LB Kiel – Bank for the North

Landesbank Schleswig-Holstein Girozentrale

Annual Report 2001 3

LB Kiel Contents

Annual Report 2001 6 LB Kiel at a Glance 10 Preface of the Managing Board

12 Report of the Guarantors’ Meeting 13 Report of the Supervisory Board 15 Management and Group Management Report 16 - The Economic Environment 17 - The Banking Environment and EU-Proceedings 18 - LB Kiel’s Strategic Approach 19 - Business Development 26 - Risk Report 32 - Personnel 32 - Outlook

34 LB Kiel Geschäftsbank

37 Strategic Missions 39 - Bank for the North 49 - International Product and Sector Specialist 59 - Partner in the International Capital Markets 62 - Landesbank Schleswig-Holstein International S.A. (LI) 63 - Hamburgische Landesbank (HLB)

65 Annual Accounts and Group Annual Accounts for 2001 66 - Group Balance Sheet 70 - Group Statement of Income 72 - Balance Sheet of LB Kiel 76 - Statement of Income of LB Kiel 79 - Notes to the Annual Accounts and Group Annual Accounts (incl. Segment Report and Group Cash Flow Statement) 104 - Guarantors’ Meeting 105 - Supervisory Board 107 - Managing Board 108 - Independent Auditor’s Report

109 Departments of the Managing Board

110 Glossary of Balance Sheet Items

114 Our Commitment to Society and the Region

116 Addresses

6 LB Kiel at a Glance

LB Kiel at a Glance

Landesbank Schleswig-Holstein Girozentrale, LB Kiel for short, is

a universal bank with regional roots Ratings and an international focus, - Moody’s: short-term P-1, long-term Aa1 which offers a broad range of traditional and innovative - Standard & Poor’s: short-term A-1+ financial products and is positioned as the Bank for the - Fitch: short-term F1+, long-term AAA North focusing on the core markets of northern Germany and the Baltic Sea region Major Equity Holdings - Hamburgische Landesbank (49.5 %) the central clearing institution for the savings banks - Landesbank Schleswig-Holstein International S.A., of Schleswig-Holstein, Luxembourg (100 %) which it provides with a wide spectrum of supplemen- - Gudme Raaschou Bankaktieselskab, Copenhagen tary group services (e.g. refinancing funds, advisory (100 %) services regarding balance sheet structure, capital - PCA Corporate Finance Oy, Helsinki (71%) market products) and with which it co-operates in the building society business via Landes-Bausparkasse (LBS) Legal Form/Executive Bodies - Institution under public law a state and local-government bank, - Guarantors’ Meeting granting loans to public bodies and to the State of - Supervisory Board Schleswig-Holstein, issuing and placing bonds and - Managing Board supporting the federal state in its economic and structural tasks via Investitionsbank Schleswig-Holstein – Owners the central promotion institute of Schleswig-Holstein. - the State of Schleswig-Holstein 25.05 % - the Savings Banks and Giro Association of Schleswig- Locations Holstein 25.05 % - Headquarters: Kiel - Westdeutsche Landesbank Girozentrale (WestLB) - Branches: Lübeck, Luxembourg, Copenhagen, Helsinki 39.9 % - Representative Offices: Hamburg, Berlin, Stockholm, - Landesbank Baden-Württemberg 10 % Oslo,Tallinn, London Foundation Established in 1917 as the state bank of the province of Schleswig-Holstein

Governmental Control - Federal Banking Supervisory Office (as of May 1, 2002: Federal Financial Supervisory Agency) - Deutsche Bundesbank - Ministry of Economic Affairs,Technology and Trans- port of the State of Schleswig-Holstein

Member of - German Savings Banks and Giro Association - Federal Association of German Public Banks

LB Kiel at a Glance 9

Financial Highlights of the LB Kiel Group *) 31/12/2001 31/12/2000 Changes in absolute terms in %

Business volume € 159.5 bn € 142.1 bn € 17.4 bn 12.2 Total assets € 141.0 bn € 128.1 bn € 12.9 bn 10.1 Liable capital € 7.0 bn € 6.3 bn € 0.7 bn 11.1

Operating profit before risk provisions € 671.9 m € 479.8 m € 192.1 m 40.0 Operating profit after risk provisions € 362.6 m € 308.9 m € 53.7 m 17.4 Net income for the year € 174.0 m € 84.3 m € 89.7 m 106.4

Employees 1) 2,457 2,361 96 4.1

ROE 9.8% 10.4% Cost-income ratio 42.5 % 47.0 % Solvency ratio 9.4% 10.2% Core capital ratio 5.5% 5.9%

1) excluding Hamburgische Landesbank (HLB) and Schleswig-Holstein casinos

Total assets (Group) Liable capital Operating profit after in € billion (Group) risk provisions (Group) in € billion in € million 150

350 7 120 6 300

5 250 90

4 200

60 3 150

2 100 30 1 50

0 0 0 19971998 1999 2000 2001 19971998 1999 2000 2001 1997 1998 1999 2000 2001

*) LB Kiel’s Group accounts include the Bank – including Investitionsbank Schleswig-Holstein and Landes-Bausparkasse – as well as Landesbank Schleswig-Holstein International S.A., Luxembourg (LI), LB Schleswig-Holstein Finance B.V., Amsterdam, Gudme Raaschou Bankaktieselskab, Copenhagen, the 49.5 % investment in Hamburgische Landesbank and, for the first time, the Schleswig-Holstein casinos. 10 Preface of the Managing Board

Preface of the Managing Board

Dear Clients and Business Partners, On July 17, 2001, the Federal Government of Germany and the European Com- mission reached an agreement about the state guarantees for German financial institutions under public law.This set a new course for Germany’s public-law banks and hence LB Kiel. According to this agreement,Anstaltslast (Maintenance Obligation) will be modified and Gewährträgerhaftung (Guarantee Obligation) abolished after a transitional period ending on July 18, 2005. Liabilities entered into before the agreement was reached will remain covered by Gewährträgerhaftung for an unlimited period, while liabilities entered into during the transitional period will be covered if their term does not extend beyond 2015. We now have to ensure that the Bank will be able to maintain its good standing in the capital markets beyond 2005.The Bank’s profitability plays a key role in this context. A good foundation for long-term profitability has been laid in the past years. Fol- lowing the agreement with the EU, we decided in October 2001 to launch a new programme for the future called “Concentration of resources”.This means that we will focus on our core competencies.We will push ahead and accelerate the implementation of our three pillar strategy as the “Bank for the North”, a product and sector specialist operating on an international scale and an established player in the international capital markets. Our 2001 figures show that we are on the right course. In a difficult economic environment, we clearly increased our operating profit after risk provisions and evaluations and expanded our equity capital base. We are determined to proactively manage the imminent process of change. An important step will be the planned merger with Hamburgische Landesbank.This has been our strategic objective ever since we decided to acquire an interest in Hamburg’s well-positioned Landesbank back in 1997. In March of this year, the shareholders of LB Kiel and Hamburgische Landesbank instructed the Managing Boards of the two banks to develop a concept for the merger.The merger has to be approved by the shareholders of the two banks and the State Parliaments of the two federal states. Against the background of the imminent challenges, we are aware that our highly committed and qualified employees are the basis for our competitiveness.We would like to take this opportunity to thank them as well as the members of the staff council for their commitment and ask them to proactively support the imminent changes with a view to the opportunities. We would like to thank Peter Pahlke for his 25 years of successful work as a member of the Board. He went into retirement with effect from July 31, 2001. We also thank our shareholders for working constructively with us in our restruc- turing process. Our special thanks go to our clients and business partners for the confidence placed in us.We will continue to support you as an efficient partner.

Yours sincerely

Dr. Dietrich Rümker Hans Berger Dieter Pfisterer Dr. Erwin Sell Franz S.Waas, Ph. D. Managing Board (from left to right):

Dieter Pfisterer

Franz S.Waas, Ph.D.

Hans Berger

Dr. Dietrich Rümker

Dr. Erwin Sell 12 Report of the Guarantors’ Meeting

Report of the Guarantors’ Meeting

The Board of Guarantors convened four ordinary meetings in the year under review. On May 29, 2002, it approved the 2001 annual accounts and statement of financial condition drawn up by the Managing Board, which are herewith adopted. During the same meeting the Guarantors’ Meeting approved of the acts of the Managing Board of the Bank for the 2001 business year and decided on the appropriation of the profit as proposed by the Managing Board and the Supervisory Board.

Kiel, May 29, 2002

The Guarantors’ Meeting of Landesbank Schleswig-Holstein Girozentrale

Heide Simonis Chairwoman Report of the Supervisory Board 13

Report of the Supervisory Board

The Supervisory Board and its committees were regularly informed about the business development and the situation of the Bank and the Group during the report year.They supervised the Managing Board’s conduct of business in accordance with the legal and statutory regulations and decided on matters requiring their approval which were submitted to them. Wollert-Elmendorff Deutsche Industrie Treuhand GmbH (WEDIT) Wirt- schaftsprüfungsgesellschaft audited the annual accounts of the Bank and of the Group as well as the statement of financial condition for the 2001 business year.The annual accounts comply with the legal requirements.The statement of financial condition is consistent with the annual accounts.The certificate of audit was given without qualifications. The Supervisory Board and the Audit Committee composed of its members have comprehensively reviewed the official auditor’s report and conclusions and have no objections. The Supervisory Board and the Audit Committee have also reviewed the annual accounts and statement of financial condition drawn up by the Managing Board. No objections have been raised.The Guarantors’ Meeting was recom- mended to approve the annual accounts and statement of financial condition drawn up by the Managing Board. The Supervisory Board approved the proposal of the Managing Board on the distribution of profit to the shareholders. The Supervisory Board has taken cognizance of the Group annual accounts. The Supervisory Board herewith expresses its thanks to the Managing Board and the employees of the Bank for their efforts in the 2001 business year. The Supervisory Board mourns the death of its Chairman of many years, Dr. Gerhard Stoltenberg, former Minister President of the State of Schleswig- Holstein, who deceased on November 23, 2001. Dr. Stoltenberg was a member of the Supervisory Board of LB Kiel from 1971 to 1982.With his economic expertise and professional competence, he was instrumental in shaping the development of the Bank.The fortunes of the Bank remained a continuing interest even after leaving his position as the Minister President of the State of Schleswig-Holstein.We will treasure his memory.

Kiel, May 29, 2002

The Supervisory Board of Landesbank Schleswig-Holstein Girozentrale

Heide Simonis Chairwoman

Management Report 15

Management Report and Group Management Report

16 The Economic Environment 17 The Banking Environment and EU Proceedings 18 LB Kiel’s Strategic Approach 19 Business Development 26 Risk Report 32 Personnel 32 Outlook 16 Management Report

The Economic Environment

The development of the international financial markets reflected the stronger than expected slowdown of the world economy in 2001.

2001: Global Slowdown in Growth … even caused a temporary sell-off which, however, The fiscal year 2001 was marked by a much stronger formed the basis for the subsequent recovery.Yields on than expected slowdown of the economy both on a the bond market continued to fall with strong fluctu- national and international scale.The preceding key ations.Towards the end of the year, the collapse of the interest rate rises by the central banks, the increase in US energy trading corporation, ENRON, and the resul- oil prices and the bursting of the bubble in the infor- ting general mistrust of corporate financial reporting mation and telecommunications industry resulted in a overshadowed the markets. considerably slowdown of the US economy, which had previously been the locomotive for global growth; US- Major Key Interest Rate Cuts by the Central Banks growth fell from 4.1 % in 2000 to 1.2 % in the year In response to the economic slowdown, the central under review.The eurozone could not take over the banks completely changed course. In 2001, the Fed cut role of a growth driver for the world economy.The its key interest rate in eleven steps to 1.75 % at the end European growth rate declined from 3.4 % in 2000 to of the year – the lowest level in four decades.The ECB 1.5 % in 2001, with growth in Germany even down from lowered its main refinancing rate in four steps from 3 % to 0.6 %. In autumn 2001, the recovering economy 4.75 % to 3.25 %.The eurozone benefitted primarily was hit by the tragic events on September 11 and by from its declining rate of inflation which fell from its the resulting uncertainties among consumers and high in May 2001 to 2.1 % at the end of the year. investors.The slowdown of the big economies also affected the emerging markets. Especially Asia and Latin Recovery Expected in 2002 America recorded declining growth rates.The crises in In the course of the first quarter of the current year, Argentina and Turkey had, however, only a limited the indicators signalled an economic recovery in the impact on the rest of the world and the dreaded spill- USA and the eurozone. Consequently, the stock ex- over remained very moderate. changes recovered from their lows following the shock in September and capital market yields also increased … Hit the Financial Markets noticeably again. In parallel to the economic slowdown and the resulting poorer company figures, the weakness in the stock markets continued in the year under review.The confidence crisis following the events on September 11, Management Report 17

The Banking Environment and EU Proceedings

The agreement reached in the state aid dispute with the EU Commission impacts the banking environment for banks under public law.

Difficult Income Situation institution concerned while Gewährträgerhaftung will In a more unfavourable economic environment, the be abolished. A transitional period of four years ending income situation of the banking sector deteriorated on July 18, 2005 has been agreed for the implementa- considerably in the year under review. As a result, the tion of these measures.There are no changes to the pressure to realize cost savings and strengthen distri- public sector bank’s liability with respect to existing bution power through concentration and cooperation funding operations, while liabilities entered during the continued to increase. On the other hand, even the transitional period will be covered by Gewährträgerhaf- pooling of specific areas of operation of several banks tung, if their term does not extend beyond 2015 (grand- (such as handling of payments and securities settle- fathering).This agreement means legal and planning ment) proved to be difficult. After the unsuccessful security for public-law institutions such as LB Kiel.The merger attempts between major private banks, the one- agreed transitional period gives us time to successfully stop finance concept (“bancassurance”) gained momen- adapt to the changed refinancing conditions. However, tum in the year under review with the acquisition of expectations of an intensified competitive situation Dresdner Bank by Allianz as well as the intensification faced by Germany’s Landesbanks as a result of the of the co-operation between Munich Re and Hypo- agreement had led to a deterioration of the refinancing Vereinsbank. conditions even before it was reached.

Basle II Postponed No Solution for the Liable Capital Issue yet The introduction of the new Basle Capital Accord On the reporting date, the second dispute with the EU (Basle II) originally planned for 2004 was postponed to Commission, which is unrelated to Anstaltslast and 2005. At the same time, it was decided to hold an Gewährträgerhaftung, had not been solved yet.This additional third consultation round in 2002. Meanwhile, issue concerns the amount of remuneration paid for there are signs for a further postponement of the the integration of Wohnungsbauförderungsanstalt introduction to 2006. LB Kiel nevertheless continues to (Wfa), previously owned by the State of North Rhine- prepare for Basle II. In the year under review, we have Westphalia, into WestLB.The EU Commission considers launched a comprehensive project to prepare for the in its decision of July 8, 1998 the remuneration paid so implementation of the emerging resolutions. LB Kiel far by WestLB to the state to be inconsistent with will use an internal ratings based (IRB) approach with general market practice and has concluded that this the aim to use the advanced IRB approach. represents an infringement of the EU state subsidy regulations and that WestLB is obliged to (re)pay the Agreement about Anstaltslast (Maintenance Obliga- balance.This has led to a number of pending procee- tion) and Gewährträgerhaftung (Guarantee dings at the European Court.To determine whether Obligation) other Landesbanks benefit from similar cases of illegal In the so-called EU state aid dispute, the European state aid, the EU Commission has launched an investi- Commission and the Federal Government of Germany gation in 1999, which also covers the State of Schleswig- reached an agreement about Anstaltslast and Gewähr- Holstein. In 1991, Investitionsbank Schleswig-Holstein trägerhaftung for financial institutions under public law (IB) was established as the central promotion institute on July 17, 2001. According to this agreement, Anstalts- last will be replaced by a “normal commercial relationship” between the owners and the public financial 18 Management Report

of the State of Schleswig-Holstein and integrated into 1994, the State of Schleswig-Holstein has already reali- LB Kiel.The IB capital not used by IB for backing its zed certain economic benefits which would have to be own transactions may be used as liable capital by LB taken into account in determining the scope of a retro- Kiel. Should the EU Commission initiate legal procee- active retransfer of assets. dings against LB Kiel, we are confident that possible Hamburgische Landesbank assumes that the integra- charges resulting from an unfavourable EU decision will tion of Hamburgische Wohnungsbaukreditanstalt will be manageable for the Bank. By selling part of LB Kiel not give rise to any material changes in connection with to WestLB and SüdwestLB with effect from January 1, the liable capital issue.

LB Kiel’s Strategic Approach

“Concentration of resources” will ensure the Bank’s standing in the capital markets after the expiry of the state guarantees.

Challenge: Ensure the Good Standing in the Capital or initiated.We will expand our business in the seg- Markets ments in which we benefit from core competencies in LB Kiel welcomes the agreement with the EU Commis- the form of special know-how or a strong customer sion about Anstaltslast und Gewährträgerhaftung.The base. In areas in which we cannot reach the critical challenge is now to ensure the Bank’s good standing in mass on our own, we will co-operate with our partners the capital markets beyond 2005, i.e. the end of the of the S-Finance Group. transitional period. In this context, the ratings given to The strategy of LB Kiel builds on three pillars: issues of Landesbanks by major rating agencies without 1. regional focus as “the Bank for the North”, Anstaltslast und Gewährträgerhaftung will play a key 2. international product and sector specialist, role. Building on the good result in fiscal 2001, we must 3. further expansion of its capital market activities. continue to improve the profitability of LB Kiel while maintaining our policy of a well-balanced risk structure. 1. The Bank for the North Our aim is to maintain ratings within the double-A Building on our market leadership in the State of range. Schleswig-Holstein, we focus on northern Germany and These challenges do not catch LB Kiel unprepared. the Baltic Sea region. Our core competence builds on By introducing continuously improved RAROC targets*), our strong regional franchise which is currently being a focus on clearly defined strategic missions as well as expanded. Our aim is to become the market leader in closer co-operation with our alliance partners, we have the economically closely linked metropolitan region set the right course for a sustained improvement of the Hamburg-Schleswig-Holstein in co-operation with Bank’s profitability. In spite of more unfavourable refi- Hamburgische Landesbank and the savings banks. In nancing conditions, we continuously improved our northern Germany, we primarily offer financing pro- result in the past years.

The Programme: Concentration of Resources Consequently, the “Concentration of resources” programme decided by the Managing Board in October 2001 and launched in November 2001 in response to the agreement with the EU Commission on July 17 is not so much a strategic reorientation than a review,

adaptation and expansion of the measures already taken *) risk-adjusted profitbility targets for the business units Management Report 19

ducts and a growing range of consulting services for 3. Established player in the international capital medium-sized companies and real estate clients. In our markets product range for the regional savings banks, we are We have refocused our capital market activities.The replacing our former simple long-term refinancing separation of liquidity and maturity risks enables us to products with innovative products for the structuring exploit windows in the market and thereby reduce our and management of the savings banks’ balance sheets refinancing costs.We furthermore use asset backed and by supporting them to offer their clients attractive securities (ABS) and derivative products to optimize products.The savings banks and their clients will thus the Bank’s risk and return structure.These capital also benefit from the expansion of our capital market market products have also increasingly become an activities.We are gradually expanding our position as integral part of the financing concepts developed for one of the leading international players in Scandinavia our clients. Our capital market activities hence support and the Baltic states. In addition to corporate clients, the core competencies of our two other pillars. At the we especially serve small and medium-sized financial same time, they make a substantial contribution to our institutions in Denmark and Norway.We support these profit. At the beginning of the current fiscal year, we banks, which compete with the major domestic players, successfully raised core capital from international with services similar to those provided to the savings investors. banks in Schleswig-Holstein. The management concept used to back the above 2. International product and sector specialist strategy is largely based on the RAROC approach.The In the international markets, we focus on the transport allocation of equity capital to the individual business (ship, aircraft, railway and logistics finance) and real units of LB Kiel is optimized by means of RAROC estate sectors. Our corporates’ division concentrates targets. on energy/utility, health, leasing refinancing and infrastructure financing.The division Financial Institutions/ International Finance focuses on banks, insurance companies and states, but also seizes attractive business opportunities with international companies.

Business Development

LB Kiel continued its policy of qualitative growth and expanded its market position in profitable market segments. As a result, the Group operating profit after risk provisions and evaluation increased by 17.4 % to € 362.6 million.

Net Assets and Financial Position: 10.1 % to € 141.0 (2000: 128.1) billion. In addition to Qualitative Growth LB Kiel, the Group annual accounts include Landesbank In 2001, the LB Kiel Group continued on the route of Schleswig-Holstein International S.A. (LI), Luxembourg, qualitative growth, i.e. the targeted expansion of our LB Schleswig-Holstein Finance B.V., Amsterdam, Gudme market position in profitable market segments. Accor- Raaschou Bankaktieselskab, Copenhagen, the 49.5 % dingly, the Group’s business volume rose by 12.2 % to stake in Hamburgische Landesbank and – for the first € 159.5 (2000: 142.1) billion, while the credit volume time – the Schleswig-Holstein casinos. increased by 11.4 % to € 157.2 (2000: 141.1) billion. The Group’s total assets were up € 12.9 billion or 20 Management Report

The Bank also continued to grow. Its business volume the Bank’s municipal loans changed only slightly to climbed 14.6 % to € 104.5 (2000: 91.2) billion, while the € 11.2 (2000: 11.7) billion. Loans and advances secured credit volume was up 12.9 % to € 102.6 (2000: 90.9) by mortgages were up 13.2 % to € 7.7 (2000: 6.8) billion. At year-end, the Bank’s total assets amounted billion. to € 91.8 (2000: 82.1) billion.This represents an increa- As regards off-balance sheet transactions, the Group’s se by 11.8 % or € 9.7 billion. LB Kiel’s annual accounts nominal volume of financial derivatives increased at an include Investitionsbank Schleswig-Holstein (IB) and annual rate of 25 % to now € 208 billion. However, the Landes-Bausparkasse (LBS). IB and LBS are legally de- risk measured in terms of credit risk equivalents decli- pendent central divisions which each compile annual ned to € 1.0 (2000: 1.1) billion.This development shows accounts of their own. that LB Kiel continued to rely on a conservative hedging-oriented approach to financial derivatives business. Securities and Loans and Advances to Customers Interest-rate derivatives accounted for almost three as Growth Drivers quarters of the volume, while currency derivatives The strategy of qualitative growth is clearly reflected in accounted for one quarter. Equity and other price risks the development of the asset positions on the Group’s remained negligible. At year-end, the nominal volume of and Bank’s annual accounts.While loans and advances credit derivatives stood at € 6.4 (2000: 3.8) billion. to banks at Group level remained at the previous year’s level of € 32.4 (2000: 32.4) billion, the portfolio of Refinancing Structure Change Only Slightly securities grew by an above average 18.8 % to € 41.0 The refinancing structure of the LB Kiel Group did not (2000: 34.5) billion at year-end 2001. Loans and advan- change materially in 2001. Own issues remain the most ces to customers, the largest asset item, also climbed important long-term refinancing source both of the strongly by 10.2 % to € 64.0 (2000: 58.1) billion. Group and the Bank. At year-end 2001, the Group’s At Group level, loans secured by ship mortgages, portfolio of bearer bonds and registered bonds to which increased by 20.2 % to € 7.9 (2000: 6.6) billion, customers amounted to € 52.1 (2000: 49.1) billion. as well as other loans and advances to customers, Bearer bonds, which are carried under certificated which were up 18.4 % or € 4.5 billion to € 28.7 (2000: liabilities, accounted for € 44.1 (2000: 40.5) billion 24.2) billion, were the main growth drivers in the client thereof. Registered bonds carried under liabilities to business. Loans and advances secured by mortgages customers amounted to € 8.0 (2000: 8.6) billion. Liabili- grew at a below average rate of 5.7 % to € 13.8 (2000: ties to customers totalled € 28.8 (2000: 24.9) billion. 13.0) billion. At € 13.6 billion, municipal loans were Liabilities to banks also made a key contribution to virtually unchanged on the previous year.The percenta- refinancing. At year-end 2001, they stood at € 56.7 ge of domestic and foreign borrowers changed slightly. (2000: 51.9) billion. Loans and advances to foreign customers accounted for The annual accounts of the Bank show a similar 28.3 % (2000: 25.1 %) of total loans and advances to structure. In addition to traditional own issues including customers. mortgage bonds and municipal bonds, the Bank refinan- At Bank level, the asset items developed as follows: ced its activities by perpetual silent participations quali- Loans and advances to banks increased by a slight 1.4 % fying as core capital, profit-sharing rights and subordina- to € 22.5 (2000: 22.2) billion, while loans and advances ted debt which were placed with German savings banks, to customers rose by 11.6 % to € 42.2 (2000: 37.8) other selected institutional investors and the State of billion.The portfolio of securities grew by 24.3 % to Schleswig-Holstein. € 23.5 (2000: 18.9) billion. The Bank issued short-term and medium-term At Bank level, loans and advances secured by ship foreign currency securities under its Global Medium mortgages also climbed 20.0 % to € 3.6 (2000: 3.0) Term Note (GMTN) programme. LB Kiel furthermore billion. Other loans and advances to customers increa- uses a Euro Commercial Paper (ECP) and a US Com- sed as well by 20.2 % or € 3.3 billion to € 19.6 (2000: mercial Paper (USCP) programme. 16.3) billion. Similar to the development at Group level, Management Report 21

Group Balance Sheet 1997 – 2001 As at December, 31

€ million 2001 2000 1999 1998 1997

Assets Cash, debt instruments issued by public institutions and bills of exchange eligible for refinancing 141 241 287 117 165 Loans and advances to banks 32,390 32,369 28,869 27,758 25,357 Loans and advances to customers 64,042 58,115 52,692 46,936 40,888 Portfolio of securities 41,036 34,455 30,083 22,732 20,813 Equity investments in affiliated and non-affiliated companies 324 200 186 154 96 Trust assets 1,363 1,366 1,322 1,459 1,453 Other assets 1,724 1,339 1,709 1,139 566

Total assets 141,020 128,085 115,148 100,295 89,338

Liabilities Liabilities to banks 56,744 51,915 48,833 43,519 35,971 Liabilities to customers 28,767 24,914 22,634 21,267 18,781 Certificated liabilities 44,133 40,541 34,027 27,480 27,272 Trust liabilities 1,363 1,366 1,322 1,459 1,453 Subordinated debt 2,012 1,758 1,464 1,127 1,113 Profit-sharing rights 1,113 1,123 987 499 446 Fund for general banking risks 143 110 72 19 – Equity capital *) 4,282 3,692 2,907 2,266 2,152 Other liabilities 2,463 2,666 2,902 2,659 2,150

Total liabilities 141,020 128,085 115,148 100,295 89,338

Business volume 159,511 142,091 127,981 111,926 100,330

*) includes the net retained earnings 22 Management Report

Equity Capital Development: Group Liable Capital Earnings Development: Positive Earnings Trend Increased to ¤ 7 Billion Continued The Group’s liable capital consists primarily of on- In 2001, LB Kiel continued the positive profit develop- balance-sheet equity capital and the fund for general ment of past years. In a difficult economic environment, banking risks (core capital) as well as subordinated debt net income before taxes increased by a clear 17.4 % or and profit-sharing rights (supplementary capital). As at € 53.7 million to € 362.6 (2000: 308.9) million. In the December 31, 2001, the Group’s liable capital amounted same period, the Group’s return on equity *) declined to € 7.0 billion (excl. allocations to reserves from the slightly from 10.4 % to 9.8 % before taxes. In this con- 2001 net income), which represents an increase of € text, it has to be taken into account that the underlying 0.7 billion on the previous year (€ 6.3 billion). € 367.5 on-balance-sheet equity capital surged 21.6 % to € 4.0 million thereof were accounted for by perpetual silent billion. participations qualifying as core capital, of which € 250 The Bank also reported a positive development: million were placed with the State of Schleswig-Hol- While net income before taxes increased from € 149.7 stein.The remaining increase in liable capital was at- million to € 218.6 million, the Bank’s return on equity tributable to the assumption of subordinated debt as improved from 8.2 % to 8.7 %. well as an increase in profit-sharing rights. At the beginning of 2002, LB Kiel started to place Operating Profit Increased Clearly Both at Group additional perpetual silent participations with interna- and Bank Level tional investors, as it has been authorized to place The Group’s operating profit before risk provisions approx. € 1.5 billion at Group level and approx. € 1 billion and evaluation rose by € 192.1 million or 40 % to at Bank level.The placement process has so far been € 671.9 (2000: 479.8) million.While earnings increased successful. LB Kiel’s core capital basis for the three-year by € 263.6 million, expenses were up € 71.5 million. planning period is good. Net interest income, but also net income from trading On the balance sheet date, the ratio between own and other operating income again made a key contri- funds qualifying as core capital and risk-weighted assets bution to this favourable development. On the balance as well as market price risk positions (solvency ratio) sheet date, the Bank’s operating profit before risk stood at 9.4 % (2000: 10.2 %) for the Group and 9.7 % provisions and evaluation stood at € 365.6 (2000: (2000: 10.5 %) for the Bank.The solvency ratio of the 235.5) million. LB Kiel Group always exceeded 9 % during the year under review.

Solvency ratio 31/12/2001 31/12/2000

Principle I – Bank 9.7 % 10.5 % Principle I – Group 9.4 % 10.2 %

Core capital ratio 31/12/2001 31/12/2000

Bank 5.9 % 6.3 % Group 5.5 % 5.9 %

*) calculated as follows: (net income before taxes + allocations to reserves pursuant to sec. 340 g of the German Commercial Code) / (average on-balance-sheet equity capital – net retained earnings + average reserves pursuant to sec. 340 g of the German Commercial Code) Management Report 23

Considerable Increase in Net Interest Income and Further Expansion of the Workforce … Net Income from Trading Doubled In fiscal 2001, LB Kiel continued to invest in human In 2001, net interest income rose by 19.6 % or € 146.9 resources with special qualifications in order to streng- million at Group level, making a significant contribution then its market position in strategic business segments. to the earnings increase. Strong increases were repor- As per year-end 2001, the headcount of the LB Kiel ted in the client business, where strict RAROC manage- Group (excl. HLB) rose by 96 to 2,457 (2000: 2,361) ment enabled us to generate higher margins.The capital people. Including the first-time consolidation of the market units also made very gratifying contributions. Schleswig-Holstein casinos, Group staff numbers in- Net interest income amounted to € 898.0 (2000: 751.1) creased to 2,652. In the same period, HLB’s headcount million at Group level and € 466.6 (2000: 383.6) million increased by 264 from 2,268 to 2,532 people. at Bank level. Group personnel expenses were up 14.3 % to € 262.4 Net commission income remained almost unchanged (2000: 229.6) million, while personnel expenses at Bank on the very high previous year’s level.We were able to level rose by 8.7 % to € 150.8 (2000: 138.7) million.This almost fully compensate for the slump in commissions increase was due to the higher percentage of highly from securities transactions with a strong increase in qualified staff, an increase in standard wages of some commissions from international lending activities. Net 3 %, additional pension provisions as well as the consoli- commission income reached € 137.7 (2000: 141.6) dation of the casinos. million at Group level and € 66.6 (2000: 64.4) million at Bank level. … and Continued Optimization of the Controlling Against the background of a volatile market, net Systems and Processes income from trading more than doubled at both Group The renewed strong increase in operating expenses by and Bank level to € 58.0 (2000: 27.3) million and € 38.5 19.8 % to € 234.4 (2000: 195.7) million at Group level (2000: 16.0) million, respectively. and by 14.8 % to € 144.1 (2000: 125.5) million at Bank level was attributable to the fact that LB Kiel not only Special Income Used to Strengthen Disclosed continued, but once again pushed ahead the optimiza- Reserves and Fund for General Banking Risks tion of its systems and processes. In view of the neces- Other operating income rose by an impressive € 89.9 sity to ensure the Bank’s access to the capital markets million to € 75.0 (2000: -14.9) million at both Group beyond 2005, new projects were launched (e.g. optimi- and Bank level. Next to the first-time consolidation of zation of lending processes as well as development of the Schleswig-Holstein casinos, this was primarily attri- a loan portfolio management system) in addition to butable to two factors: On the one hand, the Group existing projects for the modernization of IT systems received a tax credit for previous years and, on the and the implementation of legal requirements (e.g. other hand, LB Kiel disclosed hidden reserves in the Basle II rating approach, IAS accounting).The difference context of a sale-and-leaseback transaction involving between the development of operating expenses at the sale of land and buildings used by the Bank.This Bank level and at Group level was primarily attributable special income was used to further strengthen the to the activities of HLB in connection with the esta- disclosed reserves and hence the core capital basis of blishment of a securities settlement bank. the Bank and the Group. In fiscal 2001, other operating income at Bank level increased to € 88.8 (2000: 35.7) million. 24 Management Report

Cost-Income Ratio Improved to 42.5 % € 25 million of the Group reserves formed pursuant At the bottom line, the increase in operating expenses to sec. 340 f of the German Commercial Code cover was more than offset by the positive earnings develop- risks arising from the insolvency proceedings instituted ment, so that the cost-income ratio improved signifi- against by KirchMedia on April 8, 2002 after preparation cantly at both Group and Bank level.The Bank’s cost- of the Group annual accounts.The annual accounts of income ratio improved from 52.9 % to 44.6 %, while the the Bank include individual value adjustments for this Group even achieved a ratio of 42.5 % (2000: 47.0 %), exposure. At both Group and Bank level, sufficient which is very good. provisions were established for all risks.

Significantly Higher Risk Provisions Operating Profit after Risk Provisions and Net The balance of risk provisions and evaluation increased Income Increased Significantly noticeably at both Group and Bank level. At Group Thanks to its positive earnings position, LB Kiel posted level, it rose by 81.0 % from € 170.9 million last year a strong increase in operating profit despite higher risk to € 309.3 million. In addition to higher write-downs provisions.While Group operating profit rose by 17.4 % and value adjustments – due to the economic slow- to € 362.6 (2000: 308.9) million, operating profit at down –, this increase was, however, also attributable to Bank level even surged 46.1 % to € 218.6 (2000: 149.7) higher allocations to taxed reserves. Allocations to million. reserves pursuant to sec. 340 f/g of the German Com- The tax reform and the first-time reporting of mercial Code totalled € 99.1 (2000: 59.2) million. deferred taxes resulted in a considerable decline in Write-downs and value adjustments on the portfolio taxes on income and revenue. After taxes of € 51.2 of securities increased to € 74.4 (2000: 6.2) million, (2000: 130.9) million and dividends on silent partici- mainly as a result of issuers’ deteriorated creditworthi- pation holdings of € 137.4 (2000: 93.7) million, net ness. Loan loss provisions climbed € 64.7 million to income at Group level stood at € 174.0 (2000: 84.3) € 169.8 (2000: 105.1) million. At Bank level, risk provi- million.The Bank’s net income amounted to € 123.8 sions and evaluation rose by 71.3 % from € 85.8 million (2000: 44.0) million. to € 147.0 million. € 28.4 (2000: 2.3) million thereof were accounted for by write-downs and value adjustments on the portfolio of securities, while loan loss provisions accounted for € 80.2 (2000: 65.8) million. Management Report 25

Group Statement of Income

31/12/2001 31/12/2000 Changes 2001/2000 € million € million € million %

1. Net interest income 898.0 751.1 146.9 19.6

2. Net commission income 137.7 141.6 -3.9 -2.8

3. Net income from trading 58.0 27.3 30.7 112.5

4. Administrative expenses - 496.8 - 425.3 -71.5 16.8 thereof: - Personnel expenses -262.4 -229.6 -32.8 14.3 - Operating expenses -234.4 -195.7 -38.7 19.8

5. Other operating income 75.0 -14.9 89.9 603.4

6. Operating profit before risk provisions and evaluations 671.9 479.8 192.1 40.0

7. Risk provisions /evaluations -309.3 -170.9 -138.4 81.0 thereof: - Credit provisioning -169.8 -105.1 - 64.7 61.6 - Securities -74.4 - 6.2 - 68.2 1,100.0 - Equity Investments 19.7 -15.6 35.3 -226.3 - Reserves pursuant to sec. 340 f/g German Commercial Code - 99.1 -59.2 -39.9 67.3 - Changes to special reserve item 18.2 26.5 - 8.3 -31.3 - Other -3.9 -11.3 7.4 - 65.5

8. Operating profit after risk provisions and evaluations 362.6 308.9 53.7 17.4

9. Extraordinary income 0.0 0.0 0.0 0.0

10. Net income before taxes 362.6 308.9 53.7 17.4

11. Partial profits transfers -137.4 - 93.7 - 43.7 46.6

12. Taxes on income and revenue -51.2 -130.9 79.7 - 60.9

13. Net income for the year 174.0 84.3 89.7 106.4

Profit Appropriation capital of Investitionsbank (IB) used by the Bank. In Of the Bank’s net income of € 123.8 million, a constant addition, the state will receive € 16.9 million as a divi- dividend of 7 % after taxes on the share capital of € 219 dend from IB. A total of € 89.0 (2000: 19.2) million will million will be paid out to the shareholders. A remune- be allocated to the Bank’s earnings reserves. € 81.0 ration of € 3.8 (2000: 3.9) million will be paid to the million thereof will be accounted for by LB Kiel, € 3.1 State of Schleswig-Holstein in return for the liable million by LBS and € 4.9 million by Investitionsbank. 26 Management Report

Risk Report

Active risk management is an integral part of the Group’s business management.We therefore put great emphasis on the continuous further development of the risk measurement and risk management structures and methodologies used throughout the Group.

Ongoing Co-operation between LB Kiel and preliminary costing process and the equity capital Hamburgische Landesbank (HLB) allocation mechanisms have already been considerably In 2001, the Group-wide expansion and optimization of expanded. our controlling tools progressed noticeably. Not least The earnings and return targets set for the Bank by due to the different organizational structures and EDP its Managing Board are transferred to the internal systems, the development in the two subgroups, LB Kiel controlling tools of the individual organizational units and HLB, is still running independently of each other; (e.g. contribution margin accounting) while ensuring an ongoing co-operation, however, ensures that the optimum equity capital allocation.The individual organi- methods are largely comparable.We will therefore zational units are responsible for managing their busi- present the Group’s risk situation by providing a de- ness units, which includes the management of risks.This tailed description of the risk management systems of comprehensive set of risk controlling tools enables LB LB Kiel followed by the key results of HLB. Kiel to consciously assume a well-balanced level of risk. The Controlling department is principally respon- Risk Management System of LB Kiel sible for this wide range of risk management tools. In Risk is generally understood as the possibility of future addition to the Controlling department, the risk moni- developments having a direct or indirect negative effect toring activities of the Managing Board are supported on the Bank’s financial, earnings and liquidity position. by Auditing and Legal department (incl. the Compliance The Bank distinguishes counterparty, market price, unit) as well as by the management teams of the market liquidity, operational and other risks.The risk manage- departments and, as far as country risks are concerned, ment process involves the development of methods and by the department Financial Institutions/International procedures for the measurement and management of Finance. Since mid-2001, the newly established Middle risks which will then be used to identify, measure, Office has been responsible for the operative measure- monitor and manage risks based on set limits. ment of market price risks, the monitoring of market LB Kiel’s risk management process is integrated into price risk limits and the monitoring of counterparty and its overall bank controlling concept, meaning that the issuer risks by means of methods developed by the monitoring of risk and return potentials is closely Controlling department. Management of the Bank’s linked.The tools used have been developed with a view major risks is additionally in the hands of the expert to both economic and supervisory requirements. committees Risk Committee, Committee for Foreign In 2001, LB Kiel continued to optimize its risk Business and Asset Liability Committee. Decision- measurement and risk management procedures.With a making lines, information lines and functional responsi- view to Basle II, the existing RAROC approach, the bilities have been clearly defined. LB Kiel continued to pursue a conservative risk strategy, attaching particular importance to a well- balanced portfolio structure which avoids large-scale counterparty risks as well as counterparty risk clusters. Given that trading activities are deliberately restricted, market price risks are negligible. Major liquidity risks do not exist. Management Report 27

Counterparty Risks In 2001, the Bank optimized in particular the monito- The term counterparty risk refers to a potential loss ring of individual counterparty risks of the trading units. which may result from the default or deterioration of Key developments included the introduction of a uni- the credit rating of business partners, guarantors, form limit system for the monitoring of the Bank’s investments or countries. LB Kiel manages the risks counterparty and issuer risks. In fiscal 2002, this limit involved in exposures to individual counterparties as system will also be introduced at our Luxembourg well as at portfolio level. subsidiary. In order to reduce the counterparty risks Limits for all counterparty risks have been fixed in resulting from trading activities even further, the Bank line with the Bank’s risk cover potential and future has launched the “Netting/Collateral Management” profitability. The results of the risk controlling analyses project. In 2001, LB Kiel concluded netting agreements are reported to the decision-making committees in with a number of major counterparties to hedge the charge, which immediately initiate suitable measures for counterparty and issuer risks of the trading units. the management of risks if required. The risk which may result from the impairment in LB Kiel uses a uniform rating-based process to value of equity capital due to equity investments or the measure and manage all counterparty risks. Major opening of new branches is managed by the corporate elements of this process include internal rating proce- development/participations unit attached to the Board dures and market-related historic default probabilities. office.The focus is on so-called due diligence reviews These factors are linked with accounting data in order and ongoing target/actual comparisons of income from to enable, for instance, segment analyses according to equity investments. Corresponding contractual arrange- different risk criteria such as sector, domicile of com- ments ensure that the business development can be pany, credit rating category or organizational units.The monitored and influenced. Internal reporting is another entire risk measurement process is reviewed constantly tool used to monitor the risk of equity investments. by means of back-testing; the risk parameters of some In the course of the fiscal year, the Controlling depart- units were adjusted in 2001. ment provides regular reports detailing the critical Large-scale risks are monitored and managed across success factors of all equity investments to the respon- the Group on a daily basis based on counterparty limits sible committees. and utilization. In addition, certain individual exposures An additional country limit system controls the are evaluated by given criteria by the independent country risk, which also needs to be taken into account credit office. in conjunction with the counterparty risk. Based on an upper limit for all Group-wide country risks, upper limits for individual countries and country groups are determined on the basis of a country rating. Compli- ance with these limits is monitored on an ongoing basis by Financial Institutions/International Finance. Foreign exposure primarily focus on Europe and North America. 28 Management Report

As at December 31, 2001, the country portfolio had the following structure:

Foreign exposure

in € million Group Exposure HLB pro-rata Group Exposure Percentage share excl. HLB in Group exposure

Europe *) 27,670.1 12,870.4 40,540.5 61.7 Central and Eastern Europe 945.9 375.4 1,321.3 2.0 Other industrialized countries 11,532.2 8,335.1 19,867.3 30.3 Latin America 598.0 136.5 734.5 1.1 Asia 984.8 754.4 1,739.2 2.7 Africa 111.5 835.1 946.6 1.4 Other 324.0 211.8 535.8 0.8

Total 42,166.5 23,518.7 65,685.2 100.0

*) excl. Central and Eastern Europe

The cautious risk policy is reflected in the total volume of individual value adjustments:

Individual value adjustments Share of individual General bad value adjustments *) debt provisions **)

31/12/2000 31/12/2001 31/12/2000 31/12/2001 31/12/2001 in € million in € million in % in % in € million

LB Kiel 227 282 0.27 0.29 35.1 IB (promotional bank) 69 81 1.50 1.84 15.1 LBS 4 4 0.25 0.23 0.3 LB International 35 41 0.44 0.55 – HLB 626 733 0.69 0.71 87.1

*) in the credit volume **) Landesbank Schleswig- Holstein International S.A. calculates global bad debt provisions

Market Price Risks LB Kiel has adopted the value at risk (VaR) approach Market price risks are potential losses which may result to measure and control market price risks.The value at from future market price fluctuations of our positions risk projects the maximum potential change in value of due to changes in the yield curve (interest rate risks), a portfolio of financial instruments which may arise due exchange rates (currency risks), share prices (share to fluctuations of the evaluation parameters.The poten- price risks) as well as prices of commodities, precious tial change in value is calculated in such a way that even metals and other tradable goods (other price risks). in a worst-case scenario it would not be exceeded with For positions comprising options, additional risks result a likelihood (confidence level) of 95 %.Time series of from the fluctuations of the volatilities determining the prices. Management Report 29

interest rates, exchange rates and securities prices over The stress tests performed are based on a shift in the past 201 days are used for these projections. the confidence level from 95 % to 99 %. Simulations have The risks are measured against predefined loss limits shown that even with a confidence level of 99 %, the and reported to the Managing Board and the responsi- risk cover potential was not exceeded. ble trading units on a daily basis. New products are In the context of statistical approaches, the “worst- constantly included in risk measurement. case” is the most unfavourable scenario that would LB Kiel uses a present value-oriented procedure to have occurred for a given portfolio in the past.The record and control interest rate risks. An important calculation of the worst-case scenario is based on the element of this procedure is the determination of an risk parameters that would have meant the greatest accumulated present value, which is calculated on the loss in value for the portfolio over the past ten years. basis of the net cash flows generated by the fixed- None of the worst-case scenarios calculated in 2001 income assets and liabilities including derivatives for showed an unacceptable risk for the Bank. transactions subject to interest rate risks.The present As per December 31, 2001, the value at risk was value of the calculated net cash flows is calculated on € 4.4 (2000: 4.3) million (trading in the narrow sense). the basis of maturity-oriented market interest rates The average VaR limit utilization was 18.9 % (2000: derived from the yield curve. 30.2 %) for trading risks, with the minimum at 7 % In addition to interest rate risks for main and secon- (2000: 19 %) and the maximum at 27 % (2000: 42 %). dary currencies, price risks for shares and investment share certificates of the liquidity reserve are also included in global risk management on a VaR basis. Daily utilization of the VaR limit of All interest-bearing non-trading positions (incl. loan LB Kiel (trading in the narrow sense) from 1/1/2001 to 28/12/2001 portfolios and own issues) are also valued according to the VaR approach based on the current maturity balan- in % Average ce sheet using a present value-oriented method. 30 In order to limit the global market price risk, the

Managing Board has defined a risk limit for the Bank. 25 In the year under review, the risk limit was used only moderately and complied at all times. An early warning system which triggers corrective decisions by a pre- 20 defined procedure prevents limit from being exceeded. 15 Back-Testing and Worst-Case Scenarios Back-testing comprises a comparison between the 10 maximum loss to be expected on one trading day, the VaR, and the actual change in the result for the individual trading portfolios. 5 Each test is based on a period of 100 trading days. In 2001, the Bank identified one “outlier”; it was due 0 to technical problems which have been eliminated. Even 9/3/2001 14/6/2001 12/9/2001 12/12/2001 after the events on September 11, 2001, the Bank saw no need to change its back-testing procedure. 30 Management Report

From January 2, 2001 to May 10, 2001, the VaR limit was Liquidity Risks € 14.4 million; after a reduction to € 11.9 million until The term liquidity risk describes the risk of the Bank September 11, 2001, the limit was raised to € 17.4 becoming unable to maintain sufficient liquidity and million until the end of the year in connection with a hence unable to properly meet its payment obligations change of the internal structure and in line with the on a timely basis and in full. Liquidity risks are taken Bank’s profitability.The average daily value at risk for into account in the liquidity strategies and plans. the three risk categories is shown below: The Bank’s Asset Liability Committee is responsible for defining the conditions and strategies for planning Average daily value at risk and controlling liquidity. Sole responsibility for the main € thousands 1/1/ up to 1/1/ up to nagement of supervisory requirements (e.g. minimum 31/12 / 2001 31/12 / 2000 reserve) and economic risks lies with the Treasury unit. Interest rate risks 2,185 4,421 Treasury (liquidity management) takes the measures Currency risks 114 165 required for implementation, especially the covering of Other market price risks 259 400 financing requirements as well as day-to-day cash ma- Average calculation based on 255 trading days nagement. Compliance with supervisory regulations is monitored by controlling department. As at December 31, 2001, the liquidity ratio according to the Principle II The daily performance of trading of the German Federal Banking Supervisory Office was operations in 2001 is shown below: 1.29 (2000: 1.15). It never fell below the required Daily performance in 2001 in € thousands minimum value of 1.0 during the year under review. 100 (Frequency)

90 Operational Risks

80 The term operational risk comprises potential direct or indirect losses resulting from human, organizational or 70 technical failure or inadequacies or external factors. 60 In 2001, the Bank continued to record its key operational risks which were generally considered to be 50 negligible. 40 In view of the Basle II consultation papers, LB Kiel

30 calculated that, operational risks will play a minor role in terms of future equity capital requirements based on 20 the basic indicator approach. 10 In the IT area, the Bank adapted the infrastructure for the secure use of the Internet to the growing 0

more requirements of the Bank’s users and significantly up to up to up to up to up to up to up to up to up to than -4000 -2000 -1000 -500 -0,1 500 1000 2000 4000 4000 increased its overall availability by means of fault- tolerant components. Another key project was the development of a comprehensive encryption concept for LB Kiel which will form the basis for the implemen- The highest daily loss incurred in the year under review tation of corresponding technical measures in the years was € 2.05 (2000: 2.62) million. to come. In additions, the systems protecting the Bank against attacks via the Internet were updated and completed. The Bank has launched extensive projects aimed at improving its management, IT equipment and processes. LB Kiel has a uniform, bank-wide system for the ma- Management Report 31

nagement of project risks. Based on proposals submit- This means legal and planning security for the Bank. ted by the Project Commission, the Managing Board The agreed transitional period gives LB Kiel time to decides which projects will be executed, taking interde- successfully adapt to the changed refinancing con- pendencies between the different projects into account. ditions. The Project Controlling unit monitors compliance with the total project budget, resources and schedule. In Risk Management Process and Risk Situation of order to avoid the misallocation of resources, projects Hamburgische Landesbank (HLB) are combined to project clusters. At regular meetings, In 2001, Hamburgische Landesbank has revised the the project committees are informed about the current strategic and organizational orientation of its risk status of the projects as well as of important or critical management process and thereby further improved the events which influence the projects. Review teams foundations for the management of its business. consisting mainly of experts of the Bank have been HLB’s tools for the management of market price, formed to assure the quality of the project results. counterparty and liquidity risks are largely comparable The reports to be written on completion of a project to those of LB Kiel. Several projects taking into account include the experience gained and are made available to the future requirements resulting from Basle II have other projects. been launched. In anticipation of MaK/Basle II, HLB has To counteract risks in the personnel area, the Bank established an independent rating unit. Another focus has established suitable programmes for the selection, was on the development and expansion of its processes training and employment as well as for the promotion for the measurement and monitoring of operational and further development of its employees. risks. Other bank-wide projects are currently being These programmes focus on identifying the potential implemented to ensure that negative developments of of the Bank’s employees and promoting their personal the HLB’s risk structure are detected early on and and professional qualification. considered in the Bank’s risk management. In 2001, HLB’s risk strategy continued to be charact- Legal Risks erized by a cautious business policy. Retaining its strict To counteract legal risks, LB Kiel uses nationally and evaluation principles, HLB established sufficient pro- internationally acknowledged standard framework visions for all discernible risks. At year-end, risk pro- agreements ( ISMA, ISDA, DRV), scrutinizes individual visions for counterparty risks (individual value adjust- agreements and regularly adapts contractual documen- ments and provisions) amounted to € 743 (2000: 672) tation to current legislation and applicable court- million. The Bank’s liquidity ratio (Principle II in accor- decisions; in addition, the Bank’s own legal department dance with sec.11 of the German Banking Law) was supports the market departments. 1.3 at year-end. Exposure to illiquid markets remained On July 17, 2001, the European Commission and the limited. HLB’s liable capital in accordance with the Federal Government of Germany reached an agreement German Banking Law – incl. supplementary capital – about guarantee obligation (“Gewährträgerhaftung”) after profit appropriation amounted to € 5,114.5 mil- and maintenance obligation (“Anstaltslast”) lion. Its overall Principle I ratio stood at 10.2 % (ratio of A transitional period of four years was set in which weighted risk assets incl. market risk positions to liable the measures agreed upon are to be implemented. capital at year-end 2001). There are no changes to the public-sector banks’ liability with respect to existing funding operations, Focus for 2002 while liabilities entered during the transitional period In 2002, the Group will continue to optimize its ma- will be covered by Gewährträgerhaftung, if their term nagement systems. In addition to the further integration does not extend beyond 2015. of the requirements resulting from MaK and Basle II, LB Kiel will primarily develop its concepts and technical systems towards a uniform bank-wide risk measurement process. 32 Management Report

Personnel

LB Kiel continued to expand its workforce against the general industry trend.

As at December 31, 2001, the number of perma- Key staff figures As at December, 31 nently employed people of the LB Kiel Group (excl. (LB Kiel Group excl. HLB) HLB) stood at 2,457 (2,189).This included for the 2001 2000 1999 first time 195 employees of the newly consolidated Total staff employed 2,652 2,361 2,264 Schleswig-Holstein casinos. Against the general of whom female 1,257 1,115 1,097 industry trend, we also increased our headcount in the banking divisions.We hired 260 people and Regular staff 2,457 2,189 2,097 thereof: created 73 new jobs, especially in IT/Organization, Bank excl. LBS and IB 1,561 1,501 1,447 Capital Markets, Asset Liability Management, Corpo- Landes-Bausparkasse (LBS) 215 197 189 rate Finance and Financial Institutions/International Investitionsbank (IB) 323 324 322 Finance. Some 300 foreign employees work in the LB Schl.-Holst. Int. Luxemburg 84 82 68 LB Kiel Group (excl. HLB). Gudme Raaschou 79 85 71 Casinos 195 –– In 2002, we will again expand our workforce against the general trend.We plan to increase our Apprentices 84 96 94 headcount by another 60 people, so that 200 new Temporary staff/trainees 111 76 73 appointments will be required taking fluctuation Staff on maternity into account. and parent leave 77 91 83 Ratio of part-time staff (in %) 14,9 13,6 12,8 Average age 40 40 41 Retired staff and surviving dependents/Employees in early retirement 984 956 940 New appointments 262 228 190

Outlook

Due to our clear strategic orientation and established market position, we expect the positive earnings trend to continue in the current fiscal year. We target a return on equity of 15 % before taxes for fiscal 2004.The shareholders of LB Kiel and Hamburgische Landesbank have mandated the Managing Boards of the two banks to develop a concept for their merger.

Cautious Optimism for 2002 and sector specialist and 3. established player in the In spite of the imminent challenges, we look ahead with international capital markets. We will build on these cautious optimism.We expect the implementation of three pillars to continue our qualitative growth. our “Concentration of resources” programme to The emerging economic recovery should support this provide important stimulus for our future business development.We therefore expect our positive development.We have a clear strategy based on three earnings trend to continue in 2002. pillars: 1.“Bank for the North”, 2. International product Management Report 33

Business Focus Spin-off of Investitionsbank In the Baltic Sea region, we will push ahead our cor- The Bank’s governing bodies have instructed the Mana- porate finance activities by expanding our network of ging Board of LB Kiel to develop a concept for the local units: LB Kiel Corporate Finance, Gudme Raaschou spin-off of Investitionsbank Schleswig-Holstein into an and PCA Corporate Finance.We plan to open a branch independent promotion institute owned by the State of in New York in the second half of the current year in Schleswig-Holstein as its sole shareholder. The spin-off order to expand our refinancing base in the U.S. money of Investitionsbank has to be approved by the State and capital markets.The New York branch will further- Parliament of Schleswig-Holstein. The equity capital more be developed into a LB Kiel competence centre measures planned for the current fiscal year will among for transport finance (excl. ships) and into a base for others replace part of the liable capital so far provided our growing U.S. real estate banking business. In Europe by Investitionsbank. besides Germany, our real estate strategy focuses on France, Great Britain, Scandinavia and selected central/ Merger Concept eastern European locations. Moreover, we intend to On March 11, 2002, the shareholders of LB Kiel have pool all syndication activities of LB Kiel in London.We furthermore mandated the Managing Board of LB Kiel want to translate our established position in the inter- to develop a concept for a merger with Hamburgische national ship finance sector into a growing number of Landesbank in co-operation with the Managing Board of lead and co-lead roles. the latter. The Managing Board of Hamburgische Lan- Active management of the Bank’s portfolios should desbank has received a similar mandate from the share- enable us to considerably improve our profitability holders of Hamburgische Landesbank – the Free and without increasing the risk.We have therefore started Hanseatic City of Hamburg and LB Kiel. In addition to to establish a portfolio management system for credit the bodies of both banks, the merger has to be ap- risks with the aim to actively manage large parts of the proved by the State Government of Schleswig-Holstein balance sheet. and the Senate of the Free and Hanseatic City of Ham- burg which have to sign a state treaty to this effect. Higher Return on Equity Targeted This state treaty has to be approved by both parlia- The return on equity will follow the resulting positive ments.The merger can only take place after the state earnings trend with a certain delay because we plan treaty has entered into force. another strong increase of our equity capital base by placing additional perpetual silent participations with national and international investors. In the first quarter of the current year, we have already expanded our international investor base by placing silent participations of € 500 million.The strengthening of LB Kiel’s equity capital base, which will prepare it for the imminent challenges, will result in a partial and temporary dilution of the return on equity. The Managing Board has decided to target a return on equity of 15 % before taxes in 2004. 34 Geschäftsbank

LB Kiel Geschäftsbank

The LB Kiel Geschäftsbank figures give an overview of LB Kiel’s commercial bank activities.

In order to provide a meaningful overview of LB Kiel’s the activities of Investitionsbank Schleswig-Holstein, commercial bank activities, we have included the figures which is an economically and organizationally inde- of our two wholly-owned subsidiaries, Landesbank pendent but legally dependent central department of Schleswig-Holstein International S.A., Luxembourg, and LB Kiel and the central funding and promotion institute Gudme Raaschou Bankaktieselskab, Copenhagen, in the of the State of Schleswig-Holstein. Geschäftsbank figures. In contrast, the figures exclude

Balance Sheet of the Geschäftsbank *) 1997 – 2001 As at December, 31.

€ million 2001 2000 1999 1998 1997

Assets Cash, debt instruments issued by public institutions and bills of exchange eligible for refinancing 98 208 95 82 156 Loans and advances to banks 23,796 24,051 21,781 20,318 18,832 Loans and advances to customers 39,633 35,272 30,727 27,191 23,554 Portfolio of securities 26,770 22,022 19,222 13,136 12,270 Equity investments in affiliated and non-affiliated companies 919 827 823 813 784 Trust assets 69 78 85 100 111 Other assets 622 457 596 387 367

Total assets 91,907 82,915 73,329 62,027 56,074

Liabilities Liabilities to banks 40,453 35,844 32,187 28,764 23,827 Liabilities to customers 13,157 12.740 11,804 10,562 9,321 Certificated liabilities 33,569 30,077 26,264 20,348 20,621 Trust liabilities 69 78 85 100 111 Subordinated debt 1,260 1,047 989 747 797 Profit-sharing rights 686 671 565 153 154 Fund for general banking risks 89 65 40 – – Equity capital **) 1,984 1,513 811 718 698 Other liabilities 640 880 584 635 545

Total liabilities 91,907 82,915 73,329 62,027 56,074

*) Bank (incl. LBS) excluding Investitionsbank and including Landesbank Schleswig-Holstein International S.A. and Gudme Raaschou Bankaktieselskab **) includes the net retained earnings

This page and the following page are not part of the Management Report. Geschäftsbank 35

Statement of Income of the Geschäftsbank

31/12/2001 31/12/2000 Changes 2001/2000 € million € million € million %

1. Net interest income 503.6 400.1 103.5 25.9

2. Net commission income 84.5 86.9 -2.4 -2.8

3. Net income from trading 48.2 22.6 25.6 113.3

4. Administrative expenses -293.6 -260.0 -33.6 12.9 thereof: - Personnel expenses -152.7 -136.7 -16.0 11.7 - Operating expenses -140.9 -123.3 -17.6 14.3

5. Other operating income 57.4 23.6 33.8 143.2

6. Operating profit before risk provisions/evaluations 400.2 273.3 126.9 46.4

7. Risk provisions/evaluations -177.9 -94.1 -83.8 89.1

8. Operating profit after risk provisions/evaluations 222.3 179.2 43.1 24.1

9. Extraordinary income 0.0 0.0 0.0 0.0

10. Net income before taxes 222.3 179.2 43.1 24.1

11. Partial profits transfers -75.8 -32.3 -43.5 134,7

12. Taxes on income and revenues -26.8 -82.6 55.8 -67,6

13. Net income for the year 119.7 64.2 55.5 86,4

Geschäftsbank with a Good Result Geschäftsbank’s operating profit before and after risk In the year under review, earnings of LB Kiel’s Geschäfts- provisions/evaluations grew stronger than at Group bank developed even slightly better than at Group level. level (40 % and 17.4 %, respectively). Net income for the Net interest income and net income from trading were year surged 86.4 % at the Geschäftsbank level (Group: also up considerably and risk provisions increased 106.4 %). Given that in 2001, the Geschäftsbank accoun- significantly.The provisions established in connection ted for almost all silent participations placed to streng- with the insolvency proceedings instituted by Kirch- then LB Kiel’s equity capital basis, partial profit transfers Media on April 8, 2002 have already been taken into increased comparatively stronger than at Group level. account. Administrative expenses increased less than at Group level. At 46.4 % and 24.1 %, respectively, the

Strategic Missions 37

Strategic Missions

39 Bank for the North 39 - Regional Focus on Northern Germany 45 - Regional Focus on the Baltic Sea Region 49 International Product and Sector Specialist 49 - Structured Finance 51 - Ship Finance 53 - Real Estate Banking 57 - Financial Institutions/International Finance 59 Partner in the International Capital Markets 62 Landesbank Schleswig-Holstein International S.A. (LI) 63 Hamburgische Landesbank (HLB)

Strategic Missions 39

Bank for the North

We are the leading Bank in our home region of Schleswig-Holstein where our activities cover our three functions as commercial bank, central clearing institution for the savings banks and state and municipal bank.We are gradually expanding our position as one of the leading foreign banks in northern Europe and the Baltic countries focusing on syndicated loans, real estate finance, structured finance and corporate finance products.

REGIONAL FOCUS ON In our northern German core region, we focus on NORTHERN GERMANY medium-sized companies with the aim to become their core bank. In the year under review, we continued to Successful Corporate Clients Business in spite of an intensify our client relationships. Our approach to Economic Downturn support our customers by providing short-term loans In spite of the weak economic environment, our corpo- as well as a growing number of deposit-taking products rate clients business developed favourably. Lower interest and services in addition to traditional medium-term and rates supported corporates’ investment spending. New long-term investment finance was very well received by business amounted to € 0.9 (2000: 1.4) billion, with the our clients. In addition to our regional focus, we conti- focus on higher margins rather than higher volumes. nued to specialize on the health care, energy as well as Total claims rose by 11 % to € 5.1 (2000: 4.6) billion. utilities and waste management sectors, which we serve Companies in Schleswig-Holstein accounted for over on a nationwide scale. 50 % thereof. 2002: New Corporates Unit Operates on an International Scale Loans to Corporate Clients The strategic measures taken with a view to concen- Total claims in € billion tration of resources included the reorientation of our corporate clients business at the beginning of 2002. 6 As a financing and structuring specialist supporting medium-sized companies in our core region, we will, on 5 the one hand, expand our range of consulting services for company acquisitions and capital market transac- 4 tions in close cooperation with the newly established LB Kiel Corporate Finance GmbH. On the other hand,

3 we decided to no longer distinguish between domestic and international corporate business and pool all our corporate clients activities in the energy, utilities and 2 waste management, health and leasing refinancing sectors in the Corporates unit. 1

0 1997 1998 1999 2000 2001 40 Strategic Missions

E-Business Products Optimized In fiscal 2001 (as at Sept. 30), we made 14 new We will continue to optimize our range of e-business equity investments and invested in 9 private equity products, which includes Cash Management, our ma- funds. 2002 promises good business opportunities. nagement tool for companies operating on a national or We expect the prices for equity investments to recover global scale as well as for clients with high liquidity only slowly from their drastic fall in the year under management requirements. We furthermore offer our review. It should therefore remain possible to make clients a payment system for Internet shops (ePayment) new equity investments at reasonable prices for quite which enables secure settlement of the growing number some time. of Internet sales. Our product range also includes interest hedging products. New Business Segment Corporate Finance Established Based on our strategic reorientation, we expect our In 2001, we established our new business segment corporate clients business to develop favourably going Corporate Finance, with LB Kiel Corporate Finance forward. GmbH taking up operations on January 1, 2002. Ham- burgische Landesbank will hold an equal equity interest Equity Investment Business Expanded in this company. After the development of our corpora- We identified equity investments in medium-sized te finance activities in Scandinavia, we have now positio- companies as a market offering considerable growth ned ourselves in this business segment in Germany with potential. Consequently, LB Kiel expanded its activities the aim to further increase our net commission income in the private equity and venture capital segment by and generate cross-selling potential. establishing a dedicated Equity Investment unit in the We focus on M&A consulting (acquisition and sale, year under review. Schleswig-Holsteinische Kapital- raising of private equity and venture capital) and sup- Beteiligungsgesellschaft mbH (KBG), one of the oldest port capital market transactions (IPO/SPO, stock option equity investment companies in the Federal Republic of programmes, delisting, corporate/government bonds). Germany which has supported medium-sized companies Advice on strategic and business policy issues rounds for over 30 years, formed the basis of the new unit. In off our offer.The main target group of the newly esta- addition, we founded LB Kiel Unternehmensbeteili- blished company will be the medium-sized companies gungsgesellschaft (UBG) which offers open equity served by LB Kiel. In addition, the savings banks will be investments as supplementary financing. able to use LB Kiel Corporate Finance GmbH as a Next to companies which need new equity capital competence centre helping them to improve their for succession, management buyouts or expansions, customer service. And last but not least, the new both KBG and UBG invest in young future-oriented company will be a natural partner for the privatization companies. Another important business segment are of municipal companies. investments in private equity funds. In addition to In line with LB Kiel’s sectoral focus, the company’s attractive returns, these offer the possibility of co- 13 employees (as at the beginning of 2002) concentrate investments. on the energy, transport/logistics, real estate and health care sectors.The company intends to increase its workforce to up to 35 professionals by the end of 2004. Strategic Missions 41

In combination with our sister companies, Gudme with us and use our broad range of high-quality pro- Raaschou in Denmark and Sweden as well as PCA ducts and consulting services, especially in commercial Corporate Finance Oy in Finland and the Baltic states, and municipal underwriting business, commercial inter- our clients now benefit from a region-wide corporate national business and securities business. In the year finance network with special expertise in cross-border under review, LB Kiel continued to expand its range of transactions.We have thus added a new dimension to joint back-office activities with savings banks. LB Kiel’s mission as the “Bank for the North”. In view of the economic slowdown, the lending business of the savings banks in Schleswig-Holstein Private Banking Burdened by a Dull Market grew less dynamically than in the previous year. The Private Banking unit developed heterogeneously. In 2001, their claims on customers increased by only Sales in the securities sector declined sharply. Private 2,7 % to € 26.2 billion. Against this background and due investors’ reluctance to invest in equities made itself to intensified competition, LB Kiel’s new refinancing particularly felt in the Asset Consulting unit.The Asset business with savings banks declined by 18 % to € 0.9 Management unit, in contrast, delivered a good perfor- (2000: 1.1) billion. At year-end 2001, total claims stood mance.We achieved another gratifying increase in the at € 9.1 (2000: 9.4) billion. Due to the expected econo- number of private banking clients even though it fell mic recovery, we expect the savings banks’ demand for slightly short of our ambitious expectations. In contrast refinancing funds to increase again in 2002. to our securities business, especially the lending business, but also the deposit-taking business reported an increase in new business and business volumes. Refinancing Business with Savings Banks Total claims in € billion Even though Refinancing Business with the Savings 10 Banks in Schleswig-Holstein Declined in the Year under Review … 9

As central clearing bank for the savings banks, LB Kiel 8 provides refinancing funds and liquidity to the savings 7 banks and offers them a broad range of investment vehicles from short-term time deposit investments to 6 portfolio management.We furthermore support the 5 savings banks with a broad spectrum of innovative financial products and services such as asset/liability 4 management and balance sheet structure advice. For 3 their customer business, the savings banks co-operate 2

0 1997 1998 1999 2000 2001 42 Strategic Missions

… We Will Intensify Our Co-operation by a Restrained State and Municipal Lending Business Concentration of Resources In our capacity as state and municipal bank, we advise Our “Concentration of resources” programme will the State of Schleswig-Holstein and municipalities on result in a further intensification of our co-operation financing matters and extend loans to state and local with the savings banks.The introduction of new pro- governments.The market for state and municipal loans ducts will be accelerated and our sales activities will cooled noticeably in 2001. New business volume and become even more customer-oriented. Especially the total claims declined to € 0.4 (2000: 0.8) billion and quality of our joint lending business with the savings € 9.2 (2000: 10.6) billion, respectively. The decline in banks and their customers will benefit from the expan- new business volume was attributable to weak demand ded product range of our newly established Corporates in the first half of the year, with the market starting to unit. Moreover, LB Kiel has transferred its responsibility recover only in the last quarter. for the transmission of federal promotion funds to Investitionsbank as per January 1, 2002.This will strengthen Investitionsbank’s position as an administrator of State and Municipal Loans private-sector promotion programmes. Total claims in € billion

11 LBS: Slight Increase in New Business Landes-Bausparkasse (LBS) is an economically indepen- 10 dent, but legally dependent central division of LB Kiel 9

and the only unit of the Bank operating in the retail 8 sector. In the year under review, new business amoun- 7 ted to € 0.7 (2000: 0.7) billion.At 70.1 % (2000: 69.1 %), new business arranged by the savings banks in Schleswig- 6 Holstein continued to make the strongest contribution 5

to LBS’ sales. In the year under review, LBS granted 4 loans under savings and loan agreements, pre- and 3 bridging financing as well as other building loans totalling € 319.1 (2000: 324.2) million.The total loan portfo- 2 lio rose to € 1.4 (2000: 1.2) billion and total assets 1 € increased to 1.7 (2000: 1.5) billion. 0 While the situation in the residential real estate 1997 1998 1999 2000 2001 market remained difficult, price losses on the stock exchanges strengthened lower-risk investments and had a positive effect on the savings and loan market. LBS expects to consolidate its leading position in the Schleswig-Holstein savings and loan market and maintain its business volume at the current level. Strategic Missions 43

In co-operation with the European Investment Bank energy, municipal promotion as well as urban and (EIB), Luxembourg, we finance public projects in the agricultural development. environmental, infrastructure as well as educational and In 2001, the promotion volume amounted to € 557 health care sectors. In the year under review, we con- (2000: 505) million.Total assets increased slightly to cluded loan agreements for € 150 million with the EIB. € 5.74 (2000: 5.67) billion. As of 2002, we will also finance projects promoting the In addition to classical loan-oriented promotion use of alternative energy sources. programmes, service offerings have gained increasingly We will continue to intensify our business relation- in importance. Investitionsbank offers project manage- ships with public-sector clients going forward. In addi- ment services which support the state and municipali- tion to classical municipal loans, we will focus on pro- ties in solving complex issues. IB’s consulting services ject and structured finance products as well as consul- range from promotion guides and an advisory office for ting services for the privatization of public companies in business start-ups to municipal energy consultants and co-operation with our newly established Corporate a Euro Info Centre as well as 13 consulting centres and Finance GmbH. offices throughout Schleswig-Holstein offering advice on residential construction and private-sector promotion Investitionsbank Schleswig-Holstein programmes. In addition, Investitionsbank increasingly Offers Complex Services prepared itself for the growing importance of regional As an economically and organizationally independent, EU activities. Investitionsbank meanwhile offers a broad but legally dependent central division of LB Kiel, Investi- range of EU consulting, support and financial services in tionsbank is the key administrator of the state’s promo- the Baltic Sea region. tion and structural policy programmes for the private sector, residential construction, the environment and

*) LB Kiel including IB and LBS, Sydbank AS, other savings Market Shares of Financial Institutions in and loan associations = indicator for LB Kiel’s market Schleswig-Holstein**) share (Sydbank and savings and loan associations are of Loans to non-banks negligible importance).

**) All loans granted by banks domiciled in Schleswig-Holstein Other banks *) or branches of other banks located in Schleswig-Holstein 36.3% Savings banks to both national and international borrowers were recor- 26.4% ded.The lending volume therefore exceeds the volume of loans granted to borrowers domiciled in Schleswig-Holstein. For LB Kiel: These statistics do not include loans extended by the Rostock and Schwerin branches as well as by the LB Kiel Copenhagen Branch (LBC).The share shown here is therefore smaller than the actual share. Credit cooperatives Source: Central Bank of the Free and Hanseatic City of 7.9% Hamburg, the State of Mecklenburg-Western Pomerania and the State of Schleswig-Holstein.

Private banks Mortgage banks 13.5 % 15.9%

As at: 30/09/2001

Strategic Missions 45

REGIONAL FOCUS ON THE LB Kiel one of the Leading Foreign Banks in the BALTIC SEA REGION Baltic Sea Region With a total Baltic Sea region exposure of some € 13.2 The Baltic Sea Region as a Growth Market billion at the end of 2001, LB Kiel is one of the leading Next to the ongoing transformation of the eastern foreign banks in the Baltic Sea region.We have a pre- Baltic nations, continued integration is the main growth sence in all four Nordic capitals as well as in Tallinn, the drivers for the Baltic Sea region. We expect Poland and capital of Estonia, and we are continuously expanding the Baltic states to be among the next countries to join our activities in this region.We want to be the prefer- the EU. EU membership alone is expected to generate red second bank of our Nordic clients. Next to our additional annual growth of up to 2 % in the new mem- traditional lending business with ship owners and banks ber states and 0.7 % in the old EU countries going where we have several decades of experience, we forward. Assuming that Sweden and Denmark join the meanwhile focus on syndicated lending, real estate Euro by 2005, as forecast by us, the Nordic countries finance, structured finance, capital market activities and are likely to benefit from further trade integration and, increasingly corporate finance. in particular, capital market integration. In view of the technological competitiveness of the Nordic economies, we expect the long-term growth trend to remain Market Position of LB Kiel unaffected by the noticeable economic slowdown in the in the Baltic Sea Region year under review. 12 %

Latvia Sweden Norway Finland Estonia Denmark Lithuania

Source: LB Kiel, Deutsche Bundesbank

* Share of LB Kiel in the total exposure of German banks to Scandinavian and Baltic countries (loans subject to reporting requirements of ¤ 1.5 million or more). 46 Strategic Missions

LB Kiel Copenhagen Branch (LBC): The Hub for our Nordic Business Business Volume of LBC in € billion LB Kiel’s business activities in the Nordic countries are

controlled by the LB Kiel Copenhagen Branch (LBC). In 12

Denmark, LBC has meanwhile become one of the four 11 biggest banks (in terms of business volume). 10 LBC’s key activities include syndicated loans, real 9 estate finance and structured finance. Refinance activities with small and medium-sized financial institutions in all 8 Scandinavian countries also play an important role. 7 These business relationships benefit from the fact that 6

LB Kiel does not compete with these banks in the retail 5

sector. 4

3 Business Volume Increased to ¤ 11.2 billion 2 2001 was another very successful year for LBC. All business segments reported increases. LBC’s total business 1 volume (balance sheet total plus contingent liabilities 0 and irrevocable loan commitments) rose by 25 % to 1997 1998 1999 2000 2001 € 11.2 (2000: 8.9) billion and the margins improved. Capital market activities benefited above all from falling interest rates and the favourable development in the bond market. We expect this positive development to finance units in the Baltic Sea region: PCA covers continue in 2002. A growing number of core clients Finland and the Baltic nations, LB Kiel CF covers appreciates LBC’s flexibility as a partner for customized Germany, and Gudme Raaschou focuses on Denmark financing solutions.This enables us to expand our cross- and Sweden. selling activities and place our overall client relation- In the asset management sector, Gudme Raaschou ships on a broader basis. expanded its international connections as well as its product range by cooperating with West AM, a business Gudme Raaschou: Corporate Finance in Denmark unit of West LB.This enabled us to integrate our asset and Sweden management activities into a powerful international Our Danish investment banking subsidiary, Gudme network.The Gudme Raaschou Invest Health Care Raaschou, focuses on the corporate finance, debt capital fund, launched in 1997, received several awards in 2001. markets, equities and asset management sectors. It is However, Gudme Raaschou’s business development in part of LB Kiel’s corporate finance network and acts in 2001 fell short of our expectations, in particular due to close cooperation with the Finance units of LBC. weakness on the stock exchanges. Together with the Finnish PCA Corporate Finance Oy and LB Kiel Corporate Finance GmbH (LB Kiel CF), Gudme Raaschou installed a network of local corporate Strategic Missions 47

Position in Finland Expanded: finance network, PCA provides advice on mergers and LB Kiel Helsinki Branch acquisitions as well as private placements and the In 2001, we expanded our activities in Finland. LB Kiel’s structuring on finance solutions. Its product range representative office in Helsinki was upgraded to branch hence complements the financing products offered by status in September 2001.The Helsinki Branch will the LB Kiel Helsinki Branch. In a weaker economic focus on new business acquisition, while the Copenha- environment, which had a significant impact on the gen Branch will remain in charge of all back-office investment banking sector, PCA’s business posted a activities in order to ensure efficient operations. As per positive result outperforming the market average. year-end 2001, Finland accounted for some € 1.6 billion of LB Kiel’s foreign exposure. LB Kiel wants to become Market Position in the Baltic States Consolidated one of the leading foreign banks in Finland by 2005, In addition to its activities in the Nordic countries, PCA targeting the top 200 companies in the country. In also acts as a second bridgehead to the Baltic states addition, we want to attain a leading position in the where we see considerable business potential. LB Kiel financing of public projects and infrastructure projects. has been present in these markets through its representative office in Tallinn since 1995. Majority Stake in PCA Corporate Finance Oy In the year under review, LB Kiel consolidated its As per January 1, 2002, LB Kiel increased its share in market position as a provider of finance for local com- PCA Corporate Finance Oy to 71 %.The Finnish financi- panies and banks. In the corporate sector, we focus on al services provider offers its clients a broad spectrum companies which meet LB Kiel’s strict credit standards. of consulting services on structured finance, debt finan- These companies mainly operate in the energy, utilities ce and project finance. As part of LB Kiel’s corporate and telecommunications sectors. Project finance – often with Scandinavian blue chips as project sponsors – is another rapidly growing Foreign Exposure Baltic Sea Region market segment.Thanks to its presence in all Nordic countries as well as its representative office in Tallinn, LB Kiel is ideally Norway € 2,573 million 19.6% Denmark positioned to structure and accompany such € 4,560 million 34.7% financings. PCA often works hand in hand with the Finland € 1,636 million 12.4% representative office in Tallinn for finance and investment projects.This enables us to Russia € 82 million 0.6% Poland € 283 million 2.2% offer our Baltic clients customized solutions Island € 189 million 1.4% from a single source. Baltic states € 154 million 1.2%

Sweden € 3,680 million 28.0%

as at 31/12/2001 Total € 13,158 million

Strategic Missions 49

International Product and Sector Specialist

As a product and sector specialist, LB Kiel concentrates on transport, ship and real estate finance, leasing refinance and, increasingly, on the utilities sector. Syndicated loans are also gaining in importance. In spite of the weaker economic environment and a clear focus on a well-balanced risk structure, new business increased significantly.

STRUCTURED FINANCE support from a single source. In 2001, we successfully continued the favourable development of past years Strong Growth in a Difficult Environment even though the tragic events on September 11 had a At € 2.4 billion, new business in the Structured Finance strong impact on our new business especially in the unit, which includes the transport finance and leasing aircraft finance sector.Thanks to its well-balanced risk refinance activities, clearly exceeded the previous year’s structure, we were nevertheless able to place a signifi- level of € 1.9 billion. Accordingly, total claims rose to cant part of our aircraft portfolio on the market using a € 5.3 (2000: 4.1) billion. successful ABS structure (asset backed security) shortly before the end of the year. All in all, our targets in the railway, logistics and Structured Finance infrastructure sectors were more than met, which Total claims in € billion helped to narrowly reach the aggregate new business target for the transport sector.The successful comple- 5.5 tion of our role as the consultant and arranger of the 5.0 financing for Lübeck’s “Herrentunnel” project has 4.5 meanwhile won us additional mandates in the area of

4.0 privately financed road construction projects. Due to our moderate risk policy as well as our 3.5 successful diversification efforts, we continue on the 3.0 right path.We see the cyclical market environment as a 2.5 challenge, but also as an opportunity for LB Kiel.

2.0 Leasing Refinance: Continued Growth Especially 1.5 Internationally 1.0 The Leasing Refinancing unit also posted considerable 0.5 increases.The positive development was primarily

0 attributable to the fact that our real estate leasing 1997 1998 1999 2000 2001 activities and our international activities clearly exceeded our expectations.We are already one of the leading providers of leasing refinance in Germany. In order to consolidate our position, we are gradually expanding Transport Finance: Railway, Logistics, Infrastructure our international activities. Building on our experience, Sectors Compensate Headwind in the Aircraft we want to increasingly support our clients with inno- Sector vative financing solutions. By focusing on the aircraft, railway, logistics and infrastructure sectors, our Transport Finance core unit offers international companies around the world full

Strategic Missions 51

SHIP FINANCE Consistent Business Policy We generally concentrate on counterparties with long- Positive Trend Continued term shipping needs and sufficient cash flow to repay In 2001, the Ship Finance unit continued the positive the loans. In addition to companies with long-term trend of past years. At € 2.1 billion, new business charter agreements, we therefore focus on industrial clearly exceeded the previous year’s level (€ 1.4 bil- shippers. We maintain close contacts to the shipping lion).Total claims rose by 19 % to € 4.3 (2000: 3.6) companies financed by us in order to meet their indivi- billion. dual needs.

Highly Diversified Portfolio of Ship Loans Ship Finance In the past years, LB Kiel has built up a high-quality Total claims in € billion portfolio of ship loans with a well-balanced risk structure. At year-end 2001, our portfolio included 147 ship- 4.5 ping companies. Our highly diversified loan portfolio 4.0 covers a broad range of market segments, which is an advantage given the often different cyclical development 3.5 of the individual segments. 3.0

2.5 Broad Diversification by Market Segments € 2.0 Portfolio in million

1.5 800

17.0 % 1.0 700 16.0 %

0.5 600

12.9 % 0 500 11.6 % 1997 1998 1999 2000 2001 10.7 %

400 9.5 %

8.3% 300 As in the previous year, the further increase in the 5.9 % loan portfolio was attributable to the intensification of 200 existing client relationships as well as to the continuous 3.7 % 100 expansion of our client base. Underwriting business was 2.0 % 1.3 % 1.1 % dominated by club deals with a small number of syndi- 0 cate members. In addition, LB Kiel again arranged or co-arranged several large syndicated loans as an under- Others Offshore writer or co-underwriter. Oil tankers Gas tankersReefer ships Container ships Bulk cargo shipsChemical tankers

Multi-purpose freighters

Roll on/roll-off and car ferries Interim construction financing Cruise ships and passenger ferries 52 Strategic Missions

A breakdown by major shipping regions also shows that our portfolio of ship loans is well-balanced.

Regionally balanced Loan Portfolio Breakdown by borrowers’ domiciles

Germany Scandinavia 19 % 24%

Others Greece 10 % 15%

Other EU countries North America 6% 13 % Far East 13 %

Position as a Leading International Provider of Ship Finance Consolidated During a weakness in the shipping markets, we benefit in particular from our diversified loan portfolio and our general focus on industrial shippers and shipping companies with a good standing. A general increase in margins and a return-oriented intensification of our client relationships enabled us to further improve on the previous year’s good result. The conditions for a continued favourable business development in 2002 are good. On the one hand, our portfolio of commitments already stood at € 1.1 billion on December 31, 2001. On the other hand, we see also in 2002 good opportunities to make additional products available to our existing clients. Strategic Missions 53

REAL ESTATE BANKING In 2001, we pushed ahead the transformation from a pure lender to an innovative partner offering a broad Return-oriented Growth … range of real estate services. In addition to a strong In fiscal 2001, the Real Estate Banking unit clearly in- increase in volumes, our attractive international busi- creased its new business volume to € 1.8 (2000: 1.6) ness and our clear cross-selling strategy enabled us to billion, which represents an increase of 17 %. Foreign achieve an above-average increase in earnings in a business again made a major contribution, accounting difficult overall market environment. At the same time, for € 0.7 (2000: 0.6) billion (+22 %) or 40 % of total LB Kiel continued its risk-aware portfolio management new business.Total claims grew by 18 % to € 9.2 strategy. (2000: 7.8) billion as a result of our continued market activities based on strict return targets. € 1.2 billion or …and Continued Strong Foreign Business 13 % thereof were accounted for by foreign loans and The International Real Estate Finance unit has develo- another € 0.4 billion by foreign currency loans. Some ped dynamically since 1999. Some 90 % of our – with 62 % of our total claims are residential property loans. respect to the risk and return structure well balanced – About 98 % of our portfolio is secured by mortgages, international business was generated in the USA where while senior mortgages (up to a maximum of 60 % of we focused on class A office properties in central loca- the collateral value) account for approx. 71 % of our tions in the so-called 24-hour cities. In addition to the total claims. USA, we invested in British and Canadian properties.

Split German Market Real Estate Finance The German real estate market remained split; while Total claims in € billion lettability was the key criterion for project sponsors in the new federal states where vacancy rates remained 10 high, in particular rents for commercial properties in 9 attractive locations stabilized at a high level in western

8 Germany thanks to low vacancy rates.The new federal states account for just under one third of our real 7 estate finance portfolio. In line with our business policy, 6 our exposure concentrates on Mecklenburg -Western Pomerania. Not least thanks to our cautious lending 5 policy, we see no particular risks here in spite of the 4 tense market environment.

0 1997 1998 1999 2000 2001

Strategic Missions 55

The gratifying business development in the western are affected by the weak economy. Especially the down- and southern German conurbations made a key contri- turn in the so-called new economy has had an impact bution to our 2001 result. In this region, we supported on the real estate market. Prime locations and proper- several interesting major projects. We stepped up our ties let to tenants of good credit standing under long- sales activities and intensified our business relationships term agreements are in high demand.The location with investors.This formed the basis for a significant remains the key criterion for the approval of loan increase in return-oriented selected new business with applications.The past fiscal year has shown once more syndicate partners. Our activities in the stabilizing that classical investments in real estate remain a safe Berlin real estate market as well as our long-term haven in uncertain times. business relationships to our customers in Schleswig- Holstein also contributed to the favourable business Early Identification of Trends development in the Real Estate Banking unit. When it comes to realizing our ambitious targets, we will continue to pay special attention to a good balance Prime Properties Remain a Safe Haven between risk awareness and return orientation.The In the international market, we will continue to focus early identification of real estate trends as well as the on selective return-oriented syndicate business with implementation of a corresponding risk policy are key renowned partners and expand our position as an success factors. In this context, especially the far- arranger or co-arranger of transactions. Next to North reaching changes resulting from Basle II must also be America, we want to focus increasingly on interesting taken into account. We are currently developing new real estate markets in France and Great Britain as well concepts and management systems which will enable us as central/eastern European countries (Poland, Hungary, to meet the requirements of our customers and of the Czech Republic). supervisory authorities early on. In view of the stable market in the western conurbations, the German real estate industry had a slightly optimistic start into 2002. However, it should not be overlooked that some areas of the real estate sector

Strategic Missions 57

FINANCIAL INSTITUTIONS/ Latin American markets, the Middle East and increasingly INTERNATIONAL FINANCE on Russia with a clear focus on long-term structured trade finance products with attractive risk-return Excellent Increase in New Business with a Strict structures. Focus on Good Credit Standing The Financial Institutions/International Finance unit Strategic Focus on Syndicated Loans and almost doubled its new business to € 4.1 (2000: 2.4) High-margin Structured Business billion. As a result, total claims climbed 42 % to € 9.2 Going forward, we intend to increase our net commission (2000: 6.4) billion, meaning that the unit again made a income from syndicated loans even further. In 2001, we substantial contribution to the future cash flow genera- laid the foundations for this by acting as a mandated ted by the Bank. arranger in ten syndicated loans to banks totalling € 600 million. In addition, we played a leading role in many other transactions in the banking and corporate sector.We will Financial Institutions/International Finance continue to improve our syndicated loan business and plan Total claims in € billion to pool LB Kiel’s existing activities in this area as well as establish a presence in London. In order to further im- 10 prove our profitability, we will target an appropriate num- 9 ber of high-margin structured transactions which are in

8 line with our conservative risk approach. Complex trade finance, leveraged finance as well as structured notes are 7 expected to offer good opportunities. 6

5 Cautious Projections for 2002 as Risk Situation Remains Tense 4 The slowdown in the world economy showing signs of 3 recession as well as the tragic events on September 11 have led to the downgrading of many ratings.We have 2 initiated countermeasures in good time. At the end of 1 2000, we already started to reduce our exposure in

0 Argentina. However, the collapse of ENRON also caught 1997 1998 1999 2000 2001 us off guard. In view of our moderate exposure which mainly consists of project finance, the impact was, however, limited.There are still no signs for a noticeable recovery of the risk situation in 2002, even though The average term of the loans increased, while the the economy should meanwhile have bottomed out. In average margin declined.With respect to the difficult spite of certain positive signs, it is still hard to say when situation of the world economy this was largely attri- we will see a sustained recovery of the world economy. butable to the strict focus on a good credit standing in We will therefore stick to our conservative risk ma- case of loans to banks, insurance companies and states nagement policy. Against this background, we do not which accounted for 70 % (2000: 60 %) of new business. expect to reach the dynamic new business growth rates In geographical terms, we therefore concentrated on of past years.We will focus on quality and continue the EU countries as well as central European EU candi- successful business development of past years by step- dates. Due to their quality, these borrowers generally ping up our targeted sales activities. obtain long-term loans at moderate margins. Inter- national corporate lending accounted for some 20 % of new business.The strategic focus on the utilities industry initiated last year was pushed ahead.The geographical focus was on Europe and North America. Trade and export finance contributed some 10 % to the new business volume, concentrating on emerging

Strategic Missions 59

Partner in the International Capital Markets

LB Kiel’s capital market activities are pooled in the Capital Markets and Asset Liability Management units. Both units achieved good results in the difficult capital market environment prevailing in 2001.

Reorganization of the Capital Markets (CM) and Asset Liability Management (ALM) Units Interest Rates in 2001: 10 Y Bunds Strong Decline at the Short End 3M Euribor The activities of the Fixed Income, Equity Trading, in % Equity Sales and FX Money Market units have been pooled in the Capital Markets unit in order to achieve a uniform market presence.

The newly established Asset Liability Management 5 unit concentrates on the management of essential financial resources (liquidity, equity and debt capital as well as risk/return positioning of LB Kiel) and the 4 balance sheet structure, co-operating closely with the staff and market units as well as with the central committees.This means that ALM is the portfolio manager

of LB Kiel. In order to achieve its goals, ALM also acts 3 as a portfolio investor (taking long-term risks on the 1/2000 1/2001 1/2002 debt capital markets) and disinvestor.The realization of these tasks is pushed ahead by the sub-units Treasury, Asset Allocation, Securitization, Portfolio Investment, Financial Engineering /Conduits and Business Develop- Shares in 2001: Downswing Continued ment units. DAX S&P 500 8000 1800 Capital Market Environment and Overall Result The high level of uncertainty in the capital market led 7000 1600 to continued high volatility in the bond and stock

markets.The slowdown of the world economy, the 6000 1400 tragic events of September 11 as well as the collapse of

ENRON had a strong impact on the markets.The cen- 5000 1200 tral banks responded with massive key rate cuts to the

resulting fears of recession especially in the USA. 4000 1000 Unexpectedly strong cuts were made by the Fed which

reduced its key rate by a total of 4.75 percentage 3000 800 points in eleven steps. Investors lost confidence in the 1/20001/2001 1/2002 stock markets; as a result of the events in New York, the DAX slumped temporarily to 3,787 points. Although share prices recovered in the fourth quarter, the DAX fell by almost 20 % over the course of the year. 60 Strategic Missions

This development of the markets is directly reflected in Moderate Decline in Commission Income from LB Kiel’s business results.The fixed income units posi- Securities Business tioned themselves in line with the interest rate cuts and Compared to the massive setback on the stock exchan- further improved on their previous year’s result. Net ges in 2001, commission income from the sale of equities commission income declined slightly compared to the and derivatives declined only moderately to 82 % of the very high level achieved last year. Strict risk manage- record level achieved in 2000. While special and retail ment also helped to limit stock losses.The reorganiza- funds business declined, net commission income in the tion hence started to bear fruit in the year under stock sales segment increased on the previous year, review. benefiting from the recruitment of additional institutional clients. As many fund investors took a pro-cyclical Significant Increase in Net Income from Trading approach and invested in defensive funds in 2001, large Overall, the Capital Markets unit generated a very good equity positions were switched into bond positions. gross operating result for the Bank in the year under review. In a difficult market environment, net trading Treasury Unit Responsible for the Central income surged to € 36 (2000: 16.0) million.The slight Management of Banking Risks losses incurred in Equity Trading were more than offset The Treasury unit was completely repositioned in 2001. by the strong increase in the FX Money Market and It is now responsible for the central management of Fixed Income units. Bank-wide interest rate and liquidity risks and is the First synergy effects resulted from the integration of first point of contact for all refinancing issues. Interest the FX Money Market unit.The well-positioned Short rate risks and liquidity risks are managed separately Term Desk followed the massive key rate cuts by the because that way risks can be managed more efficiently Fed by a total of 475 basis points and made a major and market movements can be better exploited. In contribution to the good result.The Derivatives and addition, the Treasury unit pro-actively offers its ser- Sales team clearly exceeded the previous year’s result vices to the Bank’s lending units. It creates transparency thanks to intensive cross-selling of products adapted to for refinancing activities and provides stimulus by the specific needs of their customers. passing on market changes.The 2001 results of the An equally good result was achieved by the Fixed Treasury unit, which are reflected in the Bank’s net Income unit, with the good trading result being attribu- interest income, clearly exceeded our expectations. table to the consistent implementation of bond and derivatives trading strategies.The expansion of the sales Good Standing as a National and International unit and the resulting acquisition of new clients led to a Issuer Strengthened 81 % increase in sales with corresponding contribution The placement of own securities and borrowers’ note margins. loans are our most important source of refinancing. The Equity Trading unit suffered from the negative In spite of the public debate about the future of the sentiment prevailing in the stock markets. A slight German Landesbanks, we continued to improve our recovery in early 2001 was used to reduce equity good standing as a national and international issuer, positions built up in 2000. Due to the high level of reflected in the volume placed with final investors. uncertainty, own trading was largely restricted to spread positions. Strategic Missions 61

In addition to traditional own issues, LB Kiel refinan- We continued to increase our securitization exper- ces its activities through silent participations qualifying tise. In the fourth quarter of 2001, i. e. after the terro- as core capital, profit sharing rights and subordinated rist attacks in New York, we securitized and placed a debt placed with German savings banks and other significant part of our aircraft portfolio totalling over institutional investors. Medium-term and long-term € 1 billion on the market. securities in foreign currencies were issued under a Global Medium Term Note (GMTN) programme, which Outlook for Fiscal 2002 succeeded the Euro Medium Term Note (EMTN) pro- We will continue to push ahead our targeted sales gramme in the year under review. In fiscal 2001, 51 activities and expand our structuring expertise in order EMTN/GMTN issues were placed on the international to further strengthen our good standing as a national markets raising a total of € 11.5 billion. Subordinated and international issuer. Flow income and net commis- instruments accounted for € 215 million thereof. In sion income will benefit from the central management addition, LB Kiel uses a Euro Commercial Paper (ECP) of short-term market risks by the Capital Market units. and a US Commercial Paper (USCP) programme.The We will complement our good team by further invest- total gross volume of securities and borrowers’ note ments in risk management systems and highly qualified loans issued in 2001 increased to € 15.9 (2000: 13.6) staff. billion. At year-end 2001, own securities and borrowers’ The optimization of the processes for the central note loans outstanding stood at approx. € 44.1 (2000: management of our financial resources and balance 42.6) billion. sheet structure will continue to be a main task of the In early 2002, we raised € 500 million qualifying as Asset Liability Management unit. Especially the active core capital from international investors using an inno- management of the Bank’s portfolios offers consider- vative product. able potential without increasing the risks. In future, large parts of the Bank’s balance sheet will be actively Strong Increase in Portfolio Investments managed using a new (loan) portfolio management Complex structured finance products such as asset system. Collateral and netting agreements as well as a backed securities (ABS) and credit derivatives are growing number of securitization programmes will increasingly gaining in importance both for our assets optimize the Bank’s liquidity position. On the funding and our liabilities side. side, we will continue to expand our international The events in 2001 affected our interest-bearing new investor base and consolidate our good credit standing business. While credit spreads had already widened in and acceptance on the capital markets. the first half of the year due to the slowdown of the We will continue to underpin our first mover advan- world economy, this trend was accelerated by the tragic tage through innovative products and a clear focus on events on September 11 and the collapse of ENRON. our core competencies. We will further develop our We therefore continued to focus on ABS tranches with strong team and prepare it for our ambitious targets. good ratings. New ABS business rose to € 2.6 (2000: LB Kiel’s presence in New York, the most important 0.6) billion and the portfolio stood at € 3.7 (2000: 1.1) financial centre of the world, planned for 2002 will be billion at year-end. In order to push ahead our ABS another milestone in the targeted expansion of our activities, we increased our ABS research team.Total capital market activities enabling us to leverage our new surrogate loan business (excluding ABS) also rose core competencies. considerably to € 2.1 (2000: 0.7) billion and the portfolio (entire Bank excluding LBC) grew to € 7.0 (2000: 5.7) billion.A major contribution was made by credit default swaps which do not increase the Bank’s liquidity requirements. 62 Strategic Missions

Landesbank Schleswig-Holstein International S.A. (LI)

LB Kiel’s Luxembourg subsidiary focuses on euro loans, money market, foreign exchange and securities activities as well as private clients. LI used the continued positive earnings trend to further strengthen its equity capital base.

Total Assets Declined Due to Lower Claims on Banks which can be converted into cash at short notice.The LI closed fiscal 2001 with total assets of € 7.3 (2000: entire securities portfolio was valued strictly according 7.7) billion, which was primarily attributable to a decline to the lower of cost or market principle. in claims on banks by € 0.5 billion to € 2.6 billion. At € 1.4 billion, claims on customers remained largely Private Client Business Developed Satisfactorily unchanged on the previous year.The securities portfolio The Bank offers a comprehensive range of services for increased to € 3.1 billion, exceeding the previous year’s private clients including asset management and securi- high level by approx. € 100 million.We refinanced our ties-related services as well as Lombard loans. Nobis activities through bank deposits in the amount of € 6.2 Bank, in which LI holds an 80 % share, also focuses on (2000: 6.6) billion and customer deposits in the unchan- the private banking and asset management sectors. In ged amount of € 0.5 billion. Our disclosed liable capital 2001, our private client business was characterized by after allocation to reserves according to the proposed the difficult situation on the capital markets. Against this appropriation of profit stood at € 200.1 (180.1) million. background, our private client business generated a The business volume including contingent liabilities and satisfactory result. loan commitments declined by € 0.6 billion to € 7.4 billion. Institutional Client Business Expanded In 2001, we acquired a 51.62 % share in International Low Money Market and Lending Business Volumes Fund Services & Asset Management S.A. (IFSAM). IFSAM Interbank money trading is used for liquidity settlement is a leading European provider of fund service platforms purposes as well as for the global management of for institutional investors. Due to its know-how as well interest rate risks. In addition to balance sheet posi- as its dealing, asset management, fund research and tions, we also use innovative financial instruments. issuing services, IFSAM acts as the investment fund On-balance sheet money trading again declined by competence centre of the LB Kiel Group. approx. € 100 million to € 195 million. Medium-term and long-term claims declined by 8 % to approx. € 4 Positive Earnings Trend Continued billion. In order to ensure the quality of our lending Earnings continued to develop favourably. Net interest portfolio, we focus on borrowers based in OECD and commission income rose by € 6.6 million to € 48.1 countries. Borrowers domiciled in EU countries and million. Earnings from financial transactions declined to other western industrialized countries account for € -2.8 (2000: 8.1) million, reflecting among other things about 88 % of the lending volume, which mainly consists additional measures aimed at enhancing the Bank’s of loans to states, state banks and financial institutions internal strength.Value adjustments and provisions were or loans guaranteed by them. made to cover all discernible risks. Furthermore, LI made global value adjustments permissible under Securities Business with a Focus on Fixed-income Luxembourg tax law. In addition to a dividend on the Papers silent participations of the parent company, the proposal Fixed-income papers account for the bulk of our securi- on the appropriation of profit provides for the alloca- ties portfolio. Shares and other non-fixed income tion of € 20 million to free reserves. securities play a minor role.The securities portfolio almost exclusively consists of listed securities, most of Strategic Missions 63

Hamburgische Landesbank (HLB)

In fiscal 2001, Hamburgische Landesbank again achieved a respectable result with a clear increase in both volumes and earnings.

Qualitative Expansion Earnings Continued to Improve Hamburgische Landesbank maintained its hold in a Net interest income again made the key contribution, rather unfriendly market environment which was increasing by some 20 % to € 671 million.Thanks to the characterized by strong price fluctuations on the finan- gratifying development of other services, net commis- cial markets and a slowdown of the world economy. sion income remained flat at the previous year’s high Based on a strict focus on profitable activities as well as level of € 93 million. Net income from financial transac- close long-term customer relationships, HLB achieved a tions more than doubled to € 18 million, but still made qualitative expansion in line with its targets.Total assets a rather small contribution. Given that administrative rose by 8.4 % to € 87.5 billion, the business volume expenses rose by only about 16 % to € 296 million, the increased by 10.1% to € 103.7 billion and the lending cost-income ratio declined to just under 35 %. The volume was up 9.2 % to € 98.5 billion. Equity invest- operating profit before risk provisions and evaluation ments continued to gain in importance. At year-end climbed to € 552 million, up almost one third on the 2001, equity investments based on the value of the previous year’s satisfactory result. Net risk provisions, individual companies totaled € 946.1 million.This re- in contrast, almost doubled, reflecting the difficult presents an increase of € 95.2 million or 11.2 % on the market environment. HLB increased creation of supp- previous fiscal year.The Bank’s portfolio comprised a lementary capital and generated additional core capital total of 127 equity investments. Equity investments are by allocating € 20 million to the fund for general ban- primarily made to intensify the co-operation with king risks.Taxes on income more than halved. Net corporate clients and win new client business. At the income for the year after an unchanged partial profit end of the year under review, the Bank’s subscribed transfer of € 122 million – including the share of the capital amounted to € 1,914.4 million. HLB’s equity non-typical silent partner – rose by some 82 % to capital totalled 2,717.9 million. Liable capital according € 100 million, permitting an allocation to reserves from to KWG – including supplementary capital – stood at retained earnings of € 66 million. € 5,114.5 million.

Strict Risk Provisioning Approach Retained As in the previous year, risk provisions focused on domestic credit risks. Risk provisions for foreign exposure were expanded, but burdened HLB only slightly. In contrast, expenses from the valuation of the securities portfolio increased significantly. As before, adequate provisions were made for all discernible and future risks.

Annual Accounts for 2001 65

Annual Accounts and Group Annual Accounts for 2001

66 Group Balance Sheet 70 Group Statement of Income 72 Balance Sheet of LB Kiel 76 Statement of Income of LB Kiel 79 Notes to the Annual Accounts and Group Annual Accounts (incl. Segment Report and Group Cash Flow Statement) 66 Annual Accounts for 2001

Group Balance Sheet as at December 31, 2001 Assets

€ thousands prev. year prev. year

1. Cash reserve a) cash in hand 6,457 8,594 b) balances with central banks 129,362 227,404 thereof: with Deutsche Bundesbank 106,385 ( 191,476 ) 135,819 235,998

2. Debt instruments issued by public institutions and bills of exchange eligible for refinancing with central banks a) treasury bills and discounted treasury notes as well as similar debt instruments issued by public institutions 1,820 912 thereof: refinancable at Deutsche Bundesbank – (–) b) bills of exchange 3,751 4,490 thereof: 5,571 5,402 refinancable at Deutsche Bundesbank 3,751 (4,490)

3. Loans and advances to banks a) payable on demand 2,280,594 2,035,567 b) other loans and advances 30,109,520 30,333,865 thereof: 32,390,114 32,369,432 building loans of Landes-Bausparkasse (LBS) 102 (124)

4. Loans and advances to customers 64,042,065 58,115,144 thereof: secured by mortgage 13,765,683 ( 13,022,183 ) municipal loans 13,628,374 ( 14,246,252 ) secured by ship mortgages 7,958,348 ( 6,622,006 ) building loans of Landes-Bausparkasse from allocations (building society loans) 405,598 ( 419,455 ) for prefinance facilities and interim financing 921,586 ( 746,324 ) other 42,155 ( 38,525 ) thereof: secured by mortgage 1,187,942 ( 1,105,383 )

5. Bonds and other fixed-income securities a) money market instruments aa) issued by public issuers 1,895,327 – thereof: eligible for refinancing with Deutsche Bundesbank 1,353,397 (–) ab) issued by other issuers 509,496 269,951 thereof: 2,404,823 eligible for refinancing with Deutsche Bundesbank 126,109 ( 147,336 ) b) bonds ba) issued by public issuers 8,802,379 8,650,389 thereof: eligible for refinancing with Deutsche Bundesbank 5,647,142 ( 5,929,372 ) bb)issued by others issuers 26,481,874 22,616,386 thereof: 35,284,253 eligible for refinancing with Deutsche Bundesbank 8,979,539 ( 8,709,392 ) c) own bonds 1,608,429 1,391,743 nominal amount 1,580,916 ( 1,376,536 ) 39,297,505 32,928,469

6. Shares and other non-fixed income securities 1,738,035 1,526,447

To be carried forward: 137,609,109 125,180,892 Annual Accounts for 2001 67

Group Balance Sheet as at December 31, 2001 Liabilities

€ thousands prev. year prev. year

1. Liabilities to banks a) payable on demand 3,875,920 4,064,183 b) with agreed maturities or at agreed notice periods 52,866,129 47,845,473 c) savings deposits of Landes-Bausparkasse (LBS) 2,071 5,669 thereof: 56,744,120 51,915,325 for allocated contracts 770 (3,230)

2. Liabilities to customers a) savings deposits aa) savings deposits with agreed notice of three months 82,205 77,172 ab) savings deposits with agreed notice of more than three months 4,271 5,226 ac) savings deposits of Landes-Bausparkasse 831,172 792,002 thereof: on terminated contracts 6,219 (5,348) on allocated contracts 15,158 ( 17,557 ) 917,648

b) other liabilities ba) payable on demand 3,974,973 2,754,682 bb) with agreed maturities or at agreed notice periods 23,373,613 20,777,620 27,348,586 28,266,234 24,406,702

3. Liabilities of Investitionsbank relating to federal promotion programmes with agreed maturities or agreed notice periods of four years or more 500,328 507,482

4. Certificated liabilities a) bonds issued 35,476,155 34,277,493 b) other certificated liabilities 8,657,309 6,263,914 thereof: 44,133,464 40,541,407 money market instruments 8,647,363 ( 6,263,914 )

5. Trust liabilities 1,363,179 1,366,188 thereof: trust loans 1,228,617 ( 1,251,175 )

6. Other liabilities 684,014 741,984

7. Deferred income 384,447 400,449

8. Provisions a) provisions for pensions and similar obligations 273,958 251,689 b) tax provisions 57,712 149,129 c) other provisions 121,911 132,236 453,581 533,054

9. Interest equalization fund 923,106 954,824

10. Special reserve item 17,194 35,366

11. Subordinated debt 2,011,937 1,757,676

To be carried forward: 135,481,604 123,160,457 68 Annual Accounts for 2001

Group Balance Sheet as at December 31, 2001 Assets

€ thousands prev. year prev. year

Carried forward: 137,609,109 125,180,892

7. Equity investments in non-affiliated companies 200,144 102,094 thereof: in banks 62,236 ( 63,313 ) in financial services institutions 495 (495)

8. Equity investments in affiliated companies 123,787 97,842 thereof: in banks 9,240 ( 9,725 )

9. Trust assets 1,363,179 1,366,188 thereof: trust loans 1,228,617 ( 1,251,175 )

10. Intangible fixed assets 13,266 16,165

11. Tangible fixed assets 712,956 576,468

12. Other assets 757,866 502,867

13. Prepaid expenses 215,957 242,316

14. Deferred taxes 23,334 –

Total assets 141,019,598 128,084,832 Annual Accounts for 2001 69

Group Balance Sheet as at December 31, 2001 Liabilities

€ thousands prev. year prev. year

Carried forward: 135,481,604 123,160,457

12. Profit-sharing rights 1,112,684 1,122,993 thereof: due in less than two years 51,129 ( 76,438 )

13. Fund for general banking risks 143,289 109,550

14. Equity capital a) subscribed capital 1,376,492 1,008,993 b) capital reserves appropriated reserves of Investitionsbank 1,083,066 1,031,244 2,459,558 c) earnings reserves ca) statutory reserves 391,000 310,000 cb) statutory reserves of Landes-Bausparkasse 77,205 74,137 cc) appropriated reserves of Investitionsbank 35,883 28,107 504,088 d) Group reserves 1,089,706 1,020,550 e) minority interests 148,974 148,316 f) Group net retained earnings 79,695 70,485 4,282,021 3,691,832

Total liabilities 141,019,598 128,084,832

1. Contingent liabilities from guarantees and indemnity agreements 7,080,622 4,182,890

2. Other commitments a) placing and underwriting commitments – 602 b) irrevocable lending commitments 8,352,769 7,679,176 70 Annual Accounts for 2001

Group Statement of Income January 1 – December 31, 2001

€ thousands prev. year prev. year

1. Interest income from a) lending and money market transactions 7,515,279 6,842,013 thereof: interest income of Landes-Bausparkasse (LBS) from LBS loans 19,578 ( 20,001) from prefinance facilities and interim financing 50,681 ( 39,087) from other building loans 2,934 (2,352) b) debt securities and other fixed income securities 1,839,912 1,786,227 9,355,191 2. Interest expense 8,557,015 7,978,057 thereof: 798,176 650,183 on savings deposits of Landes-Bausparkasse 22,518 ( 22,027 )

3. Other income a) shares and other non-fixed income securities 70,953 86,258 b) equity investments in non-affiliated companies 13,504 6,927 c) equity investments in affiliated companies 13,607 5,432 98,064 98,617

4. Income from profit-and-loss pooling agreements, profit transfer agreements and partial profit transfer agreements 1,790 2,276

5. Commission income 190,616 197,036 thereof: commission income of Landes-Bausparkasse on contracts signed and arranged 6,401 ( 6,281) from loans granted after allotment of building saving contracts 2,486 (2,475) from the allocation and administration of prefinance facilities and interim financings 6 (6)

6. Commission expense 52,946 55,470 thereof: 137,670 141,566 commissions on contracts signed and arranged of Landes-Bausparkasse 7,375 (7,557)

7. Net income or expense from trading activities 57,985 27,310

8. Other operating income 227,907 118,475

9. Earnings from the liquidation of special reserve items 18,172 26,500

10. General administrative expenses a) personnel expenses aa) wages and salaries 192,792 164,064 ab) social security contributions, retirement pensions and other benefits 69,562 65,558 thereof: 262,354 for retirement pensions 41,292 ( 39,939 ) b) other administrative expenses 185,721 157,656 448,075 387,278

11. Depreciation of and adjustments to intangible and tangible fixed assets 48,645 37,998

To be carried forward: 843,044 639,651 Annual Accounts for 2001 71

Group Statement of Income January 1 – December 31, 2001

€ thousands prev. year prev. year

Carried forward: 843,044 639,651

12. Other operating expenses 120,755 131,156

13. Write-downs and value adjustments on loans and certain securities and additions to provisions for bad debt 278,365 146,294

14. Write-downs and value adjustments on equity investments in non-affiliated companies, affiliated companies and securities treated as fixed assets 12,559 13,517

15. Allocations to the fund for general banking risks 33,640 37,251

16. Expenses from loss transfers 2,918 298

17. Results from normal business operations 394,807 311,135

18. Taxes on income and revenue 51,199 130,938

19. Other taxes not shown under other operating expenses (item 12) 32,250 2,199 83,449 133,137

20. Profits transferred under partial profit transfer agreements 137,397 93,674

21. Net income for the year 173,961 84,324 thereof: Landes-Bausparkasse 3,068 (3,068)

22. Retained earnings carried forward from the previous year 3,592 6,071

23. Allocation of net income to earnings reserves a) statutory reserves of Landesbank 81,000 15,775 b) statutory reserves of Landes-Bausparkasse 15,295 3,068 c) appropriated reserves of Investitionsbank – 691 d) profit attributable to shareholders outside the Group 413 376

24. Minority interests 1,150 –

25. Group net retained earnings 79,695 70,485 72 Annual Accounts for 2001

Balance Sheet of LB Kiel as at December 31, 2001 Assets

€ thousands prev. year prev. year

1. Cash reserve a) cash in hand 2,578 4,009 b) balances with central banks 85,198 165,615 thereof: 87,776 169,624 with Deutsche Bundesbank 68,670 ( 163,471 )

2. Bills of exchange eligible for refinancing with central banks 3,751 4,490 thereof: refinancable at Deutsche Bundesbank 3,751 (4,490)

3. Loans and advances to banks a) payable on demand 871,387 761,468 b) other loans and advances 21,706,451 21,472,800 thereof: 22,577,838 22,234,268 building loans of Landes-Bausparkasse (LBS) 102 (124)

4. Loans and advances to customers 42,169,117 37,835,943 thereof: secured by mortgages 7,740,061 ( 6,819,705 ) municipal loans 11,240,034 ( 11,705,659 ) secured by ship mortgages 3,614,944 ( 3,012,983 ) building loans of Landes-Bausparkasse from allocations (building society loans) 405,598 ( 419,455 ) from prefinance facilities and interim financing 921,586 ( 746,324 ) other 42,155 ( 38,525 ) thereof: secured by mortgages 1,187,942 ( 1,105,383 )

5. Bonds and other fixed-income securities a) money market instruments aa) issued by public issuers 1,895,327 thereof: eligible for refinancing with Deutsche Bundesbank 1,353,397 (–) ab) issued by other issuers 127,270 269,898 thereof: 2,022,597 eligible for refinancing with Deutsche Bundesbank 126,109 ( 147,336 ) b) bonds ba) issued by public issuers 5,490,865 5,623,923 thereof: eligible for refinancing with Deutsche Bundesbank 4,456,577 ( 5,092,271 ) bb) issued by other issuers 13,830,261 11,186,842 thereof: 19,321,126 eligible for refinancing with Deutsche Bundesbank 5,841,250 ( 5,182,405 ) c) own bonds 1,249,562 1,084,158 nominal amount 1,234,289 ( 1,072,961 ) 22,593,285 18,164,821

6. Shares and other non-fixed income securities 909,557 686,722

To be carried forward: 88,341,324 79,095,868 Annual Accounts for 2001 73

Balance Sheet of LB Kiel as at December 31, 2001 Liabilities

€ thousands prev. year prev. year

1. Liabilities to banks a) payable on demand 2,811,239 3,032,374 b) with agreed maturities or at agreed notice periods 35,097,730 29,830,826 c) savings deposits of Landes-Bausparkasse (LBS) 2,071 5,669 thereof: 37,911,040 32,868,869 for allocated contracts 770 (3,230)

2. Liabilities to customers a) savings deposits aa) savings deposits with agreed notice of three months 40,945 38,111 ab) savings deposits with agreed notice of more than three months 2,806 3,453 ac) savings deposits at Landes-Bausparkasse 831,172 792,002 thereof: on terminated contracts 6,219 (5,348) on allocated contracts 15,158 ( 17,557 ) 874,923

b) other liabilities ba) payable on demand 1,432,649 772,862 bb) with agreed maturities or notice periods 10,216,042 10,544,356 11,648,691 12,523,614 12,150,784

3. Liabilities of Investitionsbank relating to federal promotion programmes with agreed maturities or notice periods of four years or more 500,328 507,482

4. Certificated liabilities a) bonds issued 26,015,696 25,118,275 b) other certificated liabilities 7,007,376 4,178,388 thereof: 33,023,072 29,296,663 money market instruments 7,007,376 ( 4,178,388 )

5. Trust liabilities 1,216,191 1,239,441 thereof: trust loans 1,208,388 ( 1,229,076 )

6. Other liabilities 181,824 374,310

7. Deferred income 254,990 256,178

8. Provisions a) provisions for pensions and similar obligations 190,804 174,719 b) tax provisions 30,116 68,723 c) other provisions 73,124 67,817 294,044 311,259

9. Interest equalization fund 923,107 954,825

10. Special reserve item 3,941 6,474

11. Subordinated debt 1,173,133 947,978

To be carried forward: 88,005,284 78,914,263 74 Annual Accounts for 2001

Balance Sheet of LB Kiel as at December 31, 2001 Assets

€ thousands prev. year prev. year

Carried forward: 88,341,324 79,095,868

7. Equity investments in non-affiliated companies 872,580 778,061 thereof: in banks 758,097 ( 758,057 )

8. Equity investments in affiliated companies 168,703 169,897 thereof: in banks 119,995 ( 119,583 )

9. Trust assets 1,216,191 1,239,441 thereof: trust loans 1,208,388 ( 1,229,075 )

10. Intangible fixed assets 13,115 16,029

11. Tangible fixed assets 614,217 486,916

12. Other assets 442,450 241,442

13. Prepaid expenses 94,020 105,358

14. Deferred taxes 23,334 –

Total assets 91,785,934 82,133,012 Annual Accounts for 2001 75

Balance Sheet of LB Kiel as at December 31, 2001 Liabilities

€ thousands prev. year prev. year

Carried forward: 88,005,284 78,914,263

12. Profit-sharing rights 686,288 671,288 thereof: due in less than 2 years 51,129 ( 51,129 )

13. Fund for general banking risks 88,839 65,000

14. Equity capital a) subscribed capital 1,376,492 1,008,992 b) capital reserves appropriated reserves of Investitionsbank 1,083,066 1,031,245 2,459,558 c) earnings reserves ca) statutory reserves 391,000 310,000 cb) statutory reserves of Landes-Bausparkasse 77,205 74,137 cc) appropriated reserves of Investitionsbank 35,883 28,107 504,088 d) net retained earnings 41,877 29,980 3,005,523 2,482,461

Total liabilities 91,785,934 82,133,012

1. Contingent liabilities from guarantees and indemnity agreements 5,080,209 2,808,459

2. Other liabilities a) placing and underwriting commitments – 602 b) irrevocable lending commitments 6,429,911 5,476,161 76 Annual Accounts for 2001

Statement of Income of LB Kiel January 1 – December 31, 2001

€ thousands prev. year prev. year

1. Interest income from a) lending and money market transactions 5,569,727 4,738,435 thereof: interest income of Landes-Bausparkasse (LBS) from LBS loans 19,578 ( 20,001) from prefinance facilities and interim financing 50,681 ( 39,087 ) from other building loans 2,934 (2,352) b) debt securities and other fixed income securities 1,024,473 975,056 6,594,200 2. Interest expense 6,206,071 5,416,160 thereof: 388,129 297,331 on savings deposits of Landes-Bausparkasse 22,518 ( 22,027 )

3. Other income a) shares and other non-fixed income securities 34,966 47,606 b) equity investments in non-affiliated companies 26,604 19,001 c) equity investments in affiliated companies 14,484 17,386 76,054 83,993

4. Income from profit-and-loss pooling agreements, profit transfer agreements and partial profit transfer agreements 2,453 2,276

5. Commission income 104,550 104,417 thereof: commission income of Landes-Bausparkasse on contracts signed and arranged 6,401 (6,281) from loans granted after allotment of building saving contracts 2,486 ( 2,475) from the allocation and administration of prefinance facilities and interim financing 6 (6)

6. Commission expense 37,919 40,048 thereof: 66,631 64,369 commissions on contracts signed and arranged of Landes-Bausparkasse 7,375 (7,558)

7. Net income or expense from trading activities 38,520 15,976

8. Other operating income 100,063 44,547

9. Earnings from the liquidation of special reserve items 2,533 8,519

10. General administrative expenses a) personnel expenses aa) wages and salaries 105,805 95,653 ab) social security contributions, retirement pensions and other benefits 44,957 43,073 thereof: 150,762 for retirement pensions 29,269 ( 28,166 ) b) other administrative expenses 111,969 99,429 262,731 238,155

11. Depreciation of and adjustments to intangible and tangible fixed assets 32,091 26,101

To be carried forward: 379,561 252,755 Annual Accounts for 2001 77

Statement of Income of LB Kiel January 1 – December 31, 2001

€ thousands prev. year prev. year

Carried forward: 379,561 252,755

12. Other operating expenses 10,847 8,268

13. Write-downs and value adjustments on loans and certain securities and additions to provisions for bad debt 123,547 73,611

14. Income from write-backs on equity investments in non-affiliated companies, affiliated companies and securities treated as fixed assets 782 4,544

15. Allocations to the fund for general banking risks 23,838 25,000

16. Expenses from loss transfers 2,918 298

17. Results from normal business operations 219,193 150,122

18. Taxes on income and revenue 19,102 73,332

19. Other taxes not shown under other operating expenses (item 12) 603 427 19,705 73,759

20. Profits transferred under partial profit transfer agreements 75,642 32,314

21. Net income for the year 123,846 44,049 thereof: Landes-Bausparkasse 3,068 (3,068)

22. Retained earnings carried forward from the previous year 2,099 5,046

23. Allocation of net income to earnings reserves a) statutory reserves of Landesbank 81,000 15,775 b) statutory reserves of Landes-Bausparkasse 3,068 3,068 c) appropriated reserves of Investitionsbank – 272

24. Net retained earnings 41,877 29,980

Notes 79

Notes to the Annual Accounts and Group Annual Accounts as at December 31, 2001

80 Legal Form and Shareholders 80 Consolidation Principles and Companies included in the Group Accounts 81 Accounting and Valuation Principles 84 Information on Assets 88 Information on Liabilities including: 90 - Statement of Changes in Equity Capital 92 Information on the Statement of Income including: 92 - Segment Report 95 - Group Cash Flow Statement 96 Other Information including: 96 - Liable Capital 98 - Derivatives Business 102 - Shareholdings Pursuant to sec. 285 No. 11 of the German Commercial Code (HGB ) 104 Guarantors’ Meeting 105 Supervisory Board 107 Managing Board 80 Notes

Legal Form and Shareholders

Landesbank Schleswig-Holstein Girozentrale (LB Kiel) is obligations of LB Kiel that cannot be met from its a legal entity under public law. assets. The Bank’s subscribed capital is held by Westdeut- The State of Schleswig-Holstein is liable for the sche Landesbank Girozentrale, Düsseldorf /Münster obligations arising from the business activities of the (39.9 %), Landesbank Baden-Württemberg, Stuttgart Investitionsbank. (10 %), the State of Schleswig-Holstein (25.05 %) and Governmental control is exercised by the Minister of the Savings Banks and Giro Association of Schleswig- Economic Affairs,Technology and Transport of the State Holstein (25.05 %). of Schleswig-Holstein. The State of Schleswig-Holstein, the Savings Banks and Giro Association of Schleswig-Holstein,Westdeut- sche Landesbank as well as the Landesbank Baden- Württemberg are jointly and severally liable for

Consolidation Principles and Companies included in the Group Accounts

The accounts of the individual companies of the Group The Group annual accounts include LB Kiel, the are prepared in accordance with the accounting and Landesbank Schleswig-Holstein International S. A. valuation methods applicable to LB Kiel. Claims and Group, Luxembourg, LB Schleswig-Holstein Finance B.V., liabilities, expenses and income as well as interim Amsterdam, Gudme Raaschou Bankaktieselskab, Co- results between companies included in the Group penhagen, as well as the 49.5 % investment in the accounts are eliminated. Hamburgische Landesbank Group, Hamburg. In addition, Investitionsbank Schleswig-Holstein (IB) and Landes- the Group annual accounts include the Schleswig- Bausparkasse Schleswig-Holstein (LBS) are organisatio- Holstein casinos as wholly owned subsidiaries for the nally independent but legally dependent central depart- first time. ments of LB Kiel. As the central funding and promotion institute, Investitionsbank supports the State of Schleswig-Hol- stein in fulfilling economic and structural tasks, offering impartial services in the fields of industry, residential construction, the environment and energy, municipal promotion, urban and agricultural development as well as project management. The branches in Luxembourg, Copenhagen and Helsinki are also included. Notes 81

Accounting and Valuation Principles

The annual accounts of LB Kiel and the Group have Interest Rate and Currency Swap Agreements been compiled in accordance with the German Com- The Bank has entered into interest rate and currency mercial Code (HGB) and Ordinance Regarding Accoun- swap agreements to hedge open positions, to control ting for Banks (RechKredV). its overall interest rate position and for trading purpo- The assets and liabilities as well as the expenditure ses. In the fiscal year 2001, results from internal interest and income of the Investitionsbank Schleswig-Holstein rate swap agreements are included in EUR in the state- and the Landes-Bausparkasse, which publish separate ment of income for the first time.The conclusion of annual accounts, are consolidated in the balance sheet internal agreements is subject to conditions including and statement of income of LB Kiel unless stated the essential condition to conclude them at market otherwise. terms. Internal transactions did not have a material Assets, liabilities and pending transactions are valued impact on the result. Gross results from interest rate in accordance with sec. 252 et seq. and sec. 340 et seq. swap agreements are shown separately under interest of the German Commercial Code (HGB). income and expense. In accordance with sec. 9 of the Ordinance Regarding Accounting for Banks (RechKredV), claims on banks and Claims and Liabilities customers and liabilities to banks and customers, Claims are stated with the nominal amount outstanding savings deposits as well as certificated liabilities have and liabilities with the amount repayable. Discounts and been broken down according to residual maturities. premiums are stated under deferred items as an asset Pro-rata interest is not to be broken down accor- or liability accordingly and are dissolved pro rata tem- ding to residual maturities pursuant to sec. 11 (3) of the poris. Ordinance Regarding Accounting for Banks (Rech- Value adjustments and specific provisions are made KredV) and is stated in the first maturity band. to cover discernible risks in the loan portfolio. Latent risks in the loan portfolio are covered by general bad Currency Translation debt provisions. Individual value adjustments and Assets and liabilities in foreign currencies are converted general bad debt provisions are offset against the loan at the official mean rate of exchange prevailing on the portfolio in the balance sheet. balance-sheet date. Income from currency translations are reported only if it is specifically covered or covered Securities in the same currency. The securities held in the Bank’s and the Group’s The Copenhagen and Helsinki branches’ as well as trading portfolio and in the liquidity reserve are valued the Copenhagen subsidiary’s financial statements, which strictly according to the lower of cost or market are compiled in foreign currencies, are also converted principle. at the official mean rate of exchange. Unlike previous years, securities held in the investment portfolio of the Group were partly valued accor- Forward transactions and hedging operations specific- ding in 2001 to the diluted lower of cost or market ally related to such transactions have been treated as principle as they are intended for long-term investment. valuation units. This parts consists of bonds and other fixed-income securities in the amount of € 4.0 billion and shares and other non-fixed income securities in the amount of € 0.2 billion. Original values are reinstated both in the commercial balance sheet and the tax balance sheet as required under the 1999/2000/2002 Tax Relief Act. 82 Notes

All interest-bearing securities held in the trading Deferred Taxes portfolio and denominated in EUR are included in a In the fiscal year 2001, deferred taxes in the amount of single interest-bearing portfolio. All elements of the € 23.3 million are stated for the first time by the Bank interest-bearing portfolio are valued at the market pursuant to sec.274 (2) of the German Commercial value as of December 31, 2001.The resulting unrealized Code.They result from the different treatment for tax losses and profits are balanced out. Reserves for anti- and commercial balance sheet purposes of option cipated losses are formed for a negative balance. premiums received and reserves for anticipated losses. A positive balance is not taken into account. The amount of deferred taxes is calculated based on the tax rates applicable. Deferred taxes will be written Equity Investments back in future years upon the tax benefits taking effect. Equity investments in affiliated and non-affiliated companies are stated at cost less depreciation, if applicable. Provisions Provisions for pension obligations have been established Tangible Fixed Assets on the basis of actuarial principles based on the life Tangible fixed assets whose use is limited by time are tables of Dr. Klaus Heubeck and are valued pursuant to written off in accordance with the relevant tax regula- German GAAP. The adjustment amount resulting from tions. Minor-value assets are fully written off in the year the adoption of the actuarial tables published in 1998 is they were purchased. fully allocated to provisions for commercial balance The Bank has sold land and buildings worth € 92.0 sheet and tax purposes up to 2001. million to subsidiaries and has concluded long-term Reserves for contingencies resulting from the duty lease agreements for their continued use by the Bank to grant benefits to pensioners and dependants were under a sale and leaseback transaction.This resulted in also established by the Bank in the FY 2001; moreover, a reduction of on-balance sheet fixed assets of the in line with a decision by the Federal Constitutional Bank by € 55.3 million. Court relating to sec. 18 of the Law Relating to Com- pany Pension Plans, a reserve of € 2.1 million was Option Premiums established to cover certain employees’ non-forfeitable Option premiums paid are carried at their purchase legal rights to future pension payments. costs.They are written down to their market price in Adequate provisions relating to early retirement accordance with the lower of cost or market principle. have been made. In addition, indirect pension-like In the case of options sold, provisions are made for obligations in accordance with art. 28 (2) EG HGB exist potential losses. Valuation units are taken into account. at Group level.

Interest Equalization Fund The “interest equalization fund” represents a value adjustment for all interest-free or low-interest claims arising from the promotion programmes of the Investi- tionsbank which were disbursed by December 31, 1994 and from 1999 to 2001.The claims are carried as assets at their nominal value.Therefore, the fund functions as a provision. Regarding the interest-free or low-interest Notes 83

claims disbursed between 1995 and 1998, the State of stated under subscribed capital. Unrealized reserves of Schleswig-Holstein is obliged to purchase these claims € 21.5 million on securities in the Bank’s banking book at their nominal values upon request. were identified.These qualify as supplementary capital pursuant to sec. 10 para. 2b sentence 1 No. 7 KWG in Special Reserve Item conjunction with sec. 10 para. 4a and 4c KWG. The appreciation of balance sheet assets due to the Capital is consolidated on the basis of the values 1999/2000/2002 Tax Relief Act was effected pursuant applicable on the date of first-time consolidation for to sec. 280 (1) of the German Commercial Code. Such the relevant companies. appreciation, which had been allocated in part to the The difference arising from capital consolidation special reserve item in the fiscal year 1999 according to pursuant to sec. 301 para. 1 sentence 2 No. 1 of the sec. 273 of the German Commercial Code in conjunc- German Commercial Code is included in the Group tion with sec. 52 (16) of the German Income Tax Act, reserves. was written back pro rata temporis in the fiscal year The liabilities-side difference stated in the Group 2001 as planned.This impacted earnings. As far as assets reserves from the capital consolidation of a total of were disposed of during the fiscal year, the correspon- € 1,089.7 million is the result of netting an assets-side ding amount of the special reserve item was fully difference of € 27.7 million against a liabilities-side written back. difference of € 1,117.4 million. The item “minority interests” contains shares in fully Fund For General Banking Risks consolidated companies which are held by third parties. In order to hedge general bank risks, an amount of € 33.6 million at group level was allocated to the “fund Lending Commitments for general banking risks”. Allocations are stated sepa- The Bank’s liabilities resulting in a credit risk are shown rately in the statement of income. as irrevocable lending commitments.

Equity Capital Investitionsbank Silent participations accepted in the fiscal year in order In addition to Investitionsbank’s payment obligations to strengthen the Bank’s equity capital base comply resulting from promotion activities for construction and with the requirements contained in sec. 10 (4) of the investment loans, Investitionsbank has a payment obli- German Banking Act (KWG) and are classified as liable gation of € 38.3 million for the future acquisition of capital. In the balance sheet, silent participations are state properties. In the fiscal year, Investitionsbank sold its shares of LEG Schleswig-Holstein Entwicklungsgesellschaft mbH at a gain of € 24.6 million.The item “other operating income” of Investitionsbank includes lease income of the “state properties” special-purpose fund. It amounts to € 30.0 million in the fiscal year. 84 Notes

Information on the Balance Sheet and Statement of Income as well as the Group Balance Sheet and Group Statement of Income

Information on Assets (as at December 31)

Claims on Associated Savings € million Bank Group Bank Group Banks 2001 2000 Claims on Associated Loans and advances to banks include Savings Banks 7,031.3 7,919.5 6,608.0 7,602.5 loans and advances to associated savings banks:

Claims on Affiliated Companies € million Bank Group Bank Group The following items include claims on 2001 2000 affiliated companies in securitized or Loans and advances to banks 1,599.4 – 1,263.7 1,726.3 non-securitized form: Loans and advances to customers 118.7 113.0 90.7 90.8 Bonds and other fixed-income securities Bonds 2.2 2.2 2.1 20.4

Claims on Companies in Which € million Bank Group Bank Group Equity Investments Are Held 2001 2000 Claims on companies in which equity Loans and advances to banks 130.2 248.0 93.0 81.2 investments are held are included in Loans and advances the following items to customers 86.7 86.9 246.0 248.0 Bonds and other fixed-income securities Bonds 751.3 780.0 514.9 544.8

Subordinated Claims € million Bank Group Bank Group The following items include sub- 2001 2000 Loans and advances to banks 93.0 98.6 98.1 98.5 ordinated claims: Loans and advances to customers 7.0 7.0 6.0 6.2 Bonds and other fixed-income securities 101.8 401.0 37.4 348.7 Shares and other non fixed-income securities – 16.4 – 14.5 Notes 85

Information on Securities Items € million Bank Group Bank Group 2001 2000 Bonds and other fixed-income securities:

Money market instruments issued by public and other issuers Money market instruments listed on a stock exchange 1,529.6 1,529.6 268.8 268.8 Marketable money market instruments not listed on a stock exchange 493.0 875.2 1.1 1.1 Bonds - issued by public issuers Bonds listed on a stock exchange 5,460.4 7,990.9 5,488.2 7,744.7 Marketable bonds not listed on a stock exchange 30.4 811.5 135.8 905.7 - issued by other issuers Bonds listed on a stock exchange 13,256.0 23,498.7 10,518.2 19,740.8 Marketable bonds not listed on a stock exchange 574.3 2,983.2 668.7 2,875.6 Own bonds Bonds listed on a stock exchange 1,228.8 1,551.1 1,037.0 1,318.7 Marketable bonds not listed on a stock exchange 20.8 57.3 47.2 73.0

Shares and other non-fixed income securities: Shares and other non-fixed income securities listed on a stock exchange 21.8 55.9 37.6 76.9 Marketable shares and other non-fixed income securities not listed on a stock exchange 887.7 1,682.1 649.1 1,449.5

Equity Investments in Affiliated and € million Bank Group Bank Group Non-Affiliated Companies 2001 2000 Equity investment in affiliated The item “equity investments in and non-affiliated companies affiliated and non-affiliated companies” Shares listed on a stock exchange 23.1 23.1 19.4 19.4 includes: Marketable shares not listed on a stock exchange 44.3 44.3 43.9 43.9 86 Notes

Trust Assets € million Bank Group Bank Group Trust assets comprise the following: 2001 2000 Trust asset:

Loans and advances to banks payable on demand 3.0 3.0 4.9 4.9 other loans and advances 4.3 4.7 8.2 8.7 Loans and advances to customers 1,208.9 1,355.4 1,226.3 1,352.6

Other Assets € million Bank Group Bank Group The main components of this item 2001 2000 are: Other assets Adjustment item for foreign currency conversion 126.5 306.2 – 109.2 Claims under options (caps and floors) and collateral 0.1 22.4 0.1 28.4 Swap deferrals 1.6 1.8 – – Claims under options (foreign exchange and Eurex dealings) 27.3 47.8 52.7 79.0 Collection documents, bonds due as well as interest and dividend coupons due 134.3 152.6 43.9 110.0 Land acquired for temporary use 11.7 20.9 11.2 20.3

Prepaid Expenses € million Bank Group Bank Group Prepaid Expenses include: 2001 2000 Prepaid Expenses Deferred discounts 73.0 110.7 80.1 121.7 Deferred premiums 20.4 27.2 25.0 33.9

Breakdown by Residual Maturities € million Bank Group Bank Group Assets according to residual 2001 2000 maturities: Other loans and advances to banks up to three months 5,440.0 7,834.9 6,201.5 10,193.9 more than three months up to one year 1,960.0 3,493.5 2,595.4 2,755.7 more than one year up to five years 8,457.7 11,304.1 7,105.3 9,865.3 more than five years 5,848.7 7,477.0 5,570.6 7,518.9 Loans and advances to customers up to three months 3,696.9 6,528.8 3,025.9 5,984.4 more than three months up to one year 3,122.2 4,820.6 2,712.9 4,294.2 more than one year up to five years 13,048.9 19,158.9 10,410.0 15,895.4 more than five years 21,881.8 31,729.2 21,125.3 30,751.1 loans and advances with undetermined maturity 419.3 1.804.6 561.8 1.190.0 Bonds and other fixed-income securities Bonds maturing in the following year 3,468.3 4,244.1 3,837.8 5,005.3 Notes 87

Fixed Assets

Tangible Fixed Assets

€ million Land and buildings there of: Advance pay- Office (excluding fixed owner-occupied ments for fixed equipment assets under land and assets under construction) buildings construction Bank Group Bank Group Bank Group Bank Group

Acquisition cost 487.4 582.6 147.0 237.0 0.3 0.3 113.5 191.1

Additions 189.7 189.9 3.6 3.6 0.1 0.1 22.2 44.1

Subtractions 84.5 85.3 84.3 86.9 – – 2.9 6.7

Appreciation/transfers – – – – -0.4 -0.4 – –

Depreciation in current business year 12.3 14.3 3.6 5.6 – – 16.8 31.0

Cumulated depreciation 21.3 46.5 7.3 29.3 – – 89.9 156.2

Book value on December 31, 2001 571.3 640.7 59.0 124.4 – – 42.9 72.3

Intangible Fixed Assets € million Bank Group

Acquisition cost 29.2 29.8

Additions – 0.1

Subtractions – –

Appreciation/transfers – –

Depreciation in current business year 2.9 2.9

Cumulated depreciation 16.1 16.6

Book value on December 31, 2001 13.1 13.3

Financial Assets € million Equity investments Equity invest- Securities stated in non-affiliated ments in affiliated as fixed assets companies companies Bank Group Bank Group Bank Group

Book value on December 31, 2000 778.1 102.1 169.9 97.8 5,881.5 13,216.4 Changes in 2001 94.5 98.0 -1.2 26.0 2,576.1 3,047.8 Book value on December 31, 2001 872.6 200.1 168.7 123.8 8,457.6 16,264.2 88 Notes

Information on Liabilities (as at December 31)

Liabilities to Associated Savings € million Bank Group Bank Group Banks 2001 2000 The item “liabilities to banks” includes Liabilities to associated savings banks 1,221.7 1,308.4 1,022.7 1,121.8 liabilities to associated savings banks in the amount of:

Liabilities to Affiliated Companies € million Bank Group Bank Group Liabilities to affiliated companies are 2001 2000 Liabilities included in the following items: to banks 1,875.0 – 2,349.7 16.3 Liabilities to customers 9.5 9.5 7.0 7.0 Certificated liabilities Bonds issued 3.6 3.6 24.3 0.5

Liabilities to Companies in Which € million Bank Group Bank Group Equity Investments Are Held 2001 2000 Liabilities to companies in which Liabilities to banks 361.8 459.6 502.8 232.6 equity investments are held are Liabilities to customers 62.3 62.5 51.3 51.9 included in the following balance Certificated liabilities sheet items: Bonds issued 1,786.4 1,698.5 1,785.9 1,767.5

Assets Pledged as Collateral € million Bank Group Bank Group The assets pledged as collateral are 2001 2000 claims under loan agreements assigned Assets pledged as collateral 9,658.9 12,797.1 6,240.7 9,366.1 as part of the promotion activities and securities deposited with the ECB in the pledged securities account in the context of open-market transactions.

Trust Liabilities € million Bank Group Bank Group Trust liabilities comprise the following: 2001 2000 Liabilities to banks payable on demand 1.4 1.4 1.6 1.6 with agreed maturities or at agreed notice periods 133.8 141.4 105.0 113.6 Liabilities to customers payable on demand – 6.9 8.9 8.9 with agreed maturities or at agreed notice periods 1,080.9 1,213.5 1,123.9 1,242.1 Notes 89

Other Liabilities € million Bank Group Bank Group This item mainly comprises: 2001 2000 Other liabilities Accrued interest on subordinated debt, profit-sharing rights 140.7 203.4 96.4 162.1 Liabilities under options and collateral 21.5 47.2 47.7 78.1 Adjustment item for foreign currency conversion – – 206.4 –

Deferred Income € million Bank Group Bank Group This item includes: 2001 2000 Deferred Income Deferred discounts 236.6 285.6 228.3 283.2 Deferred premiums 6.4 12.9 5.6 12.9

Deferred Taxes Provisions for deferred taxes in the amount of € 3.2 million (2000: 2.9 million) have been established in the Group. Deferred taxes are not netted against accrued taxes.

Subordinated Debt € million Bank Group Bank Group 2001 2000 Subordinated Debt 1,173.1 2,011.9 948.0 1,757.7

Expenses of € 66.4 (2000: 59.3) million were incurred in the Bank in connection with subordinated debt.At Group level, they amounted to € 107.7 (2000: 87.2) million. The funds were raised in GBP, CAD,YEN, NLG, PTE, LUF, USD, DEM and EUR in an equivalent amount of € 2,011.9 million (Group level). Carrying interest between 2.4 % and 16.0 %, these liabilities have original maturities of 2 to 40 years. The subordination cannot be limited and the maturity and notice period cannot be shortened; otherwise the terms of subordination are in accordance with the relevant provisions of the German Banking Act (KWG).

Profit-Sharing Rights The profit-sharing rights in the Bank raised in DEM and EUR amount to € 686.3 million (2000: 671.3 million). Group profit-sharing rights amount to € 1,112.7 million (2000: 1,123.0 million). Of the profit-sharing rights stated in the Bank’s balance sheet, € 40 million were raised in the year under review. 90 Notes

Statement of Changes in Equity Bank 2001 2000 Capital € million The statement of changes in equity Subscribed capital, previous fiscal year 1,009.0 340.5 capital shows the development of the Allocations to silent participations 367.5 668.5 Subscribed capital, current fiscal year 1,376.5 1,009.0 Bank and the Group capital and the

overall Bank and Group result. It was Capital reserves, previous fiscal year 1,031.2 967.6 drawn up closely in line with the Allocations to capital reserves 51.8 63.6 German Accounting Standard No. 7 Capital reserves, current fiscal year 1,083.1 1,031.2 (DRS 7). The development of subscri- Earnings reserves, previous fiscal year 412.2 393.1 bed capital, capital reserves, earnings Allocations of net income to earnings reserves and net retained earnings are reserves, current fiscal year 84.1 19.1 stated separately. The “other changes” Allocations of net income to earnings stated in connection with the develop- reserves, previous fiscal year 7.7 0.0 ment of the Group capital and reser- Earnings Reserves, current fiscal year 504.0 412.2

ves result from Group capital consoli- Net retained earnings, previous fiscal year 30.0 25.4 dation and related allocations of net Dividend, previous fiscal year -15.4 -15.4 income to earnings reserves of Group Other changes, current fiscal year -12.5 -5.0 companies. Net income for the year, current fiscal year 123.8 44.0 Allocations of net income to earnings € 23.3 million (deferred taxes) of reserves, current fiscal year -84.1 -19.1 the Group net income for the year of Net retained earnings, current fiscal year 41.9 30.0 € 174.0 million are subject to a limita- tion on profit distribution pursuant to Equity capital of the Bank, current fiscal year 3,005.5 2,482.5 sec. 274 para. 2 sentence 3 of the German Commercial Code (HGB). Group 2001 2000 € million Subscribed capital and reserves, previous fiscal year 2,452.5 1,701.3 Allocations to silent participations 367.5 668.5 Allocations to capital reserves 51.8 63.6 Allocations of net income to earnings reserves 91.8 19.1 Subscribed capital and reserves, current fiscal year 2,963.6 2,452.5

Group reserves, previous fiscal year 1,020.5 1,002.2 Allocations to Group reserves 69.2 18.3 Group reserves, current fiscal year 1,089.7 1,020.5

Minority interest, previous fiscal year 148.3 145.1 Other changes 0.7 3.2 Minority interest, current fiscal year 149.0 148.3

Group net retained earnings, previous fiscal year 70.5 58.3 Dividend, previous fiscal year -31.2 -30.6 Net income for the year, current fiscal year 174.0 84.3 Other changes, current fiscal year -133.5 -41.6 Group net retained earnings, current fiscal year 79.7 70.5

Group equity capital, current fiscal year 4,282.0 3,691.8 Notes 91

Contingent Liabilities € million Bank Group Bank Group The majority of contingent liabilities 2001 2000 are loan guarantees. Contingent liabilites 5,080.2 7,080.6 2,808.5 4,182.9 Commitments from short positions 2,317.9 3,055.4 250.5 525.8 These include written credit default swaps:

Breakdown by Residual Maturities € million Bank Group Bank Group Liabilities according to residual 2001 2000 maturities: Liabilities to banks with agreed maturities or at agreed notice periods up to three months 19,554.8 29,532.7 14,568.6 25,294.3 more than three months up to one year 5,567.1 8,902.7 4,813.3 7,526.9 more than one year up to five years 4,542.4 7,127.8 5,037.8 8,300.7 more than five years 5,433.4 7,302.9 5,411.1 6,723.6 Savings deposits up to three months 41.3 82.8 38.7 78.0 more than three months up to one year – 0.2 – 0.3 more than one year up to five years 2.4 3.4 2.8 4.1 more than five years – 0.1 – 0.1 Other liabilities to customers with agreed maturities or at agreed notice periods up to three months 1,859.5 8,240.5 1,982.1 6,536.0 more than three months up to one year 257.2 553.4 422.9 779.4 more than one year up to five years 3,139.9 5,268.4 2,226.5 4,180.5 more than five years 4,959.4 9,311.3 5,912.9 9,281.6 Certificated liabilities Bonds issued Bonds issued maturing in the following year 7,017.9 8,325.8 11,877.7 14,115.5 Other certificated liabilities up to three months 4,202.0 5,719.4 2,090.6 3,683.7 more than three months up to one year 2,805.3 2,927.9 2,087.8 2,580.2 more than one year up to five years – – – – more than five years – – – – 92 Notes

Information on the Statement of Income

Segment Report Income and expenses were generally assigned to The Group segment report published for the first time segments according to the principle of causation. Net in this form presents the segments like independent interest income is calculated according to the market companies with own profit and cost responsibility. interest rate method. The segment results are based on internal controlling For those units not preparing financial statements, data and external data included in the 2001 financial risk provisions are based on the standard risk costs. statements. For those units preparing financial statements, risk The segment report was prepared in accordance provisions correspond to those stated in the statement with the German Accounting Standards No. 3-10 of income. (DRS 3-10) regarding segment reports of financial Risk positions and the resulting equity capital re- institutions. quirements are stated in accordance with the banking The Bank made use of the option not to include supervisory regulations (annual averages). previous year’s figures in the segment report. Segment assets include the annual average balance sheet assets of the respective segment.The return on The following segments were formed: regulatory capital is the ratio between operating profit - General lending business after risk provisions and average employed equity Transactions with corporate and real estate clients, capital.The cost-income ratio is the ratio between savings banks, private clients as well as banks and administrative expenses and total income (net interest foreign clients – incl. the client business of our branches income, net commission income, net income from in Scandinavia and our subsidiary in Luxembourg. trading and the balance of other operating income and - Transport finance expenses). Mainly comprises aircraft, railways, leasing, infrastruc- The reported ROE is the quotient of net income ture and ship finance – incl. the corresponding activi- before taxes, adjusted for allocations to reserves ties of our subsidiary in Luxembourg. pursuant to sec. 340 g of the German Commercial - Trading Code, and the average on-balance-sheet equity capital Money, foreign exchange and securities trading and adjusted for net retained earnings and reserves pur- services – incl. the activities of our foreign subsidiaries suant to sec. 340 g of the German Commercial Code. and branches. - Promotion This segment presents the result of our Investitions- bank central division. - LBS This segment presents the result of our central division. - HLB This segment presents the result of our 49.5 % investment in HLB. - Others/Overhead /Consolidation Subsidiaries which cannot be assigned to any of the other segments, overhead and results of the consolidation. Notes 93

€ million General lending Transport Trading Promotion LBS HLB Others / Group business finance 49,5 % Overhead / Consolidation

Net interest income 223.8 71.8 44.2 13.8 37.2 402.2 105.0 898.0 + Net commission income 48.9 19.2 11.4 2.4 2.7 50.8 2.3 137.7 + Net income from trading – – 48.3 – – 9.7 – 58.0 + Balance of other operating income /expenses -0.5 – – 37.2 2.2 -35.8 71.8 74.9 = Total income 272.2 91.0 103.9 53.4 42.1 426.9 179.1 1.168.6

./. Administrative expenses 70.1 13.6 27.0 39.2 29.9 154.6 162.4 496.8 = Operating profit before risk provisions 202.1 77.4 76.9 14.2 12.2 272.3 16.7 671.8

./. Risk provisions 55.3 20.7 27.8 - 6.3 4.3 137.9 69.5 309.2 = Operating profit after risk provisions 146.8 56.7 49.1 20.5 7.9 134.4 -52.8 362.6

Segment assets 50,090.3 9,767.9 21,483.5 5,186.2 1,598.7 43,542.3 2,897.2 134,566.1 Risk positions 21,761.6 8,374.8 7,371.4 3,733.8 938.1 24,497.5 1,222.5 67,899.7 Average employed equity capital *) 1,740.9 670.0 589.7 298.7 75.0 1,959.8 97.9 5,432.0

Return on regulatory capital 8.4% 8.5% 8.3% 6.9% 10.5% 6.9% 6.7% Cost-income ratio (CIR) 25.7 % 14.9 % 26.0 % 73.4 % 71.0 % 36.2 % 42.5 %

ROE 7.8 % 9.8 %

*) The average employed equity capital is the regulatory capital requirement.

The geographic breakdown is based € million Germany Europe Asia Others/ Group on the domicile of the respective excl. Consoli- Group company or branch. Germany dation Operating profit before risk provisions 543.5 149.0 11.6 -32.3 671.8 ./. Risk provisions 194.3 104.4 – 10.5 309.2 = Operating profit after risk provisions 349.2 44.6 11.6 - 42.8 362.6

Risk positions 51,229.9 15,597.3 3,741.7 -2,669.2 67,899.7 Average employed equity capital 4,098.4 1,247.8 299.3 -213.5 5,432.0 Cost-income ratio (CIR) 44.6 % 29.9 % 37.1 % 42.5 % 94 Notes

Breakdown of Statement of Income Components Based on the Domicile of the Respective Group Company or Branch:

€ million Germany Europe excl. Asia Germany Europe excl. Asia Germany Germany 2001 2000

Interest income 6,883.9 2,287.1 184.2 6,470.5 1,948.1 209.7 Other income (from shares and other non-fixed income securities, equity investments in non-affiliated and affiliated companies) 97.5 0.6 – 96.4 2.2 – Commission income 143.1 45.2 2.3 151.6 43.2 2.3 Other operating income 224.4 3.4 0.1 108.2 10.3 – Net income from trading 43.2 14.8 – 19.7 6.4 1.2

Other Operating Income € million Bank Group Bank Group This item mainly comprises: 2001 2000

Refund of expenses by third parties 25.6 32.1 30.0 33.5 Income from the disposal of office equipment and land and buildings 36.9 36.9 – – Notes 95

Group Cash Flow Statement the end of the period. Financial resources comprise the The cash flow statement published for the first time in balance sheet item “cash reserve”. Hamburgische Lan- this form shows the development of the Group cash desbank accounts for € 39.7 million (2000: 32.0 million) flows. Cash flows from operating activities, cash flows of the cash reserve. from investing activities and cash flows from financing The cash flow statement was drawn up in accordance activities are shown separately.The sum of these cash with the banking-specific German Accounting Standards flows corresponds to the change in financial resources No. 2-10 (DRS 2-10). between the beginning of the period under review and

€ million 2001 2000

1. Net income for the period 174.0 84.3 Adjustments 2. Write-downs, value adjustments and appreciation on claims, tangible and financial fixed assets 462.8 272.9 Write-downs on tangible and financial fixed assets, allocations to value adjustments 677.1 478.2 Appreciation on tangible and financial fixed assets, reversal of value adjustments -214.3 -205.3 3. Change in provisions -79.5 70.5 4. Other non-cash expenses /income -18.2 -26.5 5. Profit / loss from the disposal of tangible and financial fixed assets -89.6 -37.8 Losses 40.2 15.2 Profits -129.8 -53.0 6. Other adjustments -677.2 -516.7 7. Subtotal -227.7 -153.3 8. Change in loans and advances -5,947.6 -8,925.0 a) to banks -20.7 -3,500.2 b) to customers -5,926.9 -5,424.8 9. Change in securities (excl. financial fixed assets) -2,371.9 -1,481.7 10. Change in other assets from operating activities -278.3 731.7 11. Change in liabilities 8,688.3 5,382.8 a) to banks 4,828.8 3,082.2 b) to customers 3,859.5 2,300.6 12. Change in certificated liabilities 3,592.1 6,514.7 13. Change in other liabilities from operating activities -315.8 -463.2 14. Interest and dividends received 9,455.0 8,729.2 15. Interest paid - 8,354.1 -7,816.0 16. Taxes on income paid -83.4 -133.1 17. Cash flows from operating activities 4,156.6 2,386.1 18. Inflow from the disposal of 840.3 3,707.1 a) financial fixed assets 740.5 3,661.4 b) tangible fixed assets 99.8 45.7 19. Outflow for investments in -5,590.3 -7,179.0 a) financial fixed assets -5,344.7 -6,726.1 b) tangible fixed assets -245.6 -452.9 20. Cash flows from investing activities - 4,750.0 -3,471.9 21. Inflow from equity capital contributions 419.3 732.1 22. Distributions from equity capital -173.4 -129.2 a) Dividend payments -36.0 -35.5 b) Partial profit transfer -137.4 -93.7 23. Changes in funds from other capital 244.4 432.8 24. Cash flows from financing activities 490.3 1,035.7 25. Financial resources at the beginning of the period 236.0 285.2 26. Cash flows from operating activities 4,156.6 2,386.1 27. Cash flows from investing activities - 4,750.0 -3,471.9 28. Cash flows from financing activities 490.3 1,035.7 29. Changes in financial resources due to changes of exchange rates, scope of consolidation and valuation 2.9 0.9 30. Financial resources at the end of the period 135.8 236.0 96 Notes

Other Information

Liable Capital € million 2001 2000 Including allocations to reserves and Liable capital of the Bank acc. to sec. 10 other changes resulting from the 2001 of the German Banking Act (KWG) annual accounts, the Bank’s total liable Subscribed capital 219.9 219.9 capital amounts to € 4,638.3 (2000: Silent participations 1,156.6 789.1 3,987.8) million. Group’s total liable Capital reserves 926.7 925.3 capital amounts to € 7,152.2 million Earnings Reserves 504.1 412.2 Fund for general banking risks 88.8 65.0 (2000: 6,444.6 million). Intangible fixed assets -13.1 -16.0 The supplementary capital in the Core capital 2,883.0 2,395.5 Bank’s balance sheet includes unrealized Supplementary capital 1,759.2 1,594.4 reserves of € 21.5 million relating to Equity investments acc. to sec. 10 para. securities in the investment book. 6a sentence 1 No. 4a of the German Banking Act -3.9 -2.1 Tier 3 capital – – € The capital resources of 156.3 Total liable capital – Bank 4,638.3 3,987.8 million (2000: 105.9 million) with which Investitionsbank was provided Liable capital of the Group companies acc. to in conjunction with the formation of sec.10a of the German Banking Act (KWG) Core capital 1,322.7 1,303.5 the “state properties” special-purpose Supplementary capital 1,207.3 1,169.1 funds are not used to back risk- Deduction from equity capital -16.1 -15.8 weighted assets of the Bank. Total liable capital – Group companies 2,513.9 2,456.8 € 25 million of the reserves formed Tier 3 capital not counting towards the capital base – – pursuant to sec. 340 f of the German Group total liable capital 7,152.2 6,444.6 Commercial Code included in the supplementary capital according to sec. 10 a of the German Banking Act totalling € 1,207.3 million cover risks in the Group annual accounts arising from the insolvency proceedings instituted against KirchMedia after preparation of the annual accounts.

Banking Law Ratios Deposit Insurance Fund Having consistently complied with the capital adequacy The Bank is a member of the Landesbanken /Girozen- and liquidity stipulations under German Banking Law tralen deposit insurance fund, which falls under the during the year under review, the Bank has fulfilled the deposit protection system of the German Savings Bank requirements for recognition as a qualified bank as Organization. defined by sec. 54 a para. 2 No. 9 c of the German The deposit protection system ensures the liquidity Insurance Supervision Act (VAG). and solvency of all affiliated institutions. In addition to the above-mentioned, the liabilities of LB Kiel are fully backed by its guarantors. Notes 97

Contingencies Not Shown in the Balance Sheet Forward Transactions As a result of being a shareholder in a number of smal- The Bank’s and the Group’s unsettled foreign currency, ler companies, the Bank is obliged to pay up certain interest-related and other forward transactions out- fractions of share capital not yet fully subscribed and standing at year-end were primarily entered into in paid. order to hedge interest rate and market price volatility. With respect to the Bank’s stake in Liquiditäts- The Bank and the Group are mainly involved in: Konsortialbank GmbH, the Bank has an additional funding obligation and a limited contingent liability for Currency-Related Forward Transactions the additional funding obligations of other shareholders. - Forward exchange transactions Landesbank Schleswig-Holstein holds a 49.5 % stake - Forex swap deals in Hamburgische Landesbank. - Interest-rate/currency swaps Furthermore, the Bank has concluded long-term - Written currency options rental agreements with two of its subsidiaries. - Purchased currency options

Letter of Comfort Interest-Related Forward Transactions Landesbank Schleswig-Holstein will, except in the - Forward securities transactions case of political risk, ensure that the following Group - Stock futures transactions companies will be able to meet their obligations: - Forward rate agreements Landesbank Schleswig-Holstein International S. A., - Written interest-rate options Luxembourg, and LB Schleswig-Holstein Finance B.V., - Interest-rate swaps Amsterdam. - Interest-rate forward transactions - Purchased interest-rate options Introduction of Euro Notes and Coins - Interest-rate futures In connection with the introduction of the Euro notes and coins, the Bank received € 15.5 million (Group: Other Forward Transactions 35.4 million) from Deutsche Bundesbank under the - Written share options frontloading procedure in the last quarter of 2001. - Index forward transactions € 7.0 million (Group: 15.9 million) thereof were passed - Written index options on to customers under the sub-frontloading procedure. - Purchased share options - Purchased index options

Credit derivatives - Credit default swaps (guarantee /guarantor) - Total return swaps (guarantor) - Credit spread options (guarantor) 98 Notes

Derivatives Business ted the Group’s and Bank’s currency-based business. Derivatives business developed favourably in the past The volume of equity transactions and transactions fiscal year. with other price risks amounted to € 1.6 billion. Most At year-end 2001, the nominal volume of the Group’s of these contracts held in the investment book have a interest-based business amounted to € 154.3 billion, term of more than one year. with interest-rate swaps accounting for € 128.5 billion. Proprietary trading transactions accounted for The short-term maturity band accounted for most € 89.4 billion or approx. 42 % of the Group’s total of the volume growth. derivatives business. Forward exchange transactions (€ 42.7 billion) The Group’s and the Bank’s derivatives business is accounted for the bulk of currency-based business solely conducted with counterparties of immaculate (€ 52.0 billion). credit standing. Over 93 % of the total nominal volumes Contracts with a term of less than one year domina- were transacted with OECD banks.

Derivatives Business – Group Volume

€ million Nominal amounts Nominal amounts Credit risk - Replacement equivalents *) costs **) Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2001 Interest-rate contracts Interest-rate swaps 128,460.2 98,965.4 597.4 1,971.3 FRAs 19,777.3 7,238.5 7.8 21.4 Interest-rate options - long positions 138.5 60.8 2.3 9.3 - short positions 450.8 15.4 – – Caps, floors 831.2 1,009.7 2.9 7.5 Stock market contracts 2,856.5 6,410.3 – – Other interest -rate forward transactions 1,832.8 1,019.3 0.3 0.8 Interest rate contracts – total 154,347.3 114,719.5 610.7 2,010.3

Currency contracts Forward exchange transactions 42,655.7 38,998.8 196.7 482.8 Interest-rate /currency swaps 6,976.3 8,957.4 159.8 414.9 Currency swaps – – – – Currency options - long positions 1,334.7 1,067.7 13.9 34.8 - short positions 1,050.1 868.5 – – Stock market contracts – – – – Other currency-related forward transactions – – Currency contracts – total 52,016.9 49,892.3 370.4 932.4

Equity transactions and transactions with other price risks Stock futures transactions 1.2 – – – Stock options - long positions 17.8 37.7 1.0 1.2 - short positions – 2,7 – – Stock market contracts 3.6 69.7 – – Other forward transactions 1,620.0 1,275.4 45.9 78.5 Equity transactions and transactions with other price risks – total 1,642.7 1,385.6 46.8 79.7 Derivatives business – market price risks 208,006.9 165,997.3 1,027.9 3,022.4

The volume development stated includes the gross volume of all long and short positions.

*) The credit risk equivalents are calculated in accordance with Principle I using the standard method (mark-to-market method). **) Replacement costs are defined as the potential expenditure which would be incurred in connection with a replacement trade required to restore a position following a counterparty default. Notes 99

Derivatives Business – Trading Transactions *)

€ million Nominal amounts Nominal amounts Credit risk Replacement equivalent costs Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2001

Interest-rate contracts 70,344.1 48,367.7 213.8 621.3 Currency contracts 19,071.8 13,660.2 103.4 213.1 Equity trading 8,3 79,4 – –

Total 89,424.1 62,107.3 317.2 834.4

Derivatives Business – Breakdown by Counterparties

€ million Nominal amounts Nominal amounts Credit risk Replacement equivalent costs Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2001

OECD banks 194,629.7 147,484.0 862.9 2.810.4 Non-OECD banks 342.4 402.1 2.3 7.8 Non-banks 11,818.6 16,873.1 162.7 204.2 Authorities 1,216.2 1,238.1 – –

Total 208,006.9 165,997.3 1,027.9 3,022.4

Derivatives Business – Breakdown by Maturities **)

€ million Interest-rate risks Currency risks Stock price and other price risks Residual maturities Dec. 31, 2001 Dec. 31,2000 Dec. 31, 2001 Dec. 31, 2000 Dec. 31, 2001 Dec. 31, 2000

up to three months 38,852.4 15,750.4 29,945.0 24,297.3 128.0 126.1 up to one year 35,430.1 29,949.7 15,797.0 19,037.8 143.8 224.6 between one and five years 38,755.7 32,646.0 4,323.0 4,650.5 1,094.6 903.1 more than five years 41,309.2 36,373.4 1,951.9 1,906.7 276.3 131.8

Total 154,347.3 114,719.5 52,017.0 49,892.3 1,642.7 1,385.6

Foreign Currency Business € million Bank Group Bank Group 2001 2000 Foreign currency assets 24,199.6 43,528.5 19,406.1 37,069.1 Foreign currency liabilities 24,014.8 37,729.0 22,073.5 34,722.9

*) Trading transactions are defined as contracts concluded to make a profit from short-term changes in market prices or from dealer’s margins.The result of these transactions is shown under net income from trading. **) The breakdown by maturities is based on the residual maturities of the contracts. For interest-rate futures, this is the residual maturity of the underlying, for currency futures and transactions with equity and other price risks, the residual maturity of the contract. 100 Notes

Cover Computation € million Bank Group Bank Group 2001 2000 Mortgage bond cover Bearer bonds -2,729.9 -3,619.7 -2,193.4 -3,148.5 Registered bonds -2,708.2 -3,607.2 -2,096.0 -2,846.2 Registered bonds used as collateral -656.7 -684.6 -673.3 -703.3 Redeemed and terminated bonds -0.1 -0.1 – – -6,094.9 -7,911.6 -4,962.7 -6,698.0 Cover assets Loans and advances to customers 6,579.2 9,216.6 6,071.8 8,614.4 Loans and advances to banks – – – –

Excess cover 484.3 1,305.0 1,109.1 1,916.4

Municipal bonds used as cover Municipal bearer bonds -8,233.9 -10,129.4 -11,250.5 -13,523.8 Municipal registered bonds -6,620.3 -8,587.0 -7,600.8 -9,674.4 Registered bonds used as collateral -1,196.5 -1,225.5 -1,096.1 -1,147.9 Redeemed and terminated bonds – – -0.1 -0.1 -16,050.7 -19,941.9 -19,947.5 -24,346.2 Cover assets Loans and advances to customers 10,181.6 11,396.0 11,018.8 12,467,6 Loans and advances to banks 6,730.0 9,717.0 6,805.2 10,114.2 Securities and borrower’s note loans issued by public issuers – – 2,612.7 2,612.7 Substitute cover – – 269.0 269.0 16,911.6 21,113.0 20,705.7 25,463.5

Excess cover 860.9 1,171.1 758.3 1,117.4

Average Number of Employees female male total 2000 in 2001 Bank excl. LBS and IB 726 814 1,540 1,459 Landes-Bausparkasse (LBS) 119 92 211 215 Investitionsbank (IB) 189 133 322 326 Subtotal 1,034 1,039 2,073 2,000 LB Schl.-Holst. International S.A. 47 37 84 75 Hamburgische Landesbank *) 1,212 1,179 2,391 2,222 Gudme Raaschou 17 62 79 85 Casinos **) 60 135 195 – Total 2,370 2,452 4,822 4,382 including: part-time employees 562 77 639 593 plus: apprentices 100 71 171 189

*) Total headcount of Hamburgische Landesbank **) For the first time the casinos were included in the Group annual accounts in 2001.

Remuneration Paid to the Members The total remuneration paid to the Managing Board in 2001 was € 2.4 (2000: of the Managing Board and the 2.1) million, including € 0.1 (2000: 0.1) million from the subsidiaries. Remune- Supervisory Board of the Bank ration paid to the Supervisory Board amounted to € 0.3 (2000: 0.3) million. Total remuneration paid to former members of the Managing Board or their surviving dependants was € 1.2 (2000: 1.0) million. Pension provisions in an amount of € 12.2 (2000: 8.7) million have been made for members or former members of the Managing Board or their surviving dependants. Notes 101

Loans to Members of the € million Bank Group Bank Group Executive Bodies 2001 2000 Managing Board 0.7 0.7 1.2 1.2 Supervisory Board 2.8 2.8 2.6 2.6

Seats of the Members of the Managing Board on other Supervisory Boards

Dr. Dietrich Rümker Dieter Pfisterer - DGZ Deka Bank Deutsche Kommunalbank, - eBS eBanking Services Nord GmbH i.G., Kiel Frankfurt /Main - Gesellschaft für Wagniskapital - Hamburgische Landesbank - Girozentrale -, Hamburg Mittelständische Beteiligungsgesellschaft - Landesbank Schleswig-Holstein International S.A., Schleswig-Holstein GmbH – MBG , Kiel Luxembourg - IKB – Leasing GmbH, Hamburg - Minimax GmbH, Bad Oldesloe - ORGA Kartensysteme GmbH, Flintbek - Howaldtswerke-Deutsche Werft AG, Kiel - Wankendorfer Baugenossenschaft eG,Wankendorf - Wirtschaftsakademie Schleswig-Holstein, Kiel Hans Berger - LBS Immobilien GmbH (LBSI), Kiel - Deka Deutsche Kapitalanlagegesellschaft mbH, - Deka Immobilien Investment GmbH, Frankfurt Frankfurt /Main - dvg Hannover Datenverarbeitungsgesellschaft mbH, Dr. Erwin Sell (since May 1, 2001) Hannover - Gudme Raaschou Bankaktieselskab, - eBS eBanking Services Nord GmbH i.G., Kiel Kopenhagen /Denmark - Engram AG, Bremen - PCA Corporate Finance Oy, Helsinki/Finland - Flender Werft AG, Lübeck - WestLB Polska S.A.,Warsaw - Hamburgische Landesbank - Girozentrale -, Hamburg - A/O WestLB Vostok, Moscow - Nordex AG, Oberhausen - Landesbank Schleswig-Holstein International S.A., - S-Online Schleswig-Holstein GbR, Kiel Luxembourg - SIZ Informatik – Zentrum der Sparkassenorganisation GmbH, Bonn Franz S.Waas, Ph.D. (since January 1, 2001) - s-NetLine GmbH, Kiel - Gudme Raaschou Bankaktieselskab, - LBS Immobilien GmbH (LBSI), Kiel Kopenhagen /Denmark - Landesbank Schleswig-Holstein International S. A., Luxembourg - s-NetLine GmbH, Kiel - S-Online Schleswig-Holstein GbR, Kiel - Hanseatische Wertpapierbörse, Hamburg (BÖAG) 102 Notes

Shareholdings Pursuant to sec. 285 No. 11 of the the net assets, financial condition and earnings of the German Commercial Code (HGB) Group. All computations reflect the companies’ most The Group financial statements include Companies 1) recent financial statements. to 11).The other companies were not consolidated as they are not material to depict a true and fair view of

Number, Name, Headquarters Equity capital 1) Capital share Result € million in % € million

1) Landesbank Schleswig-Holstein International S.A., Luxembourg 190.09 100.00 35,00 2) LB Schleswig-Holstein Finance B.V., Amsterdam 1.51 100.00 3) 3) Hamburgische Landesbank-Konzern, Hamburg 3,673.64 49.50 54,45 4) Gudme Raaschou Bankaktieselskab, Copenhagen TDKK 98.620 100.00 3) 5) NOBIS Société des Banques Privées S.A., Luxembourg 12.82 80.00 3),4) 6) Spielbank SH GmbH, Kiel 0.03 100.00 2),3) 7) Spielbank SH GmbH & Co. Casino Stadtzentrum Schenefeld KG, Schenefeld 4.10 100.00 3) 8) Spielbank SH GmbH & Co. Casino Kiel KG, Kiel 4.60 100.00 3) 9) Spielbank SH GmbH & Co. Casino Lübeck – Travemünde KG, Lübeck-Travemünde 1.37 100.00 3) 10) Spielbank SH GmbH & Co. Casino Westerland auf Sylt KG,Westerland 2.57 90.00 3) 11) Spielbank SH GmbH & Co., Casino Flensburg KG, Flensburg 5.89 90.00 3) 12) LiLux Management S. A., Luxembourg 1.07 100.00 3),4) 13) Verwaltungs- und Treuhandgesellschaft von 1963 mbH, Kiel 0.03 100.00 3) 14) Wirtschafts- und Aufbaugesellschaft Stormarn mbH, Bad Oldesloe 0.03 24.00 3) 15) Kieler Grunderwerbsgesellschaft mbH, Kiel 0.03 100.00 2),3) 16) Schleswig-Holsteinische Kapital-Beteiligungsgesellschaft mbH, Kiel 0.51 100.00 2),3) 17) Anker Schiffsbetreuungsgesellschaft mbH, Kiel 0.03 100.00 2),3) 18) W. Jacobsen AG, Kiel 4.43 92.51 3) 19) Schleswig-Holsteinische Immobilienfonds KG, Kiel 0.18 100.00 3) 20) BIG-Bau-Investitionsgesellschaft mbH,Kiel 12.79 24.00 3) 21) LBS Immobilien GmbH, Kiel 0.26 100.00 2),3) 22) Gesellschaft für Wagniskapital Mittelständische Beteiligungsgesellschaft Schleswig-Holstein GmbH, Kiel 14.62 56.1 3) 23) Grundstücksverwaltungsgesellschaft der schleswig-holsteinische Sparkassenorganisation mbH, Kiel 0.03 100.00 3) 24) Cape May Shipping Company Ltd., Monrovia 0.0002 100.00 3),4) 25) LBSH Leasing Verwaltungs GmbH, Lockstedt 0.03 100.00 3) 26) Bausteine für Kinder, Kindertagesstätten Bau- und Entwicklungs- GmbH, Lockstedt 0.03 100.00 2),3) 27) Kieler Förde-Verwaltungsgesellschaft mbH, Kiel 0.03 100.00 2),3) 28) Baltic Sea GmbH, Kiel 0.03 100.00 2),3) 29) Nord-Ostsee Verwaltungsgesellschaft mbH,Kiel 0.03 100.00 3) 30) Kiel-Hörn Vermarktungsgesellschaft mbH,Kiel 0.31 24.50 3) 31) MDK Holdings Limited, London 0.02 33.33 3) 32) Gudme Raaschou AB,Stockholm TSEK 100 100.00 3) 33) eBanking Services Nord GmbH, Kiel 0.03 33.33 3) 34) LB Kiel Nordic Finance AB, Stockholm TSEK 85.104 100.00 3) 35) Gebäudemanagement Schleswig-Holstein, Kiel 25.57 24.90 3) 36) Schleswig-Holstein ImmobilienPartner GmbH,Kiel 0.25 33.33 3) 37) Oy FoxNord AB,Helsinki 0.01 100.00 3) 38) Gudme Raaschou Administration A/S, Copenhagen TDKK 2.116 100.00 3),4) 39) PCA Corporate Finance Oy, Helsinki 4.68 51.16 3) 40) LB Kiel Färgaren AB, Stockholm (vormals: Hedera Hässleholm AB) TSEK 120 100.00 3),4) 41) LB Kiel Färgaren KB (vormals: KB Hedera Hässleholm) – 99.93 3),4) 42) LB Kiel Lärkan AB, Stockholm TSEK 100 99.00 3),4) 43) Fastighetsbolag Jyväskylä Agora Oy TFIM 50 100.00 3),4) 44) Specialbonde i Stockholm AB, Stockholm TSEK 100 100.00 3),4) 45) LB Kiel Gnarp AB, Stockholm TSEK 100 100.00 3),4) 46) ECOMARES GmbH & Co. KG, Büsum 0.29 25.00 3),4) 47) P.E.R. Flucht- und Rettungsleitsysteme GmbH, Barsbüttel 0.75 34.10 3),4) Notes 103

Number, Name, Headquarters Equity capital 1) Capital share Result € million in % € million

48) Aura Grundstücksverwaltungsgesellschaft mbH & Co.Vermietungs KG,Wiesbaden 0.03 94.00 3) 49) Azur Grundstücksverwaltungsgesellschaft mbH & Co. LBSH KG,Wiesbaden 0.01 94.00 3) 50) FMS Facility Management Service GmbH, Kiel 0.03 100.00 2),3) 51) LB Kiel Unternehmensbeteiligungsgesellschaft mbH, Kiel 1.10 100.00 2),3) 52) Tapes GmbH & Co. KG, Pöcking 0.03 94.00 3) 53) Altium Capital CICs, Moscow TUSD 369 37.12 3),4) 54) Aurora Gate Oy, Helsinki 0.002 100.00 3),4) 55) BTE Hybrid Tech. GmbH, Grube 0.40 29.85 3),4) 56) Cabrionita Oy, Helsinki 0.25 100.00 3),4) 57) Granville Private Equity Ltd. Partnership, Jersey 18.54 21.23 3),4) 58) Green Stream Network Oy, Helsinki 0.31 20.00 3),4) 59) International Fund Services & Asset Management S.A., Luxembourg 0.62 51.61 3),4) 60) LB Kiel As AB,Stockholm TSEK 100 100.00 3),4) 61) LB Kiel Blekholmen AB, Stockholm TSEK 100 100.00 3),4) 62) LB Kiel Pildammen AB, Stockholm TSEK 100 99.00 3),4) 63) LB Kiel Tunnan AB,Stockholm TSEK 100 100.00 3),4) 64) PCA Property Finance Oy, Helsinki 0.35 54.95 3),4) 65) West Private Equity Fund 2000 (5) GmbH & Co. KG, Düsseldorf 7.00 99.98 3),4) 66) Marc Marco Polo Ventures GmbH & Co. KG, Krefeld 1.83 91.00 3),4) 67) Ohltec AG, Gettorf 3.00 23.89 3),4) 68) Dynatechnik Meßsysteme GmbH, Hamburg 0.69 40.00 3),4)

Notes: 1) The term “Equity capital” corresponds to the definition in art. 266 and 272 of the German Commercial Code (HGB) 2) There is a profit and loss transfer agreement with the company 3) Not published according to sec. 286 para. 3 sentence 1 and sec. 313 para. 2 No. 4 of the German Commercial Code (HGB) 4) Indirect shareholdings 104 Notes

Guarantors’ Meeting ( as at December 31, 2001)

Chairwoman Members Representing the Savings Banks and Heide Simonis Giro Association acc. to sec. 8 para. 2 of the Minister President of the State of Schleswig-Holstein, Statutes Kiel Dr. Hans Lukas First Deputy Chairman Chairman of the Managing Board Sparkasse Stormarn, Dr. h.c. Friedel Neuber Bad Oldesloe Chairman of the Managing Board Westdeutsche Landesbank Girozentrale, Düsseldorf Jörg-Dietrich Kamischke (up to August 31, 2001) District Administrator of the Schleswig-Flensburg district, Schleswig Jürgen Sengera Chairman of the Managing Board Westdeutsche Landesbank Girozentrale, Düsseldorf Members Representing Westdeutsche Landesbank (since September 1, 2001) Girozentrale acc. to sec. 8 para. 2 of the Statutes

Second Deputy Chairman Dr. Karlheinz Bentele Olaf Cord Dielewicz President of the Rhineland Savings Banks President of the Savings Banks and Giro Association and Giro Association, Düsseldorf for Schleswig-Holstein, Kiel Dr.Wolf-Albrecht Prautzsch Third Deputy Chairman Deputy Chairman of the Managing Board Heinrich Haasis Westdeutsche Landesbank Girozentrale, Münster President of the Baden-Württemberg Savings Banks Association, Stuttgart Members Representing Landesbank Baden- Württemberg acc. to sec. 8 para. 2 of the Statutes Members Representing the State of Schleswig- Holstein acc. to sec. 8 para. 2 of the Statutes Hans Dietmar Sauer Chairman of the Managing Board Uwe Mantik Landesbank Baden-Württemberg, Stuttgart State Secretary at the Ministry of Economic Affairs. Technology and Transport of the state of Schleswig- Holstein, Kiel (up to March 31, 2001)

Michael Rocca State Secretary at the Ministry of Economic Affairs, Technology and Transport of the State of Schleswig- Holstein, Kiel (since April 1, 2001)

Claus Möller Minister of Finance and Energy of the State of Schleswig-Holstein, Kiel Notes 105

Supervisory Board ( as at December 31, 2001)

Chairwoman Substitute acc. to sec. 11 para. 3 of the Statutes Heide Simonis Gerd Wolf Minister President of the State of Schleswig-Holstein, Member of the Managing Board Landesbank Baden- Kiel Württemberg, Stuttgart (since January 1, 2001)

Substitute acc. to sec. 11 para. 3 of the Statutes Klaus Gärtner Members Representing the State of Schleswig-Holstein State Secretary, Head of the State Chancellary of the State of Schleswig-Holstein, Kiel Uwe Mantik State Secretary at the Ministry of Economics Affairs, First Deputy Chairman Technology and Transport of the State of Schleswig- Dr. h.c. Friedel Neuber Holstein, Kiel (up to March 31, 2001) Chairman of the Managing Board Westdeutsche Landesbank Girozentrale, Düsseldorf Peter Deutschland (up to August 31, 2001) Chairman of the DGB Nord, Hamburg

Jürgen Sengera Uwe Döring Chairman of the Managing Board Westdeutsche State Secretary at the Ministry of Finance and Energy Landesbank Girozentrale, Düsseldorf of the State of Schleswig-Holstein, Kiel (since September 1, 2001) Claus Möller Substitute acc. to sec. 11 para. 3 of the Statutes Minister of Finance and Energy of the State of Dr.Adolf Franke Schleswig-Holstein, Kiel Member of the Managing Board Westdeutsche Landes- bank Girozentrale, Düsseldorf Michael Rocca State Secretary at the Ministry of Economic Affairs, Seond Deputy Chairman Technology and Transport of the State of Schleswig- Olaf Cord Dielewicz Holstein, Kiel (since April 1, 2001) President of the Savings Banks and Giro Association for Schleswig-Holstein, Kiel Members Representing the Savings Banks and Substitute acc. to sec. 11 para. 3 of the Statutes Giro Association for Schleswig-Holstein Wolfgang Stut Association Director of the Savings Banks and Giro Günter Anders Association for Schleswig-Holstein, Kiel Chairman of the Managing Board Sparkasse Schleswig- (up to September 30, 2001) Flensburg, Schleswig

Werner Helms-Rick Norbert Gansel Association Director of the Savings Banks and Giro Lord Mayor of the City of Kiel, Kiel Association for Schleswig-Holstein, Kiel (since Oktober 1, 2001)

Third Deputy Chairman Heinrich Haasis President of the Baden-Württemberg Savings Banks Association, Stuttgart 106 Notes

Günter Kröpelin Dr. Fritz Süverkrüp District Administrator of the Herzogtum Lauenburg President of the Chamber of Industry and Commerce district, Ratzeburg of Kiel, Kiel

Erwin Rückemann Jorma Juhani Vaajoki Chairman of the Managing Board Stadtsparkasse Kauniainen, Finland Neumünster, Neumünster

Members Elected by the Employees Member Representing both the State of Schleswig- Holstein and the Savings Banks and Giro Association Astrid Balduin for Schleswig-Holstein Kiel

Dr. Hans Lukas Katarina Blanking Chairman of the Managing Board Sparkasse Stormarn, Copenhagen Bad Oldesloe Waltraud Fuhrmann Vice President, Kiel Member Representing the Landesbank Baden- Württemberg Helmut Gründel Kiel Hans Dietmar Sauer Chairman of the Managing Board Landesbank Baden- Ditmar Höret Württemberg, Stuttgart Kiel

Knuth Lausen Members Representing Westdeutsche Landesbank Kiel Girozentrale Karl-Heinz Ravn Theo Dräger Vice President, Kiel Chairman of the Managing Board Drägerwerk AG, Lübeck Michael Schmalz Kiel Hans-Peter Krämer Chairman of the Managing Board Kreissparkasse Köln, Bettina Scholtys Köln Kiel

Dr. Ingrid Nümann-Seidewinkel Gaby Woelk Senatrice, Head of the Ministry of Finance of Free and Kiel Hanseatic City Hamburg, Hamburg (up to Oktober 31, 2001)

Dr.Wolf-Albrecht Prautzsch Deputy Chairman of the Managing Board Westdeutsche Landesbank Girozentrale, Münster Notes 107

Managing Board ( as at December 31, 2001)

Dr. Dietrich Rümker Chairman

Hans Berger Deputy Chairman

Dieter Pfisterer

Peter Pahlke (up to July 31, 2001)

Dr. Erwin Sell (since May 1, 2001)

Franz S.Waas, Ph. D. 108 Independent Auditor’s report

Independent Auditor’s report

We have audited the annual financial statements, toget- business activities and the economic and legal environ- her with the bookkeeping system, of the Company ment of the Company and the Group and evaluations of Landesbank Schleswig-Holstein Girozentrale, Kiel, as possible misstatements are taken into account in the well as the consolidated financial statements and its determination of audit procedures.The effectiveness of report on the position of the Company and the Group the accounting-related internal control system and the prepared by the Company for the business year from evidence supporting the disclosures in the books and January 1, 2001, to December 31, 2001.The preparation records, the annual and consolidated financial state- of these documents in accordance with German com- ments and the report on the position of the Company mercial law and supplementary provisions in the statute and the Group are examined primarily on a test basis is the responsibility of the Company’s management. Our within the framework of the audit.The audit includes responsibility is to express an opinion on the annual assessing the accounting and consolidation principles financial statements, together with the bookkeeping used and significant estimates made by management, as system, as well as on the consolidated financial state- well as evaluating the overall presentation of the annual ments and the report on the position of the Company and consolidated financial statements and the report on and the Group, based on our audit. the position of the Company and the Group.We believe that our audit provides a reasonable basis for our We conducted our audit of the annual and consolidated opinion. financial statements in accordance with § 317 HGB (Handelsgesetzbuch, German Commercial Code) and Our audit has not led to any reservations. German generally accepted standards for the audit of financial statements promulgated by the Institut der In our opinion, the annual and the consolidated financial Wirtschaftsprüfer.Those standards require that we plan statements give a true and fair view of the net assets, and perform the audit such that misstatements materi- financial position and results of operations of the ally affecting the presentation of the net assets, financial Company and the Group, respectively, in accordance position and results of operations in the annual and the with principles of proper accounting. On the whole the consolidated financial statements in accordance with report on the position of the Company and the Group principles of proper accounting and in the report on provides a suitable understanding of the Company’s and the position of the Company and the Group are detec- the Group’s position and suitably presents the risks of ted with reasonable assurance. Knowledge of the future development.

Kiel, April 22, 2002

Wollert-Elmendorff Deutsche Industrie-Treuhand GmbH Wirtschaftsprüfungsgesellschaft

Dr. Göttgens Hammelstein Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditor) (German Public Auditor) Departments of the Managing Board 109

Departments of the Managing Board as at April1, 2002

Dr. Dietrich Rümker Chairman Communication /Economics Board Advisory Legal Department Internal Auditing Personnel Controlling Taxes Investitionsbank Schleswig-Holstein

Hans Berger Deputy Chairman Information Systems/Organization Transaction Services/Middle Office Ship Financing Savings Banks/Public-sector Clients Copenhagen Branch (Operations and IT)

Dieter Pfisterer Services Corporates Credit Office Real Estate Banking Schleswig-Holsteinische Kapital-Beteiligungsgesellschaft mbH Landes-Bausparkasse FMS Facility Management Service GmbH Spielbank SH GmbH

Dr. Erwin Sell Structured Finance Financial Institutions/Non Core Corporates LB Kiel Corporate Finance GmbH Gudme Raaschou PCA Corporate Finance Oy Copenhagen Branch (excluding Operations, IT and Financial Markets)

Franz S.Waas, Ph. D. Private Banking Senior Executive Vice Presidents as at April 1, 2002 Capital Markets Asset Liability Management Klaus Bernhart Landesbank Schleswig-Holstein International S.A. Dieter Heymann Luxembourg Branch Lutz Koopmann Copenhagen Branch (Financial Markets) Benno Mokwinski 110 Glossary

Glossary of Balance Sheet Items

Debt Instruments Issued by Public Institutions ties, special purpose associations of municipalities and and Bills of Exchange Eligible for Refinancing counties, and other entities and associations established with Central Banks under public law (Anstalten und Körperschaften) and to These debt instruments bear interest on a discounted member states of the European Union and their terri- basis. Debt instruments issued by public institutions torial subdivisions meeting certain requirements, and that do not meet the requirements of this item are loans guaranteed by such entities. Such loans may be reported within item 5 a) aa) of the balance sheet, if used as cover for municipal bonds issued by LB Kiel they qualify for listing on a stock exchange, and other- (Kommunalobligationen, öffentliche Pfandbriefe or wise within item 4. public sector Pfandbriefe). Loans used as cover for Pfandbriefe remain on the issuer’s balance sheet. Treasury Bills and Discounted Treasury Notes Discounted treasury notes are short-term and medium- Bonds and other Fixed-Income Securities term notes with a maturity of no longer than two This item includes fixed-income securities that are years, issued by federal or state governments of qualified for listing on a stock exchange, such as bearer Germany or foreign governments.These notes usually securities, negotiable securities that are part of an do not bear interest but are sold on a discounted basis offering, bills of exchange and discounted notes of like drafts. public authorities that do not meet the conditions of Treasury bills are drafts drawn by federal or state item 2 a) and other money market instruments. governments of Germany or foreign governments. Treasury bills are sold on a discounted basis. Refinancing with Deutsche Bundesbank Bonds that are eligible (for refinancing) for marginal Loans and Advances to Banks lending facilities from Deutsche Bundesbank must be This item includes all amounts due from German and presented separately on the balance sheet even if they non-German banks, unless the obligations are bills of are already serving as collateral for other obligations. exchange (drafts) meeting the requirements of item Eligible securities are set forth on a list of securities 2 b) or bonds and other fixed-income securities that eligible as collateral maintained by Deutsche Bundes- qualify for listing on a stock exchange (reported within bank. Marginal lending facilities are overnight loans item 5 b) bb)). extended by Deutsche Bundesbank to banks that are secured by collateral and usually bear interest at the Loans and Advances to Customers rate of the marginal lending facility of the European This item includes all amounts due from customers that Central Bank. are not banks, unless the obligations are bills of exchange (drafts) meeting the requirements of item 2 b) or Own Bonds bonds and other fixed-income securities that qualify for This item consists of securities of a type qualified for listing on a stock exchange (reported within item 5). listing on a stock exchange that were issued by LB Kiel Item 4 includes mortgage-secured loans (Hypothe- in a public offering and repurchased by LB Kiel later. kendarlehen) granted by LB Kiel that meet certain Securities issued by LB Kiel that do not qualify for requirements of the Mortgage Bank Act (Hypotheken- listing on a stock exchange and that were repurchased bankgesetz). Such loans may be used as cover for by LB Kiel are deducted from item 4 a) on the liabilities mortgage bonds issued by LB Kiel (Hypothekenpfand- side of the balance sheet. briefe or mortgage Pfandbriefe). Item 4 also includes municipal loans organized under public law (Kommunal- kredite).These are loans, e.g., to municipalities, coun- Glossary 111

Shares and other Non-Fixed Income Securities Trust Assets; Trust Liabilities This item includes shares that are not contained in item The major portion of “trust assets” and “trust liabili- 7, 8 (LB Kiel Group Balance Sheet) or 9. It also includes ties” consists of fiduciary loans that are loans granted profit-sharing rights (Genussrechte) that are bearer or by LB Kiel in LB Kiel’s name but on behalf of other negotiable instruments and that qualify for listing on a entities with funds entirely supplied by, and for a pur- stock exchange, and all other non-fixed income securi- pose and on terms specified by, such other entities. ties that are listed on a stock exchange. LB Kiel has a liability only for its duties as trustee of the other entities’ funds and bears no credit risks with Equity Investments in Non-Affiliated Companies; respect to fiduciary loans. Equity Investments in Affiliated Companies An “equity investment” (Beteiligung) as defined in sec. Deferred Income and Prepaid Expenses 271 (1) of the German Commercial Code is a direct or This item reflects the fact that the balance sheet must indirect equity investment in another enterprise that show all transactions which result in receipts or pay- LB Kiel intends to hold on a long-term basis in order ments irrespective of whether these amounts become to establish a permanent relationship that contributes effective as income or expenses in the year of the to its own business. Equity interests of 20 % or more transaction or the following years. Prepaid expenses are subject to a rebuttable presumption that they are represent payments that have to be recognized in the equity investments (Beteiligungen). statement of income after the present balance sheet “Affiliated companies” (verbundene Unternehmen) date. Deferred income represents receipts that become within the meaning of sec. 271 (2) of the German income at a certain time after the present balance Commercial Code are companies (i) that are wholly or sheet date. more than 50 %-owned, or otherwise controlled, by LB Kiel, (ii) LB Kiel’s interest in which is characterized as Deferred Taxation an equity investment (Beteiligung), and (iii) which must Sec. 274 (1) of the German Commercial Code: If the be fully consolidated with LB Kiel in accordance with tax expenses attributable to the fiscal year or earlier sec. 290 of the German Commercial Code.Thus, LB fiscal years are too low because taxable income under Kiel’s investment in all affiliated companies are equity the tax regulations is lower than the results reported in investments (Beteiligungen). the financial statements, and if such lower tax expenses An equity investment (Beteiligung) can be an invest- of the fiscal year or earlier fiscal years will probably be ment (i) in an affiliated company or (ii) a company that equalized in later fiscal years, an accrual shall be set up is not an affiliated company, if the conditions of sec. 271 pursuant to sec. 249 (1), sentence 1 (German commer- (1) of the German Commercial Code are met. Item 7 cial code), in the amount of the probable tax charge of refers to equity investments in companies that are not the later years and shall be reported separately on the affiliated companies, whereas item 8 refers to equity balance sheet or in the notes.The accrual shall be investments in affiliated companies. written back as soon as the higher tax charge occurs Companies in which a company owns at least 20 % or is no longer likely to arise. of the capital must also be listed pursuant to sec. 285 No. 11 of the German Commercial Code in the Notes to Annual Accounts required by the German Commer- cial Code. Such Notes indicate which of the companies listed pursuant to sec. 285 No. 11 of the German Commercial Code are affiliated companies. 112 Glossary

Sec. 274 (2) of the German Commercial Code: If the side of the balance sheet.“Money market instruments” tax expenses attributable to the fiscal year or earlier are bearer securities, and negotiable securities that are fiscal years are too high because taxable income under part of an offering, irrespective of whether they qualify the tax regulations is higher than the results reported for listing on a stock exchange. in the financial statements, and if the excessive tax charge of the fiscal year or earlier fiscal years will Special Reserve Item probably be equalized in later fiscal years, a prepaid This item represents the reserves pursuant to sec. 6 b expense may be reported as an accounting convenience of the German Income Tax Act (Einkommensteuerge- on the assets side of the balance sheet in the amount setz). sec. 6 b (1), German Income Tax Act provides for of the probable tax relief in the following fiscal years. two options to treat undisclosed reserves (excess of This item is to be reported separately with an appro- actual value over book value) in connection with cer- priate description and explained in the notes. If such an tain fixed assets (inter alia real estate and buildings) item is reported, profits may only be distributed, if after which are disclosed when such assets are disposed of. the distribution the freely available earnings reserves First, the cost of acquisition or manufacturing of such plus retained earnings less accumulated losses brought assets as defined in sec. 6 b (1), sentence 2, Income forward at least equal the amount capitalized.The Tax Act may be reduced by up to 100 percent of the amount shall be eliminated as soon as the tax relief profit resulting from the disposition of such assets if occurs or is no longer likely to arise. the assets have been acquired or manufactured in the business year (Geschäftsjahr) of the sale or in the Liabilities to Banks preceding business year. Second, instead of such reduc- This item includes all kinds of liabilities to German and tion, a pre-tax reserve may be set up to be released in non-German banks, unless the liabilities are certificated the following 4 to 6 years to reduce the cost of acqui- liabilities (reported within item 4). sition or manufacture of the same kind of assets. After such period, the remaining reserves, if any, must be Liabilities to Customers written back to income. This item includes all kinds of liabilities to German and non-German customers other than banks, unless these Subordinated Debt obligations are certificated liabilities (item 4). Long-term subordinated debt of a bank is part of the bank’s Liable Capital (Supplementary Capital) if it meets Certificated Liabilities certain requirements established by the German Ban- Certificated liabilities are debt obligations that are king Act, principally: evidenced by a transferable certificate other than a (i) it has been agreed that such debt shall not be certificate registered in the name of the holder.“Bonds repaid in the case of insolvency proceedings involving issued” are bearer bonds and negotiable bonds that are the assets of the bank or in the case of the liquidation part of an offering, in each case irrespective of whether of the bank before all non-subordinated creditors of they qualify for listing on a stock exchange or not. the bank have been satisfied; Securities issued by LB Kiel that do not qualify for listing on a stock exchange and that were repurchased by LB Kiel are deducted from item 4 a) on the liabilities Glossary 113

(ii) such debt has been made available to the bank (iv) repayment of such capital does not become due, for a period of at least five years (the 5-years period or under the terms of the profit participations agree- does not apply, if (x) the bank has reserved the right to ment cannot become due, within a period of less than early redemption if a change in tax law results in the two years; and payment of additional interest or (y) the capital is (v) the agreement relating to the profit-sharing rights replaced by other Liable Capital of at least equal ran- does not contain a provision pursuant to which any king); and reductions in the repayment obligation arising from (iii) any right to set-off the repayment obligation losses suffered during the term of the profit-sharing relating to the debt against claims of the bank is exclu- rights are to be compensated from profits which arise ded and the debt is not secured or guaranteed by the after more than four years following the due date of bank or a third party. the repayment obligations.

Profit-Sharing Rights Fund for General Banking Risks Capital paid in consideration of profit-sharing rights Under sec. 340 g of the German Commercial Code, (Genussrechte) meeting certain conditions set forth in banks may carry a special item called “Fund for General the German Banking Act, including the requirements Banking Risks” (Sonderposten für allgemeine Bankrisi- that it be subordinated to all other creditors and ken) on the liabilities side of their balance sheet for participate in the bank’s losses. Capital paid in con- protection against general banking risks. However, such sideration of Genussrechte is part of a bank’s Liable a fund may only be established if, in accordance with Capital (Supplementary Capital) if it meets certain reasonable commercial judgment, the special risks requirements established by the German Banking Act, inherent in the business of banks require the establish- principally: ment of such a fund.Any additions to the Fund for (i) such capital participates in any loss incurred by General Banking Risks or any profits derived from its the bank up to the full principal amount of the profit- dissolution must be reflected separately in the bank’s sharing rights, and the bank has the right to postpone statement of income. Funds for General Banking Risks interest payments in the case of a loss; pursuant to sec. 340 g of the German Commercial (ii) it has been agreed that such capital shall not be Code are qualified as core capital. repaid in the case of insolvency proceedings involving the assets of the bank or in the case of the liquidation of the bank before all non-subordinated creditors of the bank have been satisfied; (iii) such capital has been made available to the bank for a period of at least five years (the 5-year period does not apply, if (x) the bank has reserved the right to early redemption if a change in tax law results in the payment of additional interest or (y) the capital is replaced by other Liable Capital of at least equal ranking;

Our Commitment to Society and the Region 115

Our Commitment to Society and the Region

Our strong commitment to society and the region is reflected in our sponsorship of the Schleswig-Holstein Music Festival and the Multi- media Campus Kiel, our own Art Foundation, as well as numerous social, environmental and climate protection initiatives. All these activities are an expression of our strong roots in Schleswig-Holstein, where we have operated as a bank for over eighty years.

Main Sponsor of the Schleswig-Holstein Outstanding cultural achievements in Germany’s Music Festival northernmost federal state are honoured by the “kultur Since 1994, LB Kiel and its partners in the S-Finance aktuell” prize awarded by LB Kiel in cooperation with Group have been the main sponsors of the Schleswig- the Schleswig-Holstein Cultural Association. In 2001, Holstein Music Festival, dedicating an annual amount of the € 5,000 prize went to the Liliencron professorship € 830,000 to the event. In 2002, the agreement was in Kiel, which is the only professorship of lyrics in renewed for another three years. One of the biggest Germany. and most renowned classical music festivals of its kind in Europe, the Schleswig-Holstein Music Festival is a Social Commitment: Foundation for Remembrance significant asset to the image and the economy of LB Kiel’s social commitment is reflected in a large Schleswig-Holstein. number of different activities such as the “Citizens’ In line with the key theme of the event, LB Kiel and Foundation for Memorials in Schleswig-Holstein”, which its partners additionally support young musicians with we initiated together with the State of Schleswig- the “Förderpreis der Sparkassen-Finanzgruppe”. Present- Holstein.The new foundation is to provide a solid ed for the second time in 2001, the € 5,000 talent award financial basis for memorials dedicated to the victims of goes to musicians up to the age of 24. the Nazi regime.

Education for the Future – Multimedia Campus Kiel Climate Protection – LB Kiel operates CO2 neutral

LB Kiel has dedicated over € 510,000 to the Multimedia LB Kiel has reached its ambitious target of CO2 neutral Campus Kiel, a project operated jointly by universities operation.This was made possible, on the one hand, by and the corporate sector.The Multimedia Campus the consistent reduction of our energy consumption:

trains IT and multimedia experts, for whom there is On the other hand, the remaining CO2 emissions of high demand in the corporate sector. Our sponsorship approx. 8,000 tons per year were compensated for by of the Multimedia Campus effectively strengthens environmental protection activities in Schleswig- Schleswig-Holstein’s position as an important economic Holstein. New woodlands were planted at 123 sites on and technological centre. a total area of 889 hectares. Moreover, we were involved in the rehabilitation of two 422 ha marshland sites. Arts and Cultural Sponsor With the above projects absorbing some 9,000 tons of

LB Kiel’s Art Foundation promotes contemporary fine CO2 per year, LB Kiel has compensated for its remaining

arts and culture in Schleswig-Holstein. 2001 was the CO2 emissions, so that its operation is CO2 neutral. year of modern dance, with Juliane Rößler, Director of Our activities are supported by the “Prima Klima – Tanz Companie Lübeck, elected curator. Under the title weltweit” (“Great Climate – worldwide”) association. of “Tanzmontage”, she presented dance performances of different styles during a period of six months. 116 Addresses

Addresses

Landesbank Schleswig-Holstein LBS Immobilien GmbH Girozentrale Kiel Postfach 70 55, 24170 Kiel Postfach 11 22, 24100 Kiel Wellseedamm 14, 24145 Kiel Martensdamm 6, 24103 Kiel Phone: (00 49) 431 900 - 45 72/45 73 Phone: (00 49) 431 900 - 01 Fax: (00 49) 431 900 - 45 89 Fax: (0049) 431 900 - 24 46 E-mail: [email protected] Telegramm: Landesbank Kiel Telex: 292822 gzki d Investitionsbank Schleswig-Holstein T-Online: * 23230 # Central division of Landesbank Internet: http://www.lb-kiel.de Schleswig-Holstein Girozentrale E-mail: [email protected] Postfach 11 28, 24100 Kiel Fleethörn 29 – 31, 24103 Kiel Lübeck Branch Phone: (00 49) 431 900 - 03 Postfach 19 04, 23507 Lübeck Fax: (00 49) 431 900 - 33 83 Breite Straße 36– 40, 23552 Lübeck Internet: http://www.ibank-sh.de Phone: (00 49) 451 70 35 - 0 E-mail: [email protected] Fax: (00 49) 451 70 35 - 51 19 Telegramm: Landesbank Lübeck Schleswig-Holsteinische T-Online: * 23230 # Kapital-Beteiligungsgesellschaft mbH Postfach 11 22, 24100 Kiel Berlin Representative Office Martensdamm 6, 24103 Kiel Kurfürstendamm 45, 10719 Berlin Office: Gartenstr. 9 Phone: (00 49) 30 88 57 36 - 0 Phone: (00 49) 431 900 - 56 50 Real Estate Finance /Corporates national Fax: (00 49) 431 900 - 56 99 Fax: (00 49) 30 88 57 36 - 53 53 LB Kiel Unternehmensbeteiligungsgesellschaft mbH Hamburg Representative Office Postfach 11 22, 24100 Kiel Lilienstraße 3, 20095 Hamburg Martensdamm 6, 24103 Kiel Phone: (00 49) 40 32 56 22 - 0 Office: Gartenstr. 9 Real Estate Finance Phone: (00 49) 431 900 - 56 50 Fax: (00 49) 40 32 56 22 - 54 16 Fax: (00 49) 48 77 900 - 56 99 Asset Management Fax: (00 49) 40 32 56 22 - 54 15 Landesbank Schleswig-Holstein Copenhagen Branch LB Kiel Corporate Finance GmbH Kalvebod Brygge 39– 41, DK -1560 Copenhagen V Gartenstr. 9, 24103 Kiel Phone: (00 45) 33 44 99 00 Phone: (00 49) 431 900 - 56 01 Fax: (00 45) 33 44 99 99 Fax: (00 49) 431 900 - 56 49 Telex: 27 228 kila dk E-mail: [email protected] Landes-Bausparkasse Schleswig-Holstein Postfach 70 55, 24170 Kiel Landesbank Schleswig-Holstein Luxembourg Branch Wellseedamm 14, 24145 Kiel 2, rue Jean Monnet, L - 2180 Luxembourg Phone: (00 49) 431 900 - 04, Fax: (00 49) 431 900 - 46 78 Phone: (0 03 52) 42 41 37 Telegramm: Landesbank Kiel Fax: (0 03 52) 42 41 41- 330 Internet: http://www.LBS-SCHLESWIGHOLSTEIN.de E-mail: [email protected] E-mail: [email protected] Addresses 117

Landesbank Schleswig-Holstein International S.A. Landesbank Schleswig-Holstein 2, rue Jean Monnet, L - 2180 Luxembourg Helsinki Branch Phone: (0 03 52) 42 41 41-1 Suolakivenkatu 1, FIN - 00810 Helsinki Fax: (0 03 52) 42 41 96/97 Phone: (0 03 58) 97 27 73 98 E-mail: [email protected] Fax: (0 03 58) 97 55 36 33 E-mail: [email protected] LB Schleswig-Holstein Finance B.V. Strawinskylaan 3111, 6th floor, Gudme Raaschou Bankaktieselskab NL -1077 ZX Amsterdam Kalvebod Brygge 39 – 41, DK -1560 Copenhagen V Phone: (00 31) 2 04 42 - 11 18 Phone: (00 45) 33 44 90 00 Fax: (00 31) 2 04 42 -11 19 Fax: (00 45) 33 44 90 01 Telex: (0 44) 1 56 14 altru nl E-mail: [email protected]

Landesbank Schleswig-Holstein Gudme Raaschou United Kingdom Representative Office Stockholm Representative Office 50 Gresham Street, GB-London EC2V 7AY Kungsträdgårdsgatan 10, Box 17 21, Phone: (00 44) 20 76 00 70 60 S -11187 Stockholm Fax: (00 44) 20 76 00 70 20 Phone: (00 46) 8 54 50 10 83 E-mail: [email protected] Fax: (00 46) 8 54 50 10 89 E-mail: [email protected] Landesbank Schleswig-Holstein Tallinn Representative Office LB Kiel Nordic Finance AB 2 Roosikrantsi Str., EE-10119 Tallinn Kungsträdgårdsgatan 10, Box 17 21, Phone: (0 03 72) 6 11 06 70 S -11187 Stockholm Fax: (0 03 72) 6 11 06 71 Phone: (00 46) 8 54 50 10 70 E-mail: [email protected] Fax: (00 46) 8 54 50 10 89 E-mail: [email protected] Landesbank Schleswig-Holstein Södergatan 16, S - 21134 Malmö Stockholm Representative Office Phone: (00 46) 40 30 63 10 Kungsträdgårdsgatan 10, Box 1721, Fax: (00 46) 40 30 63 12 S -11187 Stockholm E-mail: [email protected] Phone: (00 46) 8 54 50 10 70 Fax: (00 46) 8 54 50 10 89 PCA Corporate Finance Oy E-mail: [email protected] Eteläranta 12 FIN - 00130 Helsinki Landesbank Schleswig-Holstein Phone: (0 03 58) 9 6133 44 00 Oslo Representative Office Fax: (0 03 58) 9 6133 44 55 Klingenberggaten 5, 9th floor, PB 18 03 Vika, E-mail: [email protected] N - 0123 Oslo Phone: (00 47) 22 01 57 70 Fax: (00 47) 22 01 57 79 E-mail: [email protected] 118 Editorial Information

Publications Among the many publications of LB Kiel, in German and in English, is the “LB Kiel Report”, which includes analyses and fore- casts on the economic situation (Euroland, Baltic Sea Region, USA) and the capital market as well as products and services of the Bank.

Contacts/Orders If you have any questions regarding the Annual Report, please contact our Investor Relations team: LB Kiel Communication/Economics Martensdamm 6 24103 Kiel Phone: (00 49) 431 900 -14 81 Fax: (00 49) 431 900 -14 98 E-mail: [email protected]

If you are interested in further copies of our Annual Report or the LB Kiel Report, please contact: LB Kiel Communication/Economics Martensdamm 6 24103 Kiel Phone: (00 49) 431 900 -14 70 Fax: (00 49) 431 900 -14 98 E-mail: [email protected]

Editorial information Publisher LB Kiel Landesbank Schleswig-Holstein Girozentrale Communication/Economics Martensdamm 6, 24103 Kiel Postfach 11 22, 24100 Kiel E-mail: [email protected]

Photos Thomas Hoffmann (cover, 48, 56), Focus (4-5, 58), Ifa-Bilderteam (7), Zefa (8, 54), Andreas Fechner (11), Mauritius (38),Visum (44, 50), Bernd Perlbach (114)

Design/Consultancy LB Kiel Marketing

Picture consultancy Dietmar Suchalla (Magazine Factory), Hamburg

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