2008 ANNUAL REPORT DZ BANK GROUP FINANCIAL SERVICES PROVIDER IN THE COOPERATIVE FINANCIAL SERVICES NETWORK 1,200 COOPER DZ BANK BANK BUSINESS SEGMENT RETAIL BUSINESS SEGMENT BUSINESS LINES BUSINESS LINES » Corporate Banking » Asset Management » Investment Banking » Retail & Private Banking » Process Management BRANDS AND MARKET POSITIONS IN GERMANY BRANDS AND MARKET POSITIONS IN GERMANY NO. 51 NO. 3 (RETAIL FUNDS) NO. 2 (EQUIPMENT LEASING)2 NO. 3 (SUBSIDIARIES OF NO. 2 (SUBSIDIARIES OF GERMAN BANKS IN IRELAND)1 GERMAN BANKS IN SWITZERLAND)1 NO. 3 (VOLUME OF NO. 1 (CREDIT PROCESSING) SPECIALIST CONSUMER FINANCE) NO. 1 (PROVIDER OF FOREIGN EXCHANGE AND INTERNATIONAL PAYMENT SERVICES) PRODUCT BRANDS PRODUCT BRANDS NO. 1 (GERMAN MARKET FOR CERTIFICATES) NO. 3 (VOLUME OF SPECIALIST CONSUMER FINANCE) « RATIVE BANKS GROUP DZ BANK Group REAL ESTATE FINANCE BUSINESS SEGMENT INSURANCE BUSINESS SEGMENT BUSINESS LINE BUSINESS LINE » Real Estate Finance » Insurance BRANDS AND MARKET POSITIONS IN GERMANY BRANDS AND MARKET POSITIONS IN GERMANY NO. 1 (HOME SAVINGS)2 NO. 2 (LIFE INSURANCE)2 1 Total assets 2 New business KEY FIGURES DZ BANK GROUP € million 2008 2007 FINANCIAL PERFORMANCE Operating profit/loss1 -929 1,277 Impairment losses on loans and advances -545 -209 Profit/loss before tax -1,472 1,068 Net profit/loss -1,055 897 Cost/income ratio (percent) > 100.0 66.9 FINANCIAL POSITION Assets Loans and advances to banks 70,036 67,531 Loans and advances to customers 117,021 106,307 Financial assets held for trading 114,443 130,025 Investments 66,322 72,957 Investments held by insurance companies 49,040 47,376 Other assets 10,228 7,141 Equity and liabilities Deposits from banks 59,632 57,935 Amounts owed to other depositors 77,516 77,595 Debt certificates including bonds 65,525 62,996 Financial liabilities held for trading 152,729 163,196 Insurance liabilities 48,205 45,324 Other liabilities 14,800 13,288 Equity 8,683 11,003 Total assets/total equity and liabilities 427,090 431,337 Volume of business2 601,794 637,391 REGULATORY CAPITAL RATIOS UNDER SOLVENCY REGULATION (SOLVV) Total capital ratio (percent) 9.7 10.2 Tier I capital ratio (percent) 7.4 7.7 DERIVATIVE FINANCIAL INSTRUMENTS Notional amount (€ million) 1,363,575 1,329,753 Positive fair values (€ million) 29,986 16,695 AVERAGE NUMBER OF EMPLOYEES DURING THE YEAR 24,642 24,210 1 Operating income (net interest income + net fee and commission income + gains and losses on trading activities + gains and losses on investments + other gains and losses on measurement of financial instruments + income from insurance business + other net operating income) less administrative expenses 2 Total assets including financial guarantee contracts and loan commitments, trust activities and assets under management of the Union Investment Group DZ BANK GROUP PARTNER TO THE GERMAN COOPERATIVE BANKING GROUP The DZ BANK Group forms part of the German coopera- tive financial services network, which comprises some 1,200 local cooperative banks and is one of Germany’s largest private-sector financial services organizations measured in terms of total assets. Within the cooperative financial services network, DZ BANK AG functions both as a central institution for around 1,000 cooperative banks and their 12,000 branch offices and as a corporate bank. The DZ BANK Group includes Bausparkasse Schwäbisch Hall, Deutsche Genossenschafts-Hypothekenbank (DG HYP), DZ BANK International, DZ PRIVATBANK Schweiz, R+V Versicherung, TeamBank, Union Investment Group, VR LEASING, and various other specialized institutions. With their strong brands, the companies of the DZ BANK Group constitute key pillars in the range of financial products and services offered by the cooperative financial services network. The collaboration between the compa- nies in the DZ BANK Group helps optimize the offering available to the cooperative banks and their 30 million or so clients. This combination of banking, insurance, home savings and personal investment products and services has a long and successful tradition in the cooperative financial services network. The specialized institutions in the DZ BANK Group provide top-class, highly competitive products at reasonable prices within their specific areas of expertise. This ensures that the cooperative banks in Germany are able to offer their clients a comprehensive range of outstanding financial services. DZ BANK 01 2008 ANNUAL REPORT CONTENTS CONTENTS 02 LETTER TO SHAREHOLDERS 06 BANK BUSINESS SEGMENT 25 RETAIL BUSINESS SEGMENT 30 REAL ESTATE FINANCE BUSINESS SEGMENT 33 INSURANCE BUSINESS SEGMENT 35 SELECTED PRODUCTS AND SERVICES FOR COOPERATIVE BANKS 41 DZ BANK’S 125TH ANNIVERSARY 49 GROUP MANAGEMENT REPORT 123 CONSOLIDATED FINANCIAL STATEMENTS 218 RESPONSIBILITY STATEMENT 219 AUDIT OPINION (TRANSLATION) 220 REPORT OF THE SUPERVISORY BOARD 223 ADVISORY COUNCILS 235 PRINCIPAL SHAREHOLDINGS OF DZ BANK 02 DZ BANK 2008 ANNUAL REPORT LETTER TO SHAREHOLDERS Wolfgang Kirsch, Chief Executive Officer LETTER TO SHAREHOLDERS DEAR SHAREHOLDERS, In 2008 the DZ BANK Group delivered a strong operating performance – especially in its business with the local cooperative banks and in its corporate banking activities – in what were unprecedented conditions in both the financial markets and the real economy. Although we too have been hit hard by the financial crisis and its effects, which have been impacting on the real economy for some time now, we intend to meet these challenges – and will do so – by drawing on the considerable resources of the cooperative financial services network. DZ BANK and the specialized service providers within the group continued to act as reliable and effective service providers for the cooperative banks in 2008. This demonstrates the efficiency and robustness of our business model as a financial services group with access to 30 million customers. This model is intact and sustainable. There are numerous examples of successful collaboration within the cooperative financial services network. In our lending to small and medium-sized enterprises, for example, which DZ BANK does in collaboration with the local cooperative banks, we achieved double-digit growth in new DZ BANK 03 2008 ANNUAL REPORT LETTER TO SHAREHOLDERS business in 2008. Our decentralized consulting and sales support concept proved its worth in what were challenging market conditions in the primary banks’ own-account investing activities. We are now the leader in the German market for investment certificates with a market share of more than 22 percent. Our investment research once again won a number of awards, and 2008 was an encouraging year for our transaction banking operations as well. A cursory glance at the specialized service providers in the DZ BANK Group reveals a positive picture. Bausparkasse Schwäbisch Hall reported new home savings business worth € 32 billion in 2008, which was its best-ever result. R+V’s life insurance business increased its new premium income by roughly 7 percent, which was a record. Union Investment is Germany’s largest provider of fund-based Riester savings products for over 1.7 million clients. The easyCredit consumer finance product offered by TeamBank attracted more than 30,000 new customers in 2008, which equated to year-on-year growth of approximately 8 percent. The volume of new equipment and vendor finance business generated by VR LEASING in 2008, in Germany and abroad, was in line with the high figure achieved in 2007. The transformation of DG HYP into a commercial real-estate lender made good progress. This successful collaboration between the specialized service providers in the DZ BANK Group and the cooperative banks is reflected in the level of commissions and bonuses received: at just under € 1.7 billion they remained virtually unchanged on the high figure reported for 2007 despite last year’s turmoil in the financial markets. These encouraging trends in our core business played out against a backdrop of unprecedented dislocations in the global economy that overshadowed our strong operating performance. Allowing for these effects in accordance with International Financial Reporting Standards (IFRS), the DZ BANK Group reported a loss before taxes of € 1.47 billion for 2008, having generated a profit before taxes of € 1.07 billion in 2007. It incurred a net loss of € 1 billion for the year under review compared with a net profit of just under € 900 million in the previous year. These figures were adversely impacted in particular by impairments of € 1.76 billion on bonds and asset- backed securities and by our exposures to Iceland (€ 451 million), Lehman Brothers (€ 364 million) and Natixis (€ 269 million). Excluding the effects of the financial crisis, the DZ BANK Group generated a profit before taxes of just under € 1.78 billion. Its Tier I capital ratio amounted to 7.4 percent compared with 7.7 percent in 2007. DZ BANK AG reported a net income for the year 2008 of € 59 million in accordance with the German Commercial Code (HGB). Consequently, it will be proposed to the Annual General Meeting that a dividend of 5 cents per share be paid compared with 13 cents in the previous year. One of the main advantages of the cooperative financial services network – as demonstrated by last year’s market turmoil – is its highly cohesive system of liquidity management. This entails DZ BANK performing a central function as liquidity manager for the local cooperative banks and our subsidiaries and as an interface to the international money and capital markets. We benefit – especially in the current economic climate – from the considerable and growing reputation of the cooperative principle, which is reflected in the growth of the cooperative banks’ deposits. We reckon we will need additional capital in the order of € 1 billion for 2009 to act as a cushion against the persistently high levels of uncertainty as to how the financial markets and the real economy will fare going forward. We are mitigating these adverse effects of the financial crisis by drawing on the resources already available in the cooperative financial services network.