Landesbank Baden-Württemberg, Stuttgart, Karlsruhe, Mannheim, and Mainz
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Landesbank Baden-Württemberg, Stuttgart, Karlsruhe, Mannheim, and Mainz. Management Report for the Fiscal Year from January 1 to December 31, 2008. CONTENT Business Activities ........................................................................................................................................................... 3 Income Statement ......................................................................................................................................................... 76 Balance Sheet ....................................................................................................................................................................... 78 Notes ................................................................................................................................................................................................. 82 Auditor’s Report ............................................................................................................................................................117 1 MANAGEMENT REPORT The following information should be read in conjunction with the annual financial statements of the Landesbank Baden-Württemberg, Stuttgart, Karlsruhe, Mann heim, and Mainz (LBBW) for the business year from January 1 to Decem- ber 31, 2008, comprising the balance sheet, the income statement and the notes to the financial statements. As in the previous year, the annual financial statements and the 2008 Management Report were issued an unqualified auditor’s report by Pricewaterhouse- Coopers Aktiengesellschaft Wirtschaftsprüfungsgesell schaft. 2 MANAGEMENT REPORT — BUSINESS ACTIVITIES Management Report of Landesbank Baden-Württemberg. Business Activities of Landesbank Baden-Württemberg. With total assets of EUR 426 billion, the LBBW Group is one of Germany’s largest credit institutions and ranks among the world’s 50 largest banks. LBBW Group’s more than 13 300 employees serve customers in 215 branches and offices throughout Germany and in more than 20 locations world- wide. Small and medium-sized enterprises (SMEs) value the local services offered by LBBW’s global network of 20 representative offices and branches in New York, London, Singapore and, since February 2008, Seoul. The services offered by the international network are further enhanced by two financing companies abroad and the German Centres operated by LBBW in Beijing, Mexico City, and Singapore, to which a further office in India, in Delhi.Gurgaon, was added in December 2008. LBBW operates this new German Centre together with Bayerische Landesbank. Through the integration into LBBW of Landesbank Sachsen AG under the name Sachsen Bank as of April 1, 2008 and of Landesbank Rheinland-Pfalz as Rheinland-Pfalz Bank as of July 1, 2008, each as a legally dependent institution, the customer base of the LBBW Group was expanded in 2008. The nucleus of the LBBW Group is LBBW itself. In addition to being responsible for the customers of the Group’s capital market business, LBBW also handles centralized staff and management functions and all back office activities for the Group. Moreover, LBBW is also responsible for the Group’s business throughout Germany and around the world. In its core markets of Baden-Württemberg, Rhineland-Palatinate and Saxony, LBBW acts as a central bank to the savings banks. 3 MANAGEMENT REPORT — ECONOMIC ENVIRONMENT The LBBW Group serves over one million customers in retail business, private banking and wealth management in Baden-Württemberg through BW-Bank. In southwestern Germany, BW-Bank also operates LBBW’s corporate customer business specializing in small and medium-sized companies. In the state capital, Stuttgart, BW-Bank also functions as a savings bank. Rheinland-Pfalz Bank today functions as the regional bank serving customers in the state of Rhineland-Palatinate and nearby economic areas, assuming responsibility for the Corporate Banking business division and focusing in particular on small and medium-sized businesses. It is also involved in the Private Banking business division and financial advisory services for institutional customers. As a regional bank serving customers in Saxony and nearby economic areas, Sachsen Bank now supports high net worth retail customers and small and medium-sized corporate customers of LBBW in Saxony. From Saxony, it also initiates setting up new areas of business in the Czech Republic and Poland. The spectrum of products and services offered by the LBBW Group is supplemented in certain business segments, such as leasing, factoring, asset management, real estate, and equity investment financing, by the offerings of specialized subsidiaries. Economic Environment. Global Economy. 2008 will be remembered as an exceptional year in economic history. Such an abrupt economic about-turn has seldom been observed before. The financial markets crisis and its repercussions on the real economy in developed economies on both sides of the Atlantic played a key part in 2008. Based on the assumption of a continued decline in prices on the US real estate market in 2008, LBBW’s assessment that the USA could slip into a recession proved to be well-founded. Initially, however, economic growth data for the first quarter came as a positive surprise. Developments in the United States were particularly remarkable as the US research institute NBER (National Bureau of Economic Research) dated the official time of recession back to December 2007. From spring onwards, however, the leading indicators went into free fall. The credit crisis from the United States had an impact on the real economy. As of the second quarter, growth in GDP went into decline on both sides of the Atlantic. Although the difficulties on the residential property market had already become apparent in the United States, it was barely conceivable at first that banks would have to write off over USD 1 000 billion worldwide as a result. The disappearance of well-known international banks was completely unthinkable. The crisis in the real economy occurred in industri- alized nations in accordance with the domino principle. With increasing problems in the banking sector, access to credit became more difficult for companies and private households, which dampened 4 MANAGEMENT REPORT — ECONOMIC ENVIRONMENT overall demand. Falling house prices and the decline on the stock markets also had a considerable negative impact on wealth, which affected one sector after the other. Some countries, such as the United States, Ireland, Spain and the UK, were closer to the start of the domino chain and each experienced their own difficulties after a bubble burst on the residential property market, while others, such as Germany, were further back and were affected through international trade connec- tions. The true extent of the crisis will not be seen until the growth figures for 2009 are available. On balance, the United States is still expected to have recorded growth of 1.3 % in its GDP in 2008. According to the latest information from the International Monetary Fund (IMF), the world’s GDP grew by 3.4 %. Germany. German growth benefited in the first half of the year from the high incoming orders in the previous year. In the manufacturing industry, production was still at a high level and investment in machinery and equipment saw an above-average increase of 7.6 % year-on-year in the second quarter. The rapidly progressing slowdown in the worldwide economy and overall sentiment, which was character- ized by increasing caution and restraint, ultimately led to an about-turn. As exports had always guaranteed a prosperous German economy, foreign trade significantly curbed economic output in the third quarter, with a slight drop in export volumes and a simultaneous above-average increase in imports. The heavy dependence on exports is now having a negative impact. Consumer spending was still strong, however, owing to the abrupt about-turn in crude oil prices and the continued positive development of the labor market, together with larger increases in pay. German consumption nevertheless remained at a low level, in view of the weak underlying trend in real consumer spending and the tendency towards low levels of purchasing. According to initial data from the Statistisches Bundesamt (German Federal Statistical Office), Germany’s GDP rose by 1.3 % in the 2008 calendar year. As the crisis hit some countries, such as Italy, particularly hard, growth of only 0.9 % is anticipated for the GDP of the euro zone as a whole. Central Bank Policy. In view of the crisis situation, major central banks were forced to take unusual measures. The accelerated economic decline had to be dealt with, while mutual distrust on the interbank market required clear intervention by central banks. The tension on the European interbank market became apparent, for example, in the difference between the 3-month interbank rate and the ECB’s key interest rate. While the difference is usually around 20 basis points, it peaked at 140 bp. The 5 MANAGEMENT REPORT — ECONOMIC ENVIRONMENT situation was very similar all around the globe. The ECB effectively assumed balancing liquidity among credit institutions, which would otherwise take place via the money market. With regard to refinancing, this was carried out through unlimited offers at fixed interest rates. The ECB also reduced the difference between the interest rate for the marginal lending facility and the interest rate for the deposit facility from the usual two percentage points to one percentage point.