responsible conduct of Helaba. As a result of this test, the Bank was awarded the “prime” investment status. As a wholly-owned subsidiary, Frankfurter Sparkasse was recognised for its environmental protection programme, after independent experts had reviewed the environmental management systems of the Sparkasse in accordance with requirements of the European Union. Revalidation in accordance with EMAS II and recertification in accordance with ISO 140001 were carried out in 2008. Helaba and Frankfurter Sparkasse expressed their common commitment in the field of sustainability by way of sourcing electricity from renewable sources. Since the beginning of 2008, the buildings used by Helaba Group and Frankfurter Sparkasse in Frankfurt and Offenbach have been supplied with climate- friendly eco-electricity.

Macro-economic and sector-specific conditions The crisis on the international financial markets gathered further pace in the course of 2008, and there was a certain amount of delay before this fed through to considerably negative effects on the real economy 007 Management Report of Landesbank Hessen-Thüringen

in the second half of the year. The initial months of the year were still characterised by relatively strong real economic growth, particularly in the eurozone and in Asia, and the situation on the money and capital markets also initially settled down slightly. As a result of the need for prompt valuations prescribed by the international accounting rules and the significant volatility of rating and liquidity premiums of capital market instruments, the effects of widening credit spreads, rating- and default-related impairments of prices and the erosion of the capital base exacerbated each other at many credit institutions in the course of 2008. Government support action was initially necessary for individual credit institutions in Germany and also internationally, and the global financial and banking markets stood on the edge of a systemic crisis following the insolvency of the fourth largest US investment bank Lehman Brothers in the autumn of 2008. Only the concerted and internationally coordinated action taken to set up large- volume state stabilisation packages in the G20 countries prevented the global finance system from collapsing.

In Germany, the Financial Markets Stabilisation Fund (Sonderfonds Finanzmarktstabilisierung (SoFFin) was founded by the federal government in October 2008 and was provided with a funding volume of € 480 bn. Of this figure, € 80 bn is available as capital aid for credit institutions or for purchasing security portfolios which are at risk; the SoFFin is able to issue guarantees of € 400 bn for issues of bonds. Utili- sation of these stabilisation instruments is linked to financial compensation and covenants relating to business policy, and is subject to a review of aid law carried out by the EU Commission. Notwithstanding the above, extensive stabilisation and support measures were adopted by the credit industry or federal states in their capacity as guarantors in the course of 2008 for numerous private and public-sector credit institutions, including several Landesbanken.

In this connection, Helaba has directly and indirectly participated in support actions for German credit institutions in the year under review. This is applicable for the syndicate refinancing of a tranche with prime backing for the special-purpose vehicle Sealink, in which securities of the former Sachsen LB Group have been spun off. It also relates to the involvement of the German Sparkassen-Finanzgruppe in a guarantee framework for Hypo Real Estate AG, which was provided with the involvement of the security facilities of the Sparkassen and the security reserve of the Landesbanken and Girozentralen.

Unlike the situation at many other credit institutions, Helaba has coped with the effects of the international financial market crisis comparatively well and out of its own resources. There has accordingly so far not been any need to utilise the stabilisation measures of the Financial Markets Stabilisation Fund (Sonderfonds Finanzmarktstabilisierung; SoFFin) or the owners of the Bank. Helaba is currently assuming that stabilisation measures at other credit institutions will not have a negative impact on the competitive position.

Whereas market conditions overall were difficult, the operations of Helaba reported a successful performance in financial 2008. Thanks to the positive volume of new business and the increase in loans and advances to customers, double-digit growth has been reported for net interest income and for net commission income. Despite the difficult liquidity situation on the money and capital markets, Helaba was still able to tap the refinancing markets in the second half of the year for uncovered bank bonds and also for Pfandbrief issues. The valuation adjustment in relation to security holdings due to market conditions had a negative impact on the development of results.

Assessment of business development Helaba and the companies in the Helaba Group succeeded in meeting their targets in the key areas of operations in 2008 despite the considerable problems arising from the financial market crisis. Helaba 008 Management Report of Landesbank Hessen-Thüringen

extended considerable volumes of loans to its customers. The increases in medium-term and long-term new business were reflected in an 8.9 % increase in loans and advances to customers in 2008. This contributed to a positive increase in net interest income. The positive effect on results in operating customer business are opposed by negative effects on earnings as a result of the financial market crisis, most of which are attributable to valuation adjustments in order to reflect market conditions. As a result of the high quality of the securities, the valuation of our security holdings represent hidden reserves to a large extent, which will be realised by no later than the point at which the securities are repaid in the course of the next few years. Also as a result of a significant increase in provisions for losses on loans and advances in lending business, the overall result is lower than the originally budgeted figure. Despite the problems, Helaba has in turbulent times achieved a result which enables it to report a cumulative profit and service all subordinate funds and hidden contributions. By converting provision reserves in accordance with Sec- tion 340f HGB into allocations to the fund for general banking risk in accordance with Section 340g HGB as well as retained earnings, Helaba has also strengthened its core capital (€ 400 m).

Net assets, financial position and results of operations

Key performance data 2008

2008 2007 Changes Changes in € m in € m in € m % Business volume 201,195 205,002 – 3,807 – 2 Total assets 162,082 158,746 3,336 2 Operating result before provisions for losses on loans and advances 444 393 51 13 Provisions for losses on loans and advances/valuation result – 272 – 52 – 2 2 0 423 Operating result after provisions for losses on loans and advances 172 341 – 16 9 – 5 0

In its presentation of the results of operations, the Bank recognises the cost of allocations to its hidden contributions as a component of the appropriation of profits. The figure shown for net interest income and thus also the operating result in results of operations is € 93 m higher (previous year: € 94 m) than the figure shown in the income statement. 009 Management Report of Landesbank Hessen-Thüringen

Results of operations Despite the difficult climate, Helaba succeeded in boosting its operating result in 2008.

Results of operations

2008 2007 Changes Changes in € m in € m in € m % Net interest income 1,111 912 199 22 Net commission income 127 78 49 63 Net income from financial transactions – 216 – 6 9 – 147 214 Other operating result 28 30 – 2 – 9 Operating result 1,050 951 99 10 General administrative expenses 606 558 48 8 Operating result before provisions for losses on loans and advances 444 393 51 13 Provisions for losses on loans and advances/valuation result – 272 – 52 – 2 2 0 423 Operating result after provisions for losses on loans and advances 172 341 – 16 9 – 5 0 Taxes on income 55 44 11 25 Operating result after taxes 117 297 – 18 0 – 61 Reversal of reserves (Section 340f) 390 0 390 Allocation to fund for general banking risks (Section 340g) – 3 0 0 0 – 3 0 0 Net income 207 297 – 9 0 – 3 0

Net interest income is still a major factor for the earnings of Helaba. The contribution to earnings of € 1,111 m was increased by 22 % compared with the corresponding previous year figure of € 912 m. This increase is mainly due to the expansion of interest-bearing business. Net interest income was also strengthened by exceptional distributions of funds by subsidiaries.

Net commission income of € 127 m also increased appreciably compared with the previous year (€ 78 m). This is particularly attributable to improved commission income from securities activities, activities with credit derivatives and commission and issuing operations.

Net income from financial transactions amounted to € – 216 m (2007: € – 69 m). This unsatisfactory result is mainly attributable to the turmoil on the financial markets, which resulted in negative contributions to earnings in interest trading and credit derivatives. Earnings were depressed particularly by the widening of credit spreads and liquidity spreads and the associated valuation losses particularly in the second half of 2008. Currency and equity trading generated positive contributions to earnings for 2008, roughly in line with the corresponding previous year level.

The balance of other operating expenses and income is stated as € 28 m, which is down by € 2 m compared with the previous year figure. The decline in other operating income, and in particular the cost refunds for commissioned work for third parties, was only partially offset by slightly lower operating expenses.

General administrative expenses of € 606 m were higher compared with the corresponding previous year figure, and consisted of personnel expenses (€ 320 m) and cost of materials (€ 275 m), as well as depreciation on property, plant and equipment (€ 11 m). Personnel expenses increased by € 33 m compared with 010 Management Report of Landesbank Hessen-Thüringen

the corresponding previous year figure, mainly due to a € 22 m increase in the allocation to pension provisions. Costs of wages and salaries increased by € 9 m. Cost of materials increased as a result of various factors, including project-related higher costs for business and EDP operations (€ + 12 m compared with the previous year) as well as higher costs of security facilities of the credit industry in which Helaba is involved (€ + 8 m).

At the end of the year, the Bank employed 2,822 employees (2007: 2,781). The average number of employees increased from 2,768 to 2,792.

The operating result of € 1,050 m and general administrative expenses of € 606 m led to an operating result before provisions for losses on loans and advances of € 444 m. This is equivalent to an increase of € 51 m compared with the previous year.

Provisions for losses on loans and advances and valuation result are broken down as follows:

2008 2007 Changes Changes in € m in € m in € m % Result of lending business – 149 10 – 15 9 – 1,5 9 0 Result of investment business 10 – 14 24 – 171 Result of securities held in liquidity reserve and investment securities – 13 3 – 4 8 – 8 5 177 Provisions for losses on loans and advances/valuation result – 272 – 52 – 2 2 0 423

As a result of the negative influence of the macro-economic impact on customers in the main core areas of business, which was felt particularly in the fourth quarter, the balance of provisions for losses on loans and advances in lending business amounted to € – 149 m (2007: € 10 m).

The result of investment business comprises disposal proceeds from the sale of LB Immo Invest GmbH, depreciation on investments and costs of loss absorption.

The result of securities is the balance of depreciation, disposal results and write-ups required under commercial law in accordance with Section 280 HGB. Compared with the previous year, the result of securities held in liquidity reserve declined further from € – 48 m to € – 134 m, reflecting in particular the massive widening of rating and liquidity spreads for security valuation purposes. The bonds which were reclassified as investment securities resulted in a contribution to earnings of € 1 m as a result of repayments, so that the overall balance for the result of securities is € – 133 m.

After taxes on income of € 55 m (2007: € 44 m), operating result after taxes amounts to € 117 m. This is € 180 m (61 %) lower than the corresponding previous year figure of € 297 m. The decline is attributable to the losses in the net result of financial transactions driven by the financial market crisis and the valuation result of securities in the bank book; it was not possible for these to be offset by the positive increases in net interest income and net commission income.

The Bank has reversed reserves of € 390 m in accordance with Section 340f HGB and simultaneously strengthened the fund for general banking risks (Section 340g HGB) by € 300 m. Net income for the year is accordingly € 207 m, compared with € 297 m in the previous year. The regulatory core capital of the Bank increased further as a result of the allocation to the fund for general banking risk as well as a payment into the retained earnings of € 100 m. 011 Management Report of Landesbank Hessen-Thüringen

Development of assets

2008 2007 Changes Changes in € m in € m in € m % Loans and advances to banks 22,314 27,127 – 4,813 – 18 Loans and advances to customers 84,631 77,727 6,904 9 Securities 46,911 47,639 – 728 – 2 Investments/shares in affiliated companies 2,701 2,574 127 5 Other assets 5,525 3,679 1,846 50 Total assets 162,082 158,746 3,336 2 Business volume 201,195 205,002 – 3,807 – 2

Total assets of Helaba increased from € 158.7 bn to € 162.1 bn in 2008. This was due mainly to the € 6.9 bn increase in loans and advances to customers. The decline of € 3.8 bn in the business volume to € 201.2 bn is attributable to a decline of € 2.3 bn in contingent liabilities and a decline of € 4.9 bn in other obligations.

Loans and advances to banks – including money trading – declined by € 4.8 bn to € 22.3 bn. Of this figure, refinancing resources made available to the Sparkassen in Hesse and Thuringia account for around one third or € 10.4 bn (2007: € 10.7 bn).

With a volume of € 84.6 bn, loans and advances to customers are the largest item on the assets side of the balance sheet. The considerable increase of € 6.9 bn is mainly attributable to strong new business. Lend- ings attributable to municipal lending business increased by € 1.6 bn to € 17.7 bn. Lendings backed by property charges are reported as € 8.7 bn (2007: € 7.1 bn). Housing construction loans of the Bausparkasse account for € 1.3 bn (2007: € 1.4 bn). Other loans and advances to customers increased by € 3.7 bn to € 56.8 bn.

The volume of funds invested in securities fell by € 0.7 bn to € 46.9 bn last year. Bonds and debt instruments are the main items in this respect, namely € 43.3 bn (2007: € 43.7 bn), of which € 1.4 bn were attributable to asset-backed securities. Holdings of money market paper were slightly higher (€ + 0.8 bn) than the corresponding previous year figure (€ 0.7 bn). Equities and other variable-income securities are reported as € 1.6 bn (2007: € 2.0 bn). Of the total security portfolio, held-for-trading securities account for € 36.3 bn, securities held in the liquidity reserve account for € 7.7 bn, and investment securities account for € 1.3 bn.

The change in the portfolio of investments and affiliated companies is mainly attributable to a capital increase at GWH Erste Beteiligungsgesellschaft mbH (€ 75 m).

The volume of business which includes off-balance sheet business in addition to the balance sheet total, declined from € 205.0 bn to € 201.2 bn. The contingent liabilities included in the volume of business, and comprising guarantees and warranties, declined from € 13.0 bn to € 10.8 bn. This item includes a figure of € 3.1 bn (2007: € 4.6 bn) for credit default swaps which are treated as guarantees and which are not classified as held-for-trading.

The placing and absorption obligations as well as the irrevocable loan commitments declined by € 4.9 bn to € 28.3 bn (2007: € 33.2 bn). 012 Management Report of Landesbank Hessen-Thüringen

Development of liabilities

2008 2007 Changes Changes in € m in € m in € m % Liabilities due to banks 60,099 69,438 – 9,3 3 9 – 13 Liabilities due to customers 42,291 34,048 8,243 24 Securitised liabilities 46,473 42,728 3,745 9 Own funds 8,800 8,746 54 1 Other liabilities 4,419 3,786 633 17 Total liabilities 162,082 158,746 3,336 2

As has been the case in previous years, the liabilities to banks, which also include international money market activities, constitute the largest refinancing position of Helaba. The volume was € 60.1 bn and thus € 9.3 bn lower than in the previous year. The liabilities due to Sparkassen in Hesse and Thuringia increased to € 11.2 bn (2007: € 9.2 bn).

Liabilities to customers on the other hand increased by € 8.2 bn to € 42.3 bn. Deposits under building savings and loans schemes are unchanged at € 3.2 bn.

Securitised liabilities increased by € 3.7 bn to € 46.5 bn. The portfolio of issued bonds amounts to € 39.6 bn (2007: € 35.7 bn). The item “Other securitised liabilities”, which mainly comprises the issue programs of short-term money market paper, amounted to € 6.9 bn and was thus almost unchanged compared with the previous year.

Own funds As of 31 December 2008, the own funds of the Bank shown in the balance sheet (i.e. shareholders’ equity excl. cumulative profit, incl. fund for general banking risks, profit participation certificates and subor dinate liabilities) amounted to € 8.8 bn.

The Bank’s regulatory capital as of 31 December 2008 – i.e. before the annual financial statements were adopted and thus in particular before allocations to retained earnings were taken into consideration – amounted to € 8.8 bn. This figure includes core capital of € 5.3 bn for solvency purposes. The hidden contributions attributed to core capital are stated as € 3.0 bn.

The capital requirements of the Bank in accordance with SolvV amounted to € 4.3 bn as of 31 December 2008. This results in a total ratio of 16.2 % for Helaba; the core capital ratio is 9.8 %.

In financial 2008, the Bank at all times complied with the capital backing requirements specified by the Solvency Ordinance (SolvV) for the items which have to be recognised.

With the allocation to retained earnings, Helaba has further strengthened its own funds shown in the balance sheet as well as its regulatory core capital. 013 Management Report of Landesbank Hessen-Thüringen

Risk Report

The Board of Managing Directors is responsible for all risks incurred by Helaba and for defining the risk strategy within the framework of overall business policy. In compliance with the statutory requirements and the requirements applicable in accordance with the Charter and the regulatory authorities, the risk strategy defines the fundamental procedure for handling risk at Helaba.

The risk strategy focuses on taking on risk with a view to generating a return, and with due consideration being given to economic and regulatory capital. The risk management system is thus a key component of corporate management.

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 systems. The Bank strives to develop and improve on an ongoing basis not only the methods it uses to identify, quantify, control and manage risks, but also its organisational rules and regulations, including process and system documentation and guidelines on competencies.

Principles

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 (supervisory and administrative boards, advisory boards, shareholder meetings, meetings of the Board of Owners), 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 competences 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.

Segregation of functions The independence of risk controlling and risk management must be ensured in the interest 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. 014 Management Report of Landesbank Hessen-Thüringen

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.

Risk-bearing capacity The risk profile and the risk strategy are used as the basis for ensuring that the main quantifiable risks which result in losses affecting shareholders’ equity if they materialise are constantly covered by the risk cover funds.

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 co-operation with the regulatory authorities of the banking sector. Since 1 January 2007, Helaba has regulated regulatory capital in accordance with the rules of the Foundation IRB approach.

Risk-conscious behaviour The achievement of the objectives and compliance with legal standards depends on the discipline of all 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 pre-defined 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 Major categories of risk result directly from operations, and are relevant for permanent steering of the Bank depending on the probability and significance of their occurrence. Helaba has identified and defined the following main risk types:

• The counterparty default risk is defined as the risk of a loss or a missed opportunity to generate a profit as a result of the default of a business partner. 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. 015 Management Report of Landesbank Hessen-Thüringen

• The operational risk is defined under the Solvency Ordinance (Solvabilitätsverordnung – SolvV) as the risk of losses which occur as a result of the inadequacy or failure of internal procedures and systems, human error or external events. Legal risks also form part of the operational risk.

• The real estate project planning risk comprises deadline, quality, cost and marketing risks within the framework of real estate project development business which, if they occur, have a negative impact on the calculated project development margin. This category does not include real estate financing risks.

• The fund placing risk comprises the risk of the equity content of fund projects (closed funds) to be placed within Helaba. This risk also includes cost risks in connection with increased selling costs as well as income risks attributable to conception proceeds which are not attained and further costs for arranging additional financing in the event of a failure to place the capital content which still has to be obtained.

• Participation risks (as a type of residual risk) are attributable to a potential decline in the share value, lower dividend payments or cancelled dividend payments, loss absorption or contribution, subsequent payment and liability obligations as well as guarantees or letters of comfort.

In addition to the major categories of risk, “other risks” comprise strategic risks, reputation risks and tax risks. Strategic risks are attributable to strategic decisions which are taken on the basis of an assessment of future developments. Reputation risks are defined as direct or indirect losses or loss of earnings due to a deterioration in the reputation of Helaba. Tax risks result from changes in tax law implemented by the legislative authorities or changed legal verdicts.

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 risks applicable for Helaba are identified continuously during daily operations. This is used as the basis for classifying the risks. Comprehensive identification and incorporation into existing systems and processes is particularly important in connection with the introduction of new products and complex transactions. Within the framework of the new-product process for lending business and trading business, the central monitoring areas are included in the process of authorising new products.

2. Risk quantification If the risk measuring systems provide for a high-quality presentation of the individual transactions and risk parameters, this permits sound (in quantitative as well as qualitative terms) risk measurement and valuation for the individual risk types. Various models, methods and processes are used in this respect.

3. Risk management The information obtained from risk identification and quantification is used as the basis for risk management by the local management units. Risk management is the entirety of the measures aimed at incurring, reducing, limiting, avoiding or transferring risks within the framework of the limits set by the Board of Managing Directors. 016 Management Report of Landesbank Hessen-Thüringen

4. Risk monitoring/controlling and reporting A comprehensive and objective reporting system keeps the relevant people within the organisation apprised 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

Executive bodies The central Board of Managing Directors is responsible for all risks of Helaba, and is also responsible for Group-wide implementation of the risk policy. In addition, the Board of Managing Directors has also established a Risk Committee, in accordance with the existing bank regulatory requirements. The primary duty of the Risk Committee is the implementation and monitoring of Helaba’s risk strategy. The Risk Committee is responsible for pooling and assessing all risks taken on in the Bank, namely the counterparty default and country risks, the market price and liquidity risks, the investment and real estate project planning risk, the fund placing risks, the legal risks as well as the operational and other risks. The aim is to identify risks in Helaba as early as possible, to design and monitor the risk-bearing capacity calculation and to identify measures for avoiding risk and for generating management impetus for risk management. 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. At present, all members of the Board of Managing Directors sit on the Risk Committee.

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 responsible for managing the counterparty default risks of the entire portfolio and is also responsible for the central coordination function in syndication, structuring and placing business. The VS-KA is responsible for credit and settlement risks associated with counterparties and for country risks, for fund placing risks and for country risks.

The persons serving on the committees as well as the duties, competences and responsibilities of the committees are governed in separate rules of procedure.

For decisions of particular significance, e.g. acquisition and disposal of as well as changes in, equity participations, credit decisions in excess of a certain limit or defining the total limit for market price risks, the organisational guidelines specify that approval of the central Board of Managing Directors or of the Supervisory Board or one of its committees is necessary. In accordance with the Bank’s Charter, the approval of the Board of Owners is necessary for taking on or changing equity participations involving interests in excess of 25 %. 017 Management Report of Landesbank Hessen-Thüringen

Risk controlling The risks of the equity participations are included in the risk controlling system of Helaba with due consideration being given to materiality and the possibilities of company law. Four categories are used for classifying the equity participations:

Category 1: Complete inclusion in the risk quantification and steering processes of Helaba, individual trades and risk parameters supplied to the corresponding systems of Helaba;

Category 2: Specification of risk parameters to be delivered in a uniform manner and incorporation of these parameters in the risk-type specific risk management processes;

Category 3: Supply and analysis of risk presentations/reports of the Group members;

Category 4: No significant risk-type specific risk, therefore no special treatment; instead, risks are treated within the framework of normal investment controlling.

Risks are classified separately for each Group company and risk type.

Major risk monitoring areas 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 segregation of risk controlling and risk management, including back office functions, has now been implemented in the organisational structure up to the board level.

This clear division of duties and the close co-operation between the units concerned is designed to achieve the efficient implementation of risk policy management mechanisms. 018 Management Report of Landesbank Hessen-Thüringen

Broken down according to risk type, the areas specified in the following chart 1 have central responsibility for risk monitoring and risk controlling:

Risk monitoring and controlling areas (Chart 1)

Back office loans, Credit Risk Counterparty default risks and Group Controlling

Liquidity risks

Risk Controlling Trading

Market price risks

Credit Risk and Group Controlling, Operational risks Legal

Credit Risk and Group Controlling, Participation risks Central Services and Strategic

ocal steering areas steering ocal Planning L entral monitoring/controlling areasentral monitoring/controlling

Real estate planning risks C Credit Risk and Group Controlling Fund placing risks

Central Board Services and Strategic Other risks Planning, Balance Sheets and Taxes

The major risk types involved with banking, i.e. counterparty default, market price and liquidity risks, are centrally monitored. Central monitoring is also applicable for real estate project management risks; in addition, the main subsidiaries are also integrated in the central risk management system for operational risks. In addition to the main risks of relevant equity participations being included in risk-type- specific risk controlling, participation risks are also reported and equity participations which are not included in central monitoring of the individual risk types will be quantified separately. This arrangement ensures Group-wide risk monitoring.

Risk management in the Group also involves entities in addition to the areas specified in graph 1:

Internal Audit Internal Audit audits and assesses the activities of the Bank as well as subsidiaries. Audit planning and audit implementation procedures are carried out in a risk-oriented manner. The audit activities of Internal Auditing cover all operating and business procedures, whereby due consideration is given to the extent and risk content of the particular operation or business activity. The assessment of the 019 Management Report of Landesbank Hessen-Thüringen

risk situation, the adequacy of processing as well as the effectiveness of the internal control system are particular audit criteria.

The scope and result of the audit are recorded in audit documentation. The relevant members of the Board of Managing Directors and also those persons responsible for the audited areas receive a comprehensive report. All members of the Board of Managing Directors receive a brief report, notifying them of the overall result, including major findings of audits. The Board of Managing Directors provides the Supervisory Board with a report of major findings of internal auditing every six months.

Compliance, money laundering and data protection The Bank has set up the independent functions of the Compliance Officer, the Data Protection Officer and the Group Money Laundering Officer. The Compliance Officer is responsible for monitoring insider information and rules of conduct. He/she identifies and regulates conflicts of interest with a potential risk under securities trading law throughout the Group. The Group Money Laundering Officer, who is also responsible for combating terrorism financing and who is also responsible as the coordinating officer for combating fraud, takes appropriate measures to combat legal and reputation risks with his/ her Group policy in accordance with regulatory requirements, by means of a current risk analysis of the Group (money laundering, combating fraud) and also by means of the latest monitoring and research software. The Data Protection Officer monitors compliance with and implementation of the data pro tection laws.

These special officers report directly to the Board of Managing Directors. Accordingly, as required by regulatory requirements, the Bank has installed adequate and effective internal control structures and procedures for managing and monitoring the above-mentioned risks, and particularly including the reputation risks.

Risk-bearing capacity With these procedures for measuring and managing risks, Helaba ensures that the main quantifiable risks which result in losses affecting shareholders’ equity if they materialise are constantly covered by the risk cover funds and that risk-bearing capacity is thus guaranteed at all times.

The risk-bearing capacity analysis comprises potential risks for counterparty default risks, market price risks, operational risks, real estate planning and investment risks. These are each considered in a normal scenario, a stressed normal scenario and an extreme scenario.

A minor adjustment to the cover fund concept was made in the risk-bearing capacity statement of Helaba in 2008. The cover fund I and cover fund II (sustainable operating result of a year, existing reserves) are still used for covering the risk potential of the normal scenario and the stressed normal scenario.

Since 2008, the cover fund III shows all own funds which are allowable for regulatory purposes in accordance with SolvV but which are not tied. The cover fund IV still consists of regulatory tied own funds plus the carrying amounts of non-interest-bearing liabilities (Abzugskapital). The cover funds III and IV are used for covering the regulatory tied risk position or for covering the extreme scenario considered for determining the plausibility of regulatory capital tied up. In total, both cover funds specify the maximum amount of the risk position to be backed with capital and which can be taken on with given own funds in Helaba in order to meet the minimum capital requirement in accordance with SolvV. 020 Management Report of Landesbank Hessen-Thüringen

There are other deposit security mechanisms in addition to the risk cover fund. Helaba is a member of the Deposit Security Reserve of the Landesbanken and Girozentralen, and is thus included in the nationwide liability network based on the principle of institution protection between the Deposit Secu- rity Reserve, the regional savings bank support funds and the deposit security funds of the Landesbau sparkassen. The major features of this deposit security system are the effect of protecting the existence of the affiliated institutions, a risk-monitoring system for early recognition of risks and the risk-oriented calculation of the amounts to be paid by the various institutions to the security facility. The legally dependent Landesbausparkasse Hessen-Thüringen and the subsidiary Frankfurter Sparkasse are also directly integrated in this deposit security system.

In addition, in accordance with their Charters, Helaba and Frankfurter Sparkasse are affiliated to the reserve fund of the Sparkassen- und Giroverband Hessen-Thüringen. The reserve fund provides further protection in addition to the nationwide liability network, and provides creditors of the affiliated institutions with a direct and uncapped receivable right. The total volume of the fund amounts to 0.5 % of the weighted regulatory risk assets of the affiliated institution (in accordance with SolvV). At present, the total reserves of the funds are approx. € 550 m. Until the entire volume has been paid in, the Sparkassen- und Giroverband Hessen-Thüringen has assumed liability for paying the difference between the actual payments into the fund and the total volume.

The direct statutory guarantee of the Federal State of Hesse applies to Förderinstitut Investitionsbank Hessen (Helaba holding: 50 %) and LTH – Bank for Public Infrastructure – a legally dependent institution within Landesbank Hessen-Thüringen.

Counterparty default risks

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 competences. 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.

Guiding these steps is a comprehensive and universal risk strategy derived from the strategic corporate objectives. This risk strategy was drawn up with reference to MaRisk. 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. In addition, the arrangement for handling counterparty default risks is regulated by detailed portfolio-specific lending policies and strategies for limiting risk in the course of a year.

Basel II Both the Basel Committee for Banking Supervision’s revision of the capital adequacy standards (Basel II/ Capital Requirements Directive) and parallel moves underway in the EU have produced far-reaching new provisions on banking regulation, which have been implemented in Germany with the Solvency Ordinance (SolvV) and came into force on 1 January 2007. Since that time, Helaba has used the basic approach for internal ratings in accordance with Basel II/SolvV.

The Bank intends to change over to the advance approach for internal ratings in the medium term. 021 Management Report of Landesbank Hessen-Thüringen

With the internal rating methods (default rating) for the loan portfolio, a securities management system, the credit loss database for recording and analysing the default portfolio as well as a central risk data pool, the main new procedures and systems have been integrated in the processes.

Risk monitoring with the global limit system Helaba uses a global limit system for the prompt recording as well as transparent and structured processing of all risks of counterparty default. Monitoring is the responsibility of Credit Risk and Group Controlling. 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).

Borrower-related total limits at the Group level – the so-called global limits – are used in the global limit system for monitoring, limiting and managing counterparty default risks. All types of loans in accordance with Section 19 (1) KWG, attributable to trading activities as well as bank book activities, are netted against these global limits with regard to the borrowers. Advance payments and settlement risks attributable to foreign currency and security transactions, and which have to be approved separately, are offset in full against limits for settlement risks, irrespective of whether they are attributed to the trade book or to the bank 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 2 shows the total volume of lending totalling € 212.1 bn which consists of drawings and unutilised committed credit lines, broken down according to customer groups.

Total volume of lending according to customer groups (Chart 2)

€ 3.3 bn Natural persons • • € 57.2 bn Foreign companies € 12.0 bn Foreign public sector • • € 47.4 bn Domestic companies € 17.6 bn Domestic public sector • • € 41.8 bn Foreign credit institutions € 32.8 bn Domestic credit institutions •

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. 022 Management Report of Landesbank Hessen-Thüringen

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

Creditworthiness/risk appraisal In co-operation with the DSGV (national real estate financing and corporate clients) and other Landes- banken (international real estate financing, project, ship and aircraft financing, leasing, banks, insurance, corporates, country and transfer risks as well as public authorities outside Germany), Helaba has developed and introduced new internal rating systems. In addition, a separate internal rating procedure has been developed for securitisations of loan and trading receivables. In these rating methods, the borrowers or transactions are assigned to a rating category which is given a one-year probability of default (PD) over a uniform 25-degree scale.

Because the calculation of the customer- or transaction-specific probability of default PD alone does not permit an assessment to be made of the loss risk potential of a transaction, due consideration is given to further relevant factors which reduce or increase risk for a particular credit transaction (in particular, remaining term, additional security, ranking of the loan). For this purpose, in addition to the default rating, the Bank has developed a risk rating which enables the risk content of transactions to be compared across segments. The risk rating is also determined on the basis of a 25-degree scale and approxi- mates the expected loss (EL). The default rating is used as the basis for the EL-relevant adjustments for determining the risk rating.

Chart 3 shows the total volume of lending of Helaba, according to risk rating.

Total volume of lending according to risk rating classes (Chart 3)

€ 90 bn

€ 80 bn

€ 70 bn

€ 60 bn

€ 50 bn

€ 40 bn

€ 30 bn

€ 20 bn

€ 10 bn

€ 0 bn

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Securities 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 is measured in accordance with the lending principles of the Bank. As part of the 023 Management Report of Landesbank Hessen-Thüringen

monitoring process, the valuation is adjusted if there are any changes in factors which are relevant for valuation purposes.

The collateral management system of Helaba satisfies the criteria necessary to enable full advantage to be taken of the comprehensive opportunities for recognising credit risk reduction techniques which enhance shareholders’ equity in accordance with Basel II/SolvV. This system complies with the extensive and complex requirements of Basel II with regard to the utilisation, presentation and recognition of “traditional” credit collateral (and in particular property charges, guarantees and warranties, pledging and assignment of receivables and security positions, register charges for ships and aircraft) in the foundation approach. The collateral management system provides its stock of data to the central risk data pool, which in turn checks and distributes the eligible security values of the secured risk positions.

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 serves as the central instrument for the complete, prompt, risk-oriented and transparent recording, monitoring and management of country risks. The system for managing country risks integrates all lending and trading activities of Helaba including the subsidiaries Helaba Dublin and Frankfurter Sparkasse. The Bank’s total country risk, excluding the countries of the eurozone, may not exceed six times the liable capital of the Bank. As of 31 December 2008, utilisation was less than four times the liable capital.

Country limits are defined for all countries with the exception of the eurozone countries (with the exceptions of Greece, Malta, Cyprus, Slovenia and Slovakia) and other countries considered to be first- class borrowers in respect, in particular, of transfer risks (currently Switzerland, the UK, the USA, Denmark, Sweden, Norway, Canada). 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 sub- limits.

The internal rating procedure for country and transfer risks distinguishes 25 possible country ratings. All ratings are reviewed at least annually by the Economics/Research department in the business unit Central Board Services and Strategic Planning (first vote). Changes to the political or economic situation of a country as a result of current events result in the rating also being reviewed ahead of schedule in the course of the year. These country ratings are used as the basis for submitting country limit proposals to the Country Limit Committee, on which the management function officers responsible for international business serve. The Country Limit Committee combines these proposals, which are primarily based on economic criteria with considerations of business policy and risk methods which are specific for the Bank to form an overall assessment, which is used by Marktfolge Kredit (back office loans) as the basis of submitting the second vote as the definitive limit proposal for the Board of Managing Directors. The Board of Managing Directors takes account of the votes, and is responsible for defining the definitive risk grouping, and sets limits for the individual countries.

The types of transactions permitted in each of the country risk groups are laid down in a matrix. De pending on the particular risk group, this matrix covers lending and securities business as well as the various forms of capital market financing, money and foreign exchange transactions as well as derivative trading. Less favourable risk groups offer fewer business opportunities. The Bank has no defined country limits for countries falling into the weakest rating categories. 024 Management Report of Landesbank Hessen-Thüringen

Chart 4 shows the country risk of Helaba of € 72.8 bn broken down according to regions; chart 5 shows the country risk of Helaba broken down according to country rating classes.

Country risk according to regions (Chart 4)

• € 11.0 bn North America € 60.1 bn Europe • • € 0.1 bn South America • € 0.9 bn Oceania • € 0.7 bn Asia • € 0.02 bn Africa

Country risk according to rating classes (Chart 5)

€ 70 bn

€ 60 bn

€ 50 bn

€ 40 bn

€ 30 bn

€ 20 bn

€ 10 bn

€ 0 bn

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

The individual country risk positions are allocated in accordance with the domicile principle. However, this principle, which is based on the country in which the borrower is domiciled, is modified for economic reasons. Under certain conditions, the risk is transferred to the domicile of the parent company of the Group, the lessee or, in the case of cash flow structures and when security is taken into consideration, to the country of the entity bearing 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 Direc- tors, staff members) depending on the amounts involved. Loans are approved on the basis of detailed risk assessments. In accordance with MaRisk, the loan documents in so-called risk-relevant business 025 Management Report of Landesbank Hessen-Thüringen

always comprise two independent votes of the relevant Markt (front office) and Martfolge Kredit (back office loans).

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 companies in the 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.

Quantifying risks of counterparty default The theoretical quantification of expected and unexpected counterparty default risks is carried out via the central risk data pool. Expected counterparty default risks are calculated in the form of an expected loss for individual transactions. For regulatory purposes, the calculation is based on the internal rating procedures and regulatory LGD; for management purposes, internally estimated LGDs are used. For covering unexpected losses, the equity to be maintained in accordance with SolvV foundation approach for internal rating procedures is calculated on the basis of individual transactions and used for management of individual transactions as well as for risk capital management. In addition, internally estimated LGD parameters are also used as the basis for more precise quantification of unexpected losses from counterparty default risks. The correspondingly quantified expected and unexpected losses are subject to scenario observations in order to identify the impact of corresponding stress situations.

Credit risk processes and organisation The MaRisk comprise differentiated rules regarding the organisation of lending business and the lending processes as well as the form of the procedures for identifying, monitoring and managing risks in lending business. The Bank fully meets the requirements.

The Board of Managing Directors has defined the main requirements of business policy regarding structure and procedure organisation in lending business in separate conditions applicable for lending business.

Risk provisions Adequate risk provisions are created for risks of counterparty default. The adequacy of risk provisions is regularly reviewed and adjusted where necessary. Individual allowances are recorded and updated in the credit loss database, which is used as a central file for exposures which are potentially subject to default.

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. Depending on the particular activity and the capital stake of Helaba, the subsidiaries are included in the management process in a phased manner within the framework of Group-wide risk management.

The main forms of trading conducted by the Bank are customer trading, own dealing and maturity trans- formation. Responsibility for managing the positions in the trading book (Helaba as well as the subsidiary Helaba Dublin) rests with the Capital Markets unit. The Asset/Liability Management unit looks after 026 Management Report of Landesbank Hessen-Thüringen

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 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.

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 Com- mittee. The preparatory work leading up to this decision is carried out by the Risk Committee.

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 onward 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 value limits are also used in the trading units to limit market price risks.

Risk monitoring The Risk Controlling Trading 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 for the accounting department. In addition, the reconciliation statement with external Accounting is also prepared.

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 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 central 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 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. At the same time, this enables the individual risk types to be aggregated to form an overall risk. The overall risk is based on the assumption of the simultaneous occurrence of the individual losses. The MaR figure calculated using the risk models 027 Management Report of Landesbank Hessen-Thüringen

specifies the maximum loss which will not be exceeded, with a probability of 99 %, on the basis of the underlying historical period of observation of one year with a holding period of ten trading days for the position.

A modified variance-covariance method is employed for almost all risk measurement systems. The only exception is the determination of the specific risks associated with interest rate options, for which a Monte-Carlo simulation is preferred. Non-linear risks in the currency field are of minor significance at Helaba. They are monitored with the aid of sensitivity analyses.

The risk measuring systems and the corresponding interfaces are continuously improved in specialist and technical terms; this guarantees a permanently high quality of risk measurement. Intense market data smoothing and a regular review of the business data from the position-keeping systems also make a major contribution in this respect.

Internal model in accordance with the Solvency Ordinance Helaba calculates the regulatory capital required for the general interest risk using an internal model in accordance with SolvV. This model, which consists of the risk measurement systems MaRC² (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.

Market price risks in the trading book All market price risks are calculated daily on the basis of the end-of-day position of the previous trading day and the current market parameters. Helaba also uses the parameters prescribed by the regulatory authorities for internal risk management. Chart 6 shows the MaR of the trading book (Helaba, incl. sub sidiary Helaba Dublin) for financial 2008. The much higher volatilities as a result of the insolvency of Lehman Brothers are the main reason behind the increase in the MaR amounts in the fourth quarter.

Daily MaR of the trading book in 2008 (Chart 6)

50 € 51.8 m max. MaR 50 45 45

40 40

35 35 € 27.6 m average MaR 30 30

25 25

20 20

15 € 17.9 m min. MaR 15

10 10

5 5

0 0

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 028 Management Report of Landesbank Hessen-Thüringen

Chart 7 shows the average daily MaR amount for the trading book (Helaba incl. the subsidiary Helaba Dublin).

Average MaR for the trading book in fiscal 2008 Number of trading days: 251 (Chart 7)

1st quarter 2008 2nd quarter 2008 3rd quarter 2008 4th quarter 2008 Total 2008 Avg MaR Avg MaR Avg MaR Avg MaR Avg MaR (in € m) (in € m) (in € m) (in € m) (in € m)

Interest rate risk 19.9 25.3 21.7 35.2 25.4

Foreign currency risk 0.7 0.6 0.7 0.8 0.7

Equity risk 1.7 1.0 2.4 0.8 1.5 Total risk 22.3 26.9 24.7 36.8 27.6

Back-testing Helaba carries out clean back-testing 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 one- tailed confidence level of 99 % and a historical observation period of one year. The forecast 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 back-testing outlier.

Chart 8 shows the back-testing for the trading book (Helaba, incl. subsidiary Helaba Dublin) over all market price risk types in financial 2008. There are two negative outliers.

Back-testing for the trading book in fiscal 2008 (Chart 8) N et asset changes

MaR 029 Management Report of Landesbank Hessen-Thüringen

Within the internal model for the general interest rate risk, the model components MaRC2 and ELLI are subject to separate back-testing. There were three negative outliers in MaRC2 and also in ELLI. These outliers are due mainly to significant movements of interest rates and widening spreads as a result of the financial market crisis. The financial markets became increasingly unstable in 2008; this aspect is included in the model by way of regularly updating the market parameters, and has the effect of increased risk as a result of higher volatilities and reduced correlations.

With a total of three outliers in the model components MaRC2 and also in ELLI, the forecast quality of the internal model for measuring the general interest rate risk is not negatively affected.

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 modi fied variance-covariance approach and a variety of scenario calculations – including those based on the main components of the correlation matrix. Helaba also performs stress tests for simulating extreme spread changes. As has been the case in previous years, Helaba has taken part in a survey carried out by the Deutsche Bundesbank for analysing the impact of external changes in market values on the trading and bank books. These stress tests are based on the scenarios of the FSAP (Financial Sector Assessment Program) of the International Monetary Fund (IMF).

Market price risks in the bank book Helaba employs the MaR approach used for the trading book in order to quantify the market price risks in the bank book. The risk figures calculated using this approach are extended to include maturity expiry schedules which are prepared on a daily basis and which indicate the maturity structure of the positions which have been taken out. 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 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. The quantification of interest rate risks in the banking book is also part of the capital requirements under Basel II, which require a risk calculation on the basis of standardised interest shocks. For translation into national law, the German banking regulatory authorities specify an increase of 130 basis points and a reduction of 190 basis points in the interest rate curve. Such an interest shock would have caused a negative change of € 144.0 m in the banking book for Helaba at the end of 2008. Helaba carries out the rate shock test at least once every quarter.

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. 030 Management Report of Landesbank Hessen-Thüringen

Liquidity risks

The need to ensure liquidity and financing enjoys high priority at Helaba. Accordingly, a wide range of tools is available for recording and managing the liquidity risks; these tools are constantly being developed further. The existing processes, tools and responsibilities for management of liquidity risks have also demonstrated their worth during the global financial markets crisis and the resultant turmoil on the money and capital markets. The liquidity of Helaba was also assured at all times in 2008.

Liquidity and funding risk The Bank draws a distinction in liquidity risk management between short-term and structural liquidity management. Overall responsibility lies with the Asset/Liability Management unit. The money market staff safeguard the day-to-day solvency of the Bank, while the Asset/Liability Management unit is responsible for refinancing new lending business, given due consideration to a balanced medium- and long-term liquidity structure in the context of structural liquidity management. Asset/Liability Manage- ment is also responsible for central management of liquid securities (Collateral 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 major currencies for short-term liquidity at Helaba are the euro, followed by the US dollar.

The current liquidity situation is managed using a short-term liquidity status. It compares daily the expected liquidity requirements for the next 250 trading days with available liquidity, mainly in the form of free collaterals. The available liquidity is established conservatively with due consideration being given to mark-downs so that unexpected market developments of individual securities can also be miti- gated. The concept of the short-term liquidity status has been chosen in such a way that various scenarios are covered and limited to 30 days. The Risk Controlling Treasury unit is responsible for monitoring the limits. The utilisation of the scenario with most relevance was 59 % as of the balance sheet date. Average utilisation was 38 % in 2008. Limits were not exceeded at any time in the entire period under review.

Helaba once again always complied in full with the liquidity requirements imposed by the banking supervisory authorities in fiscal 2008. The ratio in accordance with the Liquidity Ordinance was 1.29 as of the balance sheet date.

Structural liquidity risk Asset/Liability Management manages the liquidity risks of Helaba’s commercial banking activities via the central scheduling system. This mainly comprises lending business including floating-interest roll- over transactions, securities held for liquidity purposes and investment securities as well as medium- and long-term financing. This aspect is managed on the basis of cash-flow-oriented liquidity outflow sched- 031 Management Report of Landesbank Hessen-Thüringen

ules, with limited matching liquidity. Monitoring is the responsibility of Risk Controlling Trading. The main objective of liquidity scheduling is to assure the calculated economic success of lending business.

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. Structural liquidity shortages are avoided by funding arrangements with as far as possible matching maturities as well as diversification of the sources of funding (products, markets, investors). Interfaces to money trading result when liquidity shortages are refinanced on a short-term basis or liquidity surpluses are invested on a short-term basis.

The off-balance-sheet loan and liquidity commitments maintained in a central database are regularly reviewed with regard to their drawing potential and liquidity-relevant features, and are integrated in liquidity management. Liquidity costs are calculated as a function of the internal risk classification, and are allocated to the relevant business lines. Since 2002, the liquidity required for settlement has been calculated using a scenario calculation which assumes a market disturbance, and is scheduled in advance.

For the securitisation platform initiated by Helaba, a total of € 1.2 bn liquidity commitments had been called off as of the balance sheet date. This is a decline of € 0.4 bn compared with the previous year. In US public finance business, liquidity of $ 0.6 bn had been called off out of stand-by lines at the end of the year.

Market liquidity risk The market liquidity risk is assessed in the money-at-risk model for market price risks. The model takes account of the liquidity risk by way of a conservative assumption of a holding period of ten days. Monthly scenario calculations using a variety of holding periods are also carried out to track the risk of inadequate market liquidity. The market liquidity is also observed on the basis of the margin between bid and offer prices. The turmoil on the international financial markets had a considerably negative impact on the market liquidity of various market segments particularly in the second half of 2008.

Operational risks

Basics of risk control In line with the Basel Committee and the national capital regulations, operational risk at Helaba is defined as follows: ”The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events”. This definition includes legal risks. The strategic risk and reputation risk are not part of operational risk. Based on the national requirements of banking regulation with regard to regulatory capital backing and also based on the MaRisk, Helaba has an integrated approach for the management of operational risks. This approach is used to identify, measure and manage risks on the basis of the following components: Risks and claims.

Helaba’s approach provides for the disciplinary and organisational segregation of operational risk management and controlling. Accordingly, the individual business lines of Helaba have local responsibility for risk management. They are supported by central management areas. Controlling of operational risks is based centrally in Credit Risk and Group Controlling. 032 Management Report of Landesbank Hessen-Thüringen

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 co-operative arrangements is to reach agreement on disciplinary implementation matters and develop a technical standard solution. Accordingly, the IT system for managing operational risks is regularly developed further together with representatives of other banks and extended to include new functionalities. A joint data syndicate has been set up in a further working party with other banks (mainly Landesbanken); since 2006, this has been used for exchanging information concerning losses attributable to operational risks.

Tools Since 2007, Helaba has adopted the standard approach for capital backing and risk management of operational risks.

A risk management system, which identifies, records and presents risks and losses in a structured manner, is the basis for managing and monitoring operational risks. A systematic comparison can be made in this way between risks and loss data.

The Helaba risk model is used as the basis for the systematic classification of operational risks. The Helaba risk model is based exclusively on the Basel event categories, which means that the regulatory risk view is used completely for the internal risk assessment.

Technical support is provided for management of operational risks by a web-based application with local data access and a central database. This application is regularly updated in line with specialist requirements.

Established measures in internal processes and other procedures as well as insurances which cover certain losses up to agreed maximum limits are used for avoiding or limiting operational risks.

Risk monitoring In the risk reporting system, the relevant bodies, the Risk Committee and the business lines responsible locally for risk management are notified of the risk situation and any losses which have been incurred.

The total risk profile of the Bank is updated as part of an annual review. The risk profiles of the subsidiaries are added in order to create the Group risk profile.

Claims attributable to operational risks which have materialised are regularly reported locally by the business lines in Helaba. Reports of the subsidiaries concerning claims which have occurred are normally submitted on a quarterly basis, and enable the claims situation in the Group to be presented. For purposes of internal management, the collection of claims data is extended to include external claims from the VÖB data syndicate.

Quantification The standard approach is used for quantifying operational risks for regulatory capital backing in accordance with the SolvV. For internal management, risks are quantified on the basis of the claims data collected and the quantitative risk assessment of the business lines. The unexpected losses are quantified in addition to the estimate of expected losses by way of separate modelling of frequency of default and extent of claim. 033 Management Report of Landesbank Hessen-Thüringen

Documentation system The documentation system of Helaba complies with the organisation guidelines prescribed by MaRisk. 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 activities and processes to create and publish the regulations.

IT security and contingency plans Helaba’s defined strategies and regulations on IT security are the basis of an internal controlling process which complies with the relevant regulatory requirements and also ensures 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.

The purpose of mandatory IT security concepts and IT standards for application development and operation is to ensure that risks are detected at an early stage and that appropriate measures to minimise these risks are then defined and implemented. These concepts and standards are the subject of continuous further development. Helaba refines these concepts and standards continuously to ensure that it always has all four mainstays of IT security – availability, integrity, confidentiality and non-repudiation – firmly in place in order to avoid any detrimental impact on the Bank’s ability to act.

Helaba’s organisational units have drawn up formal process-based contingency plans for their critical business activities, which are developed continuously and tested regularly. Essential business operations can thus be maintained in a properly ordered fashion in exceptional situations.

Agreements in the service level agreements for preventive and risk-limiting measures exist for the data centre operations outsourced to Finanz Informatik Technologie Service (formerly IZB Informatik- Zentrum); such agreements also relate to local systems. The documented procedures for ensuring operations or the technical restoration of data processing are regularly tested together with the specialist areas of Helaba and Finanz Informatik Technologie Service.

Legal risks The risk unit is responsible for identifying and monitoring the legal risk. It is represented on the Risk Committee of the Bank with an advisory vote and reports on the legal risks which have become quantifiable as ongoing or imminent court proceedings of the Bank or its subsidiaries.

Major undertakings with legal implications are cleared with the Legal Services unit as laid down in the basic principles of the Bank. Corporate Finance has a separate legal team. As a contribution to preventive risk management, the Legal Services unit provides specimen agreements and information as well as other legally relevant declarations where possible and meaningful. The lawyers of the Legal Services unit are to be involved in the event of any deviations or new rulings. If it becomes necessary to involve external lawyers in Germany and abroad, the Legal Services unit also assumes responsibility for funda mental co-ordination. General rules and regulations exist for each specialist unit, and there is also a duty to consult in the event of doubt or in matters of a fundamental nature. 034 Management Report of Landesbank Hessen-Thüringen

The Legal Services unit drafts agreements, general business conditions and other relevant legal declarations as part of its legal consulting support services in co-operation with the other units of the Bank. 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 and also avoid problems in future. 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. Of indirect relevance in this respect are two actions against the EU Commission before the Court of Justice, First Instance, of the European Com- munities (EuGH), in which the Bank is involved as a joint litigant. These actions relate to the dormant contributions of the Federal State of Hesse (special funds for housing construction subsidies and investments in the future, 1998 as well as investment fund of Hesse, 2005), the fees for which were considered proper in terms of subsidy law by the EU Commission. The Bundesverband deutscher Banken has appealed against both commission decisions. Verbal hearings were held at the European Court of Justice for both proceedings in September 2008. The verdicts of the court are expected in the course of 2009.

Internal reporting of Legal Services with regard to legal risks is assured by way of active involvement in Board of Managing Directors’ presentations, documentation of ongoing and threatened court proceedings as well as institutionalised liaison with other units.

Real estate project management risks The real estate project management risk is defined as the risk affecting project developments of real estate resulting from deadline, quality, cost and marketing risks.

Real estate project management risks are encountered primarily in the entrepreneurially independent subsidiaries of the OFB Group (OFB Projektentwicklung GmbH) and the GWH Group (GWH Gemein nützige Wohnungsgesellschaft mbH Hessen, within the framework of property development business) as well as in real estate project companies directly or indirectly held by Helaba.

Direct management at the entrepreneurially independent subsidiaries is the responsibility of management at the subsidiary. Real estate risks are managed in several stages in this respect:

• Operational management – Responsibility of local management at the subsidiaries. • Strategic management – Central responsibility of the supervisory bodies of the subsidiaries and the Real Estate Management division.

At the directly or indirectly held real estate project companies, real estate management is responsible for operational and strategic risk management.

The opportunity and risk overview which is prepared quarterly serves as a key risk controlling instrument for identifying and tracking future project opportunities and risks which have not been budgeted. It employs a structured process to ascertain opportunities as well as costs, earnings and other asset risks for the purposes of this summary, and evaluates 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). The real estate management unit supports the process of preparing the opportunity and risk overview, and establishes the plausibility of the information. 035 Management Report of Landesbank Hessen-Thüringen

Credit Risk and Group Controlling analyses the development of risks arising from real estate project management business and is responsible for quarterly risk reporting to the Risk Committee of the Board of Managing Directors.

The risk position is also detailed as part of operational management in the meetings of the supervisory bodies of the various subsidiaries.

Fund placing risks Within the framework of the fund concept, a placing guarantee is normally provided for investors by Hannover Leasing KG or one of its subsidiaries. This placing guarantee comprises a commitment that assures financing of the fund by absorbing the shares which are not placed or by arranging additional debt.

Within the framework of the risk-bearing capacity calculation, the risk potential of fund placings is not calculated separately. Because Helaba normally provides interim financing for the capital of funds during the placing phase, and thus de facto takes on the risk of the fund not being placed, the risk potential is taken into consideration in the risk-bearing capacity calculation as part of the counterparty default risk for bridging finance for capital.

For placing obligations arising from funds, a differentiated limit system has been used for limiting the economic risks, and in particular the equity-related and regulatory risks.

Participation risks Participation risks are defined as those risks attributable to equity participations for which individual risk types are not recognised separately in Risk Controlling for the individual risk types. If all risk types relevant for a participation are integrated in Group-wide risk management in accordance with materi ality considerations and the possibilities of company law, the assessment of participation risks for this participation is not relevant.

The risk assessment is based on the appraisal and development of the creditworthiness of the particular company within the framework of the Bank’s internal rating process. In addition, the risk content of the individual investment is classified on the basis of certain criteria in order to establish the value of the shareholding. The participation risks are reported quarterly to the Risk Committee of the Board of Man- aging Directors and the Credit Committee of the Supervisory Board.

Other risks

Strategic risks It was possible for a systemic financial market and banking crisis to be averted in the autumn of 2008 thanks to the coordinated stabilisation measures of governments and central banks of the G20 countries. Helaba is one of the credit institutions in the national and international banking market which so far has coped comparatively well with the effects of the international financial market crisis. The major factors of success at Helaba are the sustainable strategic business model of an integrated universal bank with a regional focus, a conservative risk profile, a virtually complete lack of exposure to credit derivatives, long-term liquidity management, strong emphasis on S-Group Sparkassen and public development and infrastructure business as well as good capital backing. 036 Management Report of Landesbank Hessen-Thüringen

With “unguaranteed” ratings of “Aa2”, “A+” and “A” from the rating agencies Moody’s Investors Service, FitchRatings and Standard & Poor’s (with a stable outlook in each case), Helaba still enjoys good credit worthiness ratings. The public Pfandbriefe and mortgage Pfandbriefe, the strategically important securitised refinancing instruments, are rated “AAA”. Thanks to the high quality of the cover funds for its Pfandbriefe, the requirements of the rating agencies relating to surplus cover are relatively minor. As a result of its strong standing with institutional and private investors, Helaba continued to have access to the refinancing markets even during the financial market crisis and, in financial 2008, this permitted matching maturity refinancing of the second highest volume of new business in the company’s history.

Within the framework of its equity strategy, Helaba increased its internal target ratio for regulatory core capital to approx. 8 % throughout the Group, following the financial market crisis, with a minimum rate of 7.5 %. This target was exceeded at the end of 2008 with a core capital rate of 8.3 %. Within the framework of the annual financial statements for 2008, regulatory core capital was strengthened by an additional € 400 m by mobilising hidden reserves. With regard to the procurement of capital, Helaba adopts the strategic approach of “growth by means of profititability”. A key aspect of this approach is for the core capital contributions necessary for the capital backing of growth in business to be generated out of the Bank’s own resources. In addition, Helaba has a facility for tapping the market for hybrid capital of up to € 500 m.

In the German banking market, the effects of the financial market crisis have exacerbated the consoli dation trend which has been in existence for many years in all three sectors, namely private banks, co- operative banks and public-sector credit institutions, and resulted in further mergers of institutions. The utilisation of capital and guarantee facilities of the Financial Markets Stabilisation Fund (Sonderfonds Finanzmarktstabilisierung; SoFFin) of the Federal Government which has been seen since the fourth quarter of 2008 as well as further state and non-state stabilisation and support measures for some private and public-sector banks has been linked with covenants with regard to the structural adjustment of business models and with financial charges. Specifically for the Landesbank sector (incl. DekaBank), numerous proposals for further consolidation are currently the subject of public discussion.

Helaba is in a good position to meet the challenges of the future, and considers that it is in a good position on a stand-alone basis to take advantage of further development opportunities for expanding regional private customers and SME business, public development and infrastructure business and also rounding off its client base and product range in the field of wholesale business (also internationally). As a result of its development of earnings and good capital backing, Helaba has so far not had to take advantage of external stabilisation measures, e.g. from the SoFFin.

On the basis of its successful business model of an integrated universal bank with public development and infrastructure business, Helaba has a fundamentally positive attitude towards forward-looking consolidation efforts in the Landesbank and Sparkassen sector. However, it does not consider that there is any basis for economic success for credit institutions which operate exclusively in the field of wholesale business, even within the framework of functional holding structures. Helaba liaises closely with its three owners and thus fundamentally has an open mind for strategic approaches which serve to further strengthen its market position in its core areas of business and also serve to promote the forward-looking expansion as a universal bank. 037 Management Report of Landesbank Hessen-Thüringen

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 and Taxes organisational unit, either carries out directly those activities in connection with taxes payable by the Bank and its subsidiaries, or provides professional support. External consultants are employed to help resolve any issues if required. Tax law developments in Germany and abroad are constantly monitored, and their impact on the Bank and subsidiaries is analysed. Any necessary measures are taken, and tax risks are either avoided in this way, or appropriate provisions are created.

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. 038 Management Report of Landesbank Hessen-Thüringen

Report of Events After the Balance Sheet Date

At the beginning of 2009, Helaba’s representative office in Paris which has been in existence since 1995 was converted into a branch. The operations of that bank mainly comprise real estate lending and corporate finance business with French customers as well as sales of capital market products.

The new government of the Federal State of Hesse appointed in February 2009 has stated that it is prepared to pay funds into the core capital base of Helaba as equity out of the compensation determined in the clarification agreement regarding the special fund “Housing and investments into the future”. Discussions concerning this issue are to be taken up with the other two owners of Helaba. For further combining and strengthening of public development and infrastructure business, the previously independent public-sector Investitionsbank Hessen, in which the Federal State of Hesse and Helaba each own a 50 % stake, is to be merged with LTH – Bank for Public Infrastructure. 039 Management Report of Landesbank Hessen-Thüringen

Forecast Report

Macro-economic background Most industrialised countries will not be able to avoid a recession as a consequence of the financial market crisis. They will have to expect considerable contraction of economic activity in 2009. The central banks are supporting the real economy with interest rate cuts and are extending generous liquidity aid in order to stabilise the lending cycle in the banking system. Fiscal policy is also extremely expansionary in virtually all economies. Accordingly, the worldwide fiscal measures have so far made a cumulative growth contribution of 5 % to global GDP. Germany – with an export ratio of almost 50 % – will benefit particularly from this aspect in the course of the next few years. As a result of the monetary policy and fiscal policy measures, economic prospects will improve somewhat again in the second half of 2009. The adjustment process (deleveraging) triggered off with the financial market crisis will probably last for several years and restrict the real growth potential. Demand will probably be weak in the USA and in the eurozone in the course of the next few years. There are signs of below-average consumption and higher propensity to save in both regions. In consequence, potential growth will again not be attained in the USA or in the eurozone in the year 2010.

Accordingly, there are signs of a significant improvement in terms of inflation in 2009. On the one hand, considerably lower commodity and energy prices are positive aspects in this respect. On the other hand, weak growth is resulting in underutilisation of capacities; the crisis in the financial sector is also having a deflationary effect. Overall, considerable deflation is likely worldwide in 2009. However, considerable inflation potential is building up in the medium term. This is due to the combination of expansionary monetary policy and fiscal policy for combatting the recession. Inflation is expected to rise again in 2010.

The capital markets will also continue to feel the effects of the financial market crisis in 2009. Fears of further bank insolvencies combined with concerns regarding an economic downturn are still depressing equity markets at the beginning of the year. Volatility levels are also extremely high on the fixed-income and foreign exchange market. Investors are waiting for a clear signal of economic stabilisation or desta bilisation. Investment decisions are dominated by a high degree of risk aversion. In this climate of economic uncertainty combined with the continuing failure of the interbank market, monetary and fiscal policy have to be used for stimulation purposes. The roller-coaster of emotions consisting of hopes of an upswing and fear of a depression will not come to an end before the second half of 2009.

In the course of the next two years, the fixed-income markets will have to cope with the problems of falling prices and significant state financing requirements. The ECB for the time being will continue to cut its benchmark rate, whereas the Fed will continue its zero-rate policy. In the course of 2009, investor attention will probably focus increasingly on the problems for fixed-income securities, also as a result of rising inflation expectations. Accordingly, government bond coupons are likely to rise, and the interest structure is likely to become more steep.

In the initial months of 2009, investor attention will not focus on traditional parameters on the stock market such as the price-earnings ratio. Uncertainty with regard to corporate profits is still too high, and risk paper will be avoided. If expectations change and the economic climate stabilises, equity prices may then rise appreciably and quickly. However, a new long-term upward trend is not yet to be expected in the course of the next two years; it can only be expected that the situation might return to normal following the significant falls in share prices.

With regard to developments on the foreign exchange markets, the escalation of the banking crisis has provided a boost to the US dollar compared with the euro. Repatriations and general risk aversion are the crucial factors behind the strengthening of the dollar. Uncertainty concerning the future developments in the eurozone are benefiting the dollar. The medium-term trend is pointing to further 040 Management Report of Landesbank Hessen-Thüringen

strengthening of the dollar. However, the upside potential is limited because the economic outlook for the USA is also moderate.

Further development of the strategic business model Helaba is in a good position to meet the challenges of the future, and considers that it is in a good position on a stand-alone basis to take advantage of further development opportunities for expanding regional private customers and SME business, public development and infrastructure business and also rounding off its client base and product range in the field of wholesale business (also internationally). On the basis of its successful business model of an integrated universal bank with public development and infrastructure business, Helaba has a fundamentally positive attitude towards forward-looking consolidation efforts in the Landesbanken and Sparkassen sector. However, it does not consider that there is any basis for economic success for credit institutions which operate exclusively in the field of wholesale business, for instance even within the framework of functional holding structures. Helaba liaises closely with its three owners and thus fundamentally has an open mind for strategic approaches which serve to further strengthen its market position in its core areas of business and also serve to promote its forward-looking expansion as a universal bank.

Probable development of the Bank For 2009, Helaba expects to see operating revenues consolidate at the level of the previous year. The continuing financial market crisis will shape the overall conditions on the markets. The sustainable nature of the crisis will considerably change the conditions in individual market segments, which in certain cases may result in operations being discontinued. On the other hand, opportunities will result in other segments due to the start of a market adjustment process. Business and earnings expectations in the “Wholesale Business and Investment Banking” segment have been adjusted to the changed conditions.

In 2009, the main contributions to medium-term and long-term new business will still be attributable to the core business areas of Real Estate and Corporate Finance. On the other hand, new business in the core field of Financial Institutions and Public Finance is expected to be much lower. Overall, therefore, medium-term and long-term new business in 2009 is expected to be lower than in the two dynamic years of 2007 and 2008. Via the shortage of liquidity, the turmoil on the financial markets is also indirectly having an effect on the terms and conditions on the lending markets. Helaba is therefore anticipating a slightly higher interest contribution in lending business.

In capital market business, the contribution to earnings very much depends on the extent to which the situation on the financial markets will improve in the course of 2009. A crucial factor in this respect will be how the economic development will affect customer-related business. Overall, Helaba will only selectively expand its capital market activities in view of the considerable widening of spreads as well as the high volatility in some market segments.

In Asset Management, the strategy since 2006 has been based on the two mainstays of active fund management on the basis of quantitative investment concepts as well as service as a Master-KAG. On the basis of the excellent market positioning, a further increase in fund volumes is also planned in 2009 by way of gaining new investors for the public funds.

In the business line “Private Customers and SME Business”, co-operation with the Sparkassen will be continued within the framework of the “new S-Group concept” in the S-Group business field. S-Group co-operation is stabilising at a high level. Helaba expects to see a consolidation of revenues particularly in the capital market dependent products. 041 Management Report of Landesbank Hessen-Thüringen

Public development and infrastructure business is expected to pick up appreciably in the “Public Devel- opment and Infrastructure Business” segment. In addition to acquiring the development activities of hos- pital financing and municipal development from the Federal State of Hesse budget, income is expected to be boosted in 2009 particularly as a result of the development programs for effluent financing and the refinanced capital market loans in housing.

Equipment cost planning for the year 2009 takes account of a general cost increase of approx. 1 %. This already includes project-related exceptional charges.

On the personnel side, it is envisaged that the number of employees will increase slightly in 2009, whereby this increase will take place in the strategic business lines.

Overall assessment The basis of the expected positive development, despite problems attributable to the financial market crisis, is the stable business model of Helaba as an integrated universal bank with the three segments “Wholesale Business and Investment Banking”, “Private Customers and SME Business” and “Public Development and Infrastructure Business”. The new business volume remained at a high level even during the financial market crisis, and it was possible for matching maturity funding to be arranged. The percentage of loans and advances to customers in relation to total assets has increased to 52 %. Helaba is thus very closely linked to the real economy. As a result of the good positioning of Helaba in the retail sector, there are good prospects of generating stable earnings in the core areas of business despite the market turmoil. The financial market crisis will continue for the time being in 2009. Helaba expects to see an initial improvement in the situation as the year progresses, resulting in additional earnings opportunities particularly in the field of capital market business. As a result of the recessionary development, Helaba expects to see a considerable increase in corporate insolvencies, which will lead to a rise in provisions for losses on loans and advances.

Helaba is in a good position to meet the challenges of the future, and considers that it is in a good position on a stand-alone basis to take advantage of further development opportunities for expanding regional private customers and SME business, public development and infrastructure business and also rounding off its client base and product range in the field of wholesale business (also internationally). With its successful business model of an integrated universal bank with public development and infrastructure business, Helaba has a fundamentally positive attitude towards consolidation efforts in the German Landesbanken and Sparkassen sector.

Frankfurt am Main/Erfurt, 27 February 2009

Landesbank Hessen-Thüringen Girozentrale

The Board of Managing Directors

Brenner Berger Bungarten

Gröb Raupach Dr. Schraad 042 annual accounts of LANDESBANK HESSEN-THÜRINGEN 044 Annual Accounts of Landesbank Hessen-Thüringen

Balance Sheet of Landesbank Hessen-Thüringen Girozentrale, Frankfurt am Main/Erfurt, as at 31 December 2008

ASSETS

see Notes 2007 number € in thousands € in thousands € in thousands € in thousands € in thousands Cash reserves a) Cash in hand 2,581 1,938 b) Balances with central banks 451,025 27,151 thereof: 453,606 29,089 Balances with Deutsche Bundesbank 450,974 (27,135) Loans and advances to banks (2), (29) a) At call 3,990,670 1,888,407 b) Other loans and advances 18,323,865 25,238,536 22,314,535 27,126,943 thereof building loans of Bausparkasse: Building savings loans 113 (325) Loans and advances to customers (3), (29) 84,630,817 77,726,536 thereof: Secured by property charges 8,734,890 ( 7,130,712) Municipal loans 17,740,165 (16,126,999) Building loans of Bausparkasse from allocations (building savings loans) 766,782 (762,115) for interim and bridge-over financing 546,507 (587,842) other 8,624 (9,262) thereof: Secured by property charges 995,721 (1,004,471) Bonds and other fixed-income securities (4) a) Money market papers aa) Issued by public-sector borrowers 128,634 – thereof: Eligible for rediscounting with Deutsche Bundesbank 128,633 (–) ab) Issued by other borrowers 656,714 785,348 711,190 thereof: Eligible for rediscounting with Deutsche Bundesbank 136,439 (–) b) Bonds ba) Issued by public-sector borrowers 2,331,104 2,009,114 thereof: Eligible for rediscounting with Deutsche Bundesbank 2,330,569 (2,005,678) bb) Issued by other borrowers 40,933,414 41,657,359 thereof: Eligible for rediscounting 43,264,518 43,666,473 with Deutsche Bundesbank 35,760,000 (33,419,794) c) Own bonds 1,271,793 1,267,655 45,321,659 45,645,318 Nominal amount 1,273,519 (1,316,377) Shares and other variable-income securities (5) 1,587,717 1,993,538 Carried forward: 154,308,334 152,521,424 045 Annual Accounts of Landesbank Hessen-Thüringen

Liabilities

see Notes 2007 number € in thousands € in thousands € in thousands € in thousands € in thousands Liabilities due to banks (14), (17) a) At call 5,554,365 6,877,124 b) With agreed maturities or agreed notice period 54,539,586 62,553,604 c) Building savings deposits 5,243 7,632 thereof: On allocated agreements 4,586 (4,869) 60,099,194 69,438,360 Liabilities due to customers (14), (18) a) Building savings deposits and savings deposits aa) Building society deposits 3,167,143 3,185,518 thereof: On terminated agreements 55,511 (21,309) On allocated agreements 81,997 (76,731) ab) Savings deposits at agreed notice period of three months 393 547 ac) Savings deposits at agreed notice period of more than three months – 3 3,167,536 3,186,068 b) Other liabilities ba) At call 6,518,267 3,670,350 bb) With agreed maturities or at agreed notice periods 32,605,564 27,191,780 39,123,831 30,862,130 42,291,367 34,048,198 Securitised liabilities (19), (29) a) Bonds issued 39,599,579 35,737,285 b) Other securitised liabilities 6,873,639 6,991,103 thereof: 46,473,218 42,728,388 Money market paper 6,873,639 (6,991,103) Trust liabilities (20) 977,510 1,069,041 thereof: Loans on a trust basis 725,400 (816,921) Other liabilities (21) 2,124,330 1,591,371 Deferred items (22) 302,913 299,818

Carried forward: 152,268,532 149,175,176 046 Annual Accounts of Landesbank Hessen-Thüringen

ASSETS

see Notes 2007 number € in thousands € in thousands € in thousands € in thousands € in thousands Brought forward: 154,308,334 152,521,424 Participations (6), (16), (41) 807,352 747,382 thereof: In banks 325,201 (325,201) In financial services institutions 31 (31) Shares in affiliated companies (7), (16), (41) 1,893,755 1,826,352 thereof: In banks 856,119 (856,119) In financial services institutions 6,073 (6,073) Trust assets (8) 977,510 1,069,041 thereof: Loans on a trust basis 725,400 (816,921) Intangible assets (9), (16) 14,315 8,933 Property, plant and equipment (10), (16) 52,262 52,294 Other assets (11) 3,797,600 2,283,281 Deferred charges and prepaid expenses (12) 230,400 237,387

Total assets 162,081,528 158,746,094 047 Annual Accounts of Landesbank Hessen-Thüringen

Liabilities

see Notes 2007 number € in thousands € in thousands € in thousands € in thousands € in thousands Brought forward: 152,268,532 149,175,176 Provisions (23) a) Provisions for pensions and similar obligations 497,799 466,655 b) Tax provisions 113,130 107,929 c) Other provisions 378,536 201,451 989,465 776,035 Fund for building-saving related securitisation 9,020 6,220 Subordinate liabilities (24) 2,343,610 2,484,625 Jouissance rights capital (26) 741,591 946,108 thereof: Falling due within two years – (204,517) Funds for general banking risks (26) 425,000 125,000 Equity (26) a) Subscribed capital aa) Share capital 477,000 477,000 ab) Deposits of dormant partners 2,973,337 2,973,337 3,450,337 3,450,337 b) Additional paid-in capital 642,563 642,563 c) Retained earnings 1,197,100 1,097,100 d) Distributable profit 14,310 42,930 5,304,310 5,232,930

Total liabilities 162,081,528 158,746,094

Contingent liabilities (14), (27) Liabilities from guarantees and warranty agreements 10,778,845 13,023,159 Other liabilities (28) a) Placing and underwriting commitments 3,296,165 2,636,112 b) Irrevocable loan commitments 25,038,307 30,597,269 28,334,472 33,233,381 048 Annual Accounts of Landesbank Hessen-Thüringen

Income Statement of Landesbank Hessen-Thüringen Girozentrale, Frankfurt am Main/Erfurt, for the period 1 January to 31 December 2008

see Notes 2007 number € in thousands € in thousands € in thousands € in thousands € in thousands Interest received from (31) a) Lending and money market transactions 5,248,512 4,948,298 thereof interest received by Bausparkasse: From building savings loans 36,208 (36,169) From interim and bridge-over loans 29,057 (31,964) From other building loans 459 (517) b) Fixed-income securities and government ledger bonds 2,150,307 1,877,854 7,398,819 6,826,152 Interest paid 6,609,826 6,188,135 thereof: On savings deposits 78,391 (81,508) 788,993 638,017 Current revenue from (31) a) Shares and other variable-income securities 48,385 71,286 b) Participations 27,284 56,358 c) Shares in affiliated companies 32,659 27,598 108,328 155,242 Revenues from profit and loss pooling agreements, profit transfer agreements or agreements to transfer part of profits 120,477 24,302 Commissions received (31), (32) 221,767 199,252 thereof fees from business of Bausparkasse: On contracts signed and arranged 22,895 (21,520) From loans granted after allotment of building savings contracts 2,706 (3,222) From the commitment and administration of interim and bridge-over loans 1 (1) Commissions paid 94,917 121,478 thereof: Commissions on contracts signed and arranged of Bausparkasse 28,037 (25,792) 126,850 77,774 Net profit on financial transactions (31) – 215,524 – 6 8,6 91 Other operating income (31), (33) 55,833 59,499

Carried forward: 984,957 886,143 049 Annual Accounts of Landesbank Hessen-Thüringen

see Notes 2007 number € in thousands € in thousands € in thousands € in thousands € in thousands Brought forward: 984,957 886,143 General administrative expenses a) Personnel expenses aa) Wages and salaries 222,228 212,967 ab) Social security pension and other benefits 97,449 73,161 thereof: 319,677 286,128 For pensions 66,566 (42,712) b) Other administrative expenses 275,249 255,152 594,926 541,280 Amortisation of and adjustment to intangible assets and depreciation of and adjustments to property, plant and equipment 10,799 17,042 Other operating expenses (33) 26,941 27,853 Amounts written off and valuation allowances on loans and advances on certain securities as well as allocations to accruals in lending business (34) – 37,964 Income from advances on certain securities as well as allocations to accruals in lending business 106,855 – Advances to the fund for general bank risks 300,000 – Amounts written off and valuation allowances on participations and shares in affiliated companies – 11,574 Income from advances on participations and shares in affiliated companies 14,265 – Expenses from the transfer of losses 3,480 2,871 Result on ordinary activities 169,931 247,559 Taxes on income and profits (35) 54,654 43,657 Other taxes, unless shown under the item “Other operating expenses” 967 972 55,621 44,629 Net income for the year 114,310 202,930 Allocations to retained earnings 100,000 160,000 Distributable profit 14,310 42,930 050 Annual Accounts of Landesbank Hessen-Thüringen

Notes to the Financial Statements of Landesbank Hessen-Thüringen Girozentrale, Frankfurt am Main/Erfurt, for the year ended 31 December 2008

The annual accounts of Landesbank Hessen-Thüringen Girozentrale are prepared in accordance with the regulations of the German Commercial Code (HGB) in conjunction with the German Accounting Ordinance for Banks and Financial Service Institutions (RechKredV) and the Pfandbriefgesetz (German Pfandbrief Act). The balance sheet and income statement are structured in accordance with the regulations of the RechKredV. They have been extended to include the positions prescribed for Bausparkassen. The information on the Bausparkassen business to be included in the notes are contained in separately published annual accounts of LBS.

(1) Accounting policies

Assets and liabilities are valued in accordance with the provisions of Sections 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 on a pro-rata basis. Discounted bonds and similar obligations issued on a discounted basis are stated at their net present value, as are securities and receivables acquired 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.

The holdings shown under the items debt instruments and other fixed-income securities and shares as well as other variable-income securities except for the asset portfolio are measured at the lower of cost or market value. Accordingly, they have to be stated at the fair value to the extent it does not exceed (amortised) acquisition cost. 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.

The fair value in active markets corresponds to the stock-market price or market price as of the balance sheet date. If no market values of active markets are available, parameters of market liquidity as well as recognised valuation models are used for establishing a fair value for each individual financial instrument. As a consequence of the crisis on the financial markets, the Bank analysed the securities and declared as from 1 July 2008, the illiquidity of the sub-segments “corporate bonds” and “financial instruments without cover”. Accordingly, for securities included in these sectors a valuation model based on the discounted cash flow method was applied. The discount rate underlying the model is calculated on the basis of recently available market data as of 1 July 2008 and the current swap curve. The market illiquidity is accounted for via a liquidity-dependent adjustment of the spreads added to the swap curve. In the Bank’s opinion, this value represents an adequate fair value measurement.

As a result of the crisis on the financial markets, the Bank reviewed the purpose of individual securities portfolios. Selected titles were transferred from the trading portfolio and the Bank’s liquidity reserve, respectively, to the commercial investment portfolio. By doing so, the recognition on the balance sheet remains unchanged. Via a corresponding change of the IFRS category to “Loans and Receivables (LaR)”, a synchronisation between HGB and IFRS was ensured. The transferred securities are regularly tested for permanent impairment. 051 Annual Accounts of Landesbank Hessen-Thüringen

Participations and holdings in affiliated companies are reported at acquisition cost. If permanent impairment 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 fair value and the amortised acquisition cost.

Fixed assets and intangible assets, the use of which is not indefinite, are shown at amortised cost less any impairments down to lower fair values. Depreciation is spread over the economic service life of the assets. Minor-value assets up to the amount of € 150 are depreciated in full in the year of acquisition.

Pension provisions were calculated on the basis of an actuarial opinion, taking into account Section 6a of the German Income Tax Act (Einkommensteuergesetz – EStG), the 2005 G mortality tables of Professor Klaus Heubeck 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 discount rate for pension provisions is 6 %.

Tax provisions and other provisions have been created in an amount to cover the uncertain liabilities or the anticipated losses of pending transactions in accordance with the principles of a prudent commercial assessment.

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. The Bank applies the principle of special cover in accordance with Section 340h HGB in conjunction with the BFA 3/95 comment of the IDW. The net positions for each currency are determined 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. Derivative financial instruments are recognised when shown under commercial law on the basis of the relevant comments and accounting information of the IDW. In the case of structured financial instruments for which the derivative features have a risk profile which differs from that of the underlying, these derivatives are separated, allocated to the trading portfolio and measured separately.

Transactions in the trading book (securities, financial instruments) are valued in accordance with the portfolio valuation method.

The portfolio valuation method is based on the market values or fair values of the individual securities and financial instruments. The individual values (realised and unrealised profit), including transactions between branches, are pooled in a portfolio for the purpose of accounting using the risk categories interest rate/interest spread, currency and equity trading, for which institutionalised risk management has been set up. The existing commercial law portfolios were valued on the basis of a risk-adjusted mark-to- market valuation with a discount for value-at-risk. The market risk discounts are calculated in such a way 052 Annual Accounts of Landesbank Hessen-Thüringen

that an expected maximum loss from these trading books will not be exceeded for a defined period with a high level of probability. The value-at-risk discount is calculated separately for every risk category.

Derivatives used outside trading are concluded for hedge purposes and are not valued. Gains or losses from swap transactions are allocated to accruals and deferrals pro rata and shown under other assets and other liabilities respectively.

(2) Loans and advances to banks

in € m 2008 2007 This position includes: Loans and advances to the associated Sparkassen 10,412 10,674 Loans and advances to affiliated companies 2,418 2,033 Loans and advances to companies in which an interest is held 1,191 940

The sub-item – other loans and advances – includes: Subordinated loans 128 59 thereof: To companies in which an interest is held 78 9

Residual maturities of the sub-item – other loans and advances – Up to three months 2,723 5,621 Over three months and up to one year 2,369 5,941 Over one year and up to five years 6,922 6,696 More than five years 6,310 6,981 Serving as cover 5,882 6,632 053 Annual Accounts of Landesbank Hessen-Thüringen

(3) Loans and advances to customers

in € m 2008 2007 This position includes: Loans and advances to affiliated companies 935 596 Loans and advances to companies in which an interest is held 1,699 833 Subordinated loans 155 144 thereof: to companies in which an interest is held 12 12

Residual maturities: Up to three months 7,878 6,227 Over three months and up to one year 6,184 5,771 Over one year and up to five years 31,699 24,241 More than five years 36,450 39,995 With indefinite term 2,420 1,493 Serving as cover 12,977 16,205

(4) Bonds and other fixed-income securities

in € m 2008 2007 Securitised loans and advances To affiliated companies 4 6 In companies in which an interest is held 957 –

Marketable securities include Listed securities 42,986 43,405 Non-listed securities 2,325 2,240

Residual maturities: Amounts falling due in the following year 8,935 7,730 Subordinated assets 65 74 Eligible for repurchase agreements within the framework of open-market operations 1,324 7,500 Book value of securities in the investment portfolio 1,331 – Fair value of securities in the investment portfolio 1,216 – Temporary impairment of securities in the investment portfolio 115 – 054 Annual Accounts of Landesbank Hessen-Thüringen

(5) Shares and other variable-income securities

in € m 2008 2007 Marketable securities include Listed securities 58 371 Non-listed securities 74 189

Subordinated assets – 72 thereof: to companies in which an interest is held – 72

(6) Participations

in € m 2008 2007 Securities include Eligible for listing 216 215 Listed securities 86 86

One affiliated company and 16 participations in infrastructural, private equity and mezzanine funds at a total book value of € 152 m (fair value € 141 m), were not stated at the temporary lower fair value, since the lower fair value predominantly results from typical start-up losses by advance management fees. A further deviation of € 35 m resulted from the decline in prices of a listed participation which was not deemed to be permanent.

(7) Shares in affiliated companies

in € m 2008 2007 Securities include Eligible for listing 8 8 Listed securities – –

(8) Trust assets

in € m 2008 2007 Trust assets can be broken down as follows in accordance with the positions defined in the RechKredV Loans and advances to banks 4 5 Loans and advances to customers 721 782 Holdings in affiliated companies 252 252 055 Annual Accounts of Landesbank Hessen-Thüringen

(9) Intangible assets

The figure shown in the balance sheet mainly comprises purchased standard software.

(10) Property, plant and equipment

in € m 2008 2007 This position includes: Real properties and buildings used within the scope of the Bank’s own activities 17 17 Fixtures and fittings 25 26

(11) Other assets

The figure shown in the balance sheet mainly comprises balancing items from currency valuation, interest receivables arising from swaps, netting claims against special assets as well as options premiums paid.

(12) Deferred charges and prepaid expenses

in € m 2008 2007 This position includes: Premiums from receivables 5 13 Discounts on liabilities and bonds issued 188 190

(13) Genuine repurchase agreements

in € m 2008 2007 Assets issued under repurchase agreements 5,768 2,394

(14) Assets transferred as security

in € m 2008 2007 For the following liabilities, assets were transferred in the amount indicated: Liabilities due to banks 4,773 1) 9,667 1) Liabilities due to customers – 2) 200 2)

1) Including € 644 m (2007: € 6,893 m) for securities under repo arrangements which were passed on to banks in connection with genuine repo transactions. 2) Including € 0 m (2007: € 200 m) for securities under repo arrangements which were passed on to customers in connection with genuine repo transactions. 056 Annual Accounts of Landesbank Hessen-Thüringen

(15) Assets denominated in foreign currency

in € m 2008 2007 35,453 30,159

(16) Fixed assets movement schedule

Fixed assets Intangible Property, Bonds Participations Shares in Total – in € m – assets plant and and other affiliated equipment fixed-income companies securities Acquisition/Production costs 1 Jan. 2008 73 175 – 815 1,847 2,910 Additions 11 5 – 74 100 190 Disposals 12 21 – 14 34 81 Reassignments 0 0 1,331 0 0 1,331 Changes in exchange rates 0 1 – 0 2 3 Accumulated depreciation 58 108 – 68 21 255 Balance sheet value at 31 Dec. 2008 14 52 1,331 807 1,894 4,098 Balance sheet value previous year 9 52 – 747 1,826 2,634 Depreciation 2008 6 5 – 1 0 12

(17) Liabilities due to banks

in € m 2008 2007 This position includes: Liabilities to associated Sparkassen 11,214 9,172 Liabilities to affiliated companies 4,268 2,855 Liabilities to companies in which an interest is held 350 830

Residual maturities in the sub-item – with agreed maturities or at agreed notice period – Up to three months 18,185 29,410 Over three months and up to one year 11,520 9,033 Over one year and up to five years 12,210 11,658 More than five years 12,625 12,453 057 Annual Accounts of Landesbank Hessen-Thüringen

(18) Liabilities to customers

in € m 2008 2007 This position includes: Liabilities to affiliated companies 1,132 1,068 Liabilities to companies in which an interest is held 84 69

Residual maturities in the sub-item – other liabilities with agreed maturities or at agreed notice period – Up to three months 11,858 7,275 Over three months and up to one year 4,160 2,987 Over one year and up to five years 6,702 5,559 More than five years 9,886 11,371

(19) Securitised liabilities

in € m 2008 2007 This position includes: Liabilities to affiliated companies – – Liabilities to companies in which an interest is held 1,081 739

Residual maturities in the sub-item – bonds issued – Amounts falling due in the following year 9,505 7,358

Residual maturities in the sub-item – other securitised liabilities – Up to three months 5,940 5,592 Over three months and up to one year 934 1,399 Over one year and up to five years – – More than five years – –

(20) Trust liabilities

in € m 2008 2007 Trust liabilities can be broken down as follows Liabilities due to banks 15 18 Liabilities due to customers 962 1,051 058 Annual Accounts of Landesbank Hessen-Thüringen

(21) Other liabilities

in € m 2008 2007 Major positions are: Interest liabilities from swap agreements 712 783 Option premiums received 489 351 Balancing item from currency valuation 630 199 Interest for profit participation certificates and dormant contributions 130 148

The balancing item from currency valuation is opposed to neutralising valuation losses from changes in the spot rate of forward transactions denominated in foreign currency in the amount of € 569 m which are recognised in other assets.

(22) Deferred items

in € m 2008 2007 This position consists chiefly of Discounts from lending business 188 198 Premiums from liabilities 25 23

(23) Provisions

The other provisions have been created mainly for personnel issues, for creditworthiness and country risks in lending business as well as in connection with the measurement of derivative transactions of the Bank’s trading operations. Further provisions are attributable to various liabilities which are uncertain in terms of the actual amount or the specific reason.

(24) Subordinate liabilities

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

Currency amount Current interest rate Due in Early repayment – in € m – – % – obligation 500 5.50 2015 – 250 4.125 2016 –

The criteria applicable for assessing the subordinate nature of these funds correspond to the requirements of the Kreditwesengesetz (German Banking Act) for recognition as liable equity. No conversion into equity or other forms of liability has been agreed or planned. 059 Annual Accounts of Landesbank Hessen-Thüringen

The above amounts include pro-rata interest of € 12 m (2007: € 13 m). Interest expense for subordinate borrowings amounted to € 111 m in the financial year (2007: € 106 m).

(25) Liabilities denominated in foreign currency

in € m 2008 2007 24,487 29,050

(26) Equity

in € m 2008 2007 Equity (excluding distributable profit) according to the balance sheet as at year-end 2008 is composed of the following: Capital stock 3,450 3,450 a) Share capital 477 477 b) Deposits of dormant partners 2,973 2,973 Additional paid-in capital 643 643 Retained earnings 1,197 1,097 Including jouissance rights capital, 742 946 and the fund for general banking risks, 425 125 and the subordinate liabilities 2,343 2,485 Liable equity capital as shown in the balance sheet amounted to 8,800 8,746

The figure shown for retained earnings as of 31 December 2008 includes an allocation of € 100 m to reserves out of the net income for 2008. The fund for general banking risks was increased by € 300 m. The decline in the jouissance rights capital is attributable to scheduled repayments.

(27) Contingent liabilities

in € m 2008 2007 Liabilities from guarantees and warranty agreements include guarantees 5,913 8,321 for loans in an amount of 060 Annual Accounts of Landesbank Hessen-Thüringen

(28) Other liabilities

in € m 2008 2007 These include: Placing and underwriting commitments 3,296 2,636 Irrevocable loan commitments for book credits 25,038 27,339

(29) Pfandbriefe and breakdown of liabilities requiring cover and assets serving as cover

Overview in accordance with Section 28 (1) No. 1 PfandBG

Nominal value Present value in € m in € m 2008 2007 2008 2007 Mortgage Pfandbriefe Cover funds 7,378 6,002 7,765 6,142 Pfandbriefe in circulation 5,091 4,299 5,284 4,314 Surplus cover 2,287 1,703 2,481 1,828 Risk present value in accordance with Present Value Ordinance – – 2,282 1,748 Public Pfandbriefe Cover funds 21,432 19,472 22,173 19,787 Pfandbriefe in circulation 17,295 16,926 18,215 16,926 Surplus cover 4,137 2,546 3,958 2,861 Risk present value in accordance with Present Value Ordinance – – 3,478 2,650

No derivatives provided as cover at year end.

The risk present value in accordance with Present Value Ordinance reflects the present value of the cover balance after stress test. For the simulation of interest rate risks, the internal model MaRC2 was applied; the currency risks were simulated on the basis of the dynamic method. 061 Annual Accounts of Landesbank Hessen-Thüringen

Breakdown of cover assets according to fixed interest periods and breakdown of Pfandbriefe according to remaining maturities in accordance with Section 28 (1) No. 2 PfandBG

Cover funds Pfandbriefe in € m in € m 2008 2007 2008 2007

Fixed interest periods/Remaining maturities Mortgage Pfandbriefe Up to one year 2,323 2,114 1,305 421 Up to five years 2,725 1,960 3,022 2,995 Up to ten years 2,327 1,885 569 734 More than ten years 3 43 195 149 Public Pfandbriefe Up to one year 3,220 3,137 5,807 2,741 Up to five years 8,627 7,939 5,920 8,376 Up to ten years 7,444 6,928 3,723 4,196 More than ten years 2,141 1,468 1,845 1,613

Breakdown of the cover funds of mortgage Pfandbriefe according to type of use

in € m 2008 2007 Commercial 5,174 3,985 Residential 1,363 1,398 Further cover 841 619

Breakdown of the cover funds of mortgage Pfandbriefe according to type of building

in € m 2008 2007 Apartments 133 164 Single family houses 148 190 Multiple family houses 1,076 1,020 Office buildings 3,270 2,194 Commercial buildings 1,230 1,106 Industrial buildings 52 78 Other trade 584 458 Development sites and shells 44 173 Further cover 841 619 062 Annual Accounts of Landesbank Hessen-Thüringen

Breakdown of the cover funds of mortgage Pfandbriefe according to size category

in € m 2008 2007 Up to € 0.3 m 454 554 Up to € 5 m 1,478 1,520 More than € 5 m 4,605 3,309 Further cover 841 619

In the course of the financial year, only property situated in the Federal Republic of Germany was used as collateral for cover purposes; the total amount of related payments which are at least 90 days overdue amounted to € 0.3 m (2007: € 0.2 m). No forced sales or administrative receivership cases occurred during the financial year, nor was it necessary for property to be taken over in order to avoid losses.

Interest arrears in mortgage lending

in € m 2008 2007 Commercial 0.1 0.1 Residential 0.2 0.0 Total amount 0.3 0.1

Total repayment of mortgage loans in the financial year The total amount of the repayments in the financial year was € 0.4 m (2007: € 0.3 m), and was broken down as follows:

Commercial Residential in € m in € m 2008 2007 2008 2007 Type of repayment Scheduled 0.2 0.2 0.1 0.1 Non-scheduled 0.1 0.0 0.0 0.0 Total repayments 0.3 0.2 0.1 0.1 063 Annual Accounts of Landesbank Hessen-Thüringen

Breakdown of cover assets for public Pfandbriefe broken down according to issuer

Country State Regional Local Public-sector Total authorities authorities credit institutions/ Other 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 Austria 3 3 – – – – – – 3 3 Belgium – – – – – – – – – – Canada – – – 10 – – – – – 10 France incl. Monaco – – 20 24 – – 2 3 22 27 Germany 774 593 2,374 2,313 6,300 5,074 10,623 10,555 20,071 18,535 Great Britain/ Northern Ireland 1 1 – – – – – – 1 1 Greece – – – – – – – – – – Hungary – – – – – – – 14 – 14 Italy 5 12 – – – – – – 5 12 Netherlands 1 1 – – – – – – 1 1 Poland – – – – – – – – – – Slovenia – – – – – – 10 – 10 – Spain – – 1,309 791 – – – – 1,309 791 Sweden – – – – – – – – – – Switzerland – – – 30 – – 10 48 10 78 Total 784 610 3,703 3,168 6,300 5,074 10,645 10,620 21,432 19,472

The total amount of arrears (at least 90 days overdue) for public Pfandbriefe was € 0 (2007: € 1,000). As was the case in the previous year, they were attributable to German debtors.

(30) Derivatives business

Business with derivative products is presented in line with the publication requirements in accordance with Section 285 No. 18 HGB in conjunction with Section 36 RechKredV.

Derivative products business increased by 3.1 % (2007: + 4.0 %) year on year in terms of nominal volume. This is mainly due to the increase in foreign currency futures. The volume of interest rate risk-inherent transactions slightly exceeds the previous year’s level. The volume of credit derivatives increased whereas the volume of transactions with share risks halved due to maturities. 064 Annual Accounts of Landesbank Hessen-Thüringen

Derivative business – volumes –

Nominal values Positive Negative market values market values in € m in € m in € m 2008 2007 2008 2008 Interest rate risks Interest rate swaps 372,514 376,624 8,673 8,308 FRAs 3,223 2,071 4 2 Interest options 10,208 9,832 127 566 Purchases 3,694 3,253 127 0 Sales 6,514 6,579 0 566 Caps, floors 26,251 28,050 192 115 Exchange-traded contracts 121,028 113,798 159 93 Other interest futures 238 76 0 0

Interest rate risks – total – 533,462 530,451 9,155 9,084

Currency risks FX futures 31,323 24,825 1,653 878 Currency swaps/interest rate and currency swaps 14,562 12,564 981 593 FX options 3,156 1,478 70 71 Purchases 1,578 724 70 0 Sales 1,578 754 0 71 Exchange-traded contracts 0 0 0 0 Other currency futures 0 0 0 0

Currency risks – total – 49,041 38,867 2,704 1,542

Stock-related and other price risks Share futures transactions 0 0 0 0 Share options 233 449 6 12 Purchases 97 219 6 0 Sales 136 230 0 12 Exchange-traded contracts 170 411 12 6 Other futures transactions 0 0 0 0

Share and other price risks – total – 403 860 18 18

Credit derivatives Purchases 11,691 8,099 591 7 Sales 15,470 13,282 5 844

Credit derivatives - total 27,161 21,381 596 851

Commodity risks Commodity swaps 3 0 0 0 Commodity options 0 0 0 0 Commodity risks – total – 3 0 0 0

Total 610,070 591,559 12,473 11,495 065 Annual Accounts of Landesbank Hessen-Thüringen

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

The positive market/cash values which may be used as an indication of the potential risk of counterparty default associated with the transactions amount to 2.0 % of the nominal value (2007: 0.9 %).

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 under lying transactions.

The market values are in some cases offset by premium and special payment flows not yet shown and accrued interest from derivatives reported on the balance sheet under other assets/liabilities. Of the total assets of € 1,491 m related to derivatives, € 432 m is attributable to option premiums paid; of the figure of € 1,357 m stated for liabilities in connection with derivatives, € 489 m is attributable to option premiums received.

Derivatives business – breakdown by maturities –

Nominal values Interest rate risks Currency risks Stock-related and Credit derivatives other price risks in € m in € m in € m in € m 2008 2007 2008 2007 2008 2007 2008 2007 Residual maturities Up to three months 169,851 133,696 24,540 18,190 93 443 348 138 Up to one year 82,646 131,175 8,331 8,368 72 129 995 665 Up to five years 165,217 154,070 13,429 8,182 200 94 23,291 17,247 More than five years 115,748 111,510 2,741 4,127 38 194 2,527 3,331 Total 533,462 530,451 49,041 38,867 403 860 27,161 21,381

The increase in the volume of currency futures is spread over medium and longer-term maturities. Short-term interest derivatives (residual maturities of up to 1 year) account for 47.3 % (2007: 49.9 %) of total interest rate business. The increase in the volume of credit derivatives mainly focuses on medium- term maturities.

In 2008 for the first time two commodity derivatives with residual maturities of up to one year were entered into; they were not included in the table.

Derivatives business – breakdown by counterparty –

Nominal values Positive Negative market values market values in € m in € m in € m 2008 2007 2008 2007 Banks in the OECD 412,562 416,407 9,747 9,536 Banks outside the OECD 0 150 0 0 Public authorities in the OECD 7,420 6,034 241 56 Other counterparties 190,088 168,968 2,485 1,903 Total 610,070 591,559 12,473 11,495 066 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.

The overwhelming majority of the positive market values and hence also of the replacement risks are still related to OECD banks.

Most of the transactions with other counterparties are attributable to market contracts; in relation to nominal volume, the share is 63.7 %.

Derivative financial instruments in 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.

That proportion of the total volume of derivatives made up of derivatives in the trading portfolio is a virtually unchanged 70.3 % (2007: 68.3 %).

As was the case in recent years, interest rate contracts continue to dominate trading activities. The trading portfolio now accounts for 69.5% of the total portfolio (2007: 68.1 %). With regard to the currency risks, 69.6 % of contracts relate to the trading portfolio, and 87.5 % of credit derivative contracts relate to the trading portfolio; the low number of derivatives with equity risks relates exclusively to the trading portfolio.

(31) 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:

in € m 2008 2007 Germany 6,427 5,604 European Union, excluding Germany 861 1,182 Rest of the world 496 454

(32) Comissions 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.

(33) Other operating income and expenses

In the year under review, the item of “Other operating income” at the Bank includes income of € 24 m from rental and leasing (2007: € 23 m) as well as cost refunds of € 14 m for contract work for third parties (2007: € 18 m). 067 Annual Accounts of Landesbank Hessen-Thüringen

The costs of buildings not used for the Bank’s own purposes amounted to € 6 m in the year under review (2007: € 7 m).

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

Provisions for losses on loans and advances are shown under this item. We have taken advantage of the cross-compensation option specified under Section 340f HGB for showing the amounts written off and the valuation allowances on loans and advances and certain securities as well as allocations to accruals in the lending business.

(35) Taxes on income and profits

Taxes on income are attributable mainly to the New York branch. The domestic tax position is solely driven by previous years’ taxes recorded in the year under review due to negative taxable income to be recorded.

(36) Auditor’s fee

The auditor’s fee expensed in the financial year relates to the services provided by companies in the PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft Group.

in € m 2008 2007 Audit 3 3 Other certification and valuation services 0 0 Tax consultancy – – Other services 1 1 Total 4 4

(37) Other financial obligations

On the balance sheet date, the Bank had payment obligations of € 240 m with regard to the subscribed capital of 22 companies, and also had payment obligations totalling € 0.1 m to be paid into the additional paid-in capital at one company. Of this figure, € 36 m is attributable to affiliated companies. The Bank also had a contractual obligation to contribute a further amount of € 1 m for one company. Call commitments pursuant to Section 172 (4) HGB exist in respect of one affiliated company and amount to a total of € 36 m. In addition, Helaba also has a subsequent liability of max. € 15 m for potential obligations of two extinguished companies in accordance with Section 159 (1) HGB.

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 bear pro-rata liability internally if a claim is made on a former guarantor of DekaBank in accordance with the protection regulations applicable for guarantor liability under the Brussels Accord I. 068 Annual Accounts of Landesbank Hessen-Thüringen

The Bank holds an interest as a shareholder with unlimited liability in GLB GmbH & Co. OHG, Frankfurt am Main.

The Bank is involved in the deposit guarantee schemes of the German Sparkasse Organisation via its membership of the security reserve of the Landesbanken and Girozentralen in Germany. These security guarantee schemes have the effect of guaranteeing the institution, i.e. their purpose is to protect the continued existence of the affiliated institutions. If it is necessary for support to be provided, the Bank has an obligation to provide guarantee funds up to max. € 191 m.

Helaba is also included in the reserve fund of the Sparkassen- und Giroverband Hessen-Thüringen. This guarantees additional protection on top of the existing security facilities, and provides not only institution protection but also creditor protection. Amounts are successively paid into the fund by Landesbank Hessen-Thüringen and the Sparkassen until 0.5 % of the measurement base has been attained (the weighted risk assets of the institutions in accordance with principle I or the Solvency Ordinance). The core commitment of each institution is established on the basis of risk taking into account bonus and penalty factors. The Sparkassen- und Giro Verbund Hessen-Thüringen will be liable to make up the rele vant shortfall should the fund be required before such time as the full amount has been contributed.

The Bank has issued a letter of comfort in favour of Helaba Dublin to the Irish Central Bank. For Banque LBLux S. A., Luxembourg, and LB(Swiss) Privatbank AG, Zurich, the Bank ensures (on the basis of its shareholding) that these companies are able to meet their obligations.

The Bank provided securities in an amount of € 1.4 bn for the settlement of clearing transactions; in accordance with international regulations, the Bank also provided collateralised assets equivalent to € 1.7 bn as security.

If LBS Immobilien GmbH or OFB Projektentwicklung GmbH become insolvent, Helaba has agreed to bear the amounts of compensation for the relevant additional benefits fund.

Contingent liabilities in the amount of € 205 m might arise from the repayment of dormant deposits.

There are further obligations in accordance with Section 285 (3) HGB particularly as a result of long-term real estate rental and leasing agreements for property used for banking operations. Payment obligations for rental and leasing installments of € 35 m are expected for 2009 for the property utilised by Helaba with contract and termination periods of eight to 14 years. There are also financial obligations resulting from various rental, utilisation and service agreements as well as consultancy agreements; the extent of these obligations is normal for this type of business. 069 Annual Accounts of Landesbank Hessen-Thüringen

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

• In the foreign exchange field (foreign currency futures and options, currency and cross-currency swaps), • In the interest field (futures and options with fixed-income securities and borrower’s note loans, forward rate agreements, financial swaps and related options, 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), • 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.

(38) Remuneration of the Board of Managing Directors, the Supervisory Board and the Advisory Boards as well as loans granted

The total remuneration paid by the Bank for the Board of Managing Directors amounted to € 4.8 m (2007: € 4.9 m). As was the case in the previous year, € 0.6 m (2007: € 0.4 m) was paid to the Supervisory Board and € 0.1 m to the members of the Advisory Board. € 4.1 m (2007: € 3.4 m) was paid to former members of the Board of Managing Directors and their surviving dependants. Provisions of € 29.2 m (2007: € 29.2 m) had been created for pension obligations for this group of persons. The loans extended to members of the Board of Managing Directors amounted to € 0.2 m at the end of 2008 (2007: € 1.0 m), and the corresponding figure for members of the Supervisory Board was € 3.0 m (2007: € 3.6 m).

(39) Average number of staff during the year

Female Male Total Bank 919 1,371 2,290 Landesbausparkasse 194 144 338 LTH – Bank for Public Infrastructure 82 82 164 Bank total 1,195 1,597 2,792 070 Annual Accounts of Landesbank Hessen-Thüringen

(40) Corporate Bodies of the Bank

Supervisory Board

Gregor Böhmer Martin Fischer Horst Schnur Managing President Chairman of the Board of Chief Administrative Officer Sparkassen- und Giroverband Sparkasse Jena-Saale-Holzland County District of Odenwald Hessen-Thüringen Jena Erbach Frankfurt am Main/Erfurt Chairman Stefan Gieltowski Dr. Rainer Spaeth Lord Mayor Secretary of State Dr. Werner Henning Rüsselsheim Ministry of Finance of Chief Administrative Officer the State of Thuringia Regional district of Eichsfeld Alfred Jakoubek Erfurt Heiligenstadt Chief Administrative Officer First Vice-Chairman Regional district of Darmstadt- Dr. Norbert Vornehm Dieburg Lord Mayor Karlheinz Weimar Darmstadt Gera Minister of State Ministry of Finance of Stefan Lauer Dr. Manfred Wagner the State of Hesse Member of the Board of Chairman of the Board of Wiesbaden Managing Directors Managing Directors Second Vice-Chairman Deutsche Lufthansa AG Sparkasse Frankfurt am Main Bad Hersfeld-Rotenburg Dieter Mehlich Bad Hersfeld Chairman of the Board of Christoph Matschie Managing Directors Member of the Jürgen Walter Kasseler Sparkasse State Parliament of Thuringia Member of the State Parliament Kassel Erfurt of Hesse until 17 January 2009 – Third Vice-Chairman Wiesbaden since 19 March 2008 – Gerhard Möller Lord Mayor Alfred Weber Hans Adler Fulda Chairman of the Board of Chairman of the Board of Managing Directors Sparkasse Starkenburg Clemens Reif Kreissparkasse Saalfeld- Heppenheim Member of the Rudolstadt State Parliament of Hesse Saalfeld Prof. Dr. h. c. Ludwig G. Braun Wiesbaden – since 1 January 2008 – Chairman of the Board of B. Braun Melsungen AG Dr. h. c. Petra Roth Stephan Ziegler Melsungen Lady Mayoress Chairman of the Board of Frankfurt am Main Managing Directors Robert Fischbach Nassauische Sparkasse Chief Administrative Officer Dr. Bernd Scheifele Wiesbaden County District of Chairman of the Board of Marburg-Biedenkopf Managing Directors Ulrich Zinn Marburg HeidelbergCement Chairman of the Board of Heidelberg Managing Directors Sparkasse Grünberg Grünberg 071 Annual Accounts of Landesbank Hessen-Thüringen

Staff representatives

Bärbel Ohlwein Hans Peschka Deputy Vice-President Assistant Vice-President Kassel (Bankprokurist) Fourth Vice-Chairwoman Frankfurt am Main – until 31 March 2008 – Erich Roth Wilfried Abt Bank Officer Vice-President Frankfurt am Main Frankfurt am Main Fourth Vice-Chairman Birgit Sahliger-Rasper – since 1 April 2008 – Bank Officer Frankfurt am Main Dr. Robert Becker – since 1 Novemer 2008 – Senior Vice President New York Wolf-Dieter Tesch Vice-President Nicole Brandt Frankfurt am Main Bank Officer Kassel Helmuth Zuber – since 1 December 2008 – Bank Officer Frankfurt am Main Wilfried Carl – until 31 October 2008 – Deputy Vice-President Kassel – since 1 April 2008 –

Thorsten Derlitzki Bank Officer Frankfurt am Main

Gabriele Fuchs Bank Officer Frankfurt am Main

Anke Glombik Assistant Vice-President (Bankprokuristin) Erfurt

Roland Haas Bank Officer Frankfurt am Main – until 30 November 2008 –

Susanne Noll Bank Officer Frankfurt am Main 072 Annual Accounts of Landesbank Hessen-Thüringen

Board of Managing Directors

Hans-Dieter Brenner Chairman – since 1 October 2008 – Vice-Chairman – until 30 September 2008 –

Dr. Günther Merl Chairman – retired as of 30 September 2008 –

Johann Berger

Stefan Bungarten – since 1 July 2008 –

Klaus-Dieter Gröb

Peter Kobiela – retired as of 31 March 2008 –

Gerrit Raupach

Dr. Norbert Schraad 073 Annual Accounts of Landesbank Hessen-Thüringen

(41) Shareholdings

The list of shareholdings as specified in Section 285 No. 11 and Section 340A (4) No. 2 HGB has been prepared in accordance with Section 287 Sentence 1 HGB, and is published together with the annual financial statements in the electronic Federal Gazette.

(42) Mandates held in supervisory boards pursuant to Section 340a (4) No. 1 HGB

Mandates held by the members of the Board of Managing Directors

Holder of mandate Corporation Function Hans-Dieter Brenner Banque LBLux S. A., Luxembourg Deputy Chairman DekaBank Deutsche Girozentrale, Frankfurt am Main Member Frankfurter Sparkasse, Frankfurt am Main First Deputy Chairman GWH Gemeinnützige Wohnungsgesellschaft mbH Hessen, Frankfurt am Main Deputy Chairman Investitionsbank Hessen, Frankfurt am Main Deputy Chairman LB(Swiss) Privatbank AG, Zurich, Switzerland President Johann Berger GWH Gemeinnützige Wohnungsgesellschaft mbH Hessen, Frankfurt am Main Chairman Dr. Norbert Schraad Authenthos GmbH, Berlin Member Bundesdruckerei GmbH, Berlin Member Cube Infrastructure Fund SICAV, Luxembourg Member Helaba Dublin Landesbank Hessen-Thüringen International, Dublin Chairman Helaba International Finance plc, Dublin Member Klaus-Dieter Gröb Frankfurter Sparkasse, Frankfurt am Main Member

Mandates of other employees

Holder of mandate Corporation Function Hartmut Bieneck Bürgschaftsbank Thüringen GmbH, Erfurt Member Dr. Dierk Ernst AVECO Holding Aktiengesellschaft, Frankfurt am Main Member DIBAG Industriebau AG, Munich Chairman Dr. Winfried Franke GWH Gemeinnützige Wohnungsgesellschaft mbH Hessen, Frankfurt am Main Member Investitionsbank Hessen, Frankfurt am Main Member LB(Swiss) Privatbank AG, Zurich, Switzerland Member Ellen Fries-Offenbach Frankfurter Sparkasse, Frankfurt am Main Member Herbert Hans Grüntker Helaba Invest Kapitalanlagegesellschaft mbH, Frankfurt am Main Chairman LB(Swiss) Privatbank AG, Zurich, Switzerland Member Jörg Hartmann AKA Ausfuhrkredit-Gesellschaft mbH, Frankfurt am Main Member 074 Annual Accounts of Landesbank Hessen-Thüringen

Mandates of other employees

Holder of mandate Corporation Function Dr. Herbert Hirschler Bürgschaftsbank Hessen GmbH, Wiesbaden Member Investitionsbank Hessen, Frankfurt am Main Member Jürgen Hofer Helaba Invest Kapitalanlagegesellschaft mbH, Frankfurt am Main Member Dieter Kasten GWH Gemeinnützige Wohnungsgesellschaft mbH Hessen, Frankfurt am Main Member Dr. Ulrich Kirchhoff Helaba Invest Kapitalanlagegesellschaft mbH, Frankfurt am Main Deputy Chairman Volker Klein Frankfurter Bankgesellschaft AG, Frankfurt am Main Member Rainer Krick Helaba Dublin Landesbank Hessen-Thüringen International, Dublin Member Helaba International Finance plc, Dublin Chairman Claudio Miguel Lagemann Pirelli Deutschland GmbH, Höchst Member Herbert Pfennig DEUTSCHE FACTORING BANK Deutsche Factoring GmbH & Co. KG, Bremen Member Frankfurter Bankgesellschaft AG, Frankfurt am Main Chairman Dr. Harald Quensen Helaba Invest Kapitalanlagegesellschaft mbH, Frankfurt am Main Member Leonhard Regneri Frankfurter Sparkasse, Frankfurt am Main Member Harald Scholtz Frankfurter Sparkasse, Frankfurt am Main Member Bruno Sommer Florida Office Property Company Inc., Delaware, USA Member Lothar Steinborn-Reetz Helaba Dublin Landesbank Hessen-Thüringen International, Dublin Member Helaba International Finance plc, Dublin Member Dr. Georg Stocker Frankfurter Bankgesellschaft AG, Frankfurt am Main Deputy Chairman

Frankfurt am Main/Erfurt, 27 February 2009

Landesbank Hessen-Thüringen Girozentrale

The Board of Managing Directors

Brenner Berger Bungarten

Gröb Raupach Dr. Schraad 075 Annual Accounts of Landesbank Hessen-Thüringen

Declaration of the Statutory Representatives

“We hereby confirm to the best of our knowledge that, in accordance with the applicable accounting principles, the annual financial statements provide a true and fair view of the net assets, financial position and results of operations of Landesbank Hessen-Thüringen Girozentrale, and that the management report presents the business development including results of operations and the position of the Bank in such a way that a true picture is provided, and that the major opportunities and risks of the probable development of Landesbank Hessen-Thüringen Girozentrale are described.”

Frankfurt am Main/Erfurt, 27 February 2009

Landesbank Hessen-Thüringen Girozentrale

The Board of Managing Directors

Brenner Berger Bungarten

Gröb Raupach Dr. Schraad 076 Annual Accounts of Landesbank Hessen-Thüringen

Copy of the Auditors’ Report

“Auditors’ report We have audited the annual financial statements, comprising the balance sheet, the income statement as well as the notes to the financial statements including the accounting records and the management report of Landesbank Hessen-Thüringen Girozentrale, Frankfurt am Main/Erfurt for the fiscal year from 1 January to 31 December 2008. The maintenance of the books and records and the preparation of the annual financial statements and the management report in accordance with German commercial law and the supplementary provisions of the articles of incorporation are the responsibility of the Board of Managing Directors of Landesbank Hessen-Thüringen Girozentrale. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, and the management report based on our audit.

We conducted our audit of the annual financial statements in accordance with § 317 HGB (Handelsgesetz- buch: German Commercial Code) and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany – 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 financial statements in accordance with (German) principles of proper accounting and in the manage ment report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of Landesbank Hessen-Thüringen Girozentrale 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 financial statements and the management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by the Board of Managing Directors of Landesbank Hessen-Thüringen Girozentrale as well as evaluating the overall presentation of the annual financial statements and 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 based on the findings of our audit, the annual financial statements comply with the legal requirements and the supplementary provisions of the articles of incorporation and give a true and fair view of the net assets, financial position and results of operations of Landesbank Hessen-Thüringen Giro zentrale in accordance with German principles of proper accounting. The management report is consis- tent with the financial statements and as a whole provides a suitable view of the position of Landesbank Hessen-Thüringen Girozentrale, and suitably presents the opportunities and risks of future development.”

Frankfurt am Main, 27 February 2009

PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

Hans Struwe Michael Henneberger Wirtschaftsprüfer Wirtschaftsprüfer