Member of the cooperative financial services network Member of the cooperative financial services network

Financial Statements Financial Statements and and Management Management Report 2007Report of ofDZ DZ BANKBANK AG AG AG BANK Financial Statements and Management Report 2007 of DZ Key Figures Imprint

DZ BANK AG DZ BANK AG DZ BANK AG in € million 2007 2006 Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main Financial performance Platz der Republik Operating result before risk provisions -97 492 60265 Frankfurt am Main Risk provisions -370 -61 Germany Operating result after risk povisions -467 431 www.dzbank.de Net income 164 528 Cost-income ratio1 (in percent) 56.4 58.3 Telephone: +49 69 7447-01 Net assets Fax: +49 69 7447-1685 Assets E-Mail: [email protected] Loans and advances to banks 105,183 103,628

Loans and advances to customers 32,133 27,282 Board of Managing Directors: Securities2 110,695 104,364 Wolfgang Kirsch (Chief Executive Officer) Other assets 18,295 17,433 Dr. Thomas Duhnkrack Liabilities Lars Hille Deposits from banks 163,572 150,186 Wolfgang Köhler Amounts owed to other depositors 37,869 38,525 Albrecht Merz Debt certificates including bonds 45,522 44,776 Dietrich Voigtländer Other liabilities 13,576 13,466 Total equity3 5,767 5,754 Frank Westhoff Total assets 266,306 252,707 Business volume3 289,343 277,816 This Annual Report is also available in German. The German version of this Annual Report is the 4 Regulatory capital ratios By SolvV By Principle I original and authoritative version. Total capital ratio (in percent) 17.7 21.7 Tier 1 capital ratio (in percent) 10.8 14.0

Off-balance-sheet forward transactions Nominal volume 1,204,573 1,106,891 Positive fair values 15,908 14,548

Average number of employees 3,895 3,923 1 Adjusted for special items in 2007 (special item under net interest income in the amount of € +112 million as a result of bundling private banking activities in DZ Private Wealth Managementgesellschaft S. A. as well as value adjustments in the amount of € -838 million arising from the crisis on the financial markets under net trading result) and in 2006 (increased administration expenses in the amount of € 97 million as a result of a reduction in the discount rate from 6.0 percent to 4.5 percent as applied to the calculation of pension reserves and similar commitments) 2 Bonds and other fixed-income securities including shares and other non fixed-income securities 3 Total assets including contingent liabilities and other obligations 4 With the introduction of the Solvency Ordinance on January 1, 2007, the German supervisory authority no longer requires the calculation of BIS ratios under the new BASEL II framework. Comparative figures shown are therefore the details as at Dec. 31, 2006 on the basis of Principle I (KWG). Contents

Management Report of DZ BANK AG 3 Business Performance in 2007 4 Risk Report 19 Outlook 40

Annual Financial Statements of DZ BANK AG 43 Balance Sheet of DZ BANK as at December 31, 2007 44 Income Statement of DZ BANK for the Period from January 1 to December 31, 2007 46 Notes to the Annual Financial Statements of DZ BANK 48 Responsibility Statement by Management 76 Audit Opinion (Translation) 77

Advisory Councils 78 Key Subsidiaries and Affiliates 95

Management Report of DZ BANK AG

Business Performance in 2007 4 Overall economic conditions 4 Developments in the banking and financial 4 services industry The DZ BANK and the local cooperative banks 5 in a challenging capital market environment Earnings performance 10 Regulatory capital 17 Number of branches 17 Volume development 17

Risk Report 19 Risk management system 19 Risk capital management 20 Credit risk 22 Equity risk 30 Market price risk 31 Liquidity risk 34 Operational risk 36 Strategic risk 37 Summary 39

Outlook 40 4 Financial Statements and Management Report 2007 of DZ BANK AG

Management Report of DZ BANK AG

I. Business Performance Private consumption, -0.4 percent on the year before, was re- strained, dampened by the increase in sales tax which went into effect on January 1, 2007. 1. Overall economic conditions The increased tax revenues resulting from the upturn in The economic upturn continued in the financial year under economic activity allowed the German Federal government to review, although with less impetus than in the previous year. report a balanced budget for the first time since German reuni- Gross domestic product (GDP) in 2007 grew by 2.5 percent fication (based on the Maastricht criteria), providing the latitude adjusted for price, compared with 2.9 percent the year before. needed to stabilize public finances going forward.

Global economic growth remained robust, primarily due to the continued strong growth and dynamism of the Asian 2. Developments in the banking and financial economies. services industry

On the other hand growth in the United States slowed towards In 2007, the banking sector was again characterized by a high the end of 2007. The rising incidence of private mortgage level of competition, while the second half of the year was defaults, particularly on mortgages with minimal collateral ex- overshadowed by the turbulence which, though originating In tended to borrowers with poor credit, was initially limited to the a crisis limited to the US mortgage lending sector, soon had a mortgage sector in the US but then became a worldwide crisis significant effect on the domestic financial market. on the financial markets by the middle of the year. The difficul- ties enveloping the real estate market in the United States and Foreign banks continued their efforts to increase their busi- the accompanying turmoil in the international financial markets ness in the German domestic market during the reporting year, began to dampen US consumer demand towards the end of which intensified existing competition between German banks 2007, the main driver of the US economy. in the traditional banking business.

With positive earnings growth and a robust volume of orders, Following very positive operating results in the first half of the gross capital investments in capacity by German companies reporting year, the uncertainty caused by rising default rates in contributed significantly to economic growth. Investment in plant the consumer mortgage market in the United States, particularly and machinery grew by more than 8 percent. Construction in- in the subprime segment catering to borrowers with poor credit, vestment grew by 2 percent, driven by industry and public ­sector soon spread to other debt instruments, unnerving investors projects. However, the level of private residence construction suf- on a large scale. Given the international character of ­financial fered during the financial year following the withdrawal of first ­markets, the effect was not been limited to US markets, and time buyer allowances in Germany and an increase in sales tax. even caused a painful shortage of liquidity in Germany.

Despite the significant appreciation of the euro against the US The US Fed and the European Central Bank intervened to pro- dollar, demand for exports remained lively, supporting the Ger- vide additional liquidity to lending instititions, but could not re- man economy as a whole. store investors’ lost confidence. The resulting correction – even if temporary – to prices for securities held by banks limited their scope for earnings. Management Report of DZ BANK AG 5 Business Performance

Against the backdrop of the general level of economic growth cooperative shares and are thus not only our customers but also during the year, gross operating income in the areas of credit our shareholders. This gives the cooperative financial services business not affected by the financial market crisis showed a network the largest number of shareholders of all German positive overall trend, although net interest income was im- banking groups by a significant margin, which in turn means pacted by the continued pressure on margins in lending due to widely diversified support and a strong base of support within the competitive market environment. the population as a whole. The cooperative banks are in turn DZ BANK’s key shareholders. Administration expenses and impairment losses remained stable both as a result of conservative risk management policies as well Close cooperation within the cooperative financial services as cost-saving measures initiated last year. network as a significant stabilizing factor

The most important task of DZ BANK and its subsidiaries is 3. The DZ BANK and the local cooperative banks in to help local cooperative banks become more effective and a challenging capital market environment efficient. To facilitate this, the companies of DZ BANK offer Germany’s local cooperative banks competitive products and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frank- services from a central point, making those products more furt am Main (DZ BANK), and its subsidiaries have traditionally cost-effective. Known as financial products and focused on under­taken the task of supporting the cooperative banks – in retail banking, capital market and corporate customer products,­ the sense of enhancing customer value for members and cus- as well as processing services, these products and services tomers, both domestically and internationally. The cooperative are ­offered to customers by the cooperative banks via their ex- banks and the DZ BANK Group work together closely to achieve tended branch network of approximately 14,000 branches, and this aim. The two-way supportive relationship is a traditional are offered electronically. As the cooperative banks use products characteristic of the cooperative financial services network, and placed by the DZ BANK on average 90 percent of the time, this was a significant factor in providing stability within the coopera- is an indicator that the cooperative banks are pleased with the tive financial network during a turbulent year for the capital selection of products and services on offer. Reflecting its dual markets – with an all-time high on the DAX indices on the one origins in commerce and cooperation, the cooperative financial hand, and the subprime crisis on the other. services network makes the most of dividing its focus between customer satisfaction, the necessity of continuous innovation The mainstays of the cooperative financial services network and intense dialogue among all stakeholders. are the customers of the cooperatives, the cooperative banks, and DZ BANK and its subsidiaries. The 1,230 German coopera- Customer focus and competitiveness tive banks have approximately 30 million private and corporate customers in all. An additional 5 million private and corporate Ensuring long-term customer satisfaction, in particularly the satis­ customers are served internationally, in particular in central and faction of the cooperative bank’s customers and members who southeastern Europe, Italy and Spain. Of our domestic custom- represent the most significant of DZ BANK’s domestic ­customers, ers, more than half – approximately 16 million – have subscribed has traditionally enjoyed a high profile among DZ BANK’s priorities. 6 Financial Statements and Management Report 2007 of DZ BANK AG

For this reason DZ BANK, in its role as central bank for the In the financial year 2007, one innovation in private retirement cooperative banks, carried out a new customer satisfaction sur- planning was an advisory tool called “VR-VorsorgeStatus,” cre- vey in financial year 2007, involving over 730 institutions. The ated through close cooperation between all the Group compa- results of the survey have confirmed DZ BANK’s current strategy. nies and the cooperative IT service providers. VR-VorsorgeStatus Ninety percent of participating cooperative banks stated that was developed by the cooperative banks to provide their they were satisfied, very satisfied or extraordinarily satisfied customers with a concrete projection of expected future returns with DZ BANK. Further, their satisfaction with their contact at from their retirement plans. With this product, possible deficits DZ BANK, for example in terms of the accessibility and profes- can be determined with a high level of accuracy. The forecasts sionalism of their contact, was well above average. Comments cater for all existing retirement provisions made by the customer. and suggestions for improvements have already been imple- A particular feature of VR-VorsorgeStatus is that it not only mented by DZ BANK, and measures have been taken to further includes retirement plans which originated within the coop- improve the cooperative banks’ satisfaction with the products erative financial services network, but includes arrangements and services offered. After all, providing outstanding products from other institutions as well. Also in financial year 2007, the depends on two factors: ongoing feedback, and systematic foundation was laid for the use of life insurance products based investment in research and development. on certificates for retirement planning purposes. These products combines insurance, asset management and investment bank- By continuously refining its products and services, DZ BANK ing expertise, and will enable the DZ BANK cooperative financial aims to assist the cooperative banks in stabilizing or expanding services network to continue playing a leading role in the Ger- their market share. In contrast to the generalizing trends of the man market for private retirement plans in the future. 1980s and 1990s, today niche providers are the ones gaining market share. With the support of DZ BANK, the cooperative In private banking, DZ BANK and the financial services network banks are able to meet this challenge, securing and expanding continue to lead the market in the sale of guarantee certificates, their market share in Germany and in Europe. DZ BANK cannot and occupy second place in terms of sale of certificates. The and will not be satisfied with what has been achieved in the high level of customer satisfaction with DZ BANK’s certificates past. To the contrary – DZ BANK assumes that there is signifi- resulted in the Bank being awarded “issuer of the year” – for cant growth potential to be realized from cultivating of existing the fifth time running in a public poll organized by trade jour- customer relationships. DZ BANK and DZ BANK Group compa- nals. To help private investors find their way through the over nies will continue to support the cooperative financial services 100,000 certificate issues on offer, DZ BANK has become the network and the foreign cooperative partner companies in order first issuer in Germany to launch a product label program – the to unlock this potential. AKZENT Invest label – for certificates and structured bonds. This product labeling program was supported by a marketing Financial products for private clients and SME corporate­ campaign in fall 2007. The label had achieved wide recognition customers by the end of 2007; with over 95 percent of private label issues made by the cooperative banks using the AKZENT invest label. A core competence of DZ BANK is its ability to support coop- erative banks with the financial services products they need DZ BANK is also playing a leading role with innovative prod- for their retail and corporate customers, in particular for SMEs. ucts in the credit card business. In the late financial year 2007, These include products such as retirement plans, asset manage- DZ BANK launched the first German V PAY debit card. This is a ment, credit cards, and the SME business. debit card with a particularly high security standard, which en- Management Report of DZ BANK AG 7 Business Performance

ables the user to make payments and withdraw cash throughout and in determining the key elements of marketing strategy for Europe and which is also compatible with the SEPA (Single Euro the coming years. Payments Area) standard European payments system in force from the beginning of 2008. Also during the reporting period, In financial year 2007, DZ BANK Group established a focus DZ BANK prepared for the imminent launch of a prepaid card, initiative aimed at marketing in Germany’s urban areas, in a joint which can be used based on a cash balance paid up on the card. project with the BVR and several pilot-project cooperative banks. Targeted users for the prepaid card are primarily young customers This initiative is in response to the continuing demographic shift and young adults who do not have a credit card but do require a in Germany from rural to urban areas. Approximately 30 million card which can be used all over the world and online. people live in 15 of the largest 22 urban areas, a development which had not been adequately addressed within the financial On the basis of DZ BANK’s success in Germany with its services network. Whereas the cooperative banks had a market innova­ tive­ financial products, in particular in retail banking, share of significantly more than 30 percent in rural areas, their DZ BANK decided to promote selected products internationally, market share is below 10 percent in some urban areas. Urban particularly in European markets with a comparable structure. In areas thus represent a significant potential growth market 2007 DZ BANK opened a branch in Milan, Italy, and purchased for the cooperative network, and the initiative is designed to a share in Credito Cooperativo del Nord Est S. p. A., Trento/Italy address this potential. A specially designed product/service port- (CC ­BANCA) and successfully initiated the financial business folio will be developed for the urban areas, and customers from there. rural areas will be offered help with their banking needs when they move to urban areas. In retail banking, DZ BANK not only supports the cooperative banks with its product portfolio, but also plays an important As mentioned previously, DZ BANK’s customer satisfaction role in planning and strategy development for the cooperative survey for its corporate customers in financial year 2007 identi- financial services network, often in close cooperation with bank- fied a number of areas where action was needed. As a result, ing associations. For example, starting in financial year 2007, DZ BANK has invested in improvements to its services for SME DZ BANK has been participating in a joint network project with enterprises, and supported the cooperative banks with numer- the aim of increasing margins within the network, with an initial ous tailored marketing and risk transfer offerings. DZ BANK is focus on retail banking. The object is to address impending loss committed to the strict principle of subsidiarity, which means of market share in this segment as a result of new entrants, and that it respects and supports the primary independence of the changing customer behavior, which has been primarily charac- cooperative banks in the marketplace. Accordingly DZ BANK terized by a lower level of loyalty to the customer’s “own” bank. only makes direct contact with the customer when a cooperative DZ BANK, together with the Federal Association of German bank is not willing or able to offer a particular service or prod- Cooperative Banks (BVR), is playing a coordinating role in this uct. As in previous years, the focus in 2007 was on the “meta” project. The project focuses on a small number of highly effec- lending business, under which syndicated loans and other risk tive measures in order to avoid unnecessary complexity. transfer instruments are deployed with the cooperative banks to leverage the strength of the network in the corporate sector. In One key element of the project is the “financial services plan- this way, DZ BANK is able to help the cooperative banks extend ning workshop”, initiated by DZ BANK with the support of the loans in the corporate customer market on a scale which would financial services network. In these workshops, the DZ BANK otherwise exceed the risk capacity of a single cooperative bank Group supports the cooperative banks in quantitative planning acting alone. 8 Financial Statements and Management Report 2007 of DZ BANK AG

Institutional and corporate business as gateway to the capital over competition from major international banks and invest- market and as innovation driver for the financial services ment firms. network At the product level, DZ BANK is the market leader in structured DZ BANK is the gateway to the capital market for the coopera- products. DZ BANK reported outstanding sales and earnings in tive banks, and provides them with products for asset and capi- commodities – raw material and metals trading-based products tal management, in particular the management of the banks’ – and again recorded a significant increase in the volume of own deposits (Depot A) and risk management. covered bond placements.

General bank management was the primary theme in financial The VR-CrossSelling product was again a success in financial year 2007, driven by continued flat interest rate curves and the year 2007. This product enables corporate customers to hedge crisis on the financial markets. Accordingly, the Bank’s advisory currencies, interest rates and commodity risks. It is also one fac- role was particularly significant in this period. In the year under tor which has helped DZ BANK develop relationships with larger review, the Bank was consulted on more than 750 occasions German corporations and with SME enterprises. DZ BANK’s regarding general banking and asset allocation matters, and also manifold efforts to gain new customers for the cooperative provided a large number of seminars and training sessions with network have thus paid off in this regard as well. a particular focus on financial control and reporting, to assist the cooperative banks in their risk management processes. The co- Securities research has supported DZ BANK in capital market operative banks additionally drew heavily on DZ BANK for credit products, with its comprehensive offering of publications in portfolio consulting as a result of capital market turbulence. great demand by the cooperative banks during financial year Targeted investment in the form of alternative investments were 2007. The Bank’s research associates have frequently supported reviewed and utilized to assist with broader risk diversification. the cooperative banks with presentations and cross-regional events. As in previous years, the quality of our research analyses As part of an investment banking growth initiative, the Bank’s has been recognized in the form of several top independent domestic primary equity market business and business with industry awards in particular for German and European equity institutional customers were expanded, which enabled the Bank research. to take advantage of more market opportunities. The use of research for institutional customers involved in inter- The traditional strength of DZ BANK in capital markets again national business also grew, supporting the year’s positive results led to recognition in the form of industry awards during the with international customers from the sale of European com- financial year. For an extended period the DZ BANK led the list mercial and bank paper, ABS products, and structured interest of banks on “Market Axess,” the leading industry platform for rate products as well as in asset and liability management. The bank and corporate bonds in the floating rate note business for experience gained from regular cooperation with the coopera- bank and commercial paper. DZ BANK was regularly among the tive banks was of great help in this achievement, as was the cre- top 3 of 30 participating institutions in the “Trade Web” trading ation of additional sales teams in the new Milan branch and the system for covered bonds. In financial year 2007, as in last year, expanded capital market teams in Singapore and Hong Kong, DZ BANK was rated highly in “Risk Magazins Deutschland“ reflecting the continued international expansion of DZ BANK’s customer satisfaction ratings for its performance in derivatives investment banking arm during financial year 2007. Management Report of DZ BANK AG 9 Business Performance

Summary

Using a foundation of trust to working closely with the cooper­ ative banks, DZ BANK and its subsidiaries have continued to progress and innovate, responding to changing market con­ ditions with new and improved structures. Nevertheless, the ­effect of the international crisis on the financial markets, and the one-off expenses incurred in restructuring the real estate segment to be more forward-looking have dampened an other- wise satisfactory business scenario. Adjusted for special items, operating profit approximated last year’s level despite difficult market conditions. This result, together with a clearly structured business model and the strategic direction given for all seg- ments, shows that DZ BANK is on the right track to continue making a significant contribution to the development of the co- operative financial services network. Not only does this include offering the cooperative banks innovative, competitive products and services, but the DZ BANK Group will also continue to support the cooperative banks’ desire for continued mergers among the network’s regional banking associations, research centers, and local and central banks. 10 Financial Statements and Management Report 2007 of DZ BANK AG

4. Earnings performance rities and is reported under risk provisions. Of the total impair- ments of € -1,102 million, € -29 million represented perma- DZ BANK has been successful in addressing the challenges pre- nent impairments. The remaining amount of € -1,073 million sented by a year of difficult market conditions in 2007. for write-downs were taken against bank bonds (€ -514 mil- lion) and ABS securities (€ -508 million). In view of the ratings Net income of € 164 million (2006: € 528 million) is sufficient to attributable to the holdings within DZ BANK’s ABS portfolio, meet the level of last year’s dividend distribution of € 151 mil- the majority of the write-downs should be of a temporary lion and accordingly a resolution will be proposed to share- nature. holders that they approve in the Annual General Meeting an unchanged dividend of € 0.13 per share for 2007. – Following the restructuring of the DZ BANK Group’s real estate business, DZ BANK recorded impairment charges amounting The 2007 income statement prepared in accordance with HGB to € -277 million under the balance of other income/expense was affected by the following special items: due to an impairment on the DZ BANK’s participation in Deutsche Genossenschafts-Hypothekenbank AG, Hamburg, – As a result of the crisis on the financial markets, impairments (DG HYP), held directly and indirectly via VR Immobilien AG, on securities totaling negative € 1,102 million were recorded, Frankfurt am Main, (VR IMMO). In addition, the balance of of which € -838 million is recorded within net trading result, other income/expense includes an expense for income subsidy and € -264 million was charged against liquidity reserve secu- amounting to € -223 million provided to DG HYP by DZ BANK.

Income Statement

DZ BANK AG 2007 2006 Change in € million in € million in %

Interest net income1 983 758 29.7 Fee and commission net income 224 269 -16.7 Net trading result -519 375 >100.0 Staff expenses -450 -576 -21.9 Other administration expenses2 -364 -345 5.5 Administration expenses -814 -921 -11.6 Other operating net income 29 11 >100.0 Operating result before risk provisions -97 492 >100.0 Risk provisions -370 -61 >100.0 Operating result after risk provisions -467 431 >100.0 Balance of other income/expense3 -41 -251 >100.0 Profit before taxes -508 180 >100.0 Taxes 672 348 93.1 Net income 164 528 -68.9 1 Includes current income and income from profit sharing agreements 2 Other administration expenses plus depreciation and valuation allowances on tangible and intangible assets 3 Result of financial investments, extraordinary income/expenses and other items Management Report of DZ BANK AG 11 Business Performance

– The individual financial statement for VR LEASING AG, Administration expenses fell by € 107 million compared to ­Eschborn, (VR LEASING) includes the effect resulting from the 2006 to negative € 814 million in 2007, adjusting for the one- fact that VR LEASING has taken the last opportunity in the off charge to pension provisions and similar commitments of financial year 2007 – following new tax legislation – to record € 97 million recorded in 2006 which resulted from lowering depreciation on new leasing assets calculated using the declin- the discounting rate from 6.0 to 4.5 percent; the reduction was ing balance method. The resulting loss recorded in VR LEAS- -1.2 percent. ING’s financial statements of € -81 million is recorded as an expense from loss absorption by DZ BANK within the balance The cost-income ratio, adjusted for the special items described of other income/expense. above, was 56.4 percent (2006: 58.3 percent) in the financial year. The additional charge to income in 2006 resulting from – The bundling of the DZ BANK Group’s domestic and inter- the change in the discount rate applied in calculating pension national private banking operations in the newly formed reserves and similar commitments was excluded from the 2006 DZ Private Wealth Managementgesellschaft S.A., Luxembourg- cost-income ratio. Strassen, should enable the Group to present and market itself with a uniform image and should make it easier to take Operating result before risk provisions was negative € 97 million advantage of the growth opportunities in that segment. For (2006: € 492 million). Excluding the effect of the reduction of this purpose, DZ BANK transferred its direct and indirect hold- the discount rate already noted and taking into account for the ings in DZ BANK International, Luxembourg-Strassen, (DZI), reporting period one-off adjustments in gross operating income and DZ PRIVATBANK (Schweiz) AG, Zurich, (DZ PRIVATBANK described above, the operating result before risk provisions Schweiz), realizing € +659 million in income from investments improved by € 40 million, or 6.8 percent, to € 629 million. and € +112 million in increased income from affiliates (exclud- ing the 2007 dividend income received). Risk provisions amounted to negative € 370 million (2006: negative € 61 million). Adjusted for the impairments to liquidity – The recognition of deferred taxes in DZ BANK AG’s 2007 reserve securities (€ -264 million) resulting from market condi- statutory financial statements resulted in a positive contribu- tions, risk provisions in the financial year amounted to negative tion to net profit; this deferred tax credit reduced the current € 106 million. year’s tax expense by € 527 million. Operating result after risk provisions was negative € 467 million Under consideration of the above, DZ BANK’s key figures for (2006: € 431 million). Excluding the effect of the reduction of 2007 showed the following: the discount rate for calculating pension provisions and similar commitments already noted, and taking into account the 2007 Gross operating income amounted to € 717 million (2006: one-off adjustments in operating result after risk provisions de- € 1,413 million); adjusted for the special items within income scribed above, the operating result after risk provisions declined from ­affiliates (€ +112 million) and net trading result (negative slightly, by € 5 million to € 523 million. € 838 million), gross operating income of € 1,443 million is 2.1 percent above the level reported in 2006. 12 Financial Statements and Management Report 2007 of DZ BANK AG

The detailed breakdown of the financial year earnings is as Demand among customers of the local cooperative banks has follows: been brisk for DZ BANK’s “VR-CrossSelling” product portfolio for managing interest and currency risks, and the product itself Interest net income increased by € 225 million compared to is continually being expanded and improved. As a result there 2006 to € 983 million in 2007. Net interest from operating was an observable steady increase in the number of coopera- activities (excluding income from affiliates) increased despite tive banks providing standardized products to their corporate competitive pressure on margins by 22.9 percent to € 403 mil- customers. lion. The increased expenses from subordinated liability issues were compensated for by additional receipts from early redemp- In Corporate Finance, DZ BANK demonstrated its qualities as a tion premiums. stable and competent business partner and was able to assist corporate customers in making many important strategic invest- The reported income from affiliates of € 580 million was ments. Due to an increase in both the size of transactions and a 34.9 percent higher than the corresponding figure for 2006. high number of new customers the DZ BANK grew loan interest Within this the reported figure for 2007 includes an amount of income despite continued intense competition. With the expan- € 112 million from the strategic restructuring of the DZ BANK sion of customer relationship capacity which began in the sec- Group’s private banking operations. Excluding this special item, ond half of 2007, and with the creation of additional customer DZ BANK’s income from affiliates increased by € 38 million, or relationship teams, DZ BANK’s corporate finance business will be 8.8 percent, primarily as a result of increased dividends paid a firmly established player in the market place. In the financial by Union Asset Management Holding AG, Frankfurt am Main, year 2008 additional business centers are planned in Hanover (Union Asset Management Holding), and by DVB Bank AG, and in Nuremberg. Frankfurt am Main, (DVB). DZ BANK’s international portfolio of uncommitted loans was Interest income from credit and money market transactions con- further diversified and expanded in 2007, with the emphasis on tributed significantly to the DZ BANK’s interest net income. The syndicated loans on the product side. In expanding the portfo- positive economic climate in Germany over the financial year lio, good credit quality and returns were maintained in the Gulf and the associated increase in corporate business and invest- region and in both industrialized and emerging Asian econo- ment levels resulted in an increased demand for loan products. mies. The conservative structuring of these transactions was one There were increases in conventional syndicated loan products reason why the crisis on the financial markets had no negative and the standard risk transfer Meta and Agrar Meta product impact on earnings in this area. both in terms of volume and number of certificates during 2007. Also during the financial year, DZ BANK expanded its position in the acquisition financing market, increasing the number of To strengthen the competitive situation of the local cooperative acquisition financing transactions in which the Bank took the banks in corporate banking, the second phase of the marketing leading role of mandated lead arranger or underwriter. initiative “MarktOffensive Mittelstand” was started during the financial year. The strategic objective is to strengthen business In the product segment “Structured Trade & Export Finance” processes and marketing activities to corporate SME customers DZ BANK profited from the continued success of German in particular by applying the “VR Finanzplan Mittelstand” sales exports and the continued general increase in international and customer relationships concepts to build up SME corporate trade. DZ BANK financed a large number of export transactions banking into a primary segment of the local cooperative banks – within the scope of Federal export guarantees – primarily to alongside private consumer banking, while retaining the division emerging markets. Last year’s growth of short-term trade loan of responsibilities in the market and at product and process finance continued into 2007 primarily driven by demand from level. In this connection the DZ BANK made competitive refi- the growth markets in Eastern Europe and Asia, with additional nancing funding available to the cooperative banks in a period noticeable growth from Latin America and Africa. of intense competition during 2007. Management Report of DZ BANK AG 13 Business Performance

Business with major commodity dealers and producers took on on which DZ BANK earns lower commission rates during the a higher profile during the financial year. In particular, increased financial year. Sales were concentrated in traditional low-interest levels of investment by commodity producers were recorded, coupon bonds, which attracted a high level of interest due to adding to the demand for investment financing. Overall, in 2007 their tax advantages. the DZ BANK was able to strengthen its position as one of Ger- many’s leading banks for export finance. Sales of structured retail securities products made by DZ BANK and the local cooperative banks in 2007 exceeded the high DZ BANK recorded an increased level of project financing in ­levels achieved in 2006. Stable value certificates were particular- financial year 2007 with a higher volume of new business ly successful – including innovations such as the “Plus Garant” worldwide, though the segment found its sector focus in the commodities certificate. EMEA region (Europe, Middle East, Africa) in energy supply and infrastructure while the emphasis was on the nascent public- DZ BANK, as one of the leading players in the market for private partnership (PPP) market in Germany. derivative securities and certificates, sets itself high standards for quality and transparency when it comes to meeting our DZ BANK’s fee and commission net income fell by 16.7 percent customer’s expectations. As far back as 2005, DZ BANK was the to € 224 million. first German financial institution to implement TÜV SÜD certi- fied ISO 9001 quality standards and receive the TÜV seal for the Profit contributions from the Payments Processing Services and process of developing new certificate and structured investment International Business divisions improved compared to the prior products. year, whereas earnings of the Securities and Lending divisions declined over the same period. The consistent application of DZ BANK’s quality strategy has won public recognition with the implementation of AKZENT Fee and commission net income in 2007 in the securities busi- Invest – the first quality stamp for certificates, used by 95 per- ness, the segment contributing most to income, was below the cent of all local cooperative banks for their private label issues level of 2006. In this context it should be noted that from the and through public awards. The first signs of brand recogni- beginning of the current year, investment certificates without tion among end customers are apparent. DZ BANK is proud to capital guarantees are issued from securities held for trading, have won first place as the consumer “certificate issuer of the and accordingly the income generated by these products are year” – presented by the magazine “Zertifikate-Journal“ and reported for the first time within the net trading result. “Deutsche Börse“, and the newspapers “WELT“, and “WELT am ­SONNTAG“ for the fifth time in succession. Following drops in prices on the financial markets in earlier years, the temporary decline on the exchanges in March 2007 DZ BANK grew its fee and commission net income once more in led to weaker demand from potential buyers of equities in the the reporting year as a result of structuring acquisition financing second half of the year, as investors were focused on the finan- arrangements and asset securitizations. cial markets crisis, with a greater desire for financial safety and less appetite for risk. For the Asset Securitization Group based in New York but active in all the NAFTA countries, 2007 was marked by an expansion The negative effects of the lending crisis, although initially of transactions in original client business. Using the conduit limited to the USA, subsequently engulfed the pension market, called “Autobahn,” portfolios were securitized on behalf of which had already been dampened by the flat interest rate clients with refinancing done primarily through DZ BANK as a curve. result of the current market environment.

Under these circumstances customers preferred bonds with one By taking on leading roles such as mandated lead arranger or more cancellation options and simpler structured products or underwriter, DZ BANK affirmed its structuring and placing 14 Financial Statements and Management Report 2007 of DZ BANK AG

expertise in structured finance while increasing earnings in a tions arising from such unexpected liabilities made the liquidity risk-conscious manner. crisis more acute.

Under the “Corporate finance partner” approach, DZ BANK’s Of the € -838 million net trading result which resulted from business model of combining sector specialists with product the financial market crisis, negative € 29 million represented and capital market know-how in one team proved its viability permanent impairments. The remaining € -809 million were for the long term. With a comprehensive product portfolio write-downs on bank bonds (€ -260 million) and ABS securi- from traditional lending to complex structured finance solu- ties (€ -508 million). In view of the ratings attributable to the tions through to financial products offered by the cooperative holdings within the DZ BANK’s ABS portfolio, the majority of the financial services network, the DZ BANK met the high standards write-downs should be of a temporary nature. of its customers and profited from a generally positive business climate. DZ BANK’s special purpose entities “CORAL” and “Autobahn” are included in the consolidated financial statements and refi- In the SME market segment, where DZ BANK primarily nanced almost entirely by DZ BANK. operates, many entrepreneurs and corporations used the posi- tive M & A conditions in the early part of 2007 to accomplish Anchored in the network of cooperative local banks, and as the planned sales or spin-offs. In healthcare and pharma, a special cooperative central institution for liquidity provision, DZ BANK focus for DZ BANK, the bank was involved in 13 successful has latitude to take action, including refinancing. transactions. In addition DZ BANK supported a compulsory offer by CURA AG, Berlin, to the shareholders of Maternus-Kliniken DZ BANK’s administration expenses of € -814 million were AG, Hannover, and YMOS AG, Obertshausen, and REWE 11.6 percent lower than the prior year (2006: € -921 million). Deutscher Supermarkt KGaA, Mainz-Kastel, with the spin-off of Excluding the additional expense recorded in 2006 as a result of its factoring business. the reduction of the discount rate applied in calculating pension provisions and similar commitments described above, adminis- Net trading result in 2007 was negative € 519 million, a signifi- tration expenses were -1.2 percent lower than in 2006. cant decline compared with the prior year (2006: € 375 million). General and administration expenses (including depreciation) After the markets turned in an extremely good performance increased by 5.5 percent to € 364 million in the year under re- through the first two quarters of 2007, in summer increasing view, the increase being primarily incurred in pursuing DZ BANK’s default rates on residential mortgages in the United States, in strategic growth initiatives. Excluding the additional expense particular mortgages with minimal collateral extended to bor- recorded in 2006 as a result of the reduction of the discount rate rowers with poor credit, led to a crisis in the financial markets applied in calculating the pension provision described above, in the second half of 2007. This was largely a consequence of staff expenses in 2007 were -6.1 percent lower than in 2006, as special purpose vehicles held by banks – often off the balance a result of the effect of the increase in the retirement age and sheet – with direct or indirect exposure to the US subprime due to provisions made in the prior year following a two-stage mortgage market having to make unexpected use of their credit tariff wage agreement. facilities. The resulting mutual mistrust among financial institu- Management Report of DZ BANK AG 15 Business Performance

In 2007 DZ BANK’s IT and organization department’s main focus At the same time this was a step towards achieving some objec- was on improving the organization of and IT support for the tives of the IT/Organization department for the financial year: local cooperative banks. namely, to put into practice the individual components of the revised IT architecture, ensuring uniform IT architecture manage- The functionality of the “Vertriebsarbeitsplatz VAP”, was ex- ment within DZ BANK based on clearly defined principles. panded; VAP is an IT-based platform deployed nationally which is designed to ensure the uniform integration and marketing of DZ BANK’s other operating net income increased by € +18 mil- the network’s products; VAP is a jointly developed project with lion to € 29 million. Significantly higher amounts of income FIDUCIA IT AG, Karlsruhe, (FIDUCIA), and GAD eG, Munster, from reversals of provisions are reported in the current year (GAD). VR VorsorgeStatus provides periodic illustrations for figure than was the case in 2006. customers showing how their financial status will develop over the years, taking into consideration retirement plans offered Cost-income ratio, adjusted for the effect of special items, was by network institutions. This report is the product of close co- 56.4 percent (2006: 58.3 percent). The additional charge to operation between all the contributing network banks and the income in 2006 resulting from the change in the discount rate cooperative IT service providers. Since 2007, VR VorsorgeStatus applied in calculating pension provisions and similar commit- has been available nationally to all local cooperative banks’ ments from 6.0 to 4.5 percent was excluded from the 2006 customers. cost-income ratio.

At the request of the local cooperative banks, DZ BANK, Union Risk provisions in 2007 amounted to negative € 370 million Investment and WGZ BANK combined their funds and securities (2006: negative € 61 million), consisting of increases in general processing under the name “GENO Wertpapiere” in agree® BAP and country-specific impairments less net reversals of spe- and bank21. Based on “GENO Broker” (the tried-and-tested cific impairments. Net income from liquidity reserve securities securities business IT support for the local cooperative banks’ amounted to negative € 274 million (2006: negative € 22 mil- consultants), FIDUCIA, GAD and Union Investment have estab- lion) in the financial year, of which € -264 million relates to lished a uniform national process. write-downs taken as a result of the financial markets crisis already described. In view of the many investments being made to improve Group earnings it is necessary to keep costs under tight control; the bank plans to make IT costs stable in the medium term.

As part of this process, a project to outsource IT production and desktop services (PC and printer service, standard software maintenance) was completed in 2007 as planned, helping stabilize DZ BANK’s costs within an overall plan to manage and stabilize the DZ BANK’s IT and administration expenses. Within the DZ BANK these measures are part of a wider initiative to stabilize IT and administration expenses in the short to medium term. 16 Financial Statements and Management Report 2007 of DZ BANK AG

For new business, which grew domestically in all segments as a Expenses from losses assumed from subsidiaries in the financial result of the positive economic climate, conservative risk limits year of € -332 million (2006: € -145 million) includes € -233 mil- and profitability criteria were applied. Again, in 2007, objectives lion of losses assumed from VR IMMO and € -81 million from were set and strictly followed such as to achieve an optimal VR LEASING AG. The loss of € -233 million was primarily a result credit risk policy as far as possible, based on cost efficiency, of a € -263 million write-down recorded by VR IMMO (2006: competitive factors and targeted risk analysis. The implementa- € -123 million) on its investment in DG HYP, less a book profit tion of successful credit risk management was primarily driven on disposal of € 24 million recorded by VR IMMO as a result of by higher quality control in credit management in accordance its sale of its 1.04 percent share of BSH to WGZ BANK. Losses with the German Banking Act (KWG), Solvency and Liquidity assumed from VR LEASING AG, Eschborn, (VR LEASING) by Ordinances, as well as the minimum requirements placed on DZ BANK of € -81 million are significantly affected by the fact Risk Management (MaRisk) in Germany. that VR LEASING has taken the last opportunity in 2007 – fol- lowing new tax legislation – to record depreciation on new leas- Further details are included in the DZ BANK Group risk report on ing ­assets calculated using the declining balance method. page 19 et seq. of this management report. Extraordinary income in 2007 includes DZ BANK’s € 223 million The balance of other income/expense in 2007 amounted to income subsidy to DG HYP. negative € 41 million (2006: negative € 251 million). Included in this total is income from investments of € 514 million Net profit, including € 672 million of tax income, was € 164 mil- (2006: € 0 million), € 589 million in income from affiliates lion for 2007 (2006: € 528 million). The positive tax situation in (2006: € 15 million) and valuation adjustments on investments the reporting period was primarily due to income from Group amounting to negative € 75 million (2006: negative € 15 mil- tax levies of € 129 million and the recognition of € 527 mil- lion). € 659 million of the income from affiliates resulted from lion of deferred tax assets. Tax income in 2006 (€ 348 million) the DZ BANK’s transfer of DZI into DZ Private Wealth Manage- included a tax credit recognized on the balance sheet at a dis- mentgesellschaft S.A., in 2007, following which DZ Private counted present value of € 225 million as a result of a change in Wealth Managementgesellschaft S.A. is responsible as a holding tax legislation at December 31, 2006, and income of € 104 mil- company for the business activities of DZI and DZ PRIVATBANK lion of Group tax pooling transfer income which resulted from Schweiz, a move intended to create a uniform reporting line the sale of branches by the former norisbank AG, Nürnberg. as well as a focused market presence. Also included in income from affiliates is a write-down on the book value of DZ BANK’s direct holding in DG HYP of € -14 million (2006: negative € 7 million) and DZ BANK’s write-down against its investment in NATAXIS S.A., Paris, amounting to € -53 million. Management Report of DZ BANK AG 17 Business Performance

5. Regulatory capital 6. Number of branches

At December 31, 2007, DZ BANK’s regulatory capital is pre- At December 31, 2007 the DZ BANK had four branches in sented in accordance with the amended German Banking Act Germany, in Berlin, Hanover, Stuttgart and in Munich, and five (KWG) requirements which came into force on January 1, 2007, foreign branches, in London, Milan, New York, Hong Kong and and the subsidiary Solvency Ordinance. The figures as of Decem- Singapore. ber 31, 2006 are based on the previous KWG requirements. The four German branches oversee two sub-offices (in Hamburg DZ BANK’s tier 1 capital amounted to € 7,122 million (Decem- and Nuremburg). ber 31, 2006: € 6,729 million). The change is primarily a result of allocations totaling € 454 million to retained earnings and general bank reserves in accordance with Art. 340g of the 7. Volume development German Commercial Code (HGB), less deductions mainly due to changes in the KWG deduction method, which now requires The DZ BANK’s total assets increased by € 13.6 billion, or 50 percent deduction from tier 1 capital instead of the previous 5.4 percent, to € 266.3 billion at December 31, 2007. deduction from total liable capital. Total assets of DZ BANK AG The DZ BANK’s tier 2 capital at December 31, 2007 was € 4,534 million (December 31, 2006: € 4,867 million), the re- duction mainly results from capital participation rights and long- in € billion term subordinated debt no longer utilizable as tier 2 capital. 400

The Bank had no tier 3 capital at December 31, 2007 or Decem- 300 266.3 ber 31, 2006. 252.7 200

100 +5.4% Liable capital as defined for the Solvency Ordinance (SolvV) purposes amounted to € 11,656 million at December 31, 2007 0 (December 31, 2006: € 11,559 million). DZ BANK’s total capital Dec. 31, 2007 Dec. 31, 2006 ratio according to SolvV was 17.7 percent at December 31, 2007 (December 31, 2006: 21.7 percent) and the tier 1 capital DZ BANK’s international branches account for € 34.9 billion ratio, in accordance with the SolvV., was 10.8 percent (Decem- (13.1 percent of the parent’s total assets). New York (€ 12.4 bil- ber 31, 2006: 14.0 percent). These ratios significantly exceeded lion) and London (€ 11.4 billion) account for around 68 percent the regulatory minimum of 8.0 percent (total capital) and inof Mio. the € international branch total, with the remaining € 11.1 bil- 4.0 percent (tier 1 capital). lion being held by the Singapore branch (€ 5.9 billion) and Hong

Kong4000 branch (€ 5.2 billion). DZ BANK’s risk capital management and the DZ BANK’s manage- 3000 ment and controlling of liquidity risks are described in detail on The total volume 2.607of business amounted2.608 to € 289.3 billion 2000 pages 20 et seq. and 34 et seq. of this management report. (December 31, 2006: € 277.8 billion); this total includes total assets,1000 contingent liabilities and irrevocable credit commitments of the0 parent company.

Vorl. 2007 2006 18 Financial Statements and Management Report 2007 of DZ BANK AG

The nominal value of off-balance-sheet forward transactions Deposits from banks increased by € 13.4 billion to € 163.6 billion amounted to € 1,204.6 billion, € 97.7 billion higher than at the in 2007. Within this figure, deposits from affiliated banks rose end of 2006. The positive market values recorded growth of by € 9.4 billion, or 23.8 percent, to € 48.9 billion while deposits € 1.4 billion to € 15.9 billion . from other banks increased by € 4.0 billion, or 3.6 percent, to € 114.7 billion. DZ BANK’s loans and advances to banks increased by € 1.6 bil- lion to € 105.2 billion. Within this figure, loans and advances Amounts owed to other depositors fell by € 0.6 billion com- to affiliated banks increased by € 3.4 billion, or 9.1 percent, to pared to 2006 from € 38.5 billion to € 37.9 billion. Whereas € 40.9 billion, and loans and advances to other banks fell by current account and term balances increased by € 4.0 billion € 1.8 billion, or 2.7 percent, to € 64.3 billion. or 31.5 percent, liabilities under repurchase agreements fell by € 4.7 billion, or 81.0 percent. Loans and advances to customers increased by € 4.8 billion to € 32.1 billion. Increased lending took place against the back- Debt certificates including bonds were € 45.5 billion at the ground of a noticeably improved business climate; though the end of the financial year (December 31, 2006: € 44.8 billion). bank still applied strict risk limits and profitability criteria to its Bonds issued by the bank were € 4.6 billion higher at the end of new business. 2007, and totaled € 40.3 billion; other debt certificates fell by € 3.9 billion to € 5.2 billion. DZ BANK’s securities portfolio amounted to € 110.7 billion at December 31, 2007, € 6.3 billion higher than at December 31, The DZ BANK’s balance sheet total equity of € 5.8 billion 2006, the largest part of this increase being bonds and other represents an increase of € 13 million, of which € 8 million was fixed interest securities, which increased by € 6.2 billion to allocated to retained earnings and € 5 million to a slight increase € 108.9 billion. in net profit.

Shareholders of DZ BANK

*direct and indirect

in € million in percent

Local cooperative banks* 2,502 82.6

WGZ-Bank AG (Westdeutsche Genossenschafts-Zentralbank)* 202 6.7

Other cooperative societies 186 6.1

Other 138 4.6

Total registered capital: 3,028 100.0 Management Report of DZ BANK AG 19 Risk Report

II. Risk Report Functional separation

DZ BANK’s risk management activity is built on the risk strategies The DZ BANK risk report is prepared in accordance with Art. 289 authorized by the Board of Managing Directors and encom­ German Commercial Code (HGB). The German Accounting passes active risk management, risk controlling and internal Standards applicable for the preparation of the DZ BANK’s audit. Group Management Report are, where appropriate, also applied by the parent company as a single entity. Active risk management means the operational implementation of risk strategies on a decentralized basis by the risk bearing units. The business units responsible for risk management de- 1. Risk management system cide whether to consciously assume or reduce risks; in doing so they observe central guidelines and the relevant risk limits. The Objectives risk management units are kept organizationally and function- ally separate from their downstream units. The systematic and controlled acceptance of risks in relation to return targets is an integral component of DZ BANK’s corporate The risk controlling function is responsible for the identification, management. The operating activities resulting from DZ BANK’s measurement and evaluation of risks and for performing credit business model requires the ability to effectively identify, limit controls. This requires appropriate loss limit planning. In measure, evaluate, communicate and manage as well as moni- addition, risk controlling is responsible for reporting of risks to tor and control risk. Backing risk with adequate equity is also the Board of Managing Directors, the risk management entities recognized as an essential prerequisite of business operations. and the Supervisory Board. DZ BANK’s controlling function is re- DZ BANK’s risk management system is an integrated part of the sponsible for ensuring the transparency of the risks entered into risk management system of the DZ BANK Group as a whole. All across all risk categories and for ensuring that the risk manage- DZ BANK’s activities are guided by the principle of only ­taking ment approaches applied are methodologically up-to-date. on the minimum risk required to achieve set business and policy goals. DZ BANK has implemented a risk monitoring and A further component of the DZ BANK’s risk management system management system which meets the DZ BANK’s own internal is the DZ BANK’s Internal Audit, which performs a supervisory commercial as well as legal requirements. and controlling role. It performs systematic and regular risk based audits to ensure full compliance with the statutory and Types of risk regulatory requirements. Internal audit is additionally tasked with ensuring the adequacy and effectiveness of the risk man- Credit risk is the DZ BANK’s most important category of risk, agement system and performs follow up procedures on audit and is particularly a feature of Corporate and Investment Bank- recommendations. The internal audit unit reports directly to ing activities. The Bank is exposed to market risk primarily in the Chairman of the Board of Managing Directors. Germany’s trading operations. Equity risk stems from holding equity stakes MaRisk requirements are fully complied with at DZ BANK. in enter­prises in pursuance of DZ BANK’s business strategy. ­Liquidity risks, operational risks, and strategic risks are associa­ ­ ted with all forms of entrepreneurial activity and are accordingly also significant for DZ BANK. 20 Financial Statements and Management Report 2007 of DZ BANK AG

Committees Risk reporting and risk manual

DZ BANK is an integral part of the DZ BANK Group’s manage- The DZ BANK‘s risk reporting is an integral part of the DZ BANK ment structure. The Group Coordination Committee is tasked Group‘s risk reporting system. The Quarterly Group Risk Report with coordination between the key DZ BANK Group enter- is the central instrument for reporting on group risks to the prises to ensure consistency of business and risk management, Board of Managing Directors, the Group Risk Committee, and strategy management and capital allocation. The Group Risk the Supervisory Board. The Group credit risk report also provides Committee is the DZ BANK Group’s central management and group management and the Supervisory Board with portfolio risk management body. Among other things it assists the Group and exposure-specific management information in the form of Coordination Committee on questions of principle and is tasked quarterly Group Credit Risk reports. The DZ BANK has addition- with risk capital management issues affecting the group. The ally installed reporting systems specific to all the relevant risk Group Risk Committee has established working groups to ad- categories at DZ BANK, designed to ensure that decision-makers dress issues such as Group accounting, Group credit manage- and supervisory committees received transparent information ment and liquidity management. Other Group-wide working concerning the DZ BANK’s risk profile at all times. groups are concerned with Information Technology and Internal Audit. The Group Risk Manual of DZ BANK Group is made available to all employees, with comprehensive illustrations of methods, The following committees are responsible for DZ BANK’s risk processes and responsibilities on group level, established the management: framework conditions for risk capital management. The group risk manual is applicable within the DZ BANK. – The Major Risk Committee assists in monitoring DZ BANK’s total banking risk. 2. Risk capital management – The Board of Managing Directors has formed a Credit Com- mittee from its own members, tasked with managing the Strategy, organization and responsibility DZ BANK’s overall credit portfolio. The Credit Committee decides on significant DZ BANK credit exposures, in relation to Risk capital management is an integral component of corporate the DZ BANK’s and the Group’s credit risk strategy. The Credit management at DZ BANK. DZ BANK Group´s risk capital man- Committee is also responsible for managing DZ BANK’s credit agement processes and policies apply to DZ BANK. Active man- processes and country risk across the DZ BANK group. agement of economic capital adequancy on the basis of internal risk measurement methods and regulatory capital adequancy – DZ BANK’s Treasury Committee is responsible for market price requirements guarantee the assumption of risks is consistent and liquidity risk. It meets weekly to discuss the management with the capital resources all the time. of the DZ BANK’s specific risk, performance, and liquidity parameters, and prepares corresponding action proposals The Board of Managing Directors at DZ BANK sets the corporate for submission to the entire Board of Managing Directors. goals and capital resources of the DZ BANK Group according to The Treasury Committee is also responsible for implementing return and risk considerations. The Board ensures the risk profile changes in the DZ BANK’s non-voting equity capital. is approbiate relative to aggregate risk cover. Management Report of DZ BANK AG 21 Risk Report

Risk-adjusted profitability management tors based the upper loss limits for the year on those figures. DZ BANK´s upper loss limit was increased by € 143 million to The cost of committing economic capital is integrated in the € 3,545 million in 2007. DZ BANK´s performance measurement system. The relevant ra- tios are Economic Value Added (EVA) and Return on risk Adjusted The table below shows the DZ BANK’s upper loss limits and risk Capital (RORAC), which are determined and reported based on capital requirement by category. As a consequence of additional the economic risk capital requirement and the upper loss limit. investments in subsidiaries made and in the expectation of a higher market volatility the DZ BANK’s upper loss limit for the Managing economic capital adequacy financial year was increased slightly compared to the previ- ous year to € 3.454 million. The adjustments between the risk Economic capital management is based on internal risk measure­ categories, in particular the increase in the upper loss limits for ment methods. These take into account all key types of risks market price and equity risk, are changes which are primarily a for DZ BANK. Credit risk, market price risk and equity risk are consequence of the current financial markets crisis. measured using internal value-at-risk approaches and to a lesser extend with methods that express a comparable loss potential. For the financial year 2008, the group has risk cover assets of As a rule, quantification of strategic risks is based on an empiri- € 13,603 million, this corresponds to an increase of € 2,039 mil- cal benchmark analysis. lion compared to 2007.

The risk capital requirement at DZ BANK Group is an aggrega- DZ BANK is integrated into the standard risk capital requirement tion of risk types from all companies. Diversification effects stress tests performed at the DZ BANK Group level. ­Separate among different types of risk within group companies are taken stress-tests are performed for each risk category – credit risk, into consideration. equity participation risk, market price risk, insurance risk, oper­ ational and strategic risks. The risk category stress-tests are In the context of a risk-bearing capacity analysis, the require- supplemented by a stress scenario which models the correlations ment for risk capital is compared with aggregate risk cover. between different risk categories. The internal risk measurement Aggregate risk cover is made up of the capital reported on the system is used in evaluating the results of stress tests. Initial balance sheet and from open hidden reserves of the DZ BANK para­meters for measuring risk are scaled in such a way as to Group; the amounted to € 11,564 million for the financial year reflect extremely negative economic situations. 2007 (2006: € 10,990 million). The Board of Managing Direc-

Upper loss limits and risk capital requirement

Upper loss limit Risk capital requirement

in € million Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006

Credit risk 1,760 2,500 1,137 1,088 Equity risk 860 500 855 526 Market price risk 900 300 724 230 Operational risk 230 330 186 192 Strategic risk 147 158 102 75 Total after diversification 3,454 3,311 2,659 1,818 22 Financial Statements and Management Report 2007 of DZ BANK AG

The stress tests for market price risk focus on market risk fac- strategy on points specified by KWG and SolvV, risk-weighted tors. The internal risk measurement method includes a calcula- asset allocation is planned as part of the strategic planning tion of the concrete losses from hypothetical crisis scenarios. dialogue. This process culminates in requirements planning Parallel to the standard stress tests at Group level, DZ BANK for regulatory capital requirements. The Treasury department continually adapts crisis scenarios using the internal market price of DZ BANK is responsible for coordinating coverage of this model with current market data, which is particularly important requirement as well as any issuances that may be appropriate. in critical situations. The DZ BANK’s regulatory capital ratios are reported on page 17 None of the stress tests performed at December 31, 2007 con- of the report on business performance. cluded that the risk-bearing capacity would be impaired.

Management of regulatory capital adequancy 3. Credit risk

DZ BANK is integrated into the regulatory capital management Definition and sources of the DZ BANK banking group as a whole. In addition to eco- nomic capital management objectives – as primary instruments Credit risk or default risk is the risk that one party to a finan- for the management of the business – regulatory solvency cial instrument will cause a financial loss for the other party by requirements are observed. failing to discharge an obligation. Credit risks can arise in both traditional credit business as well as in trading transactions. Since 2007 the DZ BANK financial conglomerate has used the Traditional lending comprises forms of commercial lending internal ratings-based basic IRB approach and IRB approach for including guarantees and warranties as well as external open volume business in calculating the regulatory capital require- commitments. In the context of credit risk management, trad- ment (BASEL II pillar 1) for credit risk and the standard approach ing transactions means the securities business – comprising for operational risks in accordance with KWG and Solvency securities from the banking book and trading book including Ordinance requirements. BASEL II pillar 2, which governs regula- promissory notes – as well as the derivative and money market tory review procedures, established additional requirements business (including repurchase agreements). for financial institutions which were put into practice in 2007. Among other things this resulted in the establishment of Group- Default risk on trading transactions occurs in the form of coun- wide integrated risk capital management, which is a central terparty risk and issuer risk. Counterparty risk has two compo- element of the strategic planning dialogue for the Group coordi- nents: replacement risk and settlement risk. Replacement risk is nating committees. In 2007 the DZ BANK continues to take an the risk of a counterparty default when the bank has a trading active role in shaping BASEL II through work on the relevant position with that party which has a positive market value. A BaFin committees. financial loss arises in case of default.Performance risk occurs on trading activities which are not settled timely. The risk arises Regulatory capital adequacy in the DZ BANK banking group is that the counterparty does not fulfill its obligations, while the managed on the basis of internal targets. To avoid unexpected consideration has already been made by the bank. Issuer risk downward revisions of capital ratios and ensure that credit, describes the risk that the issuer of a security does not meet market price and operational risks remain in line with DZ BANK’s its contractual obligations. A financial loss is then recorded by the owner of the security in the form of unpaid interest and redemption payments. Management Report of DZ BANK AG 23 Risk Report

Default risk from traditional lending transactions arises primarily As part of the reporting system, the Group Risk Committee is at DZ BANK, BSH, DG HYP, DVB, VR LEASING and TeamBank. It kept informed of the economic capital requirement for credit results from the specific business of each company, and accord­ risks. In addition, internal reporting covers volume-oriented ingly has different characteristics in terms of diversification and analysis of the portfolio structure based on key risk character- extend compared to the volume of business. Default risks from istics such as country, industry and rating, both from a Group trading transactions arise specifically at DZ BANK, BSH and point of view and for the individual companies. The report also DG HYP. includes information on individual commitments and individual risk provisions. The indicators resulting from this report are pro- Credit risk strategy vided to senior management of DZ BANK and Group subsidiar- ies. The Group reporting system is supplemented in the relevant Lending is predominantly based throughout the Group on the subsidiaries by powerful credit portfolio reporting adapted to “VR rating”, a credit rating procedure which DZ BANK devel- the needs of the company in question. oped in cooperation with the BVR, the central organization of the cooperative banking group, and WGZ BANK. Both DZ BANK Rating systems and its subsidiaries with material credit risk seek to maintain a good rating structure in their credit portfolios. The portfolios The VR rating system is applicable across the whole cooperative will continue to be characterized by a high degree of diversifica- bank network and ensures that the network has a high quality tion. For the individual credit transaction, risk-adjusted pricing rating score system, consistently applied throughout the coop- of financing which takes into account both adequate standard erative network. VR ratings are differentiated by customer seg- risk costs and risk-adjusted economic capital costs is of decisive ment and are being successively extended to cover all relevant importance. customer groups. The following VR rating systems were used by the DZ BANK in managing credit risk: “Larger SME”, “Major Organization and responsibility customers”, “Banks”, “Country”. In addition the “Internal Assess­ment Approach” is used to assess credit lines and credit As required by MaRisk (the minimum requirements for risk enhancements in DZ BANK’s ABCP transactions. The rating sys- management promulgated by BaFin, the German Financial tems were validated and approved by BaFin, Germany’s regula- Supervisory Authority), responsibilities in the lending process tor, for the regulatory capital calculation under the IRB approach. are defined and documented in the organization’s manuals, from application to approval to processing, including periodic Further rating systems are used for managing engagements credit monitoring with regular credit rating. Authority levels are with public regional authorities, project and acquisition financ- specified inauthority rules which are based on the risk content ing; it is planned to apply for regulatory approval of the use of of the credit transactions. Consolidating the organization of these ratings for capital adequacy purposes. the Group-wide credit process is the responsibility of the Group Credit Management working group. Pricing in the lending business

Credit risk reporting To ensure profitability in the lending business,standard risk costs are calculated in the course of managing individual Established reporting and monitoring processes help provide transactions in wide areas of the Group. These are used to cover timely information for decision makers on changes in the risk average expected default losses on borrowers. The aim is to structure of the credit portfolio and are the basis for active man- ensure that the net risk provision is covered in the long term agement of credit risks. average by standard risk costs charged, in the sense of actuarial consideration. 24 Financial Statements and Management Report 2007 of DZ BANK AG

Apart from standard risk costs, implied capital costs based on The DZ BANK acts as asset securitization originator, sponsor and the economic capital requirement are integrated into DZ BANK investor. In addition, DZ BANK is arranger and placer for asset coverage calculations. This makes possible risk-adjusted interest securitization transactions of the group and of the coopera- on fixed capital, which is used to cover unexpected losses from tive bank network. The local cooperative banks use multi-seller the lending business. The concept of economic capital costs transactions as risk control management instruments and securi- replaced the previous calculation of equity costs in 2007. tization as an alterative refinancing instrument.

Economic credit portfolio management Risk management of lending exposures

Portfolio models Management of default risks from traditional Under economic credit portfolio management, a distinction is lending transactions made between expected losses from individual transactions Volume-oriented credit portfolio management and unexpected losses from the credit portfolio. Calculation of In 2007, procedures and processes for uniform measurement expected loss for each individual transaction avoids creeping and management of the credit portfolio were further developed erosion of equity. The majority of Group companies carry out as part of volume-oriented credit portfolio management. The the necessary identification of rating-related standard risk costs. management and control system as implemented meets the re- quirements of MaRisk. Country risk is managed by setting limits Portfolio models are then used to quantify the unexpected for individual countries at the level of the DZ BANK Group. losses on credit portfolios of Group companies on the basis of value-at-risk. Credit value at risk describes the risk of unex- Commitment and limit management pected losses from failure to meet contractually agreed payment General limits are set for individual business partners and bor- obligations by business partners. Credit portfolio models are rower entities. used to measure credit value at risk which take into account concentration in terms of industries and individual borrow- Suitable early warning processes are implemented in Group ers along with the rating structure of the credit portfolio as a companies with significance for the Group’s credit risk as a basis whole. This includes default and liquidation risks from both for timely limit monitoring. Processes for dealing with overdrafts credit and trading transactions. have also been established. The credit risk report includes details of the 20 largest engagements, under various risk aspects. The offset amount of default risks in the risk model for trad- ing transactions as part of economic capital management is Management of default risks from trading transactions calculated for issuer risk as fair value. In the replacement risk, Measurement of default risks from trading transactions transactions are measured similarly to setting limits – that is, by Replacement and performance risks arise primarily from the a benchmark add-on method based on simulations in addition trading business of DZ BANK. Replacement risk is calculated pri- to the fair value of the derivative. In contrast to limit setting, marily on the basis of fair value and the add-on of the individual the expected value is used uniformly for all transactions over an transaction. The add-on allows for specific risk factors and ma- assumed one-year horizon. turities. At counterparty level, netting agreements and collateral agreements are used to mitigate risk, provided they are legally Asset securitization enforceable. For performance risk the amount recognized for The DZ BANK Group uses securitization as an additional instru- the counterparty risk is the payment due, i.e. the actual amount ment of credit portfolio management as well as to optimize the to be paid to DZ BANK by the counterparty. Performance risk risk-return ratio. The primary goal of securitization is to relieve is recognized for an assumed performance period. The issuer pressure on economic and regulatory capital. risk is calculated for the banking book and trading book on the basis of the fair value of a security holding. from the banking book and trading book are included. Management Report of DZ BANK AG 25 Risk Report

Limit management of default risks from trading transactions or German Master Agreement). Transactions which cannot be To limit the default risk from trading transactions, DZ BANK has brought under a master agreement are not hedged. The only established a volume-oriented limit system. Replacement risk is form of collateral is cash and government bonds. In issuer risk, managed by a limit structure broken down into maturity bands. credit derivatives are used to hedge bonds along with subordi- A daily limit is set to manage performance risk. For issuer risk, nated securities from the same borrower. Collateral from the a rating-based general or individual limit is set for each issuer. credit derivative is offset against the hedged entity (reference A uniform method of measuring and monitoring default risks entity) or the guarantor entity. from trading transactions at DZ BANK is enabled by a central, IT-supported limit management system which is connected to all Types of collateral relevant trading systems. DZ BANK uses all forms of traditional loan collateral. These include specifically mortgages on residential and commercial As in the traditional lending business, adequate early warning properties, guarantees (bonds, guarantees, letters of comfort, and overdraft processes have been established for the trad- life insurance policies), financial security (cash deposits at other ing business. The member of the Board of Managing Directors banks, certain fixed-interest securities, shares and interests in responsible for risk monitoring is sent a daily list of trading funds), assigned receivables (global and individual assignment limit overruns as part of the reporting to MaRisk standards. A of trade receivables) and tangible collateral. For recognition monthly report is produced for the total default risk from trad- under the Solvency Ordinance, privileged mortgages, guaran- ing transactions on the basis of exposures. tees and financial collateral are used. Currently, receivables are not acknowledged under regulatory regulations recognized and Credit risk mitigation physical collateral only to a minor extent.

Collateral strategy and hedged items Collateral for trading transactions or collaterals are exchanged In line with the DZ BANK’s credit risk strategy, client credit in a margining process on the basis of master agreements. The quality is the basis for the lending decision; collateral has no margining process is a daily monitoring process with technical effect on the borrower’s rating. Depending on the structure of support which ensures adequate cover for the trading port- a transaction, however, collateral can be of material significance folio. Collateral is reflected in a separate IT system. For credit for the risk evaluation of a transaction. In the case of medium derivatives, guarantors or counterparties are mainly financial or long term investment credits, there is a basic expectation institutions. that the investment will act as security for the loan. For export or structured trade financing, there is also a minimum level of Exchange of collateral is contractually agreed with counterpar- security from public or private (export) credit insurance or as- ties. Conclusion and execution of contracts are covered by signment of claims under the export contracts or of title in the DZ BANK collateral policy. This specifies contract parameters goods as security. such as the quality of collateral, frequency of exchange and minimum exchange and exempt amounts. Under its collateral Hedged items in the traditional lending business encompass the policy DZ BANK follows a strategy of avoiding establishing new commercial lending business, including bonds and guarantees concentration risks from trading collateral. DZ BANK regularly as well as external open commitments. Hedging items against uses bilateral netting and collateral agreements. One exception default risks is ensured on a case by case basis by obtaining is cover assets, as the special legal status of the counterparties traditional collateral. Derivatives are used to hedge against means that only unilateral collateral agreements can usefully be interest risks in individual cases. With regard to replacement enforced. Netting and collateral result in significant mitigation of risk, hedged items are transactions which can be entered into as exposure from trading transactions. hedgeable under a master agreement (ISDA Master Agreement 26 Financial Statements and Management Report 2007 of DZ BANK AG

Management of collateral counterparty. The party with a right to recollateralization posts Management of traditional loan collateral a margin call. Recollateralization can be done by returning col- The tasks of collateral management are for the most part per­ lateral or increasing existing collateral. formed by specialist units outside the market divisions. Their core tasks include providing, reviewing and valuing collateral The unsecured part of the exposure (threshold amount) is re- and documenting, managing and advising all divisions on duced if credit quality deteriorates and increased if it improves. collateral. This procedure is contractually agreed with counterparties. For contracts with a zero threshold, any deterioration in credit qual- Standardized contracts are mostly used to provide collateral ity is immaterial, as exposure is always fully collateralized. and for the declarations associated with this. Where individual collateral agreements are to be concluded, specialist offices Management of concentration risks in the credit and are consulted. Collateral management is done in separate IT ­collateral portfolios systems. Collateral valuation is the responsibility of back office When measuring the risk resulting from collateral, DZ BANK units. Carrying amounts are reviewed similarly to the monitoring distinguishes between collateral in the traditional lending busi- dates set by the back office units – generally at least annually, or ness and collateral in the trading business. If there is a signifi- on the agreed dates for submission of the documents relevant cant positive correlation between the value of collateral and the for valuation. Shorter monitoring intervals can be set for critical borrower pledging the collateral, the collateral value is disre- lending exposures. Independent of this, collateral is tested for garded for the lending decision. This is the case, for example, impairment, if indications evidence exists. where the party posting collateral, garnishee or issuer forms an economic entity or borrower entity with the borrower under The workout units are responsible for processing collateral for Art. 19 para. 2 of the German Banking Act (KWG). The decision delinquent loans including realization of collateral. With these whether a transaction can be entered into without realizable commitments, collateral is measured on the basis of its likely collateral is covered by the authority rules. recoverable value and time of recovery, rather than following the general valuation guidelines. In the case of restructuring Concentration of collateral in the trading business is limited by commitments, fair value or likely recoverable value can be recog- a restrictive collateral policy which only allows collateral in cash nized as the collateral value, rather than following the lending or first-class government bonds under the ISDA Master Agree- principles. ments for OTC derivatives and repos. The predominant part of OTC collateral consists of cash and liquid securities. Timely valu- Collateral management ation of collateral under the agreed margining periods further Under the collateral policy, cash or securities with doubtful rat- contributes to limiting risk. Presentation of concentrations in the ings are accepted as collateral for trading transactions. Exposure collateral portfolio is part of management reporting. and collateral are valued at regular intervals agreed with the Management Report of DZ BANK AG 27 Risk Report

Management of problem exposure surate from a commercial perspective, were used to calculate these allowances. Management and monitoring of problem exposure Identified problem loans are transferred to theworkout units Analysis of the credit portfolio at an early stage of the crisis. By providing focused support to critical exposures and applying customized solutions, these Analysis of the economic capital requirement for credit risk special units lay the basis for securing and optimizing problem The economic capital requirement for credit risks at the end of risk positions. the financial year amounted to € 1,137 million at December 31, 2007 (December 31, 2006: € 1,088 million). This compares with In the traditional lending business, DZ BANK has a comprehen- an upper loss limit of € 1,760 million (2006: € 2,500 million). sive range of tools for early identification, close support and The limit was observed at all times throughout 2007. high-quality portfolio monitoring for critical exposures. The sub- portfolio of critical loans is updated quarterly and reported on. If Volume-oriented credit portfolio analysis required, this is done more frequently. The process has compre- Principles of volume-oriented credit portfolio analysis hensive support from technical systems. A key element in this is Credit exposure is determined on the basis of credit risk-bearing informative, target-group oriented and timely internal reporting. instruments from the traditional lending business and securi- ties business as well as from the derivatives and money market Procedures for creating allowances for losses on loans and business. The breakdown into credit risk-bearing instruments advances corresponds to the classes for external reporting on risks arising DZ BANK’s internal guidelines stipulate that provision for specific from financial instruments. allowance is made when a borrower’s financial circumstances or lack of adequate collateral provide reasonable grounds to The following statistics for the entire lending portfolio repre- question whether outstanding entitlements are collectable, or sents the maximum credit risk to which the DZ BANK Group when there are indications that the borrower will not be able is exposed. The maximum credit risk is presented as gross to service the loan over the long term. Contingent liabilities are amount, valued, without deduction of risk provisions recorded treated in the same fashion. Specific impairments are recorded or allowance for measures taken to reduce credit risk. The gross as required in compliance with commercial law and prudent ac- lending volume for loans and commitments made is based on counting principles. Accordingly, the individual cases are valued, book values, for capital market investments and trading assets based on the circumstances, such that at least one of the likely on market values, and on loan equivalents for derivatives. The outcomes is covered by impairment allowances, including a maximum credit risk amount represents the total amount of conservative valuation of existing collateral. externally committed credit lines.

Latent credit risks are covered by portfolio-based allowance, Total lending increased by approximately 7 percent from based on the average actual loan loss incurred in the preceding € 187.9 billion to € 200.2 billion, which resulted primarily from five financial years. Principles applied by the tax authorities for expansion in the traditional lending business. recognizing portfolio-based allowance, which are also commen- 28 Financial Statements and Management Report 2007 of DZ BANK AG

Credit risk concentrations by industry

Credit volume Traditional lending business Securities business Derivative and money market business in € billion Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006

Financial sector 62.0 53.4 52.3 49.0 10.6 13.9 Public sector 0.7 0.9 6.9 9.4 0.1 0.1 Corporates 34.0 30.8 9.8 6.5 0.8 0.7 Retail 0.4 0.8 12.6 12.6 0.0 0.0 Industry conglomerates 3.0 5.0 4.7 4.2 2.3 0.1 Other 0.0 0.0 0.0 0.5 0.0 0.0 Total 100.1 90.9 86.3 82.2 13.8 14.8

Structure of the total credit portfolio clients bundled in BSH and DG HYP, along with the consumer The industry structure of the credit portfolio shown in the credit business of TeamBank determine the industry structure of table above maintains the same broad diversification from the the rest of the portfolio. previous year. DZ BANK invests its free liquid funds for the most part in securities with good credit quality. This is the reason The table below shows the geographical distribution of the for the high share of loans and advances to banks. To perform credit portfolio by country risk groups. As at December 31, 2007 its tasks as central bank to the cooperative financial services loans to Germany and the other western industrialized nations network, DZ BANK supplies refinancing to the companies in the made up the bulk of the total credit volume at 95 percent (pre- DZ BANK Group and the cooperative banks. This is why loans vious year: 96 percent). and advances to cooperative banks is the second largest item in the Group’s credit portfolio. DZ BANK also assists the Volksbank The diagram on page 29 shows the credit volume of DZ BANK and Raiffeisenbank financial institutions with major financing by GRC rating grouping. In this scale, rating group I is the best for corporate clients. The resulting syndicated business, the credit rating and rating group IV is the lowest. The “other” direct business of DZ BANK and DVB with corporate clients in category represents counterparties for which a rating classi­ Germany and abroad and the mortgage loan business with retail fi­cation is not required. 93 percent of lending (2006: almost

Credit risk concentration by country group

Credit volume Traditional lending business Securities business Derivative and money market business in € billion Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2006

Germany 74.8 71.6 28.2 30.1 4.5 4.8 EMU countries (excl. Germany) 5.8 5.4 31.3 26.3 4.9 4.7 Other EU countries 3.0 2.4 8.4 7.2 1.5 1.6 Other industrialized nations 8.3 5.5 16.6 17.0 2.3 3.6 Non-industrialized nations 8.2 6.0 1.8 1.6 0.6 0.1 Total 100.1 90.9 86.3 82.2 13.8 14.8 Management Report of DZ BANK AG 29 Risk Report

Credit rating structure of the credit portfolio

Credit volume in € billion

120 100 80 60 40 20 0

I II III IV V VI VII Other

GRC rating grouping Dec. 31, 2007 Dec. 31, 2006

94 percent) was to counterparties with rating classifications of I ing to the subprime segment. Less than 0.5 percent of the ABS to III (investment grade) at year end, whereas 6 percent (2006: portfolio was comprised of collateralized debt obligations linked 5 percent) of the credit volume was in the rating groups IV to VII to ABS receivables related to the US consumer financing market (non-investment grade, including default). Loans in default (as- segment. signed to rating group VII) remained at last year’s low level and are equivalent to less than 1 percent of DZ BANK’s total lending Analysis of allowances for losses on loans and advances portfolio. The changes in losses on loans and advances recorded in the financial statements are presented in the following table. ABS portfolio structure The ABS commitment of DZ BANK Group as at December 31, Net additions to individual loss allowances were positive and 2007 was € 18 billion, of which 92 percent came from AAA better than expected in the financial year. Individual loss allow- tranches. An additional 7 percent was AA rated. Accordingly, ances were reversed in the total. This was due in equal measure the predominant part of the Group’s ABS exposure was catego- to releases from successful restructuring efforts and the slightly rized in the top internal rating class (GRC rating group I). The reduced requirement for additions to new defaults. In the me- majority of ABS assets belonged to European and Asian coun- dium term, a return to a level of loan loss allowances commen- tries, with Europe accounting for more than half of the total. surate with this type of business is to be expected. The increase As at December 31, 2007, 15 percent of the ABS portfolio was in the level of general impairments reflects the higher overall comprised of US residential mortgage-backed securities belong- increase in loans and advances.

Allowances for losses on loans and advances

Individual Country risk General Total loss allowances­ in € million ­allowances ­provisions allowances on loans and ­advances

Portfolio at Jan. 1, 2007 1,038 58 227 1,323 Change during 2007 -123 2 117 -4 Portfolio at Dec. 31,2007 915 60 344 1,319 30 Financial Statements and Management Report 2007 of DZ BANK AG

Conclusion and outlook The equity investments shown in the banking book are primarily held for strategic reasons. The companies in which DZ BANK In the reporting period the DZ BANK internal rating system was holds strategic investments generally cover markets, market supplemented by a special rating system for acquisition financ- segments or parts of the value chain where the Bank itself or ing. In addition, the rating system for major clients which had the Volksbank and Raiffeisenbank financial institutions are not been in use for several years was fundamentally revised. The active. These investments support the marketing activities of the focus in 2007 in management of traditional lending collateral cooperative banks or help reduce costs by bundling functions. was again on further improving the quality of data. This par- The investment strategy is continuously aligned with the needs ticularly reflects the new requirements for credit risk mitigation of cooperative financial services network policy. techniques arising out of the Solvency Ordinance. Integration of trading transactions for the purpose of collateralization was Decisions on acquiring or disposing of investments are made implemented, as was an option for collateralizing credit transac- by the Board of Managing Directors in consultation with the tions through trading transactions. responsible boards. The staff position is primarily responsible for the operational management of companies in which equity It is planned to further develop internal rating systems in 2008 interests are held. Quantitative measurement and monitoring of for special segments, e.g. transactions with investment funds equity risks is the responsibility of Controlling, which keeps the with default risk, in order to complete DZ BANK’s range of staff department, Board of Managing Directors and Supervisory internal rating systems. Rating systems already used in internal Board informed of the results of quantitative measurement and management will be integrated into the IRB approval process monitoring of equity risks through quarterly reports. during 2008 so that they can be used in the capital adequacy process. It is also intended to integrate rating migration and The equity risk is measured as value-at-risk based on a variance- default risks into the internal market price risk model recognized covariance approach, with market price fluctuations derived by the regulatory authorities on the basis of the mark-to-market from stock exchange data. The economic capital requirement credit portfolio model. The collateral management system at in respect of DZ BANK’s equity risk amounted at December 31, DZ BANK will be further developed in the financial year 2008. 2007 to € 855 million, higher than at December 31, 2006 Further optimization of reporting structures is also planned in (2006: € 526 million). DZ BANK’s upper loss limit for the finan- internal credit risk reporting. cial year was € 860 million (2006: € 500 million). The significant increase in risk is a result of strategic changes in capital as well as the generally higher level of risk resulting from the current 4. Equity risk financial market crisis. Thevolume of equity investments in non- consolidated affiliates amounted to € 2,445 million at December Equity risk is the risk of unexpected losses due to a decline 31, 2007 (December 31, 2006: € 2,125 million). The volume in the fair value of investments below their carrying amount. growth results from strategic changes in capital as well as a Equity risks are always calculated for investments not under the planned increase in the book value of equity investments. purview of Board committee management. Equity risks arise out of equity investments which, due to their small share in the total equity of the companies in question, do not establish rights of information and control. Management Report of DZ BANK AG 31 Risk Report

5. Market price risk In addition, there are credit quality related market price risks in trading on own account with securities held in the collateral Definition pool. The collateral pool acts as a liquidity reserve, supporting the liquidity management function of DZ BANK as a central Market price risk comprises the market price risk in the narrow and commercial bank. The bank also uses the collateral pool to sense of the term and market liquidity risk together. generate additional margin revenue outside client business.

Market price risk in the narrow sense of the term – described DZ BANK manages market price risk in the credit business and below as market price risk – is the risk of loss due to adverse own issues as part of the non-trading portfolio and also accepts movements in market prices or parameters influencing prices. market price risks from holding issues of the primary banks and Depending on the underlying influences, market price risk is Group subsidiaries. In addition, strategic market price risks are subdivided into interest rate risk, credit spread risk, share risk, established in non-trading portfolios which are managed by the currency risk and commodities price risk. Bank’s Treasury Committee. The market price risk of the non- trading portfolio is primarily determined by the credit spread At DZ BANK Group, market price risks arise primarily out of risk. trading for clients and on own account, as well as through lend- ing and issuing operations. The most significant type of market Organization, responsibility and reporting price risk is credit spread risk. The DZ BANK’s market price risk arises from its trading and Market liquidity risk is the risk of loss due to adverse changes in non-trading portfolios. Management of market price risk is market liquidity, such as a reduction in market depth or market decentralized, managed on a portfolio by portfolio basis with disruptions. Market liquidity risk was assigned to market price the respective portfolio managers assuming responsibility for risk risk during the financial year; until last year, it was managed as and performance. part of liquidity risk. A quarterly Group risk report on the key market risk measures is Market price risk strategy submitted to the Group Risk Committee. In addition, risk con- trolling provide sdaily, weekly and monthly market risk updates For DZ BANK the principle is that market price risks may only as part of the regular management reporting system to both be accepted upon consideration of the associated opportunities to board members responsible for risk management and risk and within existing limits. controlling and to the portfolio managers.

The DZ BANK’s trading operations enters into market risk in Management of market price risks supporting the client business as well as to generate additional revenue outside the client business. The bank’s core competence Market price risk is determined using the value-at-risk method in trading for clients is its ability to accept and manage risks in on the basis of an internal risk model approved by BaFin for order to offer a product range aligned with client demand. The calculating capital requirements for general and specific market DZ BANK trading strategy is accordingly to seek profits primarily price risk under the Solvency Ordinance. Here, value-at-risk is through client and structural margins. Open market price risk calculated daily using historical simulation with a 99.00 percent positions result here primarily from holdings of securities in trad- confidence level over a one-year observation period for a hold- ing for clients and relate to the credit spread risk. ing period of 10 trading days. 32 Financial Statements and Management Report 2007 of DZ BANK AG

In contrast to the provisions of the Solvency Ordinance, value- simulating wide fluctuations in risk factors and are used to at-risk at DZ BANK is calculated for the purpose of market price identify potential losses which cannot be captured through risk management at all levels of the portfolio hierarchy with a value-at-risk. In the course of the stress tests, extreme market holding period of one trading day. The banking book items are movements from the past are used together with crisis scenarios included in the calculation of value-at-risk, again in contrast to which are seen as having economic relevance, independent regulatory reporting. of market data history. Simulated losses based on stress tests are continuously used to check the appropriateness of internal Market risk is managed through a limit system corresponding to limits. the portfolio structure, which restricts the market risk entered into along with any potential losses incurred over the course The procedure described for back testing and stress tests relates of the financial year. Within the trading divisions, value-at-risk to both the calculation of capital requirements using the internal based risk management is supported by limits based on sensitivi- risk model approved under the Solvency Ordinance as well as to ties and scenarios. the value-at-risk approaches, which are used solely for internal market price risk management. Market price risk mitigation Analysis of market price risks Hedging market price risks at DZ BANK is based on sensitivities and is done either through internal transactions with the trading The capital requirement for market price risks stayed within the department responsible for the product’s market presence, or upper loss limit at all times in the year under review. At Decem- through exchange. ber 31, 2007 the risk capital requirement was € 724 million (December 31, 2006: € 230 million), with an upper loss limit of Market price risk measurement includes the individual items € 900 million (2006: € 300 million). The total value-at-risk in subject to market price risk. Monitoring the effectiveness of trading and non-trading portfolios was € 56 million at Decem- hedge accounting is only required if the individual positions are ber 31, 2007 (2006: € 36 million). The graph on page 33 shows not included. At DZ BANK this is the case with back-to-back and the change of the total value-at-risk in DZ BANK’s trading opera- repackaging transactions, which exist on a minor scale. Monitor- tions over the course of the year. ing the effectiveness of hedge accounting is done by the unit in risk controlling responsible for the portfolio in question. The increase in value-at-risk is primarily a consequence of the crisis on the financial markets and the resulting widening of Back testing and stress tests credit spreads.

Back testing is used to check the predictive quality of value-at- Market liquidity risk risk approaches. Daily gains and losses are compared with the value-at-risk figures calculated using risk modeling. As part of Market liquidity risk is the responsibility of the portfolio manag- an annual appropriateness review, comprehensive statistical ers in charge of market price risk management. At DZ BANK, tests are carried out on the predictive quality of risk modeling. market liquidity risk arises DG HYP collateral pool. The securities which are more subject to market liquidity risk are asset-backed The stress tests performed at DZ BANK allow extreme market securities. In the course of the financial market crisis, there was movements to be taken into account. Crisis scenarios include also a shortage of market liquidity for securities classes which Management Report of DZ BANK AG 33 Risk Report

Value-at-risk in trading operations

in € million; 99.00% confidence level, holding period of one trading day

50

40

30

20

10

0

Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07

Value-at-risk Maximum Average Minimum

had previously been regarded as highly liquid. These are primar- in the collateral pool and as a means of achieving additional ily unsecured bank bonds and jumbo Pfandbrief securities from margins will be continued. As part of the investment banking Spanish and Anglo-American issuers. These securities are held growth initiative, there will be a risk-controlled and selective ex- for the purpose of DZ BANK’s trading for clients to meet client pansion of market price risk. DZ BANK will continue to follow its demand as well as in the BANK’s collateral pool. market price risk strategy of past years, with limits being defined on the basis of the Group’s risk-bearing capacity. Conclusion and outlook In 2008, the management system for market price risks will be In the course of the ongoing crisis on the financial markets expanded. As part of that effort, it is planned to augment the which began in mid-2007, a general increase in risk factors was DZ BANK internal risk model by event risk. After this addition, registered on the capital market which led to greater market abrupt and relatively rare market price changes due to events price risk in both the trading departments and non-traded such as rating changes, profit warnings or the insolvency of an portfolio at the DZ BANK Group. The primary reason for this rise issuer can be taken into account in risk modeling. In addition, in risk were mark-ups on the credit spreads of bank bonds and it is planned for market price risk limitation at DZ BANK to also asset-backed securities. This phase of heightened market price take into account correlation and hedging effects in setting risk is expected to continue into 2008. limits for the individual sub-portfolios. This procedure is used to make even more efficient use of the risk capital provided Over the next financial year, the focus of the trading business for market price risks. Economic losses will also be limited at in DZ BANK will be on the customer business. In addition, the the level of the overall bank and not at the level of the sub- strategy of using credit rated securities as a liquidity reserve portfolios. 34 Financial Statements and Management Report 2007 of DZ BANK AG

6. Liquidity risk Organization and responsibility

Definition The strategic guidelines for liquidity risk management are established at the level of DZ BANK by the Treasury Committee. Liquidity risk is the risk that cash and cash equivalents will not Liquidity risk management is done decentrally by the head office be available in sufficient amounts to meet payment obligations. Treasury department in Frankfurt and the Treasury departments In the risk management process, a distinction is made between of the international branches in London, New York, Singapore operational and structural liquidity. Operational liquidity involves and Hong Kong. Decentralized business activities are handled managing cash flows, while structural liquidity focuses on man- centrally by the head office Treasury department, following the agement of the maturity structure and the collateral pool. “global head” principle. Liquidity risk controlling is performed centrally by the head office Risk Controlling department. Liquidity risks arise out of the mismatch in time and amount between investing and obtaining liquidity and the grant of Management of liquidity risks liquidity options, for example in the form of irrevocable liquidity commitments. The maturity and creditor structure of money and Liquidity up to one year capital market refinancing and eligibility for pledging securities Monitoring liquidity up to one year is done through the liquidity holdings are the essential factors in liquidity risks. forecast, which is prepared on a daily, weekly or monthly basis. At DZ BANK, daily reporting compares cumulated liquidity flows Liquidity risk strategy (forward cash exposure) with the available liquidity reserves (counterbalancing capacity). The reports consider a normal The task of liquidity risk management is to ensure the solvency scenario as well as selected stress scenarios, and cover both ex- of DZ BANK Group overall as well as at the level of Group pected and unexpected liquidity figures. The report covers major companies at all times and in all currencies. This also includes positions of DZ BANK and payment flows from clearing with the ability to meet all cash outflows in a timely manner which Group subsidiaries. Limits are set using the minimum liquidity arise in a crisis scenario in addition to normal circumstances. The surplus ratio. The liquidity surplus is forecast over a 12-month indirect function of liquidity risk management is stabilizing and period. improving the bank’s own ratings and securing its reputation with clients and investors. Intraday liquidity is ensured through ongoing management of accounts at the head office and correspondence banks in Ger- Liquidity is seen as a type of risk which must be considered many and internationally by the units responsible for liquidity separately, and is actively managed with the goal of achieving a management. lasting reduction in refinancing costs. At Group level, individual companies are accordingly supplied by DZ BANK with refinanc- Besides the internal management instruments, short-term liquid- ing (group refinancing) or exchange funds between themselves ity risk is also limited by regulatory requirements. This applies to through DZ BANK (group clearing). The key activities in secured key domestic and foreign subsidiaries, which are subject to cor- and unsecured interbank refinancing are bundled at DZ BANK. responding national regulatory requirements for liquidity moni- Local refinancing advantages in terms of currencies and clients toring. Under these, a bank’s liquidity is regarded as adequate are utilized by individual Group companies and within DZ BANK if the liquidity ratio (to be reported monthly to the regulatory through the Treasury departments of the international branches. entity) does not drop below 1. The liquidity ratio is the ratio of This approach is taken to avoid price differences which would the funds available in the first maturity band and the payment arise out of an independent presence in the market. obligations callable during the period. During the financial year Management Report of DZ BANK AG 35 Risk Report

Liquidity ratios

Dec. 31, 2007 Sep. 30, 2007 Jun. 30, 2007 Mar. 31, 2007 Dec. 31, 2006

Maturity band up to month 1.22 1.35 1.39 1.34 1.22

DZ BANK complied at all times with the provisions of Art. 11 of As it is only possible to obtain unsecured liquidity to a limited the German Banking Act (KWG) in combination with the Liquid- extent on the money market, the Treasury department carries ity Ordinance. out monthly structural analyses of detailed resources on the liabilities side. These are used for management informa- The table above shows the DZ BANK’s liquidity ratios as cal- tion and are the basis for active management of the liability culated according to the Liquidity Ordinance. The ratios were profile. higher during the year than at year end as a result of liquidity outflows around the year end date. To secure liquidity on an ongoing basis, there are portfolios available with securities eligible for central bank rediscounting Overall liquidity movements which can be sold quickly or used as collateral for refinancing To manage overall liquidity movements, statements of changes in central bank operations, for bilateral repos or in the tri-party in liquidity are drawn up by the key subsidiaries at least monthly. repo market (secured refinancing). In the event of a short-term These reports are sent to the boards responsible for strategic li- need for liquidity, securities from the trading departments which quidity positioning. Strategically undesirable shortages in liquid- are not refinanced through repo activities can be used for intra- ity are made up by managing issuing and redemption. Liquidity day liquidity management. management also involves setting internal transaction rates for asset and liability transactions which tie up liquidity. Long-term refinancing is secured through structured and un- structured capital market products which are mainly marketed Refinancing through Depot A and Depot B of the Volksbank and Raiffeisen- Short and medium-term refinancing is based on an appropriately bank financial institutions and through institutional clients in broad diversification in terms of regions, investors, markets, Germany and abroad. DZ BANK has the option of obtaining products and maturities. The deposits at cooperative banking liquidity through covered issues. This is done through DZ BANK financial institutions are a key source of refinancing. The table BRIEFE securities. In this case, refinancing is primarily through below shows the breakdown of material unsecured short and institutional investors. medium term refinancing, compared to the previous year.

Non-collateralized short and medium-term refinancing

in % Dec. 31, 2007 Dec. 31, 2006

Cooperative banks 39 33 Inter-bank 35 38 Corporate customers 19 16 Commercial paper / certificates of deposit 7 13 36 Financial Statements and Management Report 2007 of DZ BANK AG

Liquidity risk mitigation tory requirements of BASEL II. These include illegal internal acts, labor disputes, loss due to negligence, product development Through the structurally matched refinancing and investment and sale, product presentation, project management, legal of the assets and liabilities which are a source of liability, the violations, exceeding authority, technology, illegal external acts, maintenance of collateral pools and the diversification of the negligibly or naturally caused events outside the Bank, relation- liability profile in the money market in terms of creditor groups, ships with non-clients and changes in court rulings. DZ BANK has a comprehensive range of instruments to miti- gate the liquidity risk. There are liquidity emergency plans for Strategy for operational risk responding quickly and in a coordinated manner to crisis events, which are reviewed annually. The central goal is efficient management of operational risks. The following sub-strategies represent criteria to be fulfilled in Conclusion and outlook support of this central goal: – Enhance risk awareness so it is reflected in a risk culture. Liquidity management followed usual daily processes through- – An open and largely penalty-free approach to operational risks out the crisis on the financial markets during the second half of promotes a mindset of finding solutions to problems. 2007. Recourse to liquidity emergency plans was not necessary. – A balanced relationship between opportunities and risks is preferred to a general strategy of risk avoidance. Besides risk The liquidity gaps revealed by the statements of changes in avoidance, risk mitigation, risk transfer and risk acceptance are liquidity do not indicate any mismatches in the refinancing all part of the central management strategies. structure which would pose a risk to the company as a going – Corresponding tolerance of risk is defined in the form of up- concern in the coming financial year. The stress tests for liquidity per loss limit for operational risks and modified for prevailing up to one year still show surplus liquidity even with very unlikely circumstances. crisis events. Scenarios used as part of the stress tests exceed – Individual methods for managing operational risk are coordi- the effects of the current financial market crisis substantially, nated so that they provide an accurate and comprehensive both in terms of scope and character. picture of the risk situation which is integrated logically into overall management covering all types of risks. – Operational risks are managed decentrally. 7. Operational risk – Compliance with relevant regulatory requirements must be ensured at all times. Definition Organization and responsibility In close adherence to the regulatory definition, DZ BANK regards operational risk as the possibility of unexpected loss due The starting point for all other tools is the functional organiza- to human behavior, technological failure, weakness in process or tion model, which describes in detail the tasks and responsibili- project management or external events. Legal risk is included in ties of those involved in the process. Basic responsibility for this definition. managing operational risks is assigned decentrally to individual operations. Cross-departmental functions such as legal, staff- The DZ BANK uses an internal catalogue for categorizing opera- ing or IT management, are handled by special operations and tional risk events, although this is compatible with the regula- departments as part of central risk management. Management Report of DZ BANK AG 37 Risk Report

Management of operational risks liability regulations, and avoiding risky products. Contingency plans for critical business processes are implemented to ensure Estimates of potential losses from operational risks are made ongoing operations. both as part of risk management as well as to determine regula- tory capital adequacy requirements, using the standard approach Analysis of operational risks under the Solvency Ordinance. At December 31, 2007, the economic capital requirement for Collecting loss data makes it possible to identify, analyze and DZ BANK’s operational risk amounted to € 186 million (De- evaluate loss events in order to identify trends and concentra- cember 31, 2006: € 192 million). During the financial year, tions of operational risk. This data is also used to build up a data this figure consistently remained below the upper loss limit of history to be supplemented with external data. Sources of this € 230 million (2006: € 330 million). external data includes published external data (FIRST) as well as anonymous data shared between participants of the German Conclusion and outlook public sector banks’ consortium (DakOR). During the financial year, DZ BANK continued to drive the con- To identify and evaluate all material operational risks and create cept for and implementation of sophisticated tools for manag- maximum possible transparency of the risk position, experts ing and controlling operational risks. In parallel with this, work is from all segments evaluate operational risk through self-assess- proceeding to expand economic capital accounting, in order to ment processes. Self-assessment generally involves a potential make capital management of operational risks even more risk- risk assessment to identify significant risks, questions on the risk sensitive in the long term. management process and questions on specific individual risks.

To supplement the loss database as well as for self-assessment, 8. Strategic risk risk indicators allow trends in the evolution of risk to be identi- fied early on. Based on pre-set thresholds, risk situations are Definition indicated by warning lights. Risk indicators are collected system- atically and regularly on a broad scale. Strategic risk is the possibility of losses arising out of manage- ment decisions on the business policy position of DZ BANK. Finally, regular reports on loss data, self-assessments and risk in- Strategic risks also arise out of unexpected changes in market dicators are sent to the Board of Managing Directors, the Group and business conditions which adversely affect earnings. Risk Committee and operational management, ensuring timely management of operational risk. An important element of strategic risk is business risk. This is po- tential loss which arises if declining revenue cannot be offset by Mitigating operational risks cost savings or alternative or complementary sources of revenue.

Operational risk is mitigated and frequency of loss reduced primarily through the ongoing improvement of business pro- cesses. Other security measures include transferring risk through insurance or through outsourcing, including risk transfer under 38 Financial Statements and Management Report 2007 of DZ BANK AG

Organization and responsibility banking operations. In this way DZ BANK offers financial prod- ucts tailored to the needs of private and SME corporate custom- Management of strategic risk is the primary responsibility of ers of the local cooperative banks, operates an institutional and the DZ BANK Board of Managing Directors, and is carried out corporate business in a subsidiary role for the financial network in consultation with the senior management of Group compa- and provides processing services to the cooperative banks on nies. Group management is integrated into a system of boards competitive terms thanks to economies of scale. headed by the Group Coordination Committee. As the organiza- tion’s leading committee, it is supported by five function-related The diversified business structure contributes to DZ BANK’s long- working groups with representatives of all functional areas – for- term earnings stability. Excellent product quality, innovation, eign coordination, product and marketing coordination, IT, op- high quality processing and appropriate branding ensure a com- erations and resources, risk management, company and Group petitive position and lay the basis for lasting earnings growth. management. Business operation management is supported by By bundling middle and back office functions and processes, business segment advisory councils comprising representatives DZ BANK has achieved a competitive cost position. The structure of cooperative banks. This structure plays a major role in avoid- of earnings and costs at DZ BANK ensures that target yields will ing or limiting strategic errors, and makes possible the maximum be achieved, thereby making a decisive contribution towards level of coordination while preserving subsidiarity for the benefit limiting strategic risk. of the cooperative banks. Focus initiatives Management of strategic risks In close consultation with the business segment advisory councils, the DZ BANK divisions and Group subsidiaries have Management of strategic risks is based on advance assessment formulated business area strategies and strategic initiatives of success factors and targets for the divisions of DZ BANK. The (including “focus initiatives”) with the aim of improving the basis for this is the strategic planning dialogue, with its modules capability of the cooperative banks. One of these is an initiative for financial planning, regulatory and economic equity planning, called “Financial partner for the cooperative financial services planning for fees and commission income to cooperative banks, network”, which under the leadership of DZ BANK is work- and strategic initiatives. A management information system ing on improving the retail business for the Volksbank and monitors target compliance. Raiffeisenbank financial institutions. The Group Coordination Committee receives regular reports on the current status of the Group strategic position and performance business segment strategies and individual focus initiatives. Strategic potential The strategic potential of DZ BANK is closely linked to the Market and business conditions DZ BANK Group as a whole. The DZ BANK Group is a leading The “Outlook” section presents the expected developments in provider of ône-stop financial products and processing services the market and business conditions, along with the business in Germany, thereby supporting the business of the cooperative strategy and its implications for earnings performance in finan- financial services network. As parent company, DZ BANK man- cial year 2008. These factors are crucial determinants of the ages the activities of the DZ BANK Group and also has its own Group’s strategic positioning in the 2008 financial year. Management Report of DZ BANK AG 39 Risk Report

Measurement and analysis of strategic risks risk to the company’s continued existence as a going concern. Economic and regulatory requirements for capital adequacy are The strategic risk is approximated by an aggregate approach in expected to be met in the 2008 financial year as well. As the which the total undiversified risk capital requirement from mar- ratio between risk capital requirement and aggregate cover, eco- ket price risks, default risks and operational risks is multiplied by nomic capital adequacy will decline in financial year 2008 due to a factor based on empirical benchmark analysis. the increase in the level of confidence in risk measurement from 99.90 percent to 99.95 percent. DZ BANK’s economic capital requirement for strategic risk amounted to € 102 million at December 31, 2007 (December 31, 2006: € 75 million), and during the financial year remained at all times below the upper loss limit of € 147 million (2006: € 158 million).

9. Summary

Effective management and controlling tools are used in all areas of risk at DZ BANK, and are being successively refined and developed. Development of these tools is in alignment with the regulatory solvency requirements for risk management.

Risk capital management ensures consistent and comprehen- sive identification of risk. Economic capital adequacy analysis is based on both derivation of the risk-bearing capacity and calculation of the risk capital requirement using a value-at-risk approach oriented to the rating of the DZ BANK. This is then used to calculate risk-adjusted profitability. Management based on HGB accounting is supplemented by the EVA and RORAC key ratios as integral parts of the strategic planning process. Overall, this approach ensures the necessary transparency of risk structure and profitability, laying the foundation for manage- ment which balances opportunity and risk.

DZ BANK stayed within the limits of its economic risk-bearing capacity during the financial year. In addition, the regulatory requirements for solvency were met at all times. There was no 40 Financial Statements and Management Report 2007 of DZ BANK AG

III. Outlook In the light of general economic conditions over the next two financial years, DZ BANK expects that the existing business op- portunities will outweigh the risks described in the risk report. The economy in Germany was slowed in the second half of 2007 by uncertainty about the effects of the US credit crunch, DZ BANK Group expects operating income to rise slightly. Imple- the sharp rise in the price of oil and the appreciation of the mentation of strategic measures in Corporate Banking begun in Euro. Economic growth in financial year 2008 is likely to be financial year 2007 should have a positive impact on net interest lower than in financial year 2007, with a shift in emphasis from income. It is planned to expand the indirect corporate client exports to domestic demand. business operated jointly with the cooperative banks into struc- tured financing products and solutions. An improved market Investment spending is likely to be lower than in financial year position in business with the upper end of the SME segment will 2007 because of the change in tax regulations for corporate be an additional success factor. The Bank’s market presence in investment and the foreseeable weakness in real estate building. structured finance will be expanded outside Germany. However, the continuing improvement in employment and com- paratively high level of wage increases are leading to growth DZ BANK’s fees and commission net income should remain in household disposable income, with an accompanying rise in stable. Market initiatives to push the DZ BANK’s certificate busi- private consumption. The savings rate is likely to drop. Retire- ness, in particular by strengthening the AKZENT Invest brand, ment provisions will continue to be an important factor and will help grow commission earnings. At the same time, com- business for financial services providers will also be characterized mission expenses will increase with expansion in corporate and in financial year 2008 by restructuring in connection with the investment banking. introduction of the Abgeltungssteuer in Germany (withholding tax on capital gains). Growth is also expected in net income from financial trans­ actions, as the measures taken by DZ BANK in the course of The market turbulence triggered by the crisis on the financial the investment banking growth initiative to expand domestic markets will continue to affect the banking sector throughout primary market activities in the equities sector and business with 2008. DZ BANK does not expect normalization in the financial institutional clients should come to fruition in the next several markets before the end of financial year 2008. years.

In the first quarter of 2008, the crisis on the financial markets Growth in processing services should be achieved as a result of widened even further, not only affecting the share prices of expansion in the card business and as a result of the introduc- companies providing real estate financing and financial institu- tion of SEPA. Economies of scale and continuous efficiency tions in the credit and bond insurance sector but also other improvements should enable the bank to optimize the cost parts of the US mortgage market and credit card sector, along structure of this business. with borrowers who had average to good ratings. Following a review of ratings, a number of rating agencies downgraded The DZ BANK’s administrative expenses will increase. Growth their assessment of numerous ABS securities. This widened the initiatives in corporate banking and investment banking will global credit spreads of bank bonds further. At the time this require additional employees both in front office and in back report was released DZ BANK had no indications that other ­office units. In order to contain growth-related pressure on additional defaults or losses need to be realized. However, the costs, investments will be implemented with strict internal crisis did give rise to further valuation adjustments – presumed controls. In addition, projects already under way, such as the to be mostly temporary – on the ABS portfolio in the mid range implementation of a new customer relationship management of a three-digit million figure. Nevertheless, it is still anticipated system, are expected to improve efficiency. that this trend will reverse itself over the medium term. Management Report of DZ BANK AG 41 Outlook

It is expected that the expansion of business in the coming years which are critically important for DZ BANK. The IASB has an- will result in the requirement of additional allowances for losses nounced that there will be no major new standard published on loans and advances. with mandatory application before 2009. As a result, increased expense on implementing new and binding rules can be ex- DZ BANK’s segments are under increasing competitive pressure, pected in the 2009 financial year. which in turn puts pressure on prices. Jitters on the financial market could have a strong negative impact on DZ BANK’s In regulatory terms, DZ BANK will also monitor developments at results. Further, there is a risk that growth initiatives will not European level and comply with any resulting new requirements. achieve the expected results. Currently, new rules for large loans and harmonization of the term “hybrid capital” are likely. At the national level, a key area In light of the above, DZ BANK expects stable earnings for finan- will be activities in preparation for the use of IFRS consolidated cial year 2008, while measures planned for 2008 should lead to financial statements for regulatory purposes. improved levels of profit in 2009. For tax planning purposes DZ BANK has to take into account Demands on DZ BANK from the regulatory and statutory envi- from January 1, 2008 the changes under the 2008 corporation ronment and national and international accounting requirements tax reform and 2008 Annual Tax Act. The corporation tax reform will continue to rise. will reduce the domestic nominal income tax burden from its current approx. 40 percent to around 31 percent. Despite the On November 8, 2007 the German Federal Ministry of Justice accompanying expansion of the assessment base (particularly by submitted a draft act to modernize the German accounting introducing the interest stripping rule, limiting loss offsets from rules (BilMoG). acquisitions, abolishing declining balance depreciation), the amendments will have a positive effect on current tax expense The purposes of BilMoG are to ease the burden on companies in the next two financial years. The introduction of the capital and improve the quality of information provided by the annual gains tax will result in increased administrative expenses and financial statements prepared in accordance with German changes in the related product activities. The new income tax Commercial Code (HGB) by harmonization with International rates have already been incorporated into deferred tax items for Financial Reporting Standards (IFRS). Currently, BilMoG is not DZ BANK in the present financial statements. expected to result in any major relief for DZ BANK as a company which securities are admitted to trading on a regulated market in the EU. Implementation of BilMoG for the annual financial statements prepared in accordance with HGB and the effects on tax and regulatory provisions will occupy the companies in the DZ BANK Group in the 2008 financial year and tie up resources.

With respect to IFRS accounting, as part of the Convergence Project with the US Financial Accounting Standards Board (FASB) the International Accounting Standards Board (IASB) is about to revise specifically the rules for consolidated financial statements and business combinations, fair value measurement, presenta- tion of consolidated financial statements, revenue recognition, leasing and income taxes. The IASB is also currently revising rules on financial instruments and dealings with related parties, 42 Financial Statements and Management Report 2007 of DZ BANK AG Annual Financial Statements of DZ BANK AG

Balance Sheet of DZ BANK as at December 31, 2007 44 C. Notes to the Income Statement of DZ BANK 64 Income Statement of DZ BANK for the 46 25 | Breakdown of income by geographical 64 Period from January 1 to December 31, 2007 markets Notes to the Annual Financial Statements of 48 26 | Fee and commission income and expenses 64 DZ BANK 27 | Administration and agency services provided 64 for third parties A. General Information on the Financial Statements 48 28 | Other operating income and expenses 64 of DZ BANK 29 | Extraordinary income and expenses 65 1 | Legal basis on which the annual financial 48 30 | Taxes on income and earnings 65 statements have been prepared 31 | Proposed appropriation of profits 65 2 | Accounting and valuation principles 48 3 | Currency translation 51 D. Other Information on the Financial Statements 66 of DZ BANK B. Notes to the Balance Sheet of DZ BANK 52 32 | Other financial obligations 66 4 | Residual maturity structure 52 33 | Letters of comfort 66 5 | Affiliated and associated companies 54 34 | Employees 66 6 | Loans and advances to and deposits from 54 35 | Auditors‘ fees 67 affiliated banks 36 | Cover statement 67 7 | Subordinated assets 55 37 | Cover trustees 68 8 | Trust operations 55 38 | Statutory bodies 68 9 | Foreign currency positions 56 39 | Appointments held by members of the Board 71 10 | Repurchase agreements 56 of Managing Directors and employees on 11 | Assets assigned as security 56 supervisory bodies 12 | Structure of securities portfolio by purpose 56 13 | Securities eligible for stock exchange listing 57 14 | Changes in intangible assets, property 57 and equipment and financial assets 15 | Changes in equity 58 16 | Shareholder disclosures 59 17 | Other assets 59 18 | Deferred taxes 59 19 | Accruals and deferrals 59 20 | Other liabilities 60 21 | Subordinated liabilities 60 22 | Capital participation rights 61 23 | Off-Balance-sheet forward transactions 62 by product area 24 | Off-Balance-sheet forward transactions by 63 counterparty structure 44 Financial Statements and Management Report 2007 of DZ BANK AG

Balance Sheet of DZ BANK as at December 31, 2007 Assets

in € million (Note) Dec. 31, 2007 Dec. 31, 2006

1. Cash reserve 721 946 a) Cash on hand 0 0 b) Balances with central banks 721 946 of which: with Deutsche Bundesbank (712) (937) 2. Debt instruments of public-sector entities and bills of exchange eligible for refinancing at central banks 36 250 Treasury bills, discountable treasury notes and similar debt instruments of public sector entities 36 250 of which: eligible for refinancing at Deutsche Bundesbank (–) (215) 3. Loans and advances to banks (4, 6) 105,183 103,628 a) Repayable on demand 7,404 6,808 b) Other receivables 97,779 96,820 4. Loans and advances to customers (4) 32,133 27,282 of which: secured by mortgages (141) (144) local authority loans (1,641) (2,180) 5. Bonds and other fixed-income securities (4, 12, 13) 108,871 102,687 a) Money market instruments issued by 1,920 1,080 aa) public sector issuers – 64 of which: qualifying as repo collateral at Deutsche Bundesbank (–) (–) ab) other issuers 1,920 1,016 of which: qualifying as repo collateral at Deutsche Bundesbank (–) (–) b) Bonds issued by 102,548 98,172 ba) public sector issuers 6,413 9,174 of which: qualifying as repo collateral at Deutsche Bundesbank (5,569) (7,856) bb) other issuers 96,135 88,998 of which: qualifying as repo collateral at Deutsche Bundesbank (56,988) (51,787) c) Own bonds 4,403 3,435 Nominal value (4,403) (3,403) 6. Shares and other non fixed-income securities (12, 13) 1,824 1,677 7. Equity interests (13, 14) 680 677 of which: in banks (530) (529) 8. Shares in affiliated companies (13, 14) 10,133 9,427 of which: in banks (1,026) (1,473) in financial services institutions (8) (8) 9. Assets held on trust basis (8) 1,545 1,703 of which: trust loans (379) (468) 10. Intangible assets (14) 47 50 11. Property and equipment (14) 54 67 12. Other assets (17) 3,344 2,908 13. Deferred taxes (18) 527 – 14. Accruals and deferrals (19) 1,208 1,405 a) from issuing and lending operations 461 545 b) other 747 860 Total assets 266,306 252,707 Financial Statements of DZ BANK AG 45 Balance Sheet

Equity and liabilities

in € million (Note) Dec. 31, 2007 Dec. 31, 2006

1. Deposits from banks (4, 6) 163,572 150,186 a) Repayable on demand 25,704 24,636 b) Fixed term or agreed notice 137,868 125,550 2. Amounts owed to other depositors (4) 37,869 38,525 Other liabilities 37,869 38,525 a) Repayable on demand 5,129 6,370 b) Fixed term or agreed notice 32,740 32,155 3. Debt certificates, including bonds (4) 45,522 44,776 a) Issued bonds 40,346 35,735 b) Other debt certificates, including bonds 5,176 9,041 of which: money market instruments (5,176) (9,041) 4. Liabilities arising from trust operations (8) 1,545 1,703 of which: trust loans (379) (468) 5. Other liabilities (20) 4,241 3,962 6. Accruals and deferrals (19) 472 388 a) from issuing and lending operations 120 60 b) other 352 328 7. Provisions (2, 4) 1,441 1,156 a) Provisions for pensions liabilities and other post-retirement benefit obligations 575 442 b) Provisions for taxes 95 85 c) Other provisions 771 629 8. Subordinated liabilities (4, 21) 2,941 3,193 9. Capital participation rights (4, 22) 1,309 1,437 of which: maturing within two years (333) (209) 10. Funds for general banking risks 1,627 1,627 11. Total equity (15) 5,767 5,754 a) Subscribed capital 3,028 3,028 b) Capital reserve 1,109 1,109 c) Revenue reserves 1,474 1,466 ca) Statutory reserve 61 53 cb) Other revenue reserves 1,413 1,413 d) Net profit 156 151 Total equity and liabilities 266,306 252,707

1. Contingent liabilities 5,256 5,404 Liabilities arising from guarantees and warranties provided 5,256 5,404 2. Other obligations 17,781 19,705 Irrevocable credit commitments 17,781 19,705 46 Financial Statements and Management Report 2007 of DZ BANK AG

Income Statement of DZ BANK for the Period from January 1 to December 31, 2007

in € million (Note) 2007 2006

1. Interest income from 6,678 5,570 a) Lending and money market operations 4,684 3,996 b) Fixed-income securities and registered debt 1,994 1,574 2. Interest expenses 6,300 5,260 3. Current income from 345 270 a) Shares and other non fixed-income securities 25 18 b) Equity interests 27 15 c) Shares in affiliated companies 293 237 4. Income from profit pools and profit transfer or profit sharing agreements 260 178 5. Fee and commission income (26) 615 643 6. Fee and commission expenses (26) 391 374 7. Net gain/loss on financial transactions -519 375 8. Other operating income (28) 80 65 9. General administrative expenses 771 881 a) Staff expenses 450 576 aa) Wages and salaries 372 368 ab) Compulsory social security contributions and expenses for pension benefits and welfare 78 208 of which: for pension benefits (34) (164) b) Other administrative expenses 321 305 10. Depreciation and valuation allowances on tangible and intangible assets 43 40 11. Other operating expenses (28) 51 54 12. Depreciation and valuation allowances on loans and advances and certain securities, plus additions to provisions in the lending business 370 61 13. Depreciation and valuation allowances on equity interests, shares in affiliated companies, and securities treated as fixed assets – 0 14. Income from the reversal of valuation allowances on equity interests, shares in affiliated companies, and securities treated as fixed assets 514 – 15. Addition to fund for general banking risks – 77 16. Expenses from the assumption of losses 332 145 17. Result of ordinary activities -285 209 18. Extraordinary income (29) 204 – 19. Extraordinary expenses (29) 427 29 20. Extraordinary profit/loss -223 -29 21. Taxes on income and earnings (30) -673 -348 22. Other taxes, not included under Other operating expenses heading 1 0 23. Net income for the financial year (31) 164 528 Financial Statements of DZ BANK AG 47 Income Statement

in € million (Note) 2007 2006

24. Earnings brought forward from the previous year 0 0 25. Withdrawals from revenue reserves – 64 a) from the reserve for own shares – 44 b) from other revenue reserves – 20

26. Allocations to revenue reserves 8 441 a) to the statutory reserve 8 26 b) to the reserve for own shares – 20 c) to other revenue reserves – 395 27. Net profit 156 151 48 Financial Statements and Management Report 2007 of DZ BANK AG

Notes to the Annual Financial Statements of DZ BANK

A. General Information on the Financial Statements of DZ BANK

1 | Legal basis on which the annual The annual financial statements of DZ BANK AG Deutsche Zentral-Genossenschaftsbank financial statements have been (DZ BANK), Frankfurt am Main, for the year ending December 31, 2007 have been prepared in prepared accordance with the requirements of the German Commercial Code (HGB) and the German Or- dinance on Accounting for Banks (RechKredV). At the same time, the annual financial statements are in accordance with the provisions of Germany’s Joint Stock Corporations Act (AktG) and the DG BANK Transformation Act (DG BANK-Umwandlungsgesetz) as well as the Articles of Associa- tion of DZ BANK.

All monetary values are stated in euro in compliance with Art. 244 HGB. Information has been provided through the notes rather than through the balance sheet in certain cases where the option permitted.

2 | Accounting and Loans and advances to banks and customers valuation principles Loans and advances to banks and customers are shown at their nominal value or cost of aquisi- tion. Differences between their nominal value and disbursement value are apportioned pro rata and shown under accrued and deferred items. Promissory notes, registered bonds and lease receivables purchased from third parties are stated at cost of aquisition.

Without exception, receivables recorded within current assets are valued in accordance with the strict lower of cost or market principle. The total amount for loans and advances to banks and customers includes promissory notes, registered bonds and lease receivables assigned to the bank’s investment book that are matched by corresponding interest-rate hedge transactions as part of bank-wide risk management. These constitute distinctive valuation units.

Impairment losses on loans and advances encompasses valuation allowances and loan loss pro­ visions in respect of credit, country, and latent default risk, and the provision for general banking risk (Art. 340f para. 1 HGB). Appropriate provision is made for expected losses based on known credit and country risks. Latent credit risks are covered by general impairments, based on the average actual loan loss incurred in the preceding five financial years. In determining these provi- sions, those principles have been applied which are used by the tax authorities for recognizing general impairments for losses on loans and advances, which are also appropriate from a com- mercial perspective. Financial Statements of DZ BANK AG 49 Notes

Bonds and other fixed-income securities, shares and other non fixed-income securities

All current and non-current securities are valued in accordance with the strict lower of cost or market principle. Securities are measured based on current fair values. Where no current fair values are available, fair values are estimated using valuation models. The valuation models take account of specific market parameters such as interest curves, credit risk spreads, volatility and currency rates. Where relevant market parameters are not available, estimates are generated for the purpose based on internal information (for example, correlations).

Certain securities which are structured in portfolios and held in non-current assets or within the liquidity reserve are accounted for using valuation units. Valuation units are formed from on-bal- ance sheet transactions with similar risk characteristics together with their corresponding hedge transactions. Within individual valuation units, positive and negative valuation results on constitu- ent financial instruments are netted off. Whereas an overall valuation gain is not reported within earnings, provision for impending losses is made from pending transactions for the purpose of an adverse balance.

Dividend income from shares and other non fixed-income securities held as investment assets as part of the liquidity reserve is shown under the heading of Current income from shares and other non fixed-income securities.

Equity interests and shares in affiliated companies

Equity interests and shares in affiliated companies are reported at amortized cost.

Tangible and intangible fixed assets

Tangible fixed assets (property and equipment) are valued at cost of aquisition less depreciation which is allocated over the expected useful lives of the assets, primarily based on depreciation tables issued by the German tax authorities. Minor value assets are written off in full in the year of acquisition.

As a rule, operating equipment and systems, including office furniture, are depreciated on a straight-line basis.

Where impairments are expected to be of enduring nature, exceptional write-downs are made. If the causes of a write-down cease to apply, the exceptional write-down is reversed.

Intangible fixed assets are valued at cost of aquisition and amortized on a straight-line basis. The ­assumed useful lives range from 3 to 10 years. 50 Financial Statements and Management Report 2007 of DZ BANK AG

Liabilities

Liabilities are stated at their repayment value. The difference between their nominal value and repayment values is taken to accruals and deferrals, and released pro rata.

Provisions

Provisions for pensions and other post retirement benefit obligations are calculated according to actuarial principles. Current pension obligations to retirees and obligations to former employ- ees who have a pension entitlement are determined as a defined fractional amount of the total liability. As in the prior reporting period, provisions for pensions other post-retirement benefit obligations were determined using a discounting rate of 4.5 percent. To cover pension obliga- tions, DZ BANK uses a separate company, DZ BANK Mitarbeiter-Unterstützungseinrichtung GmbH, Frankfurt am Main. In addition, DZ BANK has transferred funds to DZ BANK Pension Trust e.V., Frankfurt am Main, which performs the role of trustee vis-á-vis the bank’s pension-entitled employees and current pension recipients. In the reporting period certain indirect pension obliga- tions of DZ BANK were converted to direct obligations. DZ BANK Mitarbeiter-Unterstützungsein- richtung GmbH is funded up to permitted funding requirement levels. The excess of fund assets was transferred to DZ BANK Pension Trust e.V.

Provisions for tax liabilities payable were made in compliance with applicable tax law. Other pro­ visions were made on the basis of prudent commercial judgment to cover the expected amounts of uncertain liabilities and the threat of losses arising on pending transactions.

Trading operations

The trading positions encompass bonds and other fixed-income securities, shares and other non fixed-income securities, promissory notes, registered bonds and derivative financial instruments (interest rate, exchange rate, credit and equity derivatives).

Trading positions which can be shown to be permanently hedged against market risk as part of the limits system are measured using a modified fair value methodology as part of the portfolio valuation system. This involves aggregating these trading positions into portfolios and measuring them at fair value. To ensure that the profits recorded in the income statement only include un- realized profits from positions which are substantially closed, a value at risk discount is applied to the calculated result. The value at risk discount is determined using mathematical models to de- termine a loss potential (value at risk) discount. The determination of the value at risk discount is based on quantitative and qualitative solvency indicators determined by regulators. The fair ­values applied to the derivative and non-derivative financial instruments are based on observed fair Financial Statements of DZ BANK AG 51 Notes

values, to the extent that these are available, or on the basis of generally accepted measurement models and methods. To the extent that estimates of market prices or fair values are determined using the Bank’s own parameters, the resulting fair values are subjected to additional discounts consistent with the Bank’s models used for internal risk management.

Other trading positions are valued using the strict lower of cost or market principle.

In addition to the valuation results, current interest payments and dividend income on securities held for trading purposes, current payments on derivative financial instruments held for trad- ing purposes, on securities repurchase and securities lending transactions, and the refinancing costs attributable to trading positions (including deferred income and expense) are shown in the income statement under the heading Net gain/loss on financial transactions.

Other

Investment expenses are offset against the corresponding income. Income and expenditure from the valuation of lending transactions and for the valuation of securities held as part of the liquid- ity reserve are shown net.

The fund for general banking risks required under Art. 340g HGB amounts to € 1,627 million (2006: € 1,627 million). In addition, contingency reserves are made in compliance with Art. 340f HGB.

3 | Currency translation Currency translations for assets and liabilities as well as rights, obligations and commitments which result from foreign currency transactions are undertaken in accordance with the principles defined in Art. 340h HGB, and with Statement 3/1995 of the Banking Experts Committee (BFA) of the Institut der Wirtschaftsprüfer (IDW).

Assets denominated in foreign currencies that are treated as non-current assets and are not specifically covered in the same currency, are carried at historical cost of acquisition. Specifically covered assets are defined as assets that are matched by contrary positions on the liabilities side, or futures or option transactions.

Other foreign currency assets and liabilities and open spot transactions are translated at the mid spot rate on the accounting date, and forward forex transactions at the forward rate on the ­accounting date.

Where forward exchange deals are connected with the hedging of interest-bearing balance sheet items, the resulting swap expense and income is treated as interest expense and interest earned, reflecting its character. 52 Financial Statements and Management Report 2007 of DZ BANK AG

B. Notes to the Balance Sheet of DZ BANK

4 | Residual maturity structure Asset positions

in € million Dec. 31, 2007 Dec. 31, 2006

Other loans and advances to banks 97,779 96,820 – up to 3 months 43,537 47,451 – between 3 months and 1 year 12,116 11,750 – between 1 year and 5 years 19,342 18,760 – more than 5 years 22,784 18,859 Loans and advances to customers 32,133 27,282 – up to 3 months 13,659 12,506 – between 3 months and 1 year 2,671 1,897 – between 1 year and 5 years 9,067 6,858 – more than 5 years 4,655 4,206 – no fixed term 2,081 1,815 Bonds and other fixed-income securities 108,871 102,687 – up to 3 months (maturing in the subsequent year) 5,855 3,722 – between 3 months and 1 year (maturing in the subsequent year) 14,603 11,605 – between 1 year and 5 years 54,931 56,864 – more than 5 years 33,069 30,177 – no fixed term 413 319 Financial Statements of DZ BANK AG 53 Notes

Liability positions

in € million Dec. 31, 2007 Dec. 31, 2006

Deposits from banks with an agreed term or notice period 137,868 125,550 – up to 3 months 84,110 72,283 – between 3 months and 1 year 12,706 10,581 – between 1 year and 5 years 16,528 17,143 – more than 5 years 24,524 25,543 Amounts owed to other depositors Other liabilities with an agreed term or notice period 32,740 32,155 – up to 3 months 16,822 15,223 – between 3 months and 1 year 1,975 2,207 – between 1 year and 5 years 4,521 5,415 – more than 5 years 9,422 9,310 Debt certificates, including bonds Issued bonds 40,346 35,735 – of which: maturing in the subsequent year 10,227 6,924 Other debt certificates, including bonds 5,176 9,041 – up to 3 months 4,440 8,285 – between 3 months and 1 year 732 756 – between 1 year and 5 years 4 – Provisions 1,441 1,156 – up to 3 months 401 185 – between 3 months and 1 year 164 208 – between 1 year and 5 years 273 298 – more than 5 years 603 465 Subordinated liabilities 2,941 3,193 – up to 3 months 47 81 – between 3 months and 1 year 258 272 – between 1 year and 5 years 609 907 – more than 5 years 2,027 1,933 Capital participation rights 1,309 1,437 – up to 3 months 81 89 – between 3 months and 1 year 252 120 – between 1 year and 5 years 810 1,010 – more than 5 years 166 218 54 Financial Statements and Management Report 2007 of DZ BANK AG

5 | Affiliated and associated Loans and advances to and deposits from affiliated companies: ­companies in € million Dec. 31, 2007 Dec. 31, 2006

Loans and advances to banks 15,065 12,932 Loans and advances to customers 2,642 2,150 Bonds and other fixed-income securities 12,132 12,263 Deposits from other banks 8,358 5,068 Amounts owed to other depositors 1,478 1,087 Debt certificates, including bonds 5 413 Subordinated liabilities 1,521 1,426

Loans and advances to and deposits from associated companies:

in € million Dec. 31, 2007 Dec. 31, 2006

Loans and advances to banks 25,757 22,911 Loans and advances to customers 1,735 3,707 Bonds and other fixed-income securities 5,919 5,924 Deposits from other banks 29,180 23,698 Amounts owed to other depositors 772 4,926 Debt certificates, including bonds 6,532 3,224 Subordinated liabilities 31 28

Disclosure of shareholdings pursuant to Art. 285 para. 11 HGB is made separately as provided for under Art. 287 para. 1 HGB and is published together with the annual financial statements in the electronic trade register. In addition, the list can be viewed on the DZ BANK website, www.reports.dzbank.com.

6 | Loans and advances to and Loans and advances to and deposits from affiliated banks include the following figures: deposits from affiliated banks in € million Dec. 31, 2007 Dec. 31, 2006

Loans and advances to affiliated banks 40,882 37,461 of which: to cooperative central banks 11 7 Deposits from affiliated banks 48,871 39,510 of which: from cooperative central banks 390 110 Financial Statements of DZ BANK AG 55 Notes

7 | Subordinated assets The amount of subordinated assets and their amounts included in their balance sheet headings were as follows:

in € million Dec. 31, 2007 Dec. 31, 2006

Loans and advances to banks 1,585 1,005 of which: to affiliated companies 1,461 895 to associated companies 27 35 Loans and advances to customers 8 0 of which: to associated companies 0 0 Bonds and other fixed-income securities 2,539 2,524 of which: to affiliated companies 14 8 to associated companies 15 2 Shares and other non fixed-income securities 290 279 of which: to affiliated companies 72 58 to associated companies 0 0 Total 4,422 3,808

8 | Trust operations The amount of trust assets and liabilities included in their balance sheet headings were as follows:

in € million Dec. 31, 2007 Dec. 31, 2006

Assets held on trust basis – Loans and advances to banks 308 340 – Loans and advances to customers 71 128 – Equity interests 1,166 1,235 Total 1,545 1,703

in € million Dec. 31, 2007 Dec. 31, 2006

Trust liabilities – Deposits from other banks 309 341 – Amounts owed to other depositors 1,236 1,362 Total 1,545 1,703 56 Financial Statements and Management Report 2007 of DZ BANK AG

9 | Foreign currency positions Assets and liabilities denominated in foreign currencies were as follows:

in € million Dec. 31, 2007 Dec. 31, 2006

Assets 48,080 46,514 Liabilities 38,716 30,252

10 | Repurchase agreements As at December 31, 2007 the book value of assets sold subject to a repurchase agreement amounted to € 30,465 million (2006: € 37,166 million).

11 | Assets assigned as security Assets provided as security for liabilities and contingent liabilities are presented in the following table, classified according to the relevant liability or obligation:

in € million Dec. 31, 2007 Dec. 31, 2006

Deposits from banks 53,178 53,209 Amounts owed to other depositors 1,273 6,190 Debt certificates, including bonds 709 834 Other obligations 3,961 3,232 Total 59,121 63,465

12 | Structure of securities portfolio The securities portfolio breaks down into the following categories according to the purpose of by purpose the holding:

in € million Dec. 31, 2007 Dec. 31, 2006

Bonds and other fixed-income securities – Investment portfolio 22,827 23,311 – Trading portfolio 63,232 57,608 – Liquidity reserve 22,812 21,768 Total 108,871 102,687

in € million Dec. 31, 2007 Dec. 31, 2006

Shares and other non fixed-income securities – Investment portfolio 768 625 – Trading portfolio 958 937 – Liquidity reserve 98 115 Total 1,824 1,677 Financial Statements of DZ BANK AG 57 Notes

13 | Securities eligible for stock The following asset positions include listing-eligible securities to the extent shown: exchange listing in € million Dec. 31, 2007 Dec. 31, 2006

Bonds and other fixed-income securities 108,871 102,687 of which: listed 89,068 81,274 Shares and other non fixed-income securities 934 917 of which: listed 627 659 Equity interests 300 352 of which: listed 300 352 Shares in affiliated companies 2,015 2,088 of which: listed 422 406

14 | Changes in intangible assets, property and equipment and financial assets

Intangible assets, property and equipment

Cost of acquisition/production Write-ups Depreciation Residual book value at Reclassi­ Current Dec. 31, Dec. 31, in € million Jan 1, 2007 Additions Disposals fications year Cumulative 2007 2006

Intangible assets 223 16 41 – – 17 151 47 50

Land and buildings 7 6 0 – – 5 8 5 4

of which: used for own operations (6) (–) (–) (–) (–) (0) (3) (3) (3) Operating and office equipment 243 9 13 1 – 21 191 49 62

Prepayments made 1 0 – -1 – – – 0 1

Total 474 31 54 – – 43 350 101 117

Financial assets

Net changes Book value at Dec. 31, Dec. 31, in € million 2007 2006

Bonds and other fixed-income securities -484 22,827 23,311

Shares and other non fixed-income securities 143 768 625

Equity interests 3 680 677

Shares in affiliated companies 706 10,133 9,427 Total 368 34,408 34,040 58 Financial Statements and Management Report 2007 of DZ BANK AG

15 | Changes in equity The subscribed capital consists of DZ BANK’s registered capital of € 3,028,427,238.20. This is divided into 1,164,779,707 registered shares which represent a share capital of € 2.60 per non- par share.

The movements in equity were as follows:

Additions/ in € million Jan 1, 2007 (–) Withdrawals Dec. 31, 2007

Subscribed capital 3,028 – 3,028 Capital reserve 1,109 – 1,109 Revenue reserves 1,466 8 1,474 – Statutory reserve 53 8 61 – Other revenue reserves 1,413 – 1,413 Net profit 151 5 156 – Appropriation/distribution from prior year 151 -151 – – 2007 net profit – 156 156 Total equity 5,754 13 5,767

The Board of Managing Directors is authorized, subject to the approval of the Supervisory Board, to increase the share capital by August 31, 2011 on one or more occasions by up to a total of € 50 million by way of issuing new registered non-par value shares in return for cash or non-cash contributions. The Board of Managing Directors is authorized, subject to the approval of the Supervisory Board, to exclude the subscription right of shareholders both in the case of capital increases in return for non-cash contributions and in the case of capital increases in return for cash contributions if the capital is increased for the purpose of

a) issuing new shares to employees of the company (employee shares), b) issuing new shares to one or more cooperative banks which, measured in terms of their total assets, directly and indirectly have a below-average stake in the corporation’s share capital, i.e. less than 0.5 percent of their total assets (using the nominal value of € 2.60 per DZ BANK share), c) acquiring companies, equity investments in companies or for granting equity investments in the corporation in order to back strategic partnerships.

The Board of Managing Directors is also authorized, subject to the approval of the Supervisory Board, to exclude fractions from the subscription right of shareholders (“Authorized capital I”). Financial Statements of DZ BANK AG 59 Notes

The Board of Managing Directors is authorized, subject to the approval of the Supervisory Board, to increase the share capital by August 31, 2011 on one or more occasions by up to a total of € 200 million by issuing new registered non-par value shares in return for cash contributions. The Board of Managing Directors is also authorized, subject to the approval of the Super­visory Board, to exclude fractions from the subscription right of shareholders (“Authorized capital II”).

The Board of Managing Directors did not exercise any of these powers in the reporting period.

16 | Shareholder disclosures The proportion of share capital held by cooperative undertakings at the end of the financial year under report was approximately 95.4 percent. Cooperative undertakings include cooperative so- cieties, cooperative central institutions, and other corporate entities and trading companies with business ties to the cooperative housing sector and the cooperative movement in general.

17 | Other assets Other assets primarily comprise premiums for acquired option rights amounting to € 2,080 mil- lion (2006: € 1,610 million), tax credits and receivables arising from intra-group tax allocations to the value of € 690 million (2006: € 479 million) and a corresponding amount representing the valuation gains on trading positions of € 476 million (2006: € 677 million).

18 | Deferred taxes Deferred tax assets amounting to € 527 million are reported for the first time in accordance with Art. 274 para. 2 HGB.

19 | Accruals and deferrals in € million Dec. 31, 2007 Dec. 31, 2006

Assets – Discounts on payables 461 545 – Other deferred expenses and accrued income 747 860 Total 1,208 1,405

in € million Dec. 31, 2007 Dec. 31, 2006

Liabilities – Discounts on receivables 52 52 – Premiums on bonds issued 68 8 – Other deferred income and accrued expenses 352 328 Total 472 388 60 Financial Statements and Management Report 2007 of DZ BANK AG

20 | Other liabilities Other liabilities include deferred option premiums amounting to € 3,977 million (2006: € 3,057 million) plus participation certificates maturing within one year, including distributions, amounting to € 129 million (2006: € 677 million).

21 | Subordinated liabilities Of the total volume of subordinated liabilities as at December 31, 2007, € 2,559 million is recog- nized as qualifying (liable) capital within the definition of Art. 10 para. 5a of the German Banking Act (KWG). There is no third-tier capital within the definition of Art. 10 para. 7 KWG.

The subordinated borrowings do not involve any early redemption obligation on the part of the issuers. The rights arising from these liabilities (including entitlement to interest) are secondary to the claims of all the issuer’s other, non-subordinated creditors in the event of the issuer’s liquida- tion or the opening of bankruptcy proceedings against the issuer.

There is no agreement or intention to convert these funds to capital or another form of debt.

The subordinated liabilities have an average interest rate of 5.51 percent (2006: 4.86 percent) and initial terms of between 7 and 30 years.

Subordinated liabilities are mainly issued in the form of fixed-interest securities, variable-rate securities, fixed-income promissory notes and variable rate registered bonds.

The total amount reported includes three line items that exceed 10 percent of the total of sub- ordinated liabilities. One € 500 million registered bond pays interest of 3-month EURIBOR plus a margin of 1.6 percent and matures in 2034, though the issuer has a cancellation right which is exercisable for the first time in 2009. The second registered bond (amounting to € 350 million) pays interest of 3-month EURIBOR plus a margin of 1.5 percent and matures in 2035, though the issuer has a cancellation right which is exercisable for the first time in 2012. The third registered bond (amounting to € 300 million) pays interest of 3-month EURIBOR plus a margin of 2.5 per- cent and matures in 2033, though the issuer has a cancellation right which is exercisable for the first time in 2008.

The interest expense on the subordinated liabilities amounted to € 172 million (2006: € 164 million).

Deferred, not yet payable interest totaling € 47 million (2006: € 55 million) is included within the heading Subordinated liabilities. Financial Statements of DZ BANK AG 61 Notes

22 | Capital participation rights The total volume of capital participation rights qualifying as liable capital within the definition of Art. 10 para. 5 KWG amounts to € 968 million.

Capital participation rights participate to the full extent in potential losses. Interest payments are subject to the availability of net profit. Capital participation right holders’ claims to repayment of capital are subordinate to the rights of other creditors. DZ BANK has issued the following series of capital partici- pation certificates:

Year of issue Nominal amount Interest rate Maturity in € million in %

1984 133 8.50 2011 1989 42 7.50 2009 1993 26 7.00 2008 1997 38 6.75 2008 1998 22 6.50 2010 1999 160 5.761 2009 1999 1 7.00 2010 2000 60 6.25 2009 2001 100 5.50 2008 2002 28 6.50 2011 1 Tied to market rate: H1 5.30%, H2 5.76%

The issue terms of the 1984 capital participation rights tranche make the distribution dependent on the dividend declared. The issue terms also provide for a minimum coupon. The minimum coupon applies unless the dividend payment is higher.

Registered capital participation rights with an aggregate nominal value of € 618 million have been issued by the DZ BANK. This total comprises 235 separate issues with original terms of between 8 and 16 years, bearing interest rates of between 5.38 percent and 7.63 percent.

Servicing the interest on the capital participation rights involved expense of € 106 million (2006: € 135 million).

Deferred, not yet payable interest totaling € 81 million (2006: € 89 million) is included within the heading capital participation rights. 62 Financial Statements and Management Report 2007 of DZ BANK AG

23 | Off-balance-sheet forward trans- The following table shows the breakdown of DZ BANK’s off-balance-sheet forward transactions actions by product area by product area:

Nominal amount Fair value

Residual maturity Total Positive Negative

Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, in € million ≤ 1 Year > 1–5 Years > 5 Years 2007 2006 2007 2006 2007 2006

Interest-based transactions 265,835 375,767 379,407 1,021,009 989,890 12,592 12,513 13,257 13,216 OTC products – FRAs 18,336 375 – 18,711 19,908 2 4 4 4 – Interest rate swaps (same currency) 190,539 317,069 334,545 842,153 797,635 11,760 11,301 11,205 10,139 – Interest rate options – calls 12,133 23,297 17,241 52,671 44,359 789 1,122 – 129 – Interest rate options – puts 22,795 32,909 27,621 83,325 94,343 – 6 2,024 2,844 – Other interest rate contracts – – – – 536 – 1 – – Exchange-traded products – Interest rate futures 21,304 2,117 – 23,421 30,461 40 71 23 100 – Interest rate options 728 – – 728 2,648 1 8 1 – Forex-based transactions 54,316 4,086 9 58,411 41,179 628 323 658 397 OTC products – Forward exchange transactions 39,641 3,084 9 42,734 31,760 458 251 448 319 – Forex options – calls 7,522 592 – 8,114 5,049 170 72 – 0 – Forex options – puts 7,134 410 – 7,544 4,358 – 0 210 78 Exchange-traded products – Forex futures 18 – – 18 12 0 0 0 0 – Forex options 1 – – 1 – 0 – 0 – Equity/Index-based transactions 8,563 21,781 786 31,130 24,825 1,020 1,213 1,816 388 OTC products – Equity/Index options – calls 1,491 3,549 18 5,058 1,502 239 240 – 2 – Equity/Index options – puts 1,198 3,152 120 4,470 1,030 – 1 296 49 – Other equity/Index contracts 1,700 10,495 648 12,843 12,154 636 671 879 321 Exchange-traded products – Equity/Index futures 445 – – 445 2,470 1 17 6 16 – Equity/Index options 3,729 4,585 – 8,314 7,669 144 284 635 – Other transactions 4,863 11,082 3,579 19,524 16,172 410 254 462 289 OTC products – Cross-currency swaps 4,674 10,647 3,573 18,894 15,935 347 231 426 275 – Precious metal transactions 10 10 – 20 1 4 3 0 – – Commodities transactions 14 414 6 434 181 48 18 16 13 Exchange-traded products – Futures 47 5 – 52 22 2 0 1 1 – Options 118 6 – 124 33 9 2 19 – Financial Statements of DZ BANK AG 63 Notes

Nominal amount Fair value

Residual maturity Total Positive Negative

Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31, in € million ≤ 1 Year > 1–5 Years > 5 Years 2007 2006 2007 2006 2007 2006

Credit derivatives 9,145 49,215 16,139 74,499 34,825 1,258 245 361 178 Hedge beneficiary – Credit default swaps 4,419 22,100 7,408 33,927 16,645 297 9 61 167 – Total return swaps 194 3,802 1,444 5,440 3,130 904 94 0 5 Hedge provider – Credit default swaps 4,532 23,313 7,287 35,132 15,020 57 142 300 6 – Total return swaps – – – – 30 – – – 0

Total 342,722 461,931 399,920 1,204,573 1,106,891 15,908 14,548 16,554 14,468

A substantial proportion of the transactions listed were entered into as a means of hedging interest rate, exchange rate or market price fluctuations. The bulk of these transactions related to trading activities.

24 | Off-balance-sheet forward trans- The following table shows the breakdown of DZ BANK’s off-balance-sheet forward transactions actions by counterparty structure by counterparty structure:

Fair value Positive Negative Dec. 31, Dec. 31, Dec. 31, Dec. 31, in € million 2007 2006 2007 2006

OECD central governments 12 5 26 27 Banks in OECD countries 15,301 14,058 15,726 13,792 OECD financial service institutions 12 – 14 – Other companies and private individuals 563 482 776 641 Banks in non-OECD countries 20 3 12 8 Total 15,908 14,548 16,554 14,468 64 Financial Statements and Management Report 2007 of DZ BANK AG

C. Notes to the Income Statement of DZ BANK

25 | Breakdown of income by The following table shows the geographical breakdown of total interest earned, current income ­geographical markets from shares and other non fixed-income securities, equity interests and shares in affiliated compa- nies, commissions earned, net gains from financial transactions and other operating income:

in % 2007 2006

Germany 97.89 93.18 International 2.11 6.82

26 | Fee and commission income and The surplus of fee and commission income over fee and commission expenses resulted from the expenses following services:

in € million 2007 2006

Securities business 97 131 Payments/International business 35 31 Credit and financial guarantee business 57 62 Other 35 45 Total 224 269

27 | Administration and agency ser- Services provided to third parties relate primarily to securities administration and the management vices provided for third parties of trust assets.

28 | Other operating income and Other operating income amounting to € 80 million in total includes, among other items, income expenses from the reversal of provisions in the amount of € 51 million, and rental income in the amount of € 10 million.

Other operating expenses amounting to € 51 million include primarily the creation of a provision to cover a guarantee risk exposure (€ 15 million), costs related to a building which is not used for banking purposes (€ 11 million), costs assumed for marketing activities in connection with a product launch throughout the cooperative financial services network (€ 5 million), restructuring costs (€ 4 million), losses recorded on disposal of fixed assets (€ 3 million) and the recording of a provision for potential future losses resulting from tenancy voids (€ 3 million). Financial Statements of DZ BANK AG 65 Notes

29 | Extraordinary income and The extraordinary income amounting to € 204 million is related to additions to the provision expenses for direct pension obligations (indirect pension obligations assumed of DZ BANK). The income resulted from the reversal of indirect pension provisions and the transfer of the assets of DZ BANK Mitarbei­ter-Unterstützungseinrichtung GmbH to DZ BANK Pension Trust e.V. The extraordinary income is offset by identical amounts reported as extraordinary expenses.

Extraordinary expenses result primarily from the DZ BANK’s income subsidy for the Deutsche Genossenschafts-Hypothekenbank AG, Hamburg amounting to € 223 million. Further, in the reporting period DZ BANK accepted the transfer of indirect pension obligations amounting to € 204 million and increased the pension obligation provisions accordingly. Corresponding extraor- dinary income of the same amount resulted from the transfer of the pension fund assets and the release of the indirect pension obligations.

30 | Taxes on income and earnings Revenue arising from taxes on income comprises corporation and municipal trade tax contribu- tions received on the basis of tax unity relationships amounting to € 129 million in the year under report, a current year tax charge of € 6 million, tax income from prior years of € 13 million primarily resulting from the completion of an external tax audit and the unwinding of a discount on the bank’s discounted corporation tax refund entitlement of € 10 million. In addition, deferred taxes of € 527 million were capitalized in the reporting year for the first time in accordance with Art. 274 para. 2 HGB.

31 | Proposed appropriation of profits In 2007, DZ BANK achieved a net income for the year of € 164 million. After transferring € 8 mil- lion to the statutory reserve, the net profit for the period amounts to € 156 million. We propose to the Annual Shareholder’s Meeting the payment of a dividend of € 0.13 per no-par share (€ 151,421,361.91) with the remaining amount of € 4,743,887.01 carried forward. 66 Financial Statements and Management Report 2007 of DZ BANK AG

D. Other Information on the Financial Statements of DZ BANK

32 | Other financial obligations The total amount of the other financial obligations for the year following amounts to € 268 million (2006: € 248 million). These commitments primarily relate to rental agreements, investment projects and pending transactions. These amounts include obligations to affiliated companies of € 33 million (2006: € 35 million).

In addition, capital obligations of € 1 million (2006: € 1 million) exist in respect of commercial liquid funds of cooperative organizations.

For 2009 and thereafter, other financial obligations amount to € 291 million.

DZ BANK has given transfer guarantee declarations to domestic companies and public institutions in respect of certain deposits at its branches in Great Britain and the United States for the event that the branches are prevented from discharging their repayment obligation by statutory powers.

33 | Letters of comfort For two banks included within the Consolidated Financial Statements – DZ BANK Ireland plc, Dublin, and DZ BANK International S.A., Luxembourg-Strassen – as well as one non-consolidated bank – DZ BANK International Singapore Ltd., Singapore – DZ BANK ensures, proportional to its share in the companies, the ability to fulfill their contractual obligations, excluding political risk. Obligations arising from letters of comfort are valid only as long as DZ BANK holds a direct or indirect equity interest in the companies covered by the letters of comfort. Additionally, subor- dinated ­support under­takings have been issued on behalf of DZ BANK Capital Funding LLC I, DZ BANK Capital Funding LLC II and DZ BANK Capital Funding LLC III, each in Wilmington, State of Delaware, USA. Further, DZ BANK has issued six subordinated support undertakings in respect of DZ BANK Perpetual Funding (Jersey) Limited, St. Helier, Jersey, Channel Islands, each relating to different classes of preferred shares.

34 | Employees The average number of employees was as follows:

2007 2006

Female staff 1,636 1,690 of which: full-time employees 1,171 1,233 part-time employees 465 457 Male staff 2,259 2,233 of which: full-time employees 2,190 2,163 part-time employees 69 70 Total employees 3,895 3,923 Financial Statements of DZ BANK AG 67 Notes

35 | Auditors’ fees The fee for the auditor of the annual financial statements, Ernst & Young AG, comprises the fol- lowing components, differentiated by the type of service:

in € thousand 2007 2006

Audit services 4,309 3,268 Other certification and valuation services 932 2,745 Tax consultancy services 58 95 Other services 150 26 Total 5,449 6,134

The audit fees include the expense for the audit of the DZ BANK consolidated financial state- ments together with the management report, as well as the statutory audit of the annual finan- cial statements and management report of the DZ BANK. The other certification and valuation services primarily reflect the costs of the audit in compliance with Art. 36 of the Securities Trading Law (Wertpapierhandelsgesetz), and the review work performed on the half-year financial state- ments and the IFRS half-year reporting. The Tax consultancy services heading aggregates the fees paid for services within the meaning of Art. 1 of Germany’s Tax Consultancy Law (Steuerbera- tungsgesetz). The other services primarily relate to consultations.

36 | Cover statement The following cover is in place for outstanding bonds, registered bonds, and derivatives:

in € million Dec. 31, 2007 Dec. 31, 2006

Sum of cover assets 31,346 33,392 Ordinary cover 31,344 32,300 Loans and advances – to banks 13,410 12,799 – to customers 348 293 Bonds and other fixed-income securities 17,586 19,208 Substitute cover – 1,092 Loans and advances to banks – 1,092 Derivatives held as cover 2 –

Cover requirement 26,764 28,440 Outstanding, covered – bearer bonds 7,449 8,241 – registered bonds 19,313 20,199 Derivatives 2 – Excess cover 4,582 4,952 68 Financial Statements and Management Report 2007 of DZ BANK AG

37 | Cover trustees The trustees are appointed by the German Federal Financial Supervisory Authority (Bundesan- stalt für Finanzdienstleistungsaufsicht) and have the duty under law to ensure that the issuance, administration, and collateralization of DZ BANK’s covered bonds comply with statutory require- ments and those of the articles of association as well as with the terms and conditions of the bonds.

Trustee Deputy trustee

Dr. Dieter Eschke Klaus Schlitz Presiding Judge at the Vice President of the Frankfurt am Main Higher Regional Court (retd.) Frankfurt am Main Regional Court (retd.) (until January 31, 2008) (until January 31, 2008)

Klaus Schlitz Klaus Schmitz Vice President of the Presiding Judge at the Frankfurt am Main Regional Court (retd.) Frankfurt am Main Regional Court (since February 1, 2008) (since February 1, 2008)

38 | Statutory bodies The total remuneration for members of the Board of Managing Directors of DZ BANK during 2007 amounted to € 6,752 thousand (2006: € 6,571 thousand) and for the Supervisory Board € 568 thousand (2006: € 511 thousand).

Total emoluments of € 10,811 thousand (2006: € 7,780 thousand) were paid to former mem- bers of the Board of Managing Directors or their surviving dependents and pension provisions of € 93,793 thousand (2006: € 93,282 thousand) were reserved for their benefit.

Board of Managing Directors of DZ BANK

Wolfgang Kirsch Heinz Hilgert (Chief Executive Officer) (until October 15, 2007, Deputy Chief Executive Officer from February 13, 2007 to October 15, 2007)

Dr. Thomas Duhnkrack Lars Hille (since October 15, 2007)

Wolfgang Köhler Albrecht Merz (since October 15, 2007)

Dietrich Voigtländer Frank Westhoff Financial Statements of DZ BANK AG 69 Notes

Supervisory Board of DZ BANK

Dr. Christopher Pleister (Chairman) President Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V.

Wolfgang Apitzsch Rolf Hildner (Deputy Chairman (Deputy Chairman) since November 1, 2007) Chairman of the Board of Managing Directors Lawyer Wiesbadener Volksbank eG

Helga Preußer (Deputy Chairwoman) Employee DZ BANK AG Deutsche Zentral-Genossenschaftsbank (until November 1, 2007)

Rüdiger Beins Ulrich Birkenstock Employee Employee DZ BANK AG R+V Allgemeine Versicherung AG Deutsche Zentral-Genossenschaftsbank (since November 1, 2007)

Werner Böhnke Henning Deneke-Jöhrens Chairman of the Board of Managing Directors Spokesman of the Board of Managing Directors WGZ-Bank AG Volksbank eG Lehrte-Springe-Pattensen-Ronnenberg Westdeutsche Genossenschafts-Zentralbank 70 Financial Statements and Management Report 2007 of DZ BANK AG

Carl-Christian Ehlers Karl Eichele Chairman of the Board of Managing Directors Employee Kieler Volksbank eG VR Kreditwerk Hamburg - Schwäbisch Hall AG

Helmut Gottschalk Hans-Josef Hoffmann Spokesman of the Board of Managing Directors Chairman of the Board of Managing Directors Volksbank Herrenberg-Rottenburg eG Bank 1 Saar eG

Rita Jakli Sigmar Kleinert Management Employee Employee R+V Versicherung AG DZ BANK AG (since February 1, 2007) Deutsche Zentral-Genossenschaftsbank

Willy Köhler Rainer Mangels Chairman of the Board of Managing Directors Employee VR Bank Rhein-Neckar eG R+V Rechtsschutzversicherung AG

Walter Müller Siegfried Reiner Chairman of the Board of Managing Directors Management Employee Volksbank Raiffeisenbank Fürstenfeldbruck eG R+V Allgemeine Versicherung AG (until February 1, 2007)

Mark Roach Gudrun Schmidt Union Secretary Regional Group Director Vereinte Dienstleistungsgewerkschaft Vereinte Dienstleistungsgewerkschaft ver.di Bundesverwaltung ver.di Landesbezirk Hessen

Winfried Willer Dr.h.c. Uwe Zimpelmann Employee Spokesman of the Board of Managing Directors VR Kreditwerk Hamburg - Schwäbisch Hall AG Landwirtschaftliche Rentenbank Financial Statements of DZ BANK AG 71 Notes

39 | Appointments held by members Bank officers and directors served on the statutory supervisory bodies of major corporations as of the Board of Managing at December 31, 2007. These, together with other significant appointments, are listed below. Directors and employees on Companies included in the Consolidated Financial Statements are identified by (*). supervisory bodies Members of the Board of Managing Directors

Wolfgang Kirsch Banco Cooperativo Español S.A., Madrid, (Chief Executive Officer) Vice Chairman, Board of Directors

Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall, Chairman of the Supervisory Board (*)

Österreichische Volksbanken-AG, Vienna, Member of the Supervisory Board

R+V Versicherung AG, Wiesbaden, Chairman of the Supervisory Board (*)

Südzucker AG, Mannheim, Member of the Supervisory Board

Union Asset Management Holding AG, Frankfurt am Main, Chairman of the Supervisory Board (*) 72 Financial Statements and Management Report 2007 of DZ BANK AG

Dr. Thomas Duhnkrack Cassa Centrale Banca - Credito Cooperativo del Nord Est S.p.A., Trento, Member, Board of Directors

Deutsche Genossenschafts-Hypothekenbank AG, Hamburg, Chairman of the Supervisory Board (*)

DVB Bank AG, Frankfurt am Main, Chairman of the Supervisory Board (*)

DZ BANK Polska S.A., Warsaw, Chairman, Supervisory Board

EDEKABANK AG, Hamburg, Member of the Supervisory Board

Österreichische Volksbanken-AG, Vienna, Member of the Supervisory Board

VR-LEASING AG, Eschborn, Chairman of the Supervisory Board (*)

Lars Hille DZ BANK International S.A., Luxembourg-Strassen, Member of the Board of Administration (*)

DZ PRIVATBANK (Schweiz) AG, Zurich, President of the Board of Administration (*)

R+V Lebensversicherung AG, Wiesbaden, Member of the Supervisory Board (*)

Union Asset Management Holding AG, Frankfurt am Main, Member of the Supervisory Board (*) (since January 30, 2008)

Union Investment Privatfonds GmbH, Frankfurt am Main, Member of the Supervisory Board (*) (until January 28, 2008) Financial Statements of DZ BANK AG 73 Notes

Wolfgang Köhler Deutsche WertpapierService Bank AG, Frankfurt am Main, Member of the Supervisory Board

DZ BANK International S.A., Luxembourg-Strassen, Chairman of the Board of Administration (*)

DZ Private Wealth Managementgesellschaft S.A., Luxembourg-Strassen, Member of the Board of Administration (*)

Albrecht Merz Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall, Member of the Supervisory Board (*)

BayWa AG, Munich, Member of the Supervisory Board

R+V Allgemeine Versicherung AG, Wiesbaden, Member of the Supervisory Board (*)

R+V Lebensversicherung AG, Wiesbaden, Member of the Supervisory Board (*)

TeamBank AG Nürnberg, Nuremberg, Member of the Supervisory Board (*)

VR-LEASING AG, Eschborn, Member of the Supervisory Board (*) 74 Financial Statements and Management Report 2007 of DZ BANK AG

Dietrich Voigtländer Deutsche Genossenschafts-Hypothekenbank AG, Hamburg, Member of the Supervisory Board (*)

Deutsche WertpapierService Bank AG, Frankfurt am Main, Member of the Supervisory Board

Equens Deutschland AG, Frankfurt am Main, Chairman of the Supervisory Board

Equens N.V., Utrecht, Chairman, Supervisory Board

Equens Nederland B.V., Utrecht, Chairman, Supervisory Board

FIDUCIA IT AG, Karlsruhe, Member of the Supervisory Board

TeamBank AG Nürnberg, Nuremberg, Chairman of the Supervisory Board (*)

VR Kreditwerk Hamburg - Schwäbisch Hall AG, Hamburg and Schwäbisch Hall, Second deputy Chairman of the Supervisory Board (*)

Frank Westhoff BAG Bankaktiengesellschaft, Hamm, Member of the Supervisory Board

Deutsche Genossenschafts-Hypothekenbank AG, Hamburg, Member of the Supervisory Board (*)

Deutsche WertpapierService Bank AG, Frankfurt am Main, Member of the Supervisory Board

DVB Bank AG, Frankfurt am Main, Member of the Supervisory Board (*)

DZ BANK Ireland plc, Dublin, Chairman, Board of Directors (*)

Volksbank International AG, Vienna, Second deputy Chairman of the Supervisory Board Financial Statements of DZ BANK AG 75 Notes

Employees

Dr. Luis-Esteban Chalmovsky Banco Cooperativo Español S.A., Madrid, Member, Board of Directors

Thomas Kaltwasser DZ BANK Ireland plc, Dublin, Director, Board of Directors (*)

Andreas Kutsch ReiseBank AG, Frankfurt am Main, Member of the Supervisory Board (*)

Karl-Heinz von Oppenkowski DZ BANK Polska S.A., Warsaw, Vice Chairman, Supervisory Board

Dr. Tobias Popovic Banco Cooperativo Español S.A., Madrid, Member, Board of Directors

Niccolo Ravano Cassa Centrale Banca - Credito Cooperativo del Nord Est S.p.A., Trento, Member, Board of Directors

Gregor Roth ReiseBank AG, Frankfurt am Main, Chairman of the Supervisory Board (*) 76 Financial Statements and Management Report 2007 of DZ BANK AG

Responsibility Statement by Management

To the best of our knowledge, and in accordance with the applicable reporting principles, the annual financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of DZ BANK, and the management report includes a fair ­review of the development and performance of the business and the position of DZ BANK, together with a description of the princi- pal opportunities and risks associated with the expected development of DZ BANK.

Frankfurt am Main, March 18, 2008

DZ BANK AG Deutsche Zentral-Genossenschaftsbank

Board of Managing Directors

Kirsch

Dr. Duhnkrack Hille Köhler

Merz Voigtländer Westhoff Audit Opinion (Translation) 77

Audit Opinion (Translation)

We have audited the annual financial statements, comprising the balance sheet, the income statement and the notes to the financial statements, together with the bookkeeping system, and the management report of DZ BANK AG Deutsche Zentral-Genossenschafts- bank, Frankfurt am Main, for the financial year from January 1, 2007 to December 31, 2007. The maintenance of the books and records and the preparation of the annual financial statements and management report in accordance with German commercial law and the supplementary provisions of the articles of incorporation are the responsibility of the Company’s management. Our respon- sibility is to express an opinion on the annual financial statements, together with the bookkeeping system, and the management report based on our audit.

We conducted our audit of the annual financial statements in accordance with Art. 317 HGB (“Handelsgesetzbuch”: “German Commercial Code”) and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual­ ­financial statements in accordance with German principles of proper accounting and in the management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Company and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the books and records, the annual financial statements and the management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the annual financial statements and management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the annual financial statements comply with the legal requirements and supple- mentary provisions of the articles of incorporation and give a true and fair view of the net assets, financial position and results of operations of the Company in accordance with German principles of proper accounting. The management report is consistent with the annual financial statements and as a whole provides a suitable view of the Company’s position and suitably presents the oppor- tunities and risks of future development.

Eschborn/Frankfurt am Main, March 20, 2008

Ernst & Young AG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft

Müller-Tronnier Wagner Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditor) (German Public Auditor) 78 Financial Statements and Management Report 2007 of DZ BANK AG

Advisory Councils of DZ BANK

Members of the local bank advisory Investment Banking councils of the DZ BANK Group Wolfgang Köhler (coordinator) Corporate Banking Member of the Board of Managing Directors DZ BANK AG Dr. Thomas Duhnkrack (coordinator) Deutsche Zentral-Genossenschaftsbank Member of the Board of Managing Directors Frankfurt am Main DZ BANK AG (since 10/2007) Deutsche Zentral-Genossenschaftsbank Frankfurt am Main Walter Alt Chief Executive Officer Reinhard Gödel (deputy coordinator) LIGA Bank eG Chief Executive Officer Regensburg VR-LEASING AG Eschborn Ulf Brothuhn Member of the Management Board Dr. Konrad Baumüller Volksbank Helmstedt eG Spokesperson of the Management Board Helmstedt Raiffeisenbank-Volksbank Erlangen-Höchstadt eG Erlangen Dr. Peter Hanker Spokesperson of the Management Board Holger Franz Volksbank Mittelhessen eG Member of the Management Board Gießen Ostfriesische Volksbank eG (until 02/2007) Leer Jörg Lindemann Wolfgang Müller Member of the Management Board Chief Executive Officer Groß-Gerauer Volksbank eG Volksbank Chemnitz eG Groß-Gerau Chemnitz (since 03/2007)

Fritz Schäfer Bernhard Link Member of the Management Board Deputy Chief Executive Officer Volksbank Pforzheim eG Münchner Bank eG Pforzheim Munich

Reinhold Schreck Reinhard Schlottbom Chief Executive Officer Chief Executive Officer VR Bank Südpfalz eG PSD Bank Westfalen-Lippe eG Landau Münster

Jürgen Timmermann Ralf Schmitt Member of the Management Board Member of the Management Board Grafschafter Volksbank eG Volksbank eG Villingen Nordhorn Villingen-Schwenningen (since 04/2007) Advisory Councils 79 Local Bank Advisory Councils

Process Management Asset Management

Dietrich Voigtländer (coordinator) Dr. Rüdiger Ginsberg (coordinator) Member of the Board of Managing Directors Chief Executive Officer DZ BANK AG Union Asset Management Holding AG Deutsche Zentral-Genossenschaftsbank Frankfurt am Main Frankfurt am Main Werner Albers Erwin Deuser Chief Executive Officer Member of the Management Board Volksbank Nordheide eG Wiesbadener Volksbank eG Buchholz Wiesbaden Claus Jäger Erhardt Fellmin Member of the Management Board Chief Executive Officer Raiffeisenbank Aschaffenburg eG PSD Bank Rhein-Ruhr eG Aschaffenburg Düsseldorf Karlheinz Löbl Uwe Fröhlich Member of the Management Board Member of the Management Board VR-Bank Bayreuth eG Berliner Volksbank Bayreuth Berlin (until 12/2007) Alfred Meßmer Chief Executive Officer Hermann Mehrens Fellbacher Bank eG Spokesperson of the Management Board Fellbach Hannoversche Volksbank eG Hanover Stefan Schindler (until 05/2007) Member of the Management Board Sparda-Bank Nürnberg eG Gerhard J. Rastetter Nuremberg Chief Executive Officer (since 02/2007) Volksbank Karlsruhe eG Karlsruhe Jürgen Wache Member of the Management Board Ralph Zollenkopf Hannoversche Volksbank eG Chief Executive Officer Hanover Raiffeisenbank-Volksbank Varel-Nordenham eG Varel 80 Financial Statements and Management Report 2007 of DZ BANK AG

Retail & Private Banking Real Estate

Lars Hille (coordinator) Dr. Matthias Metz (coordinator) Member of the Board of Managing Directors Chief Executive Officer DZ BANK AG Bausparkasse Schwäbisch Hall AG Deutsche Zentral-Genossenschaftsbank Schwäbisch Hall Frankfurt am Main (since 10/2007) Eberhard Heim Member of the Management Board Theophil Graband (deputy coordinator) Volksbank Tübingen eG Chief Executive Officer Tübingen TeamBank AG Nürnberg Nuremberg Peter Herbst Member of the Management Board Dr. Klaus Eberhardt Nordthüringer Volksbank eG Member of the Management Board Nordhausen Sparda-Bank Berlin eG Berlin Peter Knust Chief Executive Officer Andreas Haag Volksbank Raiffeisenbank Eichstätt eG Member of the Management Board Eichstätt BBBank eG Karlsruhe Walter Konrad Member of the Management Board Jürgen Kikker Volksbank Kreis Bergstraße eG Member of the Management Board Lampertheim Volksbank Ganderkesee-Hude eG (since 04/2007) Hude Hans-Theo Macke Manfred Rockenfeller Spokesperson of the Management Board Chief Executive Officer Deutsche Genossenschafts-Hypothekenbank AG Genossenschaftsbank Unterallgäu eG Hamburg Bad Wörishofen Hans-Werner Reuter Karlheinz Sanwald Member of the Management Board Deputy Chief Executive Officer Dithmarscher Volks- und Raiffeisenbank eG Vereinigte Volksbank AG Heide Sindelfingen Fritz-Ludwig Schmidt Dr. Wolfgang Thomasberger Chief Executive Officer Deputy Chief Executive Officer Volksbank Kreis Bergstraße eG VR BANK Rhein-Neckar eG Lampertheim Mannheim (until 02/2007) Advisory Councils 81 Local Bank Advisory Councils

Manfred Stevermann Insurance Member of the Management Board Sparda-Bank West eG Dr. Friedrich Caspers Düsseldorf Chief Executive Officer (since 01/2007) R+V Versicherung AG Wiesbaden

Dr. Rolf Flechsig Member of the Management Board Berliner Volksbank eG Berlin

Klaus Frey Member of the Management Board Volksbank Pforzheim eG Pforzheim

Uwe Gutzmann Chief Executive Officer Volks- und Raiffeisenbank eG, Wismar Wismar

Andreas Hof Chief Executive Officer VR Bank Main-Kinzig eG Langenselbold

Gerhard L. Ruf Spokesperson of the Management Board VR Bank Rosenheim-Chiemsee eG Rosenheim 82 Financial Statements and Management Report 2007 of DZ BANK AG

Members of the Banking Advisory Wolfgang Burger Council of DZ BANK AG for Chief Executive Officer Baden-Württemberg Volksbank Bruhrain-Kraich Hardt eG Oberhausen-Rheinhausen Chairman: Richard Bruder Andreas Eckl Chief Executive Officer Member of the Management Board Volksbank Offenburg eG Volksbank Heuberg eG Offenburg Meßstetten

Deputy Chairman: Andreas Feinauer Claus Hepp Member of the Management Board Member of the Management Board VR-Bank Weinstadt eG Volksbank Allgäu-West eG Weinstadt-Endersbach Isny im Allgäu Heinz Frankenhauser Dr. Peter Aubin Spokesperson of the Management Board Spokesperson of the Management Board Volksbank Nagoldtal eG Volksbank Göppingen eG Nagold Göppingen Horst Gauggel Manfred Basler Spokesperson of the Management Board Chief Executive Officer Raiffeisenbank Donau-Iller eG Volksbank Lahr eG Erbach Lahr (until 11/2007) Dr. Roman Glaser Chief Executive Officer Ralph Blankenberg Volksbank Baden-Baden · Rastatt eG Member of the Management Board Baden-Baden Volksbank Heilbronn eG Heilbronn Jens Gomille Member of the Management Board Klemens Bogenrieder Heidelberger Volksbank eG Chief Executive Officer Heidelberg Federseebank eG Bad Buchau Michael Häcker Member of the Management Board Elmar Braunstein Heidenheimer Volksbank eG Chief Executive Officer Heidenheim Volksbank Strohgäu eG Korntal-Münchingen Martin Heinzmann Member of the Management Board Volksbank Kinzigtal eG Wolfach Advisory Councils 83 Banking Advisory Council

Horst Heller Dr. Franz G. Leitner Chief Executive Officer Chief Executive Officer Volksbank Hochrhein eG Volksbank Freiburg eG Waldshut-Tiengen Freiburg (until 06/2007) Matthias Hillenbrand Member of the Management Board Hans Georg Leute Raiffeisenbank Rosenstein eG Chief Executive Officer Heubach Volksbank Tübingen eG Tübingen Klaus Holderbach Chief Executive Officer Werner Luz Volksbank Franken eG Chief Executive Officer Buchen Volksbank Region Leonberg eG Leonberg Hans Kircher Chief Executive Officer Walter Mauch Raiffeisenbank Bretzfeld-Neuenstein eG Chief Executive Officer Bretzfeld Volksbank eG Überlingen Harald Kuhn Member of the Management Board Dr. Wolfgang Müller Volksbank Kirchheim-Nürtingen eG Chief Executive Officer Nürtingen BBBank eG Karlsruhe Dr. Rainer Kunadt Chief Executive Officer Dieter Nitzsche † Volksbank Pforzheim eG Spokesperson of the Management Board Pforzheim Volksbank-Raiffeisenbank Riedlingen eG Riedlingen Manfred Kuner (until 07/2007) Chief Executive Officer Volksbank Triberg eG Gerhard J. Rastetter Triberg Chief Executive Officer Volksbank Karlsruhe eG Fritz Lehmann Karlsruhe Chief Executive Officer Raiffeisenbank Ehingen eG Martin Reichenbach Ehingen Member of the Management Board Volksbank Breisgau Nord eG Guntram Leibinger Emmendingen Member of the Management Board Volksbank Donau-Neckar eG Bernd-Dieter Reusch Tuttlingen Chief Executive Officer Volksbank Metzingen-Bad Urach eG Metzingen 84 Financial Statements and Management Report 2007 of DZ BANK AG

Wolfgang Riedlinger Members of the Banking Advisory Member of the Management Board Council of DZ BANK AG for Bavaria Volksbank Baiersbronn eG Baiersbronn Chairman: Dietmar Küsters Paul Erich Schaaf Chief Executive Officer Chief Executive Officer Volksbank Straubing eG Untertürkheimer Volksbank eG Straubing Stuttgart Deputy Chairman: Werner Schmidgall Konrad Irtel Chief Executive Officer Spokesperson of the Management Board Volksbank Backnang eG VR Bank Rosenheim-Chiemsee eG Backnang Rosenheim

Dr. Stefan Schwab Alois Atzinger Chief Executive Officer Chief Executive Officer Volksbank Wiesloch eG Raiffeisenbank Am Goldenen Steig eG Wiesloch Waldkirchen

Karlheinz Unger Bernd Bindrum Chief Executive Officer Member of the Management Board Volksbank Ludwigsburg eG Raiffeisenbank Hammelburg eG Ludwigsburg Hammelburg

Edmund Wahl Alfred Foistner Chief Executive Officer Chief Executive Officer Volksbank Hohenlohe eG Raiffeisenbank Oberschleißheim eG Öhringen Oberschleißheim

Helmut Widmann Josef Frauenlob Spokesperson of the Management Board Spokesperson of the Management Board Raiffeisenbank Ravensburg eG Volksbank Raiffeisenbank Oberbayern Südost eG Horgenzell Bad Reichenhall

Ulrike Winterbauer Wilfried Gerling Chief Executive Officer Chief Executive Officer Volksbank Schwarzbachtal eG Hallertauer Volksbank eG Waibstadt Pfaffenhofen a. d. Ilm

Alfred Wormser Manfred Göhring Spokesperson of the Management Board Chief Executive Officer Volksbank-Raiffeisenbank Riedlingen eG Raiffeisenbank Altdorf-Feucht eG Riedlingen Feucht Advisory Councils 85 Banking Advisory Council

Michael Haas Peter Pollich Chief Executive Officer Member of the Management Board Volksbank-Raiffeisenbank Dachau eG Raiffeisenbank Gaimersheim-Buxheim eG Dachau Gaimersheim

Dirk Helmbrecht Erich Pröpster Chief Executive Officer Chief Executive Officer Volksbank Raiffeisenbank Nürnberg eG Raiffeisenbank Neumarkt i. d. Opf. eG Nuremburg Neumarkt i. d. Opf.

Friedrich Hertle Friedrich Reiser Member of the Management Board Chief Executive Officer Raiffeisen-Volksbank Donauwörth eG Raiffeisen-Volksbank Isen-Sempt eG Donauwörth Isen

Hubert Kamml Josef Riedlberger Chief Executive Officer Chief Executive Officer Volksbank Raiffeisenbank Mangfalltal-Rosenheim eG Raiffeisenbank Rehling eG Rosenheim Rehling

Karlheinz Kipke Rainer Schaidnagel Chief Executive Officer Member of the Management Board VR-Bank Coburg eG Raiffeisenbank Kempten eG Coburg Kempten

Manfred Klaar Erich Schaller Deputy Chief Executive Officer Chief Executive Officer Raiffeisenbank im Oberland eG VR Bank Hof eG Miesbach Hof (until 07/2007) Josef Murr Chief Executive Officer Roland Scheer Raiffeisenbank Parkstetten eG Deputy Chief Executive Officer Parkstetten Raiffeisenbank Bad Windsheim eG Bad Windsheim Reinhold Nastvogel Member of the Management Board Gregor Scheller Raiffeisen-Volksbank Haßberge eG Chief Executive Officer Haßfurt Volksbank Forchheim Forchheim Hermann Ott (since 07/2007) Member of the Management Board Raiffeisenbank Weiden eG Weiden i. d. Opf. 86 Financial Statements and Management Report 2007 of DZ BANK AG

Wolfgang Schreier Members of the Banking Advisory Member of the Management Board Council of DZ BANK AG for Central VR-Bank Lech-Zusam eG Germany Gersthofen Chairman: Claudius Seidl Paul-Heinz Schmidt Chief Executive Officer Chief Executive Officer VR-Bank Rottal-Inn eG VR Bank HessenLand eG Pfarrkirchen Alsfeld

Elmar Staab Deputy Chairman: Deputy Chief Executive Officer Peter Herbst Raiffeisenbank Aschaffenburg eG Member of the Management Board Aschaffenburg Nordthüringer Volksbank eG Nordhausen Rudolf Veitz Member of the Management Board Uwe Abel Raiffeisenbank Holzheim eG Deputy Chief Executive Officer Holzheim Mainzer Volksbank eG Mainz Johann Weigele Chief Executive Officer Günther Arndt Raiffeisenbank Pfaffenhausen eG Member of the Management Board Pfaffenhausen Volksbank Daaden eG Daaden Rainer Wiederer Spokesperson of the Management Board Dr. Dr. Claus Becker Volksbank Raiffeisenbank Würzburg eG Chief Executive Officer Würzburg Volksbank Darmstadt eG Darmstadt Helmut Wölfel Chief Executive Officer Wolfgang Behr Raiffeisen-Volksbank Kronach-Ludwigsstadt eG Member of the Management Board Kronach Volksbank Schupbach eG Beselich Günther Zollner Chief Executive Officer Matthias Berkessel Raiffeisenbank Cham-Roding-Furth im Wald eG Member of the Management Board Cham Volksbank Rhein-Lahn eG Diez Advisory Councils 87 Banking Advisory Council

Manfred Bernhart Ulrich Jakobi Chief Executive Officer Spokesperson of the Management Board Volksbank Montabaur-Höhr-Grenzhausen eG Volksbank Wetzlar-Weilburg eG Montabaur Wetzlar

Kurt Bletzer Günter Jesswein Spokesperson of the Management Board Member of the Management Board Raiffeisenbank Ried eG Raiffeisenbank Trendelburg eG Bürstadt Trendelburg

Hans-Peter Born Dieter Jurgeit Chief Executive Officer Chief Executive Officer Groß-Gerauer Volksbank eG PSD Bank Nord eG Groß-Gerau Hamburg

Gerhard Braun Hans-Josef Kreis Spokesperson of the Management Board Chief Executive Officer Volksbank Kur- und Rheinpfalz eG Volksbank Saarlouis eG Speyer Saarlouis

Andreas Dill Günther Lambrecht Member of the Management Board Member of the Management Board Sparda-Bank Hannover eG Volksbank Glan-Münchweiler eG Hanover Glan-Münchweiler

Erwin Failing Eckhard Lenz Chief Executive Officer Member of the Management Board Volksbank Heuchelheim eG Raiffeisenbank eG Wolfhagen Heuchelheim Wolfhagen

Manfred Gerhard Heiner Löhl Spokesperson of the Management Board Member of the Management Board VR Genossenschaftsbank Fulda eG Bank 1 Saar eG Fulda Saarbrücken

Peter Haffelt Ralf Marquis Member of the Management Board Member of the Management Board Dresdner Volksbank Raiffeisenbank eG Volksbank Dudweiler eG Dresden Saarbrücken

Othmar Heck Michael Mengler Member of the Management Board Spokesperson of the Management Board Volksbank Gräfenhausen eG VVB Vereinigte Volksbank Maingau eG Weiterstadt Obertshausen 88 Financial Statements and Management Report 2007 of DZ BANK AG

Paul Meuer Reinhold Schreck Chief Executive Officer Chief Executive Officer Rheingauer Volksbank eG VR Bank Südpfalz eG Geisenheim Landau

Harro Meurer Bernhard Slavetinsky Chief Executive Officer Chief Executive Officer Volksbank Riesa eG PSD Bank Karlsruhe-Neustadt eG Riesa Karlsruhe

Dieter Rembde Dieter Steffan Member of the Management Board Member of the Management Board VR-Bank Schwalm-Eder Volksbank Raiffeisenbank eG Volksbank Rhein-Selz eG Homberg Nierstein

Tilman Römpp Jürgen Weber Member of the Management Board Chief Executive Officer Volksbank Bautzen eG Sparda-Bank Hessen eG Bautzen Frankfurt

Manfred Roth Horst Weyand Member of the Management Board Chief Executive Officer VR Bank Weimar eG Volksbank Nahetal eG Weimar Bad Kreuznach

Jürgen Schlesier Member of the Management Board Raiffeisenbank Vogelsberg eG Birstein

Peter Schmitt Chief Executive Officer Raiffeisenbank eG Großenlüder Großenlüder

Ernst-Konrad Schneider Chief Executive Officer Volksbank Wißmar eG Wettenberg Advisory Councils 89 Banking Advisory Council

Members of the Banking Advisory Josef Dahl Council of DZ BANK AG for North/ Spokesperson of the Management Board East Germany Ostharzer Volksbank eG Quedlinburg Chairman: Reinhard Schoon Dr. Paul Albert Deimel Chief Executive Officer Chief Executive Officer Raiffeisen-Volksbank eG Volksbank Helmstedt eG Aurich Helmstedt

Deputy Chairman: Helmut Dommel Detlef Kentler Member of the Management Board Spokesperson of the Management Board Raiffeisenbank Mecklenburger Seenplatte eG Volksbank eG Waren Seesen Ludger Ellert Hans-Nissen Andersen Member of the Management Board Chief Executive Officer Volksbank Vechta eG Evangelische Darlehensgenossenschaft eG Kiel Vechta Kiel Berthold Engelke Martin Brödder Chief Executive Officer Member of the Management Board Volksbank eG, Steyerberg Volks- und Raiffeisenbank Prignitz eG Steyerberg Perleberg Heiko Ernst Dr. Reiner Brüggestrat Member of the Management Board Spokesperson of the Management Board Volksbank Lüneburg eG Hamburger Volksbank eG Lüneburg Hamburg Heinrich Fenne Johannes Bruns Member of the Management Board Member of the Management Board Volksbank Osnabrück eG Ostfriesische Volksbank eG Osnabrück Leer Alfons Fennen Lübbo Creutzenberg Chief Executive Officer Member of the Management Board Volksbank Bösel eG Raiffeisen-Volksbank Fresena eG Bösel Norden 90 Financial Statements and Management Report 2007 of DZ BANK AG

Dr. Rolf Flechsig Johann Landsberg Member of the Management Board Member of the Management Board Berliner Volksbank eG Volksbank Lübeck Landbank von 1902 eG Berlin Lübeck

Uwe Heinemann Norbert Lohmann Member of the Management Board Chief Executive Officer Raiffeisen-Volksbank Varel Nordenham eG Volksbank Spelle-Freren eG Varel Spelle

Johann Heins Hans-Joachim Lohskamp Member of the Management Board Member of the Management Board Zevener Volksbank eG Volksbank Uelzen-Salzwedel eG Zeven Uelzen

Michael Hietkamp Harald Lott Member of the Management Board Member of the Management Board Volksbank Raiffeisenbank eG Greifswald Volksbank eG Westrhauderfehn Greifswald Rhauderfehn

Klaus Hinsch Hermann Mehrens Member of the Management Board Spokesperson of the Management Board Raiffeisenbank eG Hannoversche Volksbank eG Hagenow Hanover (until 05/2007) Hermann Isensee Spokesperson of the Management Board Klaus Mehrens Volksbank Wolfenbüttel-Salzgitter eG Member of the Management Board Wolfenbüttel Raiffeisenbank eG Todenbüttel Hanerau-Hademarsch Walter Jaeger Member of the Management Board Gerhard Oppermann Volksbank Wittenberg eG Member of the Management Board Lutherstadt Wittenberg Hannoversche Volksbank eG Hanover Uli Jelinski (since 06/2007) Member of the Management Board Raiffeisenbank Kalbe-Bismark eG Gerd Pott Kalbe Member of the Management Board Spar- und Kreditbank eG Hammah Gerd Köhn Hammah Member of the Management Board Volksbank Jever eG Jever Advisory Councils 91 Banking Advisory Council

Eckhard Rave Advisory Council of DZ BANK AG Member of the Management Board Volksbank-Raiffeisenbank eG Husum-Eiderstedt-Viöl Chairman: Husum Dr. Dr. h.c. Ulrich Brixner Chairman of the Board of Directors Günter Scheffczyk DZ BANK Foundation Member of the Management Board Karlsruhe Hümmlinger Volksbank eG Werlte Deputy Chairman: Dr. Wilhelm Bender Christian Scheinert Chief Executive Officer Member of the Management Board Fraport AG Volksbank eG Frankfurt am Main Elmshorn Deputy Chairman: Jürgen von Seggern Prof. Dr. Wolfgang König Member of the Management Board Johann Wolfgang Goethe University Volksbank Ganderkesee-Hude eG Institute for Business Information Technology Hude Frankfurt am Main

Michael Siegers Carl Fritz Bardusch Chief Executive Officer General Manager Volksbank Hildesheim eG Bardusch GmbH & Co. Hildesheim Ettlingen

Jürgen Timmermann Dr. Wolfgang Baur Member of the Management Board Member of the Management Board Grafschafter Volksbank eG Schuler AG Nordhorn Göppingen

Rolf Wagner Dr. Werner Brandt Member of the Management Board Member of the Management Board Volksbank Raiffeisenbank eG SAP AG Neumünster Walldorf

Heinz-Walter Wiedbrauck Gerhard Erwin Bruckermann Chief Executive Officer Chairman CEO Volksbank Hameln-Stadthagen eG DEPFA BANK plc Hameln Dublin

Holger Willuhn Hans-Jürgen Burkert Spokesperson of the Management Board Member of the Management Board Volksbank Eichsfeld-Northeim eG Hymer AG Duderstadt Bad Waldsee 92 Financial Statements and Management Report 2007 of DZ BANK AG

Wolfgang Deml Stephan Götzl Chief Executive Officer Association President BayWa AG Chief Executive Officer Munich Genossenschaftsverband Bayern e.V. Munich Prof. Dr. Hans Heinrich Driftmann Managing Director Rüdiger A. Günther Peter Kölln KGaA Chief Financial Officer Elmshorn Infineon Technologies AG (until 03/2007) Munich (until 07/2007) Stefan Durach General Manager Dr. Jochen Gutbrod Develey Senf + Feinkost GmbH Deputy Chief Executive Officer Unterhaching Georg von Holtzbrinck GmbH Publishing Group Stuttgart Konsul Anton-Wolfgang Graf von Faber-Castell Dr. Reiner Hagemann Chief Executive Officer Chairman of the Advisory Board Faber-Castell AG Cerberus Deutschland Beteiligungs- Stein beratung GmbH Frankfurt am Main Manfred Finger Member of the Management Board Dr. Jürgen Heraeus Villeroy & Boch AG Chairman of the Supervisory Board Mettlach Heraeus Holding GmbH Hanau Uwe E. Flach Former Member of the Board of Managing Directors Wilfried Hollmann DZ BANK AG President Deutsche Zentral-Genossenschaftsbank Zentralverband Gewerblicher Verbundgruppen e.V. Frankfurt am Main Berlin (since 10/2007) Alfons Frenk Chief Executive Officer Wolfgang Jeblonski EDEKA AG & Co. KG Member of the Management Board Hamburg STADA ARZNEIMITTEL AG Bad Vilbel Dr. Hans-Jörg Gebhard Chairman of the Supervisory Board Fred Kogel Südzucker AG Chief Executive Officer Mannheim/Ochsenfurt Constantin Film AG Munich (since 08/2007) Advisory Councils 93 Advisory Council

Dr. Dagobert Kotzur Manfred Nüssel Chief Executive Officer President Schunk GmbH Deutscher Raiffeisenverband e.V. Thale Berlin (until 06/2007) Prof. Dr. Rolf Peffekoven Prof. Dr. Jan Pieter Krahnen Johannes Gutenberg- University Mainz Johann Wolfgang Goethe University Chair for Business Administration and Finance Chair for Banking and Finance Mainz Frankfurt am Main Franz Pinkl Andreas Lapp Chief Executive Officer Chief Executive Officer Österreichische Volksbanken-AG LAPP HOLDING AG Wien Stuttgart Günter Preuß Johann C. Lindenberg Spokesperson of the Management Board Former Chief Executive Officer Deutsche Apotheker- und Ärztebank eG and National Chairman Düsseldorf Unilever Deutschland GmbH Hamburg Manfred Renner Chief Executive Officer Roland Mack Sanacorp Pharmahandel AG Managing Director Planegg EUROPA-PARK Freizeit- und Familienpark Mack KG Jürgen Rudolph Rust Managing Director Rudolph Logistik Gruppe/ Wladimir P. Matwejew Rudolph Holding GmbH Envoy of the Embassy of Russia, Baunatal Berlin (since 08/2007) Prof. Dr. Christian Schlag Johann Wolfgang Goethe University Ludwig Merckle Professor of Derivatives and Financial Engineering Chief Executive Officer Frankfurt am Main Merckle/ratiopharm Arzneimittel GmbH (until 03/2008) Ulm Dr. Wolf Schumacher Stefan Müller Chief Executive Officer Member of the German Parliament Aareal Bank AG Berlin Wiesbaden

Dr. Eric Schweitzer Member of the Management Board ALBA AG Velten near Berlin 94 Financial Statements and Management Report 2007 of DZ BANK AG

Joachim Siebert Chief Executive Officer anwr Ariston-Nord-West-Ring eG Mainhausen (until 05/2007)

Gerd Sonnleitner President Deutscher Bauernverband e.V. Berlin

Dr. Theo Spettmann Spokesperson of the Management Board Südzucker AG Mannheim/Ochsenfurt

Dr. Thomas Strüngmann Managing Director ATHOS Service GmbH Munich (until 01/2008)

Stephan Sturm Member of the Management Board Fresenius AG Bad Homburg

Hans Wall Chairman of the Supervisory Board Wall AG Berlin

Paul-Heinz Wesjohann Chief Executive Officer PHW-Gruppe Visbek

Alexander von Witzleben Chief Executive Officer Jenoptik AG Jena (until 06/2007) Key Subsidiaries and Affiliates 95

Key Subsidiaries and Affiliates of DZ BANK

Banks

Equity holding in Name/head office Consolidated1 ­percentage

Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall (indirectly) • 81.8 Ceskomoravská stavebni sporitelna a.s., Prague 45.0 Fundamenta-Lakáskassza Zrt., Budapest 51.2 Prvá stavebná sporitel‘na, a.s., Bratislava 32.5 Raiffeisen Banca Pentru Locuinte S. A., Bucharest 33.3 Sino-German-Bausparkasse Ltd., Tianjin 24.9 VR Kreditwerk Hamburg - Schwäbisch Hall AG, Hamburg and Schwäbisch Hall2 • 100.0 Cassa Centrale Banca - Credito Cooperativo del Nord Est S.p.A., Trento 25.0 DZ PRIVATBANK (Schweiz) AG, Zurich (indirectly) • 80.0 Deutsche Genossenschafts-Hypothekenbank AG, Hamburg • 100.0 Deutsche WertpapierService Bank AG, Frankfurt am Main 40.0 DVB Bank AG, Frankfurt am Main • 93.3 DVB Bank N.V., Rotterdam • 100.0 DZ BANK Polska S.A., Warsaw 99.9 DZ BANK International S.A., Luxembourg-Strassen (indirectly)3 • 89.7 DZ BANK Ireland plc, Dublin3 • 100.0 Magyar Takarékszövetkezeti Bank Zártkörüen Müködö ­Részvénytársaság, Budapest 36.2 TeamBank AG Nürnberg, Nuremberg • 90.0 Österreichische Volksbanken-AG, Vienna (indirectly) 25.0014 Volksbank International AG, Vienna (indirectly) 16.44 1 Consolidated in accordance with IAS 27 and total equity holding of DZ BANK AG or the respective parent company 2 thereof 40% held directly by DZ BANK AG 3 Subject of letter of comfort from DZ BANK AG 4 Share of voting rights

Other specialized service providers

Equity holding in Name/head office Consolidated1 ­percentage

DZ Equity Partner GmbH, Frankfurt am Main 100.0 EURO Kartensysteme GmbH, Frankfurt am Main 19.6 GVA GENO-Vermögens-Anlage-Gesellschaft mbH, Frankfurt am Main 66.7 Equens N.V., Utrecht 33.5 VR-Leasing AG, Eschborn • 83.5 BFL Leasing GmbH, Eschborn • 72.8 VR BAUREGIE GmbH, Eschborn • 100.0 VR DISKONTBANK GmbH, Eschborn • 100.0 VR-FACTOREM GmbH, Eschborn 49.0 VR-IMMOBILIEN-LEASING GmbH, Eschborn • 100.0 VR-medico LEASING GmbH, Eschborn • 100.0

1 Consolidated in accordance with IAS 27 and total equity holding of DZ BANK AG or the respective parent company 96 Financial Statements and Management Report 2007 of DZ BANK AG

Investment trusts

Equity holding in Name/head office Consolidated1 ­percentage

Union Asset Management Holding AG, Frankfurt am Main • 73.4 DEFO Deutsche Fonds für Immobilienvermögen GmbH, Frankfurt am Main • 90.0 Union Investment Real Estate Aktiengesellschaft, Hamburg • 94.5 Union Investment Institutional GmbH, Frankfurt am Main • 100.0 Union Investment Luxembourg, Luxembourg-Strassen • 100.0 Union Investment Privatfonds GmbH, Frankfurt am Main • 100.0

1 C onsolidated in accordance with IAS 27 and total equity holding of DZ BANK AG or the respective parent company

Insurance companies

Equity holding in Name/head office Consolidated1 ­percentage

R+V Versicherung AG, Wiesbaden • 74.0 KRAVAG-Allgemeine Versicherungs-AG, Hamburg • 76.0 KRAVAG-LOGISTIC Versicherungs-AG, Hamburg • 51.0 R+V Allgemeine Versicherung AG, Wiesbaden • 95.0 R+V Krankenversicherung AG, Wiesbaden • 100.0 R+V Lebensversicherung AG, Wiesbaden • 100.0 R+V Pensionsfonds AG, Wiesbaden • (jointly with mit Union Asset Management Holding) 51.0 R+V Rechtsschutzversicherung AG, Wiesbaden • 100.0

1 Consolidated in accordance with IAS 27 and total equity holding of DZ BANK AG or the respective parent company Key Figures Imprint

DZ BANK AG DZ BANK AG DZ BANK AG in € million 2007 2006 Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main Financial performance Platz der Republik Operating result before risk provisions -97 492 60265 Frankfurt am Main Risk provisions -370 -61 Germany Operating result after risk povisions -467 431 www.dzbank.de Net income 164 528 Cost-income ratio1 (in percent) 56.4 58.3 Telephone: +49 69 7447-01 Net assets Fax: +49 69 7447-1685 Assets E-Mail: [email protected] Loans and advances to banks 105,183 103,628

Loans and advances to customers 32,133 27,282 Board of Managing Directors: Securities2 110,695 104,364 Wolfgang Kirsch (Chief Executive Officer) Other assets 18,295 17,433 Dr. Thomas Duhnkrack Liabilities Lars Hille Deposits from banks 163,572 150,186 Wolfgang Köhler Amounts owed to other depositors 37,869 38,525 Albrecht Merz Debt certificates including bonds 45,522 44,776 Dietrich Voigtländer Other liabilities 13,576 13,466 Total equity3 5,767 5,754 Frank Westhoff Total assets 266,306 252,707 Business volume3 289,343 277,816 This Annual Report is also available in German. The German version of this Annual Report is the 4 Regulatory capital ratios By SolvV By Principle I original and authoritative version. Total capital ratio (in percent) 17.7 21.7 Tier 1 capital ratio (in percent) 10.8 14.0

Off-balance-sheet forward transactions Nominal volume 1,204,573 1,106,891 Positive fair values 15,908 14,548

Average number of employees 3,895 3,923 1 Adjusted for special items in 2007 (special item under net interest income in the amount of € +112 million as a result of bundling private banking activities in DZ Private Wealth Managementgesellschaft S. A. as well as value adjustments in the amount of € -838 million arising from the crisis on the financial markets under net trading result) and in 2006 (increased administration expenses in the amount of € 97 million as a result of a reduction in the discount rate from 6.0 percent to 4.5 percent as applied to the calculation of pension reserves and similar commitments) 2 Bonds and other fixed-income securities including shares and other non fixed-income securities 3 Total assets including contingent liabilities and other obligations 4 With the introduction of the Solvency Ordinance on January 1, 2007, the German supervisory authority no longer requires the calculation of BIS ratios under the new BASEL II framework. Comparative figures shown are therefore the details as at Dec. 31, 2006 on the basis of Principle I (KWG). Member of the cooperative financial services network Member of the cooperative financial services network

Financial Statements Financial Statements and and Management Management Report 2007Report of ofDZ DZ BANKBANK AG AG AG BANK Financial Statements and Management Report 2007 of DZ