Annual Report 1999

LB Kiel

Landesbank Schleswig-Holstein Girozentrale

LB Kiel Annual Report

1999 LB Kiel

Landesbank Schleswig-Holstein Girozentrale

Annual Report 1999

Helsinki Oslo Tallinn Stockholm

Copenhagen

Kiel Lübeck Rostock Hamburg Schwerin

London Berlin

Dresden

Luxembourg Contents

2 LB Kiel at a Glance

5 Preface of the Managing Board

8 Report of the Supervisory Board 9 Report of the Guarantors’ Meeting

10 Statement of Condition and Group Statement of Condition 1999

36 Our Staff

40 Activities Beyond the Banking Sphere

43 Annual Accounts for 1999 44 Balance Sheet 48 Statement of Income 50 Group Balance Sheet 54 Group Statement of Income

56 Notes to the Annual Accounts and Group Annual Accounts 56 Notes to the Annual Accounts and Group Annual Accounts 75 Executive Bodies 79 Auditor’s Certificate

80 Organizational Structure

84 Addresses

The photographs in this Annual Report show staff members from different LB Kiel departments and teams.

1 Inhalt LB Kiel at a Glance

Foundation Tasks 1917 established as the state bank of the province of Commercial Bank: LB Kiel is a universal bank offering a Schleswig-Holstein full range of traditional and innovative products 1940 merger with Girozentrale Schleswig-Holstein Central Clearing Bank: LB Kiel is the central clearing in- Legal Form stitution for the savings banks of Schleswig-Holstein, pro- Institution under public law viding them with supplementary group services. Landes- Bausparkasse (LBS) is an important member of the Group, Owners and Guarantors which complements the product range together with its - the State of Schleswig-Holstein 25.05 % field staff and its subsidiary, LBS Immobilien GmbH. - the Savings Banks and Giro Association of Schleswig-Holstein 25.05 % State Bank: LB Kiel grants loans to public bodies and is - Westdeutsche Landesbank Girozentrale (WestLB) 39.9% involved in issuing and placing state bonds and Schuld- - Landesbank Baden-Württemberg 10.0 % scheindarlehen; it supports the State of Schleswig-Holstein in performing economic and structural tasks through Governmental Control Investitionsbank Schleswig-Holstein (a legally dependent Ministry of Economic Affairs, Technology and Transport division of LB Kiel). of the State of Schleswig-Holstein Headquarters Executive Bodies Kiel - Guarantors’ Meeting - Supervisory Board Branches - Managing Board Domestic: Lübeck, Rostock, Schwerin Foreign: Copenhagen, Luxembourg

Representative Offices Domestic: Berlin, Hamburg Foreign: Helsinki, London, Oslo, Stockholm, Tallinn

Real Estate Finance Office Dresden

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

Major Equity Holdings - Landesbank Schleswig-Holstein International S.A., Luxembourg (100 %) - Gudme Raaschou Bankaktieselskab, Copenhagen (100 %) - Hamburgische Landesbank (49.5 %)

Ratings Moody’s: short-term P-1, long-term Aa1 Standard & Poor’s: short-term A-1+ Fitch IBCA: short-term F1+, long-term AAA

2 LB Kiel at a Glance Balance Sheet (Group) in € billion

120

100

Financial Highlights of the LB Kiel Group 1) 80 Business volume 128.0 € billion Total assets 115.1 € billion 60 Credit volume 125.9 € billion

40 Claims on banks 28.9 € billion customers 52.7 € billion 20

Securities 30.1 € billion 0 1995 1996 1997 1998 1999 Liabilities to € banks 48.8 billion Operating profit € customers 22.6 billion before risk provisions (Group) in € million Certificated liabilities 34.0 € billion 500 Liable capital funds 5.2 € billion

400

Principle 1 ratio (German Banking Law) 300 Total capital 10.2 % Core capital 5.6 % 200

Net interest income 704.1 € million 100 Net commission income 100.3 € million Trading operations 24.3 € million Personnel expenses 203.8 € million 0 1995 1996 1997 1998 1999 Operating expenses 175.2 € million Operating profit before risk provisions 429.6 € million Operating profit 251.4 € million Liable capital funds (Group) in € billion

6 Employees 1) 2,264

5 1) excluding Hamburgische Landesbank (HLB)

0 1995 1996 1997 1998 1999

since 1997 including HLB

3 LB Kiel at a Glance 4 Preface Preface of the Managing Board

Dear Business Partners, 1999 was yet another successful fiscal year for LB Kiel, which is not least shown by the new record results reported for 1999. We are particularly pleased about the fact that earnings increased more strongly than volumes. In FY 1999, we consolidated and expanded our market position in nearly all core business segments through – in some cases strong – portfolio gains while at the same time remaining true to our conservative risk policy. No extraordinary loan losses occurred. The conservative approach to risk provisioning remained unchanged. The good earnings for the year mean we will again be able to pay out a net dividend of 7 % to our shareholders while increasing reserves significantly at the same time. Structural change in the European banking sector continued against the background of noticeably improved economic prospects. Two external developments took on more concrete forms in 1999 and exposed us to additional challenges: the EU Commission’s decision regarding WestLB as well as the discussion about a review of the capital adequacy requirements. With regard to the calculation of the remuneration for the liable capital of the Wfa assets integrated into WestLB, the EU Commission decided on July 8, 1999 that the remuneration paid in the past was not in line with the market. WestLB, the federal government and the North Rhine-Westphalian government have lodged a complaint against this decision; the proceedings are ongoing. LB Kiel, too, considers the decision to be inappropriate in legal and economic terms. Nevertheless, we have to prepare for the EU Commission taking a similar decision regarding the liable capital remuneration to be paid by Landesbank Schleswig-Holstein. In June 1999, the Basle Committee on Banking Supervision presented proposals for a “new capital adequacy framework”. While these proposals are still being discussed, we expect tougher capital adequacy requirements to be imposed. Both developments discussed above will force us to use our capital even more efficiently and manage our risks even more effectively. Also, it will be ever more important to further strengthen our Bank’s profitability and, hence, profit reten- tion ability in order to expand our capital base through increased reserves. In order to fulfil the regulatory requirements and use the capital market as an additional source of capital, we will further refine the management of all risks related to our business activities and make the risk management system more transparent. For this purpose, we have initiated a project on “Overall Bank Con- trolling” and “Risk Management”.

5 Preface With regard to its business policy, LB Kiel has responded by focusing on its core competencies and imposing strict return criteria for its strategic business segments. Our objective is to achieve qualitative growth in these segments and hence to further strengthen the Bank’s profitability. In the context of setting the strategic course for the future, we have also started to redesign our operational processes with a strict view to service orientation and cost containment, to spin them off where necessary and to merge them with our partners’ processes in order to achieve economies of scale. The measures initiated mean we have created the basis for a continued successful operation in an increasingly competitive environment. The ongoing review of our strategic orientation and the controlling concepts will remain a task to which we will devote our full attention in the interests of our business partners, our employees and our shareholders.

LB Kiel The Managing Board

Dr. Dietrich Rümker Hans Berger Peter Pahlke Dieter Pfisterer Ernst Schröder

6 Preface The Managing Board (from the left):

Dieter Pfisterer

Hans Berger

Dr. Dietrich Rümker

Peter Pahlke

Ernst Schröder

7 Preface Report of the Supervisory Board

The Supervisory Board and its committees were regularly informed about the business development and the situation of the Bank and the Group during the report year. They supervised the Managing Board’s conduct of business in accordance with the legal and statutory regulations and decided on matters requiring their approval which were submitted to them.

Wollert-Elmendorff Deutsche IndustrieTreuhand GmbH (WEDIT) Wirtschafts- prüfungsgesellschaft audited the annual accounts of the Bank and of the Group, as well as the statement of financial condition for the 1999 business year. The annual accounts comply with the legal requirements. The statement of financial condition is consistent with the annual accounts. The certificate of audit was given without qualifications.

The Supervisory Board and the Audit Committee composed of its members have comprehensively reviewed the official auditor’s report and conclusions and have no objections.

The Supervisory Board and the Audit Committee have also reviewed the annual accounts and statement of financial condition drawn up by the Managing Board. No objections have been raised. The Guarantors’ Meeting was recommended to approve the annual accounts and statement of financial condition drawn up by the Managing Board.

The Supervisory Board approved the proposal of the Managing Board on the distribution of profit to the shareholders.

The Supervisory Board has taken cognizance of the Group annual accounts.

The Supervisory Board herewith expresses its thanks to the Managing Board and the employees of the Bank for their efforts in the 1999 business year.

Kiel, June 14, 2000

The Supervisory Board of Landesbank Schleswig-Holstein Girozentrale

Heide Simonis Chairwoman

8 Report of the Supervisory Board Report of the Guarantors’ Meeting

The Board of Guarantors convened four times in the year under review.

On June 14, 2000 it approved the 1999 annual accounts and statement of financial condition drawn up by the Managing Board, which are herewith adopted. During the same meeting the Guarantors’ Meeting approved of the acts of the Managing Board of the Bank for the 1999 business year and decided on the appropriation of the profit as proposed by the Managing Board and the Supervisory Board.

Kiel, June 14, 2000

The Guarantors’ Meeting of Landesbank Schleswig-Holstein Girozentrale

Heide Simonis Chairwoman

9 Report of the Guarantors’ Meeting Statement of Condition and Group Statement of Condition 1999

The Economic Environment in 1999: Upward Trend Continues 1999 was characterized by a noticeable change in economic sentiment. In spring, the upward forces gained the upper hand again in Germany, largely due to the positive turn- around in the export markets. As a result of the weak start of the year, however, real growth reached only 1.5 %, although EU Decision on WestLB the economic recovery accelerated in the course of the In the past fiscal year, decisions were taken at EU level which year. Within EMU, the Italian economy also expanded at a may also have an impact on the development of Landesbank relatively low rate. Characterized by more robust domestic Schleswig-Holstein Girozentrale. On July 8, 1999, the Euro- demand, the two other major EMU economies, France and pean Commission determined the size of the remuneration Spain, hardly lost momentum. Overall, eurozone GDP in- to be paid for the integration of Wohnungsbauförderungs- creased by 2.2 % in real terms. Against this background, the anstalt (Wfa), previously owned by the state of North Rhine- ECB, which had clearly lowered its key rates in spring 1999, Westphalia, into WestLB. The Commission found the re- reversed this move again already in November. At approx. muneration until then paid by WestLB to the state to be 4 %, US economic growth remained at a high level also in inconsistent with general market practice and concluded the ninth year of the upswing. In view of the brightening that this represented an infringement of the EU state sub- economic environment and continued tension in the US sidy regulations and that WestLB was obliged to pay the labour market, the US central bank began to tighten its balance. WestLB, the federal government and the govern- monetary reins already in mid-1999. By changing their ment of North Rhine-Westphalia have challenged the deci- monetary course, EMU and the USA have responded to sion in the European Court of Justice. growing inflationary risks. Especially the strong surge in oil prices that started in autumn meant that it was impossible To determine whether other Landesbanks benefit from to maintain the very low rates of inflation prevailing in the similar cases of illegal state aid, the EU Commission has first half of the year. launched an investigation, which also covers the state of Schleswig-Holstein. In 1991, Investitionsbank Schleswig- In 1999, yields in the financial markets, which had previously Holstein (IB) was established as the central development felt the effect of the financial market turmoil and the resul- agency of the state of Schleswig-Holstein and integrated ting “flight into quality”, turned around sharply. While yields into LB Kiel. The purpose of the integration was to pool in the eurozone and the USA increased noticeably from the different development institutes and agencies in a single their historic lows, the yield premiums in the emerging unit. At the same time, the contribution of the appropriated markets started to shrink. Buoyed by the “new economy”, housing development assets, which may not be used as liquid the European and US equity markets reached new historic capital, was meant to help the Bank use its assets as effi- highs. Recently, however, only the telecommunications and ciently as possible. The IB capital not used by IB for backing technology shares benefited from the bull market. its own transactions may be used as liable capital by LB Kiel. Should the EU Commission instigate official proceedings against LB Kiel, we are confident that the charges resulting from the EU decision will be manageable for our Bank.

Incidentally, by selling part of LB Kiel to WestLB and Süd- westLB with effect from January 1, 1994, the state of Schleswig-Holstein has already realized certain economic benefits which would have to be taken into account in de- termining the scope of a retroactive re-transfer of assets.

10 Statement of Condition Business and Credit Volumes Continue to Grow The Bank’s annual accounts include Investitionsbank Schles- wig-Holstein (IB) and Landes-Bausparkasse (LBS) as legally dependent central divisions, which each compile annual accounts of their own. The Group annual accounts include Landesbank Schleswig-Holstein International S.A., Luxem- bourg (LI), LB Finance BV, Amsterdam, Gudme Raaschou Bankaktieselskab, Copenhagen, and the 49.5 % investment in Hamburgische Landesbank.

In addition to its headquarters in Kiel, the Bank also main- tains branches in Lübeck, Rostock, Schwerin, Copenhagen and Luxembourg, representative offices in Berlin, Hamburg, London, Oslo, Stockholm, Tallinn (Estonia) and Helsinki as well as a real estate finance office in Dresden.

In 1999, LB Kiel continued the good performance of the pre- Claims on customers rose by 12 % or € 5.8 billion to € vious years. The Group’s total assets were up 15% on the 52.7 (46.9) billion, with the bulk (52%) accounted for by previous year, reaching € 115.1 (1998: 100.3) billion. long-term claims (in terms of residual maturities). The The Bank’s total assets rose by 20 % to € 71.6 (59.6) billion, share of medium-term claims remained unchanged at 27 %, of which € 5.3 (5.0) billion were accounted for by IB and while the share of short-term claims (residual maturity of €␣ 1.4 (1.2) billion by LBS. The business and credit volumes less than one year) climbed 6 % to 21 %. Claims on banks again increased significantly. The Group’s business volume were up 4 % to € 28.9 (27.8) billion. The portfolio of bonds rose by 14 % to € 128.0 (111.9) billion, while the credit volume and other fixed-interest bearing securities increased by climbed 15 % to € 125.9 (109.4) billion. The Bank’s business 33 % or € 7.2 billion to € 28.7 (21.5) billion. volume increased by 20 % to € 79.9 (66.4) billion, while the credit volume was up 22 % to € 78.7 (64.7) billion. On the liabilities side, bank deposits accounted for the bulk of refinancing, reaching € 48.8 (43.5) billion, an increase by 12 %. The share of long-term deposits was 14 %. At the same time, the share of certificated liabilities rose by 24 % to €␣ 34.0 (27.5) billion. Liabilities to customers amounted to €␣ 22.6 (21.3) billion.

Total Assets in ¤ billion 1999 19 98

GROUP 115.1 100.3 LI Luxembourg 8.2 8.2 Hamburgische Landesbank (49.5%) 38.8 35.4 BANK* 71.6 59.6 IB 5.3 5.0 LBS 1.4 1.2

* including IB und LBS

11 Statement of Condition Ship financing experts in front of the latest addition to ”their“ fleet. The high-quality double-hull chemicals tanker was built at the Lindenau shipyards in Kiel. The photo shows Steinar Pettersen and Manfred Ernst (from the left), heads of internal operations at International Ship Finance.

12 Statement of Condition POSITION AS THE REGION’S LEADING BANK EXPANDED

Our position as the region’s leading bank covers our three functions as central clearing bank, state and municipal bank and commercial bank. Holding 30 % of the building society market, Landes- Bausparkasse (LBS) is the leader in this segment and cooperates closely with the savings banks to sell its products. Important state bank functions are handled by Investitionsbank Schleswig-Holstein (IB). Our corporate banking activities focus on corporate clients in Schleswig-Holstein.

Market Leader in the Regional Corporate Clients Cooperation with the Schleswig-Holstein Business Savings Banks Intensified Despite moderate projections, the corporate lending busi- Cooperation between LB Kiel and the Schleswig-Holstein ness developed favourably in the course of the year, bene- savings banks continued to intensify at all levels in 1999. fiting from both continued favourable interest rates and The savings banks made extensive use of our lending, improved economic conditions. Moreover, syndicated sa- deposit-taking and service products. They primarily used vings banks loans as well as our close cooperation with refinancing loans to fund their own customer business, Hamburgische Landesbank helped us consolidate our lea- which increased by 5 % to € 24.6 billion. At € 1.7 billion, ding market position in corporate loans in our core region, the new business concluded with savings banks clearly Schleswig-Holstein. At € 0.9 (0.8) billion, the new business exceeded the previous year’s level of € 1.4 billion. volume in the Corporate Clients Division was up 13 % on The portfolio of claims grew by 18 % to € 8.7 (7.4) billion. the previous year. Total claims increased by 9 % to € 3.8 (3.5) billion, of which roughly two thirds were accounted Strong New Business Growth at LBS for by companies in Schleswig-Holstein. Landes-Bausparkasse (LBS), an economically independent but legally dependent central division of LB Kiel, continued We intend to further consolidate our strong position in the positive performance of the previous years in 1999. our core region in the year 2000. Other objectives include At € 0.86 (0.80) billion, the new business volume was up the gradual, risk-conscious expansion of our expertise in 7.5% on last year’s record. Lendings were at a high level. providing finance to customers operating on a nationwide LBS’ total loan portfolio rose by 10.6 % to € 1.04 (0.94) scale, in particular in the changing healthcare, utilities and billion. Total assets increased by 17 % to € 1.4 (1.2) billion. waste management markets. In view of the improved over- Given the structure of the building loan business, default all economic outlook, we expect continued growth of our risks are low. Moreover, LBS has appropriate risk measure- corporate clients activities. ment, analysis, monitoring and controlling instruments in place. Market Position in Private Banking Clearly Expanded The Private Banking unit clearly expanded its market position in the business with wealthy private customers in 1999. This business unit again achieved double-digit growth rates in the fiercely contested market segments. A major contribution was made by the asset management segment. Two new services, asset planning and foundation consulting, were added to the range of services. Overall, we expect the positive development in the Private Banking unit to continue.

13 Statement of Condition Alternative Finance for Infrastructure Projects In our capacity as state and municipal bank, we extend loans to federal, state and local governments and advise the state and the municipalities in Schleswig-Holstein on financing matters. At year-end 1999, the portfolio of state and municipal loans stood at € 10.2 (9.4) billion.

In addition, we provide the public sector with support and advice on alternative financing of transport routes, local New Liaison Office Opened in Brussels public transport and water and waste management projects; As a modern service provider offering solutions to public- in the latter segment, alternative finance increasingly takes sector tasks, IB also operates outside Germany. These ope- the form of public-private partnerships. Current mandates rations include important cross-border funding and promo- include that as lead manager in the financing of one of tion activities in the Baltic region on behalf of 4 Baltic Germany’s first two toll roads, the bridge over the River states and 5 German federal states in the context of the Trave in Lübeck. EU’s INTERREG II C programme.

Investitionsbank Schleswig-Holstein Implements In response to the growing importance of the EU’s regional Comprehensive Consulting Concept promotion activities, IB also stepped up the services provi- As a member of the LB Kiel Group, Investitionsbank Schles- ded by its Euro Info Centre and established a Liaison Office wig-Holstein (IB) is the key administrator of the state’s fun- in Brussels. The task and objective of the Brussels Office is ding and promotion programmes for the private sector, to devise new financing instruments which create added residential construction, the environment and energy, muni- value for the customer by pooling state, federal and EU de- cipal promotion as well as urban and agricultural develop- velopment funds. A first project of this kind, an IT investment. In 1999, IB completed the implementation of a com- ment fund for municipalities, was launched in summer 1999. prehensive consulting concept comprising 13 consulting centres and offices in Schleswig-Holstein. This concept made a major contribution to the increased promotion volume, which was up 14 % to € 584 (513) million. With the business volume growing moderately to € 5.8 (5.6) billion, IB’s total assets increased by 6 % to € 5.3 (5.0) billion.

IB’s risk position is largely determined by counterparty risks. Risk mitigants, especially in the residential construction sector, include the high diversification, the low average credit amount and the mostly good credit standing of the residential construction companies. Reasonable evaluations were taken and provisions formed for all discernible counterparty risks in the area of private sector promotion. Interest rate risks are negligible. Trading risks do not exist.

14 Statement of Condition ROLE AS BANK FOR THE NORTH CONSOLIDATED

Network in the Nordic Markets Has Been Expanded LB Kiel continued to build its image as the leading German wholesale bank in the Baltic region. The Copenhagen Branch (LBC), which controls our activities in the Nordic region, is today one of the 6 largest banks in Denmark (in terms of business volume). The gradual and targeted expansion of our network in Northern Europe continued in the past fiscal year. In Finland, we strengthened our presence through a 35 % investment in PCA Corporate Finance Oy, a financial service provider based in Helsinki. We have an option to increase this share after the year 2000. The strategic focus of PCA’s operations is on corporate finance in the Nordic Gudme Raaschou Bankaktieselskab ... markets, the arranging of loans and securities issues as well The business activities of our Danish investment banking as M&A consulting for Finnish and Baltic customers, also in subsidiary, Gudme Raaschou Bankaktieselskab, Copenhagen close cooperation with our representative office in Tallinn. (GR), focus on investment banking, securities trading and In 1999, we also acquired LB Kiel Nordic Finance AG, a lea- portfolio management. This complementary positioning in sing company based in Stockholm, Sweden. Through this commission-earning business segments means GR perfectly company, we primarily intend to arrange structured leasing rounds off LB Kiel’s product range in the Nordic markets. and other project finance for the Nordic real estate sector. ... manages second largest IPO in Copenhagen Strong Business Growth of 40 % In mid-1999, GR managed the IPO of pharmaceutical com- LBC was characterized by a clear upward trend in 1999, pany H. Lundbeck A/S, which was the second largest IPO in boosting its business volume from € 4.9 billion to € 6.9 the history of the Copenhagen Stock Exchange. GR entered billion. Loans to major Nordic corporations were the key an alliance with WestLB Panmure, London, a renowned in- growth driver, but the continued growth of structured ternational investment bank, in 1999. This enables the bank finance, bank refinancing and, above all, syndications was to provide investors with equity and research advice on a also very positive. The results benefited from the fact that pan-European scale. GR has a representative office in the previous years’ decline in margins did not continue. Stockholm and is a member of the Stockholm Securities In some cases, much higher margins than in the previous Exchange. years were achieved.

Due to the satisfactory economic situation currently prevailing in our Scandinavian core markets and the well diver- sified structure of our industrial accounts, no particular risks are discernible.

In the current fiscal year, we want to intensify our existing customer relations through cross-selling activities and expand our commission-related operations. In addition, we will make further acquisitions – especially in Sweden – and step up our real estate finance activities in the Nordic region.

15 Statement of Condition STRUCTURED FINANCE ACTIVITITIES STEPPED UP

We stepped up our structured finance activities in fiscal 1999. This strategic business unit comprises the structured finance and ship financing activities. Total claims were boosted by an impressive 20 % to € 6.7 (5.6) billion.

Growth Driven by Transport Financing The structured finance activities continued to develop Thanks to the strong volume growth in recent years, the dynamically in 1999. Above-average growth was reported in ship financing operations have reached a size which makes the transport financing segment, which focuses on aircraft, LB Kiel one of the world’s top 20 to 25 banks holding sub- railway, logistics and infrastructure investments. Our good stantial ship financing portfolios. We expect the favourable positions in the refinancing of special banks and leasing development of our ship financing activities to continue in companies were consolidated at a high level. At € 1.9 billion, the current fiscal year. new business again reached the high level of the previous year (€ 1.9 billion), with margins at a higher level. Claims in the Structured Finance unit rose by 8 % to € 4.0 (3.7) billion. Risks remained well-balanced in all business segments, as regards both new business and existing claims.

In the current fiscal year, the business unit will concentrate on the further expansion of its strategic focus on transport, logistics and infrastructure finance. Moreover, the growing asset-backed securities (ABS) segment will be expanded in cooperation with the investment banking unit. Structured and Special Finance 1) in € billion LB Kiel: A Major Ship Financing Provider The Ship Financing segment continued the previous years’ New business Total claims positive trend in 1999. New customers were attracted and volumes increased considerably despite the difficult market 7 1) This diagram situation. The business activities focus on providing finance is not part of the Statement for building new ships and the purchase of used ships as 6 of Condition. well as corporate finance for renowned international shipping companies. Apart from Europe, the regional focus is on 5 North America and the Far East. The Ship Financing segment also arranges or co-arranges large international syndicated lendings. Commitments accepted by customers amounted 4 to € 0.8 (1.3) billion in 1999. Claims rose by a good 40 % to € 2.7 (1.9) billion. Since the loan portfolio focuses on coun- 3 terparties with good credit standings and ship owners with

long-term charter agreements, the risk position is secure. 2

0 1996 1997 1998 1999

16 Statement of Condition STRENGTHENED POSITION IN REAL ESTATE FINANCING

1) Despite the Difficult Markets ... Properties 1) This diagram € In 1999, we had to cope with the difficult situation in the in billion is not part of real estate market. In the new federal states, project spon- New business the Statement Existing portfolio of Condition. sors focused less on the realization of projects but rather on letting the large number of vacancies. In western and 7 southern Germany, however, the oversupply, especially of commercial properties, was largely eliminated. 6

In the western German office market, a large number of 5 new building projects are being prepared. The market for retail properties has shown the first signs of a recovery. Demand for the construction of individualized, yet afforda- 4 ble owner-occupied homes will stabilize. The outlook for multi-storey construction is less positive. Tax-induced resi- 3 dential and commercial construction has resulted in oversupply, part of which will be reduced only in the long term. 2

... Opportunities Were Identified and Used 1 In this continued difficult market environment, the Real Estate Financing segment generated new business of € 1.3 (1.2) billion, which means we continued the successful per- 0 1996 1997 1998 1999 formance of the previous years.

The main reason for this performance was that we anticipated the development in the German real estate market at an early stage and adapted our policy accordingly. The More than half of the properties financed abroad are com- result is all the more gratifying as we retained our very mercial properties, whose location is of major importance. conservative risk policy. Overall, new business remained at Financing commitments are made only for properties in a relatively constant level, with over 50 % accounted for by proven prime locations. Schleswig-Holstein and Mecklenburg-Western Pomerania. As in the previous years, the share of wealthy private cus- Thanks to the solid new business, the real estate finance tomers in the domestic business increased. Apart from the portfolio grew by 10 % to € 6.6 (6.0) billion. residential construction companies, this target group is of particular importance for us. Due to the improving outlook for the domestic real estate markets, we will step up our new business activities in International Activities Stepped up western and southern German conurbations. Moreover, Whereas in 1998 our international real estate activities we intend to intensify our presence abroad with a view to were only moderate, we signed up considerable high-profit, signing up one third of our new business abroad. Syndica- low-risk business abroad in 1999. This helped us offset the ted business, primarily with Westdeutsche Immobilienbank decline in domestic business. New business signed up both and Hamburgische Landesbank but also with other partner on a stand-alone basis and in syndicates with renowned banks, will be of major importance in this context. domestic and international banks was at a gratifying level.

17 Statement of Condition Growing international property finance activities. International property finance team at Hamburg Airport shortly before a trip to the USA: (from the left) Stefan Kolle (account manager), Uwe Wirries (head of new business and account management), Lisa-Michelle Eugene (account manager).

18 Statement of Condition INVESTMENT BANKING DIVISION INCREASES INTERNATIONAL FOCUS

The Investment Banking Division comprises LB Kiel’s issuing operations, its entire trading activities, its financial institutions and part of the international finance business. Our Luxembourg subsidiary, Landesbank Schleswig-Holstein International S.A., also operates successfully in this business segments.

In the first year of EMU, the market situation in Europe was characterized by the new currency. In response to the heightened demands made by the global financial market, the division adjusted its strategic orientation. We now focus more strongly on the customer business and sell the entire range of capital market products including derivatives in the extended eurozone. Business with institutional customers in equity and forward market products has been pooled and combined with equity research in organizational terms.

Successful Issuing Business In the equity markets, we fully achieved our short-term In 1999, LB Kiel strengthened its position as an issuer in trading targets. Results increased significantly over the the national and international capital markets. In the con- previous year. The Bank’s strategic equity positions include text of the EMTN (Euro Medium-Term Note) and ECP substantial hidden reserves. Net commission income (Euro Commercial Paper) programmes, the international continues to gain in importance. The previous year’s result investor base was expanded considerably. Five syndicated was boosted by approx. 23% to a new record level of and 48 non-syndicated issues were placed under the EMTN € 10 million. programme. The Bank is an active issuer in the Japanese retail market. Total sales including international issues sur- In the current fiscal year, we will add credit trading to our ged by approx. 125 % to € 11.9 (5.3) billion in 1999. portfolio of trading products and step up our bond and equity sales activities. We will also intensify our savings Trading and Sales Segments Mostly Successful bank support, e.g. in the area of balance sheet structure As a result of the unexpectedly strong increase in long- management. term interest rates, price gains declined by approx. 30%. The Bank’s net trading income dropped from € 23.6 million Continued Strong Growth of Financial Institutions/Interna- in 1998 to € 16.6 million in 1999. Those market segments tional Finance Operations focusing on short-term investments took advantage of the The Financial Institutions/International Finance unit offers steep interest rate curve, which led to a gratifying result international customers suitable financing solutions on a that is reflected in net interest income. stand-alone or syndicate basis. The focus of these activities is on international trade and export financing and increa- As in the previous years, the surrogate loan business (se- singly also on companies in the utility and telecommunica- curities purchased and refinanced for fixed assets) made a tions industries. major contribution to earnings. The excellent result of the previous year was repeated almost 100 %. The cash value New business grew by a gratifying 21 % to € 1.7 (1.4) billion result was € 26.4 (27.3) million. (excl. refinancing for the LB Kiel Group), with margins also up considerably. Some 50 % of this are accounted for by refinancing loans to banks, governments and government institutions, the remaining 50 % by syndicated loans for the corporate sector as well as export and trade finance. In the past fiscal year, total foreign commitments of the LB Kiel Group (excl. HLB) rose by 22 % to € 28.6 (23.4) billion, representing 36 % of LB Kiel’s credit volume of € 78.7 billion (excl. HLB).

19 Statement of Condition Share of Regions in Country Exposure 1999 1)

Scandinavia 29%

EU (excluding DK, S, FIN) 39%

Asia 3%

Central and Eastern European countries 3%

Internationale Institutionen 1%

Africa 2%

Latin-America 1%

Offshore financial centres 4%

other industrialized countries 18% In our international core market – the Baltic rim – commitments increased to € 8.5 (6.8) billion, which is equivalent 1) This diagram is not part of the Statement of Condition. to 30 % of our total foreign commitments. At € 3.8 billion, the strongest increase was reported for loans to Western European countries, which now total € 19.8 (16.0) billion. The bank closed fiscal year 1999 with total assets of € 8.2 We continued to reduce our commitments in Central and (8.2) billion. As in the previous year, growth was achieved Southern America, which now amount to € 363 (390) million. not only in the volume of credits to banks and customers but also in the bank’s securities portfolio. At the same Landesbank Schleswig-Holstein International S.A. (LI) time, the money dealing portfolio was reduced. Lending Pursues Successful Niche Strategy was primarily refinanced in the interbank market. LI’s A wholly-owned subsidiary of LB Kiel, LI focuses on Euro- earnings position improved on the high level of the pre- loans as well as money, foreign exchange and securities tra- vious year. The lending and securities results increased ding and also serves private clients. once again, while expenses rose at a disproportionately low rate. Net profit after taxes increased by a good 50 % to € 20 (12.8) million.

Reasonable evaluations were taken and provisions formed for all discernible counterparty risks of LI, especially in problem countries. In addition, the good result will be used for further allocations to provisions and open reserves. The entire securities portfolio was valued according to the principle of the lower of cost or market.

20 Statement of Condition OPERATING PROFIT AND EQUITY CAPITAL

Group Operating Profit before Risk Provisions and Evaluation up 17% to € 429.6 million At € 429.6 (368.3) million, LB Kiel’s Group operating profit before risk provisions and evaluation reached a new record level for the fifth consecutive time and was up € 61.3 million or 17 % on the 1998 record result.

At Bank level, the operating profit before risk provisions rose by 21 % to € 225.9 (187.6) million as a result of the positive business development. Continued High Investments in Staff and Technical Infrastructure All operating units contributed to this excellent perfor- At € 203.8 (183.1) million, Group personnel expenses were mance. As in the previous years, net interest income made up 11 % on the previous year. The increase is attributable the largest contribution, rising by 16 % to € 704.1 (608.3) to the expansion of the workforce as well as to higher pen- million at Group level and to € 364.5 (302.7) million at sion provisions. At Bank level, personnel expenses amoun- Bank level. As in 1998, the increase in net commission in- ted to € 124.6 (110.4) million. come was primarily attributable to lively securities sales. At Group level, net commission income rose to € 100.3 As at December 31, 1999, LB Kiel employed 2,264 (2,146) (90.8) million, of which € 45.7 (38.1) million were accoun- people, while HLB employed 2,240 (2,168). ted for by the Bank. At € 24.3 (40.7) million, net trading income remained below the planned target. Group operating expenses were up 7 % or € 12.0 million to € 175.2 (163.2) million. It is to be noted that the increase was much lower than in the previous year (22 %). The Bank accounted for € 110.6 (103.8) million. The increase was primarily attributable to continued investments in the IT infrastructure as well as to expenses related to the Year 2000 date change.

Good Risk Positions Remains Unchanged Neither the Group nor the Bank recorded any notable defaults on loans in FY 1999. The conservative approach to risk evaluation was maintained. Reasonable evaluations were taken and provisions formed for all risks. The securities portfolios continued to be valued according to the strict principle of the lower of cost or market. The risk provisions item includes the balance from the income from the sale of investments on the one hand, and expenses for risk provisions in the credit and securities business as well as for the formation of taxed reserves on the other hand. Overall, risk provisions amounted to € 178.2 (153.8) million at Group level and to € 81.8 (52.5) million at Bank level.

21 Statement of Condition The operating profit after risk provisions and evaluations reached € 251.4 (214.5) million and € 144.1 (135.1) million at Group and Bank level, respectively. After deduction of Group taxes on income and earnings of € 119.0 (90.9) million and a dividend of € 36.6 (29.2) million on dormant equity holdings, the Group’s net profit amounted to € 95.8 (94.4) million. The Bank’s net profit stood at € 63.7 (71.1) million.

A special dividend paid out by IB to the state had a posi- Group Liable Capital Increased to € 5.2 Billion tive impact on the previous year’s operating result and net At year-end 1999, the Group’s liable capital, excluding allo- profit. Adjusted for this special dividend payment of € 22 cations to reserves, amounted to € 5.2 (3.9 incl. allocations million, the Bank’s net profit increased by an impressive to reserves) billion. The increase is primarily attributable to €␣ 14.6 million. the acceptance of dormant equity contributions qualifying as core capital as well as of subordinated liabilities and pro- Increased Allocations to Reserves fit participation capital. In September 1999, the sharehol- Of the Bank’s net profit, a dividend of 7% (7 %) will be paid ders authorized us to raise dormant equity contributions out to the shareholders. A remuneration of € 4.2 million worth € 1.5 billion. Of this, € 44 million were raised in will be paid to the state in return for the liable capital of IB 1999 and € 250 million in the first few months of 2000. used by the Bank. € 35.0 (15.3) million will be allocated to This increase in our liable capital means the Bank will be profit reserves. able to fund its future growth. The equity basis for the three-year planning period (i.e. up to 2002) is good.

On the balance sheet date, the ratio between own funds qualifying as core capital and risk-weighted assets as well as market price risk positions (solvency ratio) was 10.2 % for the Group (8.6 %).

Solvency ratio 31.12.1999 31.12.1998

Principle I - Bank 10.1 % 9.0 % Principle I - Group 10.2 % 8.6 %

22 Statement of Condition Copenhagen: the hub of LB Kiel’s Baltic operations. Experts of the Copenhagen Branch in front of the old Copenhagen Stock Exchange: (from the left) Pia Karvonen (project finance specialist), Peter Hamann (chief trader, money/FX) and Paul Therkelsen (head of syndications).

23 Statement of Condition RISK REPORT OF THE BANK

Management Concept Risks are an inevitable part of the banking business. The management of counterparty, market and operational risks in a constantly changing market entails increasingly complex challenges for banks. To master these challenges, they need to adapt their risk management systems accordingly. LB Kiel has adopted a pro-active approach to this task. LB Kiel has established a comprehensive set of planning and controlling tools, most of which are managed by the We have traditionally pursued a conservative risk strategy, Controlling/Finance Division. The set comprises, in parti- attaching particular importance to a well-balanced port- cular: folio structure. Large-scale counterparty risks as well as - rolling three-year planning and quarterly target/actual counterparty risk clusters are generally avoided. Due to LB comparisons Kiel’s deliberately moderate trading activities, market price - business management of all organizational units based on risks are negligible. Major liquidity risks do not exist. profit centre accounts No particular legal or operational risks are discernible. - monthly operating income statements This strategy will be continued in future. To support this - equity capital management strategy, we launched a project on ”Overall Bank Control- - ongoing counterparty risk and large-scale risk manage- ling“ and ”Risk Management“ in 1999. ment on an individual risk and portfolio basis - assets/liabilities management, regular preparation of maturity balance sheets to identify interest rate risks and opportunities - rolling 12-month liquidity forecast - daily cash planning - ongoing market price risk management - limitation and monitoring of all relevant risks - additional tools of the internal controlling system for the management of operational and strategic risks. The risk controlling and management systems are refined on an ongoing basis. Decision-making lines, information lines and functional responsibilities have been clearly defined. The Managing Board decides on all relevant risk measurement methods. The risk monitoring activities of the Managing Board are supported by the management team, which is primarily responsible for its own areas, as well as by the Controlling and Risk Controlling units and, as far as country risks are concerned, by the Banks/Inter- national Finance unit. The Managing Board is additionally supported by Accounting, Auditing, Organization and IT, Processing, Legal and Compliance. Management of the Bank’s major risks is additionally in the hands of expert committees (Disposition Committee, Country Rating Committee, Risk Committee).

24 Statement of Condition INDIVIDUAL RISK MANAGEMENT

I. Counterparty Risks The term counterparty risk refers to the risk of a business partner failing to meet their contractual obligations.

The Managing Board defines the methods and processes for measuring, limiting and managing counterparty and country risks.

Central Risk Controlling is in charge of developing and implementing methods and processes for measuring, limiting and managing counterparty and country risks. Central Risk Controlling monitors the Bank’s risks independently of the market departments based on a bank-wide approach. Limits for counterparty risks have been fixed in line with the Bank’s risk cover potential and future profitability. The results of the risk controlling analyses are reported to The credit risk, portfolio and overall bank management the decision-making committees in charge (to the Mana- models are being further developed in the context of the ging Board on a monthly basis, to the Risk Committee on a ”Overall Bank Controlling/Risk Management“ project quarterly basis); if required, the committees immediately initiated in 1999. These models form part of an integrated initiate appropriate controlling measures. This has not been risk management system, which is also being implemented necessary so far. under the above project.

LB Kiel uses a uniform rating-based process to measure Individual counterparty risks are analyzed in detail in the and manage counterparty default risks. This process was lending departments. In addition, the lending desk performs put on a broader basis in 1999 and adapted to new findings. an independent evaluation of important individual cases Major elements of this process include the internal rating before a decision on the loan application is taken. procedure (corporates, banks, properties and privates) and market-related historic default probabilities. These factors In 1999, new limit systems were created for monitoring the are linked with accounting data (contract value, loan/tran- counterparty risks of the trading sectors as well as the saction amount or market value, recovery rates divided large-scale risks. Controlling/Finance has central responsi- into different collateral types) in order to enable segment bility for these systems. analyses according to different criteria such as sector, country of incorporation, credit rating category or organi- An additional country limit system controls the country zational units to be performed. risk, which also needs to be taken into account in conjunction with the counterparty risk. Based on an upper limit The risk measurement process is reviewed constantly both for all Group-wide country risks, upper limits for individual in the market departments and on the basis of the Bank’s countries and country groups are determined on the basis own default history; according to these reviews, the under- of a country rating. Compliance with these limits is moni- lying model has been working well. tored on an ongoing basis by Banks/International Finance.

25 Statement of Condition Foreign commitments primarily focus on Europe and North America. As at December 31, 1999, the country portfolio had the following structure:

Foreign commitments

in € million LB Kiel Group HLB Commitments of Percentage excl. HLB pro-rata the LB Kiel Group share in Group commitments Europe (excl. Central and Eastern Europe) 19,773.10 9,960.00 29,733.10 64 Central and Eastern Europe 774.90 296.80 1,071.70 2 Other industrialized countries 5,106.80 3,743.00 8,849.80 19 Latin America 363.40 213.80 577.20 1 Asia 756.30 590.40 1,346.70 3 Africa 457.60 624.20 1,081.80 2 Other 1,329.10 2,557.70 3,886.80 9

Total 28,561.20 17,985.90 46,547.10 100

The cautious risk policy is reflected in the Bank’s (excl. 2. Liquidity Risks IB and LBS) total volume of specific bad debt charges of The term liquidity risk describes the risk of the Bank be- €␣ 220 million as at December 31, 1999. The share of spe- coming unable to meet its payment obligations, to provide cific bad debt charges in the credit volume was 0.30 % sufficient liquidity or, because of insufficient market depth (1998: 0.34 %). or market disruptions, to liquidate/close transactions at all or without making a loss (market liquidity risk). The calculation of the general bad debt charges is based on the administrative regulations outlined in the letter of the The Bank’s Disposition Committee is responsible for Federal Finance Ministry dated January 10, 1994. As per defining the conditions and strategies for planning and December 31, 1999, general bad debt charges amounted to controlling liquidity and taking the fundamental decisions € 32 million. All securities are valued to the strict principle on the maturity transformation contribution from new of the lower of cost or market. business. Central Disposition takes the measures required for implementation, especially the covering of financing gaps. Day-to-day cash management and compliance with minimum reserve requirements are the responsibility of Money/FX Trading. The monthly maturity balance sheets, which are prepared by Risk Controlling and take account of all cash flows of the Bank, are an important cash management tool.

26 Statement of Condition At present, Principles II and III are calculated by LB Kiel (Bank) according to the Liquidity Rules for Banks on the basis of agreed terms and maturities. As per December 31, 1999, Principle II and Principle III stood at 97.5 % and 59.3 %, respectively.

A project is underway to ensure that the first notification Measurement of Market Price Risks to the new Principle II will be made on time by July 1, 2000. LB Kiel has adopted the Value-at-Risk (VaR) approach to Hamburgische Landesbank, a member of the LB Kiel measure and control market price risks. This approach Group, has reported the solvency ratio according to the determines possible losses from trading positions arising new Principle II since the end of 1999. As at December 31, from one day to the next on account of market fluctua- 1999, the ratio was 1.6, i.e. clearly above the standard tions in a worst-case scenario. The potential losses (risks) value. are determined with 95 % confidence. Historical interest rates, exchange rates and equity prices over the past 201 3. Market Price Risks days are used for these projections. The risks are measured Market price risks include interest rate risks, share price against predefined loss limits and reported to the Managing risks, currency risks as well as commodity and other price Board and the responsible trading units on a daily basis. risks. New products are regularly included in risk measurement.

Measurement of Interest Rate Risks LB Kiel uses a cash value oriented procedure to record and control interest rate risks. An important element of this procedure is the determination of an accumulated cash value, which is calculated on the basis of the net cash flows generated by the interest-bearing assets and liabilities including derivatives for transactions subject to interest risks. The cash value of the calculated net cash flows is calculated on the basis of maturity-oriented market rates derived from the yield curve. There is no major interest rate risk.

27 Statement of Condition Global Market Price Risk Position In addition to the interest rate risk for the main and second-line currencies, price risks for equities and investment certificates of the liquidity reserve are also included in global risk management on a VaR basis. To limit the resulting global risk, the Managing Board has defined a risk limit for the Bank. The risk limit was used only moderately and observed at all times. All interest-bearing non-trading posi- As per December 31, 1999, the value at risk was € 3.386 tions (e.g. loan portfolios and own issues) are also valued million (trading in the narrow sense). Based on a limit of using the VaR approach on the basis of the balance sheet, €␣ 15 million, the average VaR limit utilization was 23 % for which is updated each day. trading risks, with the minimum at 9 % and the maximum at 40 %. Back-Testing, Stress Testing, Worst-Case Scenarios Back-testing comprises a comparison between the projec- Daily utilization of the VaR limit for trading operations in 1999 ted maximum loss that may be incurred within one trading day, the VaR and the actual change in the result for the 45% individual trading portfolios. Each test is based on a period of 100 trading days. According to statistical laws, the num- 40% ber of outliers (actual decline in the result exceeds the 35% projections) must not exceed an upper limit. Based on the results obtained, there was no need to change the measure- 30% ment model in 1999. 25% Ø 22,75 The stress tests performed are based on a shift in the 20% confidence level from 95 % to 99 %. Simulations have shown 15% that even with a confidence level of 99 %, the risk cover potential was not exceeded. 10%

5% In the context of statistical approaches, the ”worst case“ is the most unfavourable case that would have occurred 0% for a given portfolio in the past. The calculation of the worst-case scenario is based on the risk parameters that would have meant the greatest loss in value for the portfolio over the past ten years. The average daily value at risk for the three risk categories is shown below:

Average daily VaR 1)

in € ’000 1.1. up to 31.12.1999 Interest-rate risks 3,179 Currency risks 210 Equity and other risks 419

1) Average calculation based on 254 trading days

28 Statement of Condition On the basis of 254 trading days, the average daily per- The Bank has drawn up contingency plans for all areas, formance (operating profit contribution of the trading which were updated and optimized in conjunction with operations) in 1999 was € 125,000. the Y2K issue. LB Kiel is confident that these plans take account of all contingencies so that potential disruptions

Breakdown of the daily performance of the trading operations in 1999 will not result in major risks. in ¤ ’000 To counteract legal risks, LB Kiel uses internationally 80(Frequency) acknowledged standard framework agreements (ISMA, 70 ISDA), scrutinizes individual agreements and regularly 60 adapts contractual documentation to current legislation; 50 in addition, the Bank’s own legal department provides local

40 and centralized support to the market departments.

30 No extraordinary legal disputes which might have a negative effect on the financial position exist at present. 20

10 Conclusion 0 In 1999, LB Kiel made considerable advances in all areas -∞ up to up to up to up to up to up to up to up to up to from -4000 -2000 -1000 -500 -0,1 500 1000 2000 4000 4000 of risk controlling. Among other things, the Bank recorded all potential risks as well as the procedures and measures which are in place to manage these risks. The ”Overall 4. Operational Risks Bank Controlling /Risk Management“ project focusing on Operational risks are risks due to human or technical fai- ”Value -oriented Controlling“ and ”Expansion of a Com- lure and/or external factors as well as legal risks resulting prehensive Risk Management System“ means LB Kiel will from contractual agreements or statutory requirements. consistently and systematically continue on this course.

In 1999, LB Kiel initiated a large number of measures reaching well into the future to counteract risks inherent in technical/organizational systems or processes. The most important measures were the adoption of a new IS/Org strategy based largely on the use of standard IT systems and the related reorganization of the IT Systems/Organi- zation units.

The Year 2000 date change was a major operational challenge in technical/organizational terms. In the context of the Group-wide Year 2000 project, which was launched in 1998, the complete IT infrastructure, data networks, central and decentralized applications as well as all other building and operating facilities were recorded and tested systematically and replaced if necessary. The smooth transition to the new year showed that this challenge was mastered successfully.

29 Statement of Condition Special Finance: the project team for the new, privately financed crossing over the River Trave in front of the Herrenbrücke bridge in Lübeck: (from the left) Dr. Elisabeth Keßeböhmer (lawyer), Jörg Böttcher (project analyst), Hella Prien (head of project team).

30 Statement of Condition SUCCESSFUL FISCAL YEAR FOR HAMBURGISCHE LANDESBANK (HLB)

Fiscal 1999 was another successful year for Hamburgische Landesbank, in which LB Kiel holds 49.5 %. HLB aggressively seized the opportunities resulting from the overall economic development and the structural changes in the competitive environment for corporate finance and exploited them giving due consideration to potential risks.

HLB’s group accounts include Hamburgische LB Finance (Guernsey) Ltd., Hamburgische Landesbank (Guernsey) Ltd. Hamburgische Wohnungsbaukreditanstalt, Hamburg (WK), as well as Kommanditgesellschaft Altstadt Verwaltungs- gesellschaft & Co. Grundstücksgesellschaft, Hamburg. risk provisions and evaluation climbed 22 % to € 336.6 (276.2) million, primarily as a result of the increased net Total Assets Rise 10% ... interest income (+12 %) and the decline in other operating The balance sheet reflects the gratifying business growth. expenses. The group’s net risk provisions were somewhat Total assets of the HLB group rose by 10 % to € 78.4 (71.4) lower than in the previous year, resulting from income billion. The business volume increased by 7 % to € 88.7 from the sale of investments and expenses on risk provi- (82.6) billion, while the lending volume was up 7 % to € sions, which increased by 25%, and the formation of non- 85.2 (79.6) billion. core capital. HLB’s improved profitability was also used for allocations to the fund for general bank risks (€ 27 million) ... against the Background of Increased Profitability and, hence, an increase in core capital. The result from or- HLB’s profitability developed satisfactorily and in line with dinary activities improved by a good one third to € 186.9 the overall business expansion. The operating profit before (139.1) million. The 50 % increase in taxes on income to €␣ 74.2 million also reflects HLB’s increased profitability.

Transparent Risk Management Retaining its strict evaluation principles, HLB again established sufficient provisions for all discernible and future risks; the focus was on domestic credit risks, which primarily referred to real estate loans. Thanks to HLB’s comprehensive risk monitoring and management system, the size of the risks incurred and the risk controlling process are highly transparent.

31 Statement of Condition Increase in Core Capital The HLB group’s equity capital amounted to € 3.6 (2.6) billion, of which DM € 0.29 (0.29) billion were accounted for by outside shareholders. The group’s liable equity capital according to KWG increased by € 1.4 billion to €␣ 5.1 (3.7) billion, of which € 3.4 (2.3) is core capital.

New Strategic and Organizational Orientation In early 1999, HLB launched a project entitled ”Strategic and Organizational Orientation of Hamburgische Landes- bank“, which will be of fundamental importance for the bank’s future success in the marketplace. The project activities, which benefit from external support, produced important results already in the past fiscal year. Going forward, HLB will differentiate between three different business segments. First, there are the core businesses in which the bank has a core competency over its competitors, e.g. domestic corporate client business, leasing finance and ship financing. These are supported by basic business segments which are an integral part of the banking business. The so-called ”build-up segments“ are promi- sing activities which will be developed in an agreed invest- 25 % Investment in WPS ment phase based on specific allocation of resources. The With a view to leveraging synergies in securities transac- results of this prioritization are now being implemented tions, HLB acquired a 25 % equity interest in WPS Wertpa- in the organizational structures and processes. In this con- pierService-Bank AG with effect from December 31, 1999. text, the Private Clients „build-up segment“ was trans- SWS Systemhaus für Wertpapiersoftware GmbH & Co. KG formed into an independent unit and a new Ship Finance and SWS Systemhaus für Wertpapiersoftware GmbH were Department was established in the past fiscal year. transferred to WPS Bank with effect from the same date.

HLB Expects No Negative Effects from EU Decision With regard to the EU Commission’s state aid decision, the situation at HLB is the following: In 1986 and 1993, the Free and Hanseatic City of Hamburg (FHH) transferred some 82 % of the shares in WK to Hamburgische Landes- bank as a contribution in kind. Since the form of the transfer of the fund assets and its remuneration differ substan- tially from the Wfa case, HLB does not expect any negative effects at the bottom line.

32 Statement of Condition OUTLOOK

Growing Competitive Pressure Competitive pressure in the banking sector will continue to grow. The mergers in Germany have shown that new structures are being created. Moreover, it is only a question of time before more foreign competitors and suppliers from other sectors will enter the market. Cross-border mergers In the payments sector, we want to leverage cost synergies are now also on the cards, since the national consolidation by pooling available regional strengths in a joint service of the banking sector in Europe has advanced considerably. and competence centre in cooperation with the savings banks in Schleswig-Holstein as well as with Hamburgische The economic situation is currently having a positive effect. Landesbank (HLB) and Hamburger Sparkasse (Haspa). The upswing in the eurozone will result in real growth of Apart from domestic and foreign payment transactions a good 3 %. Given that the capital markets anticipated the and documentary foreign payments, the concept will cover economic recovery last year and sent yields rising strongly, the entire value chain from market analysis to processing. there is now only limited scope for a further increase in The securities operations are currently being pooled in yields. By long-term comparison, financing conditions are Wertpapier-Service-Bank (WPS), in which LB Kiel, as a thus still relatively favourable. The new Basle capital ade- founding member, holds 6%. In coordination with its quacy regulations may have a negative effect on the finan- cooperation partners, LB Kiel is preparing for the transfer cing conditions for small and medium-sized enterprises, of the eligible securities transactions segments to WPS. though. The respective project started last year, and LB Kiel is confident that the transition will be completed in 2001. Strategic Measures at LB Kiel In the fast-growing electronic banking and e-commerce We will face the challenges in the banking sector by ex- markets, we have joined forces with the savings banks in panding our business activities in a selective and risk- Schleswig-Holstein and HLB: For this purpose, two com- conscious manner and continuing our qualitative growth. panies have been established: SNetLine GmbH, which sets We will continue to strengthen the Bank’s profitability and up and supports virtual marketplaces, and eBanking Ser- make efficient use of our equity capital by focusing on our vices Nord GmbH (eBS), a provider of IT and electronic core competencies and complying with strict return criteria services. for the individual business segments. Increased asset securi- tization in the form of asset-backed securities and synthetic LB Kiel’s cooperation with HLB has developed favourably transactions will help us optimize the use of our equity for the mutual benefit of both partners and is to be expan- capital. In the context of strict service and cost orientation, ded in 2000. Cooperation extends from organization and business processes are being redesigned, outsourced or shared IT solutions to back-office securities transactions pooled with those of our partners. and syndicated loans in various market segments.

We expect the results in FY 2000 to be on a par with the previous year.

33 Statement of Condition Group Balance Sheet 1995–1999 €␣ million 1995 1996 1997 1998 1999

Assets Cash, debt instruments issued by public institutions, bills of exchange eligible for refinancing 150 73 165 117 287 Claims on banks 13,043 15,846 25,357 27,758 28,869 Claims on customers 21,416 24,110 40,888 46,936 52,692 Bonds and other interest-bearing securities 11,090 11,997 20,813 22,732 30,083 Equity investments in affiliated and non-affiliated companies 55 64 96 154 186 Trust assets 1,693 1,603 1,453 1,459 1,322 Other assets 220 239 566 1,139 1,709

Total assets 47,667 53,932 89,338 100,295 115,148

Liabilities Liabilities to banks 16,606 19,076 35,971 43,519 48,833 Liabilities to customers 7,236 9,294 18,781 21,267 22,634 Certificated liabilities 18,858 20,276 27,272 27,480 34,027 Trust liabilities 1,693 1,603 1,453 1,459 1,322 Subordinated liabilities 455 651 1,113 1,127 1,464 Profit participation capital 51 66 446 499 987 Fund for general bank risks – – – 19 72 Equity capital 1,339 1,418 2,126 2,200 2,849 Other liabilities 1,429 1,548 2,176 2,725 2,960

Total liabilities 47,667 53,932 89,338 100,295 115,148

Business volume 48,636 58,838 100,330 111,926 127,981

since 1997 including HLB

34 Statement of Condition The Funds Statement shows inflowing 1999 Funds Statement of the LB Kiel Group and outflowing funds during the fiscal in € million year and their effects on the cash reserve, divided into sources of funds (inflows) Sources of funds 1999 Uses of funds 1999 and uses of funds (outflows). Increase in deposits* Increase in claims It is the result of the 1999 Income - by banks 5,314 - on customers 5,757 Statement and the presentation of the - by customers 1,367 - on banks 1,111 differences between the balance sheet Increase in certificated Increase in the items as per December 31, 1998 and as liabilities 6,547 securities portfolio 7,351 per December 31, 1999. Interest income 6,888 Interest expenses 6,256 Commission income 148 Commission expenses 48 Net trading income 24 Personnel expenses 204 Increase in subordinated liabilities/profit participation capital 826 Other administrative expenses 145

Statement of Financial Resources Increase in own funds 704 Depreciation. value adjustments in € million and other valuations 163 Taxes 117 Cash reserve on Dec. 31, 1998 114 Net profit 96 + Sources of funds 22,296 Other sources of funds 478 Other uses of funds 877 - Uses of funds 22,125 Sources of funds 22,296 Uses of funds 22,125 = Cash reserve on Dec. 31, 1999 285 Change in cash reserve 171

total 22,296 total 22,296

* incl. registered notes and to-the-order instruments issued

35 Statement of Condition Our Staff

Fiscal year 1999 saw our staff numbers rise once again. As a result of LB Kiel’s business expansion, 77 new, mostly highly qualified, jobs were created.

Business Expansion Creates 77 New Jobs Objective Achievement System In line with our clearly defined strategy of growth in selec- for Performance-oriented Remuneration ted core business segments, we once again expanded our In response to the increased demands on flexibility and workforce against the general industry trend. Overall, the initiative, we have adopted a modern remuneration system number of permanently employed people of the LB Kiel based on the achievement of objectives. This system also Group (excl. HLB) rose to 2,097 (2,020). Most of the 77 forms the basis for the calculation of bonus payments, op- new jobs were created in Investment Banking, Corporate timizes the control of the Bank’s overall targets thanks to Finance, Controlling and IT. As a result, personnel expenses greater transparency and encourages functional and exe- increased by 10 % to € 203.1 (183.1) million, also due to cutive staff to assume greater responsibility. We continued higher pension provisions. The growing internationalization to refine this tool in 1999. Coaching sessions held at all of our business and our position as the Bank of the North, management levels of our Bank also focused on manage- in particular, are also reflected in our staff structure; more ment by objectives. We intend to adopt an objective than 200 foreign employees, most of them Danes, work in achievement system for all employees covered by collec- the LB Kiel Group. We intend to expand our headcount by tive agreements in the current fiscal year. another 80 people in the year 2000. Individualized Development Opens up Projects and Virtual Units Job Opportunities for University Graduates Offer Attractive Working Conditions Apart from the qualified, experienced functional and exe- The banking business is becoming increasingly complex, cutive staff, university graduates are the second largest putting a premium on expert know-how and swift, flexible group of new employees at LB Kiel. They are offered two response to changes in the banking environment. This different career paths to embark on; a direct appointment requires the organization to adapt accordingly. We have based on coaching and partnerships will enable them to therefore established flatter hierarchies, developed a de- assume responsibility within a short space of time and is dicated project culture and created ”virtual“ organizational complemented by dedicated seminars to expand their units. competence and develop their personalities. The second option is a trainee programme, which is designed for People working in project teams and virtual units must be graduates with no prior bank experience. The programme especially communicative and willing to adopt a pro-active usually lasts 12 months, during which the trainees will approach to change. At the same time, these organizational work in four to six business and/or staff units, including forms offer great scope for own initiative and indepen- our foreign locations, especially in Copenhagen and Luxem- dence, making them particularly attractive. bourg.

New Approach to Training/Number of Traineeships Increased Again In 1999, LB Kiel for the first time joined the ”Triales Modell“ of the Westküste college. The model combines the usual professional training in a bank with subsequent business management studies at a technical college. Participants in the model may graduate as a bank clerk or do their master’s degree in business administration after only five years.

36 Our Staff In addition to the classical training as a bank clerk (with the additional possibility of studying business management), we also offer traineeships for computer science, office duties, real estate and housing business. In 1999, we increased the number of trainees to 94 (88) in order to train qualified junior staff for the Bank and improve the vocational training situation for young people. We have increasingly been testing capacity limits, though, both as Key Staff Figures (Group) regards our training resources and the choice of qualified As at December 31 1999 1998 1997 applicants meeting our requirements.

Total staff employed 2,264 2,146 2,026 Graduate Recruitment Days Show Qualified Young of whom female 1,097 989 967 Talent the Way to LB Kiel

Regular staff 2,097 2,020 1,940 To satisfy our demand for qualified junior staff, we establish Bank 1,447 1,384 1,361 contacts with high potentials at a very early stage. For over Landes-Bausparkasse 189 189 186 ten years, we have been organizing Graduate Recruitment Investitionsbank 322 310 329 Days during which we assess participants’ potential and LB Schl.-Holst. Int. Luxembourg 68 64 65 Gudme Raaschou 71 73 – personalities. These assessments provide the participants with valuable feedback and form the basis for potential Apprentices 94 88 61 recruitments. Temporary staff / trainees 73 38 25 Also with a view to establishing early contacts, LB Kiel Staff on maternity 83 105 91 and parent leave offers interested students support for their graduation theses on banking-related topics. Ratio of part-time staff 12.8 % 13.8 % 13.4 % Average age 41 years 40 years 40 years Qualified Functional and Executive Staff Recruited via the Internet Retired staff and surviving 940 898 852 dependents/ The Internet has also become an important medium for Employees in early retirement establishing contacts with potential employees. We have New appointments 190 154 167 noticed that applicants contacting us via the Internet are frequently better qualified for the tasks at hand than con- ventional applicants. At www.lb-kiel.de, we provide constantly updated job offers and offer applicants a possibility for online applications.

37 Our Staff Divisional Development Plans for More Transparent Flexible Working Hours Career Paths Instead of rigid core working hours, the new working hour In response to the growing demands made on our em- agreement provides for so-called functional hours which ployees in terms of qualification, we have designed a wide can be arranged individually by the employees. They must range of personnel development measures, which also work the contractually agreed hours within a period of six open up career paths within our Group. months. During this time, the working hours account is kept like a current account including a pre-defined ”over- Our personnel development concept enables us to syste- draft facility“. matically develop and train our employees. An important The ”mobileTime“ scheme pays particular attention to the element of this concept are the Personnel Development possibility of splitting functional and management duties Days during which an individualized development plan is and refers to any form of working hour arrangement drawn up for each individual employee. On the basis of below the collectively agreed hours. This gives especially these plans, we design tailor-made development initiatives our female employees new opportunities to assume grea- in line with individual requirements. Additionally, we draw ter responsibility and still have time for their families. up divisional development plans which provide a systematic Under the pre-retirement part-time employment scheme, overview of each organizational unit’s tasks and require- employees aged 55+ have the chance to reduce their wor- ments, thus making possible career paths in the Bank more king hours. This scheme enables a smooth transition to transparent. In 1999, we organized some 900 development retirement for older employees while at the same time and further training events, which were attended by 3,500 creating new jobs. participants. IT Support for All Personnel Management Processes Career Development Seminar (KESS) Reveals We introduced IT support for our personnel management Internal Potential tools at an early stage. These modern IT systems make for KESS is a new tool developed by LB Kiel for identifying fast access to information, better planning data and in- internal functional and management potential. It has been creased efficiency. We will step up our activities in this used successfully since 1998 and replaces the traditional respect in the year 2000, so that all personnel management Assessment Centers. During the two-day seminar, the processes will benefit from IT support by the end of 2001. participants are given the chance to present themselves in group discussions, interviews and lectures. After each in- The Managing Board Thanks All Employees dividual exercise, the participants get feedback both from We would like to thank our employees, whose motivation the moderators and from their fellow participants, so that and performance all throughout the LB Kiel Group made they can start adjusting their behaviour during the seminar. a major contribution to our success in FY 1999. We also Following in-depth feedback interviews, individual develop- extend our thanks to the staff councils for the past year’s ment initiatives are defined which facilitate the best possi- constructive cooperation in an atmosphere of mutual ble development for each participant’s future tasks. trust.

38 Our Staff A competent financial partner to SMEs in Northern Germany. Corporate clients managers in front of a shopping centre in Flensburg: (from the left) Klaus-Dieter Dahnke (manager of internal operations, central Schleswig-Holstein), Werner Schwolow (head of operations, central Schleswig-Holstein).

39 Our Staff Activities Beyond the Banking Sphere

The promotion of the Schleswig-Holstein Music Festival, our own Art Foundation as well as comprehensive environmental and climate protection initiatives – these are the key aspects of our cultural and ecological activities, which testify to our strong regional roots in Schleswig-Holstein, where we have operated for over 80 years. Moreover, we regularly make large donations for charitable, scientific and sporting purposes.

Main Sponsor of the The Art Foundation of Landesbank Schleswig-Holstein: Schleswig-Holstein Music Festival Since 1994 Year 2000 Arts Programme to Promote Literature for the The biggest and most renowned classical music festival of First Time its kind in Europe, the Schleswig-Holstein Music Festival In 1998/99, the arts programme of the “Art Foundation of (SHMF) is a significant asset to the image and the economy Landesbank Schleswig-Holstein”, which promotes contem- of Schleswig-Holstein. LB Kiel and its partners in the porary fine arts and culture in Schleswig-Holstein, was in S-Finance Group, who have been the main sponsors of the the hands of Dr. Heinz Spielmann, who has for many years SHMF since 1994, for the first time committed themselves been Director of the Land Museum of Schleswig-Holstein. to a long-term sponsorship of the festival and agreed to His programme was based on the idea of implementing pay an annual amount of DM 1.6 million in 1999, 2000 and self-contained artistic projects which establish a link with 2001. This way, they help put the event on a longer-term existing art. In 1999, these included three workshops orga- financial basis and help ensure its continuance. nized at the Salzau Cultural Centre: Under the motto In 1999, LB Kiel and its partners in the S-Finance Group “Silver – Implements and Receptacles for a Meal”, young also included up-and-coming musicians in their sponsoring smiths had the chance to refine their skills under the activities. They invited over 100 music students from direction of renowned gold and silversmiths Gerda and Schleswig-Holstein to attend the rehearsals of the Salzau Wilfried Moll. At two printing workshops (lithography and Orchestra Academy under Christoph Eschenbach and to etching), young artists were given an opportunity to work speak with the musicians. This year, the number of music with Klaus Fußmann and Max Neumann, two renowned students benefiting from this opportunity is to be expan- painters. ded to 200. Other projects included a literary discussion between Günter Kunert and Reiner Kunze on “Intellectuals – a Threat to Mankind”, which was moderated by Doris Runge. The Foundation’s new art expert for the year 2000 is Dr.␣ Hans Wißkirchen, director of the “Heinrich-und- Thomas-Mann Centre” in Lübeck. His arts programme is the first to focus exclusively on literature. The planned events will present the literary achievements of Schleswig- Holstein to a greater audience. The programme will build on the great literary traditions of Schleswig-Holstein, especially of Heinrich and Thomas Mann. Events will be organized on the occasion of the 50th anniversary of the death of Heinrich Mann and the 125th birthday of Thomas Mann as well as in the context of the Schleswig-Holstein Music Festival and EXPO 2000.

The art experts of the previous years included Dr. Hans- Werner Schmidt (“Painting the Palm Leaves”, 1994), Professor Peter Nagel (“Salute - Art Expedition to Italy”, 1995) and Dr. Marina von Assel (“LAND:ART”, 1996).

40 Activities Beyond the Banking Sphere Climate Protection Measures to Compensate for CO2 Emissions/LB Kiel Voted “Environmentally Friendly Operation” LB Kiel has adopted two complementary approaches to environmental protection, which are supported by the “Prima Klima – weltweit – e.V.” association and Investi- tionsbank Schleswig-Holstein. First, we implement nume- rous in-house environmental protection measures such as the use of recycled products and materials, the sorting of waste and, in particular, the reduction of our energy consumption, which we want to lower by 20 % over the coming years. For this purpose, we are currently installing a waste management system. Second, LB Kiel supports climate protection projects in order to compensate for the CO2 emissions resulting from the residual energy consumption In the context of the climate protection projects, we in the long term. DM 1.1 million have been earmarked for primarily promote the planting of new woodland in Schles- these projects for the period from 1996 to 2000. wig-Holstein without assuming ownership of the sites. This approach takes account of the fact that growing trees In recognition of LB Kiel’s environmental commitment, the withdraw carbon dioxide from the atmosphere and release Bank – and two other Schleswig-Holstein companies – will oxygen for many decades to come. Up to now, LB Kiel has be presented with the “Environmentally Friendly Operati- promoted the planting of new woodland at more than 60 on” award by “Studien- und Fördergesellschaft der Schles- locations on a total area of 530 hectares. wig-Holsteinischen Wirtschaft”. In cooperation with the Schleswig-Holstein Environmental Protection Foundation, we also sponsored the rehabilitation of marshland in the Dithmarschen district; a total of 320 hectares of marshland have been restored so far. This form of rehabilitation also contributes to climate protection, given that it stops the carbon dioxide emissions of the marshland and bonds small quantities of CO2. By the end of the year, LB Kiel’s climate protection initiatives will have compensated for the Bank’s CO2 emissions.

41 Activities Beyond the Banking Sphere Luxembourg, an attractive financial centre and the home of Landesbank Schleswig-Holstien S.A.. In front of the Grand Ducal Palace: (from the left) Hanns Grad (manager/chief trader, securities), Ralf Ackermann (securities trader), Anke Jodes (assistant to the top management).

42 Annual Accounts for 1999 Annual Accounts for 1999

44 Balance Sheet 48 Statement of Income

50 Group Balance Sheet 54 Group Statement of Income

43 Annual Accounts for 1999 BALANCE SHEET AS AT DECEMBER 31, 1999 ASSETS

€ thousands prev. year prev. year

1. Cash a) cash on hand 4,337 3,698 b) balances with central banks 87,615 72,830 including: 91,952 76,528 with Deutsche Bundesbank 86,397 (67,238)

2. Debt instruments issued by public institutions and bills of exchange eligible for refinancing with central banks a) treasury bills and discounted treasury notes as well as similar debt instruments issued by public institutions – 48 including: eligible for refinancing with Deutsche Bundesbank – (48) b) bills of exchange 2,129 2,521 including: 2,129 2,569 eligible for refinancing with Deutsche Bundesbank 2,129 (2,521)

3. Claims on banks a) payable on demand 884,129 327,749 b) other 18,355,016 16,350,241 including: 19,239,145 16,677,990 loans of Landes-Bausparkasse 165 (411)

4. Claims on customers 32,987,862 29,637,534 including: secured by mortgages 5,923,531 (5,624,743) loans to public authorities and entities under public law 11,501,284 (11,388,416) secured by ship mortgages 2,307,268 (1,754,809) loans of Landes-Bausparkasse from allocation (LBS loans) 421,780 (438,269) pre and interim financing 582,695 (466,121) other 34,341 (34,250) including: secured by mortgages 939,160 (873,284)

5. Bonds and other interest-bearing securities a) money market instruments aa) of public issuers 100,099 76,916 including: eligible as collateral for Deutsche Bundesbank advances 50,010 (76,916 ) ab) of other issuers 75,552 100,636 including: 175,651 eligible as collateral for Deutsche Bundesbank advances 55,615 (–) b) bonds and notes ba) of public issuers 4,515,490 1,950,725 including: eligible as collateral for Deutsche Bundesbank advances 3,838,115 (1,175,840) bb) of other issuers 9,836,291 7,067,373 including: 14,351,781 eligible as collateral for Deutsche Bundesbank advances 2,516,023 (1,607,613) c) bonds issued by the Bank 1,174,786 890,868 principal amount 1,162,951 (864,118) 15,702,218 10,086,518

To be carried forward: 68,023,306 56,481,139

44 Annual Accounts for 1999 BALANCE SHEET AS AT DECEMBER 31, 1999 LIABILITIES

€ thousands prev. year prev. year

1.Liabilities to banks a) payable on demand 2,045,307 1,577,330 b) with agreed maturity or period of notice 25,889,332 22,283,436 c) deposits of Landes-Bausparkasse 11,120 5,960 27,945,759 23,866,726 2.Liabilities to customers a) saving deposits aa) with agreed period of notice of three months 46,473 42,156 ab) with agreed period of notice of more than three months 4,024 3,648 ac) deposits at Landes-Bausparkasse 776,343 752,922 including: for terminated contracts 6,165 (6,989) for allocated contracts 17,953 (18,048) 826,840 b) other liabilities ba) payable on demand 1,277,244 858,551 bb) with agreed maturity or period of notice 9,249,915 8,365,506 10,527,159 11,353,999 10,022,783 3.Liabilities of Investitionsbank relating to federal promotion programmes with agreed maturity or period of notice of four years or more 527,734 539,655

4.Certificated liabilities a) bonds issued by the Bank 22,608,469 18,090,671 b) other 3,118,561 1,628,280 including: 25,727,030 19,718,951 money market instruments 3,118,561 (1,596,579) own acceptances and promissory notes outstanding – (49,271)

5.Trust liabilities 1,225,205 1,373,029 including: trust loans 1,214,752 (1,364,074)

6.Other liabilities 105,849 133,735

7.Deferred items 242,801 238,176

8.Provisions a) for pensions and similar obligations 159,032 148,042 b) tax reserve 50,092 54,794 c) other 62,808 60,697 271,932 263,533

9.Interest equalization fund 947,202 956,001

10. Special item with partial reserve character 14,993 –

11.Subordinated liabilities 889,990 697,060

12. Profit participation capital 564,788 153,388

To be carried forward: 69,817,282 57,963,037

45 Annual Accounts for 1999 BALANCE SHEET AS AT DECEMBER 31, 1999 ASSETS

€ thousands prev. year prev. year

Carried forward: 68,023,306 56,481,139

6. Shares and other non-interest-bearing securities 517,920 427,924

7. Equity investments in non-affiliated companies 777,912 781,429 including: banks 759,300 (766,227)

8. Equity investments in affiliated companies 163,648 139,152 including: banks 112,940 (99,576)

9. Trust assets 1,225,205 1,373,029 including: trust loans 1,214,752 (1,364,074)

10. Intangible assets 18,943 22,495

11. Fixed assets 135,289 109,966

12. Other assets 603,599 133,622

13. Deferred items 118,109 107,320

Total assets 71,583,931 59,576,076

46 Annual Accounts for 1999 BALANCE SHEET AS AT DECEMBER 31, 1999 LIABILITIES

€ thousands prev. year prev. year

Carried forward: 69,817,282 57,963,037

13. Fund for general bank risks 40,000 –

14. Equity capital a) subscribed capital 340,492 296,549 b) capital reserves appropriated reserves of Investitionsbank 967,630 918,597 1,308,122 c) reserves from retained earnings ca) statutory reserves 294,225 259,225 cb) reserves of Landes-Bausparkasse 71,070 68,002 cc) appropriated reserves of Investitionsbank 27,835 27,603 393,130 d) profit 25,397 43,063 1,726,649 1,613,039

Total liabilities 71,583,931 59,576,076

1. Contingent liabilities a) liabilities on rediscounted bills of exchange – 34,704 b) liabilities from guarantees and indemnity agreements 2,306,393 2,457,157

2. Other commitments a) placing and underwriting commitments – 6,890 b) irrevocable credit commitments 4,954,279 3,372,109

47 Annual Accounts for 1999 STATEMENT OF INCOME January 1 – December 31, 1999

€ thousands prev. year prev. year

1. Interest from a) lending and money market transactions 3,724,053 3,272,631 including: interest of Landes-Bausparkasse from LBS loans 20,276 (20,748) from pre and interim financing 32,811 (28,229) from other building loans 2,403 (2,558)

b) interest-bearing securities and Government-inscribed debt 669,756 587,613 4,393,809 2. Interest paid 4,076,462 3,596,803 including: 317,347 263,441 for deposits of Landes-Bausparkasse 21,905 (21,332)

3. Current income from a) shares and other non-interest-bearing securities 21,991 19,083 b) equity investments in non-affiliated companies 17,337 14,255 c) equity investments in affiliated companies 6,103 4,018 45,431 37,356 4. Income from profit pooling, profit transfer and partial profit transfer agreements 1,760 1,791

5. Commission income 82,643 67,596 including: commission income of Landes-Bausparkasse from contracts signed and arranged 7,859 (7,400) from loan arrangements after allocation 2,394 (2,342) from provision and handling of pre and interim financing 8 (6)

6. Commission paid 36,940 29,653 including: 45,703 37,943 for signed and arranged contracts of Landes-Bausparkasse 9,337 (9,403)

7. Net result from trading activities 16,550 23,561

8. Other operating income 38,365 43,039

9. Income from the liquidation of the special item with partial reserve character – 1,351

10. General administrative expenses a) personnel expenses aa) wages and salaries 88,101 83,248 ab) compulsory social security contributions and expenses for pensions and other employee benefits 36,524 27,221 including: 124,625 for pensions 22,688 (14,409)

b) other 91,788 86,683 216,413 197,152 11. Depreciation and value adjustments on intangible and tangible fixed assets 18,845 17,228

To be carried forward: 229,898 194,102

48 Annual Accounts for 1999 STATEMENT OF INCOME January 1 – December 31, 1999

€ thousands prev. year prev. year

Carried forward: 229,898 194,102

12.Other operating expenses 6,984 4,843

13. Write-downs and value adjustments on loans and certain securities as well as allocations to loan loss provisions 53,893 27,998

14.Write-downs and value adjustments on equity investments in non-affiliated companies, equity investments in affiliated companies and securities treated as fixed assets – 25,762

15.Income from allocations to equity investments in non-affiliated companies, equity investments in affiliated companies and securities treated as fixed assets 27,157 –

16. Allocations to the fund for general bank risks 40,000 –

17. Expenses from the assumption of losses 57 71

18. Allocations to special item with partial reserve character 14,993 –

19. Profit or loss on ordinary activities 141,128 135,428

20. Taxes on income and revenues 74,829 58,536

21. Other taxes not shown under item 12 -2,951 343 71,878 58,879

22. Profits transferred under a partial profit transfer agreement 5,553 5,441

23.Net income for the year 63,697 71,108 including: Landes-Bausparkasse 3,068 (3,068)

24. Allocation of net income to reserves from retained earnings a) statutory reserves of Landesbank 35,000 15,339 b) statutory reserves of Landes-Bausparkasse 3,068 3,068 c) appropriated reserves of Investitionsbank 232 9,638

25. Profit 25,397 43,063

49 Annual Accounts for 1999 GROUP BALANCE SHEET AS AT DECEMBER 31, 1999 ASSETS

€ thousands prev. year prev. year

1. Cash a) cash on hand 8,482 7,297 b) balances with central banks 276,736 107,186 including: with Deutsche Bundesbank 274,719 (99,792) 285,218 114,483 2. Debt instruments issued by public institutions and bills of exchange eligible for refinancing with central banks a) treasury bills and discounted treasury notes as well as similar debt instruments – 48 issued by public institutions including: eligible for refinancing with Deutsche Bundesbank – (48) b) bills of exchange 2,129 2,521 including: 2,129 2,569 eligible for refinancing with Deutsche Bundesbank 2,129 (2,521)

3. Claims on banks a) payable on demand 1,397,209 1,120,113 b) other 27,471,991 26,637,606 including: 28,869,200 27,757,719 loans of Landes-Bausparkasse 165 (411)

4. Claims on customers 52,691,543 46,935,334 including: secured by mortgages 11,557,386 (10,628,794) loans to public authorities and entities under public law 15,177,236 (14,866,178) secured by ship mortgages 5,241,834 (3,971,553) loans of Landes-Bausparkasse from allocation (LBS loans) 421,780 (438,269) pre and interim financing 582,695 (466,121) other 34,341 (34,250) including: secured by mortgages 939,160 (873,284)

5. Bonds and other interest-bearing securities a) money market instruments aa) of public issuers 100,099 88,578 including: eligible as collateral for Deutsche Bundesbank advances 50,010 (76,916) ab) of other issuers 75,652 110,685 including: 175,751 eligible as collateral for Deutsche Bundesbank advances 55,615 (–) b) bonds and notes ba) of public issuers 7,658,377 4,711,630 including: eligible as collateral for Deutsche Bundesbank advances 4,837,886 (1,539,852) bb) of other issuers 19,356,108 15,264,601 including: 27,014,485 eligible as collateral for Deutsche Bundesbank advances 5,475,754 (4,219,144) c) bonds issued by the Bank 1,533,092 1,297,970 principal amount 28,723,328 21,473,464 1,514,072 (1,249,878) To be carried forward: 110,571,418 96,283,569

50 Annual Accounts for 1999 GROUP BALANCE SHEET AS AT DECEMBER 31, 1999 LIABILITIES

€ thousands prev. year prev. year

1.Liabilities to banks a) payable on demand 3,039,403 2,372,577 b) with agreed maturity or period of notice 45,782,574 41,140,460 c) deposits of Landes-Bausparkasse 11,120 5,959 48,833,097 43,518,996 2.Liabilities to customers a) saving deposits aa) with agreed period of notice of three months 88,642 84,494 ab) with agreed period of notice of more than three months 5,900 5,531 ac) deposits of Landes-Bausparkasse 776,343 752,922 including: for terminated contracts 6,165 (6,989) for allocated contracts 17,953 (18,048) 870,885 b) other liabilities ba) payable on demand 2,799,541 2,539,264 bb) with agreed maturity or period of notice 18,435,694 17,345,073 21,235,235 22,106,120 20,727,284 3.Liabilities of Investitionsbank relating to federal promotion programmes with agreed maturity or period of notice of four years or more 527,734 539,655

4.Certificated liabilities a) bonds issued by the Bank 29,854,167 24,977,117 b) other 4,172,541 2,503,179 including: 34,026,708 27,480,296 money market instruments 4,172,541 (2,373,272) own acceptances and promissory notes outstanding – (91,816)

5.Trust liabilities 1,321,961 1,459,418 including: trust loans 1,237,209 (1,386,702)

6.Other liabilities 1,036,134 887,602

7.Deferred items 394,397 393,662

8.Provisions a) for pensions and similar obligations 229,592 212,874 b) tax reserve 110,395 105,631 c) other 122,549 103,070 462,536 421,575

9. Interest equalization fund 947,201 956,001

10. Special item with partial reserve character 61,866 –

11. Subordinated liabilities 1,464,163 1,126,923

To be carried forward: 111,181,917 97,511,412

51 Annual Accounts for 1999 GROUP BALANCE SHEET AS AT DECEMBER 31, 1999 ASSETS

€ thousands prev. year prev. year

Carried forward: 110,571,418 96,283,569

6. Shares and other non-interest-bearing securities 1,360,045 1,258,743

7. Equity investments in non-affiliated companies 110,655 113,634 including: banks 76,032 (74,069)

8. Equity investments in affiliated companies 75,756 40,648 including: banks 5,599 (–)

9. Trust assets 1,321,961 1,459,418 including: trust loans 1,237,209 (1,386,702)

10. Equalization claims against public authorities including bonds and notes issued in substitution thereof 7,596 3,886

11. Intangible assets 19,083 23,061

12. Fixed assets 204,392 172,606

13. Other assets 1,213,714 690,272

14. Deferred items 263,201 248,785

Total assets 115,147,821 100,294,622

52 Annual Accounts for 1999 GROUP BALANCE SHEET AS AT DECEMBER 31, 1999 LIABILITIES

€ thousands prev. year prev. year

Carried forward: 111,181,917 97,511,412

12. Profit participation capital 986,793 498,349 including: due in less than two years 25,309 (30,371)

13. Fund for general bank risks 72,175 18,982

14. Equity capital a) subscribed capital 340,492 296,549 b) capital reserves appropriated reserves of Investitionsbank 967,631 918,597 1,308,123 c) reserves from retained earnings ca) statutory reserves 294,225 259,225 cb) reserves of Landes-Bausparkasse 71,070 68,002 cc) appropriated reserves of Investitionsbank 27,835 27,603 393,130 d) Group reserves 1,002,257 484,176 e) equalizing items for shares of other shareholders 145,098 145,030 f) Group profit 58,328 66,697 2,906,936 2,265,879

Total liabilities 115,147,821 100,294,622

1. Contingent liabilities a) liabilities on rediscounted bills of exchange – 44,818 b) liabilities from guarantees and indemnity agreements 3,950,666 3,852,735

2. Other commitments a) placing and underwriting commitments – 6,890 b) irrevocable credit commitments 6,859,987 5,379,243

53 Annual Accounts for 1999 GROUP STATEMENT OF INCOME January 1 – December 31, 1999

€ thousands prev. year prev. year

1. Interest from a) lending and money market transactions 5,627,953 5,272,027 including: interest of Landes-Bausparkasse from LBS loans 20,276 (20,748) from pre and interim financing 32,811 (28,229) from other building loans 2,403 (2,558)

b) interest-bearing securities and Government-inscribed debt 1,259,550 1,151,602 6,887,503 2. Interest paid 6,255,568 5,885,103 including: 631,935 538,526 for deposits at Landes-Bausparkasse 21,905 (21,332)

3. Current income from a) shares and other non-interest-bearing securities 60,740 60,919 b) equity investments in non-affiliated companies 5,053 5,332 c) equity investments in affiliated companies 4,616 1,576 70,409 67,827 4. Income from profit pooling, profit transfer and partial profit transfer agreements 1,760 1,791

5. Commission income 148,028 130,498 including: commission income of Landes-Bausparkasse from contracts signed and arranged 7,859 (7,400) from loan arrangements after allocation 2,394 (2,342) from provision and handling of pre and interim financing 8 (6)

6. Commission paid 47,717 39,832 including: 100,311 90,666 for signed and arranged contracts of Landes-Bausparkasse 9,337 (9,403)

7. Net result from trading activities 24,268 40,674

8. Other operating income 102,967 104,194

9. Income from the liquidation of the special item with partial reserve character – 1,351

10. General administrative expenses a) personnel expenses aa) wages and salaries 146,753 136,320 ab) compulsory social security contributions and expenses for pensions and other employee benefits 57,060 46,779 including: 203,813 for pensions 33,145 (24,852)

b) other 144,808 135,937 348,621 319,036 11.Depreciation and value adjustments on intangible and tangible fixed assets 30,331 27,357

To be carried forward: 552,698 498,636

54 Annual Accounts for 1999 GROUP STATEMENT OF INCOME January 1 – December 31, 1999

€ thousands prev. year prev. year

Carried forward: 552,698 498,636

12. Other operating expenses 125,032 130,861

13. Write-downs and value adjustments on loans and certain securities as well as allocations to loan loss provisions 132,955 104,243

14. Write-downs and value adjustments on equity investments in non-affiliated companies, equity investments in affiliated companies and securities treated as fixed assets – 31,902

15. Income from allocations to equity investments in non-affiliated companies, equity investments in affiliated companies and securities treated as fixed assets 69,679 –

16. Allocations to the fund for general bank risks 53,061 18,918

17. Expenses from the assumption of losses 57 71

18. Allocations to special item with partial reserve character 61,866 –

19. Profit or loss on ordinary activities 249,406 212,641

20. Taxes on income and revenues 119,001 90,989 – 21. Other taxes not shown under item 12 -1,955 -1,910 117,046 89,079 22. Profits transferred under a partial profit transfer agreement 36,542 29,193

23. Net income for the year 95,818 94,369 including: Landes-Bausparkasse 3,068 (3,068)

24. Profit carried forward from the previous year 810 373

25. Allocation of net income to reserves from retained earnings a) statutory reserves of Landesbank 35,000 15,339 b) statutory reserves of Landes-Bausparkasse 3,068 3,068 c) appropriated reserves of Investitionsbank 232 9,638

26.Group profit 58,328 66,697

55 Annual Accounts for 1999 Notes to the Annual Accounts and Group Annual Accounts

Landesbank Schleswig-Holstein Girozentrale (LB Kiel) is an institution incorporated under public law.

The Bank’s subscribed capital is held by Westdeutsche Landesbank Giro- zentrale, Düsseldorf/Münster (39.9 %), Landesbank Baden-Württemberg, Stuttgart (10 %), the State of Schleswig-Holstein and the Savings Banks and Giro Association of Schleswig-Holstein (25.05 % each).

The State of Schleswig-Holstein, the Savings Banks and Giro Association of Schleswig-Holstein, Westdeutsche Landesbank as well as Landesbank Baden-Württemberg are jointly and severally liable for other obligations of the Landesbank that cannot be met from its assets.

The State of Schleswig-Holstein is liable for the obligations arising from the business activities of the Investitionsbank.

Governmental control is exercised by the Minister for Economic Affairs, Technology and Transport of the State of Schleswig-Holstein.

56 Notes to the Annual Accounts and Group Annual Accounts CONSOLIDATION PRINCIPLES AND COMPANIES INCLUDED IN THE GROUP ACCOUNTS

The accounts of the individual Group companies are uni- In addition to LB Kiel, the Group annual accounts include formly prepared in accordance with the accounting and Landesbank Schleswig-Holstein International S.A., Luxem- valuation methods applicable to LB Kiel. Claims and bourg, LB Finance B.V., Amsterdam, Gudme Raaschou Bank- liabilities, expenses and income as well as interim results aktieselskab, Copenhagen, as well as the 49.5 % investment existing or arising between companies included in the in the Hamburgische Landesbank Group, Hamburg. Group accounts are eliminated.

Investitionsbank Schleswig-Holstein and Landes-Bauspar- kasse Schleswig-Holstein are organizationally independent but legally dependent central departments of LB Kiel. As the central funding and promotion institute, Investi- tionsbank supports the State of Schleswig-Holstein in fulfilling economic and structural tasks, offering impartial services in the fields of industry, residential construction, the environment and energy, municipal promotion, urban and agricultural development as well as project management.

The branches in Luxembourg and Copenhagen are included as well.

57 Notes to the Annual Accounts and Group Annual Accounts ACCOUNTING AND VALUATION PRINCIPLES

The annual accounts of LB Kiel and the Group have been compiled in accordance with the German Commercial Code (HGB) and Ordinance Regarding Accounting for Banks (RechKredV).

The annual accounts and the Group annual accounts are drawn up in euros. For the sake of comparison, the previous year’s figures have also been converted to euros. The Bank has entered into interest-rate and currency swap The assets and liabilities as well as the expenditure and agreements to hedge open positions, to control its overall income of the Investitionsbank Schleswig-Holstein (IB) and interest-rate position and for trading purposes. the Landes-Bausparkasse (LBS), which both publish separate annual accounts, are consolidated in the corresponding Results from interest-rate swap agreements are carried items of the balance sheet and profit and loss account of gross under interest income and expenditure respectively. LB Kiel unless otherwise stated. Claims are shown with the principal amount outstanding, liabilities with the amount repayable. Discounts and pre- Assets, liabilities and pending transactions are valued in miums are shown under deferred items as an asset or liabi- accordance with §§ 252 et seq. and §§ 340 et seq. of the lity accordingly and dissolved pro rata temporis. German Commercial Code (HGB). Value adjustments and specific provisions are made to In accordance with § 9 of the Ordinance Regarding cover discernible risks in the loan business. Adequate Accounting for Banks (RechKredV) claims on banks and account was taken of risks in respect of outstanding claims customers and liabilities to banks and customers, savings by way of general provisions on receivables. deposits as well as certificated liabilities have been broken down according to residual maturities. Pro-rata interest The securities held in the Bank’s and the Group’s trading not to be broken down according to residual maturities portfolio, investment portfolio and in the liquidity reserve pursuant to § 11 (3) of the Ordinance Regarding Accoun- are valued strictly according to the lower of cost or mar- ting for Banks (RechKredV) is shown in the first maturity ket principle at market or lower book values. band. Equity investments in affiliated and non-affiliated companies are shown at cost less depreciation, if any. Assets and liabilities in foreign currencies are translated at Original values are reinstated both in the commercial the official mean rate of exchange prevailing on the balan- balance sheet and the tax balance sheet as required under ce-sheet date. Foreign currency assets treated as fixed the 1999/2000/2002 Tax Relief Act. assets were valued in the same way, as they are specifically covered in the same currency. In the past fiscal year, interest-earning securities held in the The Copenhagen branch’s and the Copenhagen subsidiary’s trading portfolio and denominated in EU currencies were financial statements, which were compiled in a foreign added to the interest-rate portfolio. All elements of the currency, were also converted at the official mean rate of interest-rate portfolio were then valued at the market exchange. value as at December 31, 1999. The resulting impending losses and unrealized profits are balanced out; the balance Forward transactions and hedging operations specifically is treated according to the imparity principle. related to them have been treated as an integrated whole. Tangible assets whose use is limited by time are written off in accordance with the relevant tax regulations. Low-value assets are written off in full in their year of purchase.

58 Notes to the Annual Accounts and Group Annual Accounts A special item entitled ”fund for general bank risks“ of €␣ 72.2 million was established for the first time in 1999 Option premiums paid are carried at their purchase costs. to hedge against general bank risks. Allocations are shown They are written down to their market price in accordan- separately in the statement of income. ce with the lower of cost or market principle. In the case of options sold, provision has been made for potential Dormant equity contributions accepted in the fiscal year in losses. Valuation units are taken into account. order to strengthen the Bank’s equity base comply with Provisions for pension obligations have been established the requirements contained in § 10 (4) of the German Ban- on the basis of actuarial principles based on the new tables king Law and are classed as subscribed capital. of Dr. Klaus Heubeck and are shown at their commercial Capital consolidation is effected on the basis of the values values. Of the adjustment amount resulting from the adop- applicable on the date of first-time consolidation of the tion of the actuarial tables published in 1998, half is allo- companies in question. The difference arising from capital cated to provisions for commercial balance sheet purposes consolidation pursuant to § 301 section 1 clause 2 No. 1 of up to 1999 and one third for tax purposes starting 1999. the German Commercial Code is included in the Group In the next two years, another € 5.3 million will be allocated reserves. to provisions for commercial balance sheet purposes. In 1999, reserves for contingencies resulting from the duty The liabilities-side difference shown in the Group reserves to grant benefits to pensioners and surviving dependants from the capital consolidation of a total of € 392.0 million were established for the first time. Adequate provision for is the result of netting an assets-side difference of € 12.2 obligations relating to early retirement has been made. In million against a liabilities-side difference of € 404.2 million. addition, indirect pension-like obligations in accordance with Art. 28 (2) EG HGB exist at Group level. The item entitled “equalization items for shares of other shareholders“ contains shares in a fully consolidated com- In the past fiscal year, reserves for contingencies were pany not belonging to a Group company. established for the first time, and the risk provisions The Bank’s liabilities capable of resulting in a credit risk are formed for this purpose under general provisions on re- shown as irrevocable credit commitments. ceivables were written back in return. In addition to Investitionsbank’s payment obligations resul- The Interest Equalization Fund represents a value adjust- ting from the development activities for construction and ment for all interest-free or low-interest claims arising investment loans, Investitionsbank has a payment obligation from the promotion programmes of the Investitionsbank of € 57.9 million for the future acquisition of state proper- which were disbursed by December 31, 1994. The claims ties. are carried as assets at their nominal value.

The fund thus functions as provisions. As regards the interest-free or low-interest claims disbursed between 1995 and 1998, the State of Schleswig-Holstein is obliged to take over these claims at their nominal values upon request. Due to the 1999/2000/2002 Tax Relief Act, write-ups of balance sheet assets are effected pursuant to § 280 section 1 of the German Commercial Code. According to § 273 of the German Commercial Code in conjunction with § 52 section 16 of the German Income Tax Law, part of these write-ups are allocated to the special item with partial reserve character, which will be written back with an impact on the result over the past four years.

59 Notes to the Annual Accounts and Group Annual Accounts Information on the Balance Sheet and Statement of Income as well as the Group Balance Sheet and Statement of Income

INFORMATION ON ASSETS as at December 31

Claims on Associated Savings Banks € million Bank Group Bank Group Claims on banks include claims on 1999 1998 Claims on associated savings banks: associated savings banks 6,535.3 7,552.6 6,159.9 7,143.3

Affiliated Companies € million Bank Group Bank Group The following items include claims 1999 1998 Claims on banks 30.6 – 204.0 3.0 on affiliated companies in securitized or non-securitized form: Claims on customers 525.6 525.9 57.4 57.4

Bonds and other interest-bearing securities Money market instruments – – – – Bonds and notes 1.9 28.6 0.6 0.6

Companies in Which Interests € million Bank Group Bank Group Are Held 1999 1998 Claims on banks 85.5 160.5 78.6 67.3 Claims on companies in which

interests are held are included in Claims on customers 271.4 273.5 324.3 326.7 the following items: Bonds and other interest-bearing securities Money market instruments – – – – Bonds and notes 24.0 62.6 43.2 16.5

Subordinated Claims € million Bank Group Bank Group The following items include subordi- 1999 1998 Other claims on banks 62.9 63.3 62.9 63.5 nated claims:

Claims on customers 5.2 6.3 4.3 5.4

Bonds and other interest-bearing securities 33.1 231.3 31.0 149.6 Shares and other interest-bearing securities – 17.1 – 21.2

60 Notes to the Annual Accounts and Group Annual Accounts Information on Securities Items

€ million Bank Group Bank Group 1999 1998 Bonds and other interest-bearing securities

Money market instruments of public and other issuers Marketable bonds and debentures listed on a stock exchange 155.7 155.7 151.6 173.3 Marketable bonds and debentures not listed on a stock exchange 19.9 20.0 26.0 26.0

Bonds and debentures of public issuers Marketable bonds and debentures listed on a stock exchange 4,468.7 7,012.2 1,898.3 4,105.5 Marketable bonds and debentures not listed on a stock exchange 46.8 646.2 52.4 606.1

of other issuers Marketable bonds and debentures listed on a stock exchange 8,603.0 16,387.0 6,421.5 13,150.9 Marketable bonds and debentures not listed on a stock exchange 1,233.3 2,969.2 645.9 2,113.7

Bonds issued by the Bank Marketable bonds and debentures listed on a stock exchange 1,146.9 1,454.1 867.3 1,254.0 Marketable bonds and debentures not listed on a stock exchange 27.9 79.0 23.6 44.0

Shares and other non-interest-bearing securities Marketable shares listed on a stock exchange and other non-interest-bearing securities 12.3 70.8 12.1 84.8 Marketable shares not listed on a stock exchange and other non-interest-bearing securities 23.3 30.2 23.8 29.5

61 Notes to the Annual Accounts and Group Annual Accounts Equity Investments in Affiliated € million Bank Group Bank Group and Non-Affiliated Companies 1999 1998 Equity investments in affiliated companies The item ”equity investments in affiliated companies“ includes: Marketable shares listed on a stock exchange 19.4 19.4 5.6 5.6 Marketable shares not listed on a stock exchange 37.3 37.3 23.9 24.1

Trust Assets € million Bank Group Bank Group Trust assets comprise the following: 1999 1998 Trust assets

Claims on banks payable on demand 3.4 3.4 4.1 4.1 other claims 12.5 12.9 15.9 16.4 Claims on customers 1,209.3 1,305.6 1,353.0 1,438.9

Other Assets: € million Bank Group Bank Group The main components of this 1999 1998 Other assets item are: Equalization item for foreign currency conversion 275.3 335,7 – – Claims under options and collateral 0.1 15,8 0.2 3.2 Swap deferrals 4.1 445,3 6.4 486.1 Claims under options 23.6 32,5 17.0 25.9 Collection documents, bonds and debentures due as well as interest and dividend coupons due 23.6 31,4 21.5 26.9 Land acquired for temporary use 11.1 20,2 12.0 21.1

€ million Bank Group Bank Group Deferred Items 1999 1998 Deferred items Deferred items include: Deferred discounts 84.6 120.8 69.2 115.1 Deferred premiums 33.2 46.2 37.3 53.0

62 Notes to the Annual Accounts and Group Annual Accounts Breakdown by Residual Maturities € million Bank Group Bank Group Assets according to original 1999 1998 Other claims on banks maturities: up to three months 4,683.8 7,878.8 3,958.2 6,439.9 more than three months up to one year 1,833.2 2,865.8 2,574.6 6,092.5 more than one year up to five years 6,110.2 8,805.8 5,323.2 7,883.4 more than five years 5,727.8 7,921.6 4,494.3 6,221.9

Claims on customers up to three months 1,580.1 4,960.1 1,835.0 4,464.9 more than three months up to one year 2,112.5 3,887.3 1,796.1 3,043.5 more than one year up to 5 years 9,435.2 14,310.7 7,226.5 12,487.0 more than five years 19,151.6 28,255.7 18,427.2 25,905.4 Claims with undetermined maturity 708.5 1,277.7 352.8 1,034.7

Bonds and debentures and other interest-bearing securities Bonds and debentures maturing in the following year 4,005.5 4,854.7 2,110.9 3,142.7

63 Notes to the Annual Accounts and Group Annual Accounts Fixed Assets

Tangible Assets € million Land and buildings including: Advance (excluding tangible assets used for the payments and under construction) Bank business tangible assets under construction Bank Group Bank Group Bank Group

Acquisition cost 112.5 177.6 112.4 172.1 0.2 2.6

Additions 23.7 27.4 23.7 26.9 3.2 6.9

Subtractions 0.9 1.1 0.9 0.9 0.2 0.2

Write-ups / transfers – – – – – – Depreciation in current business year 3.0 4.2 3.0 4.2 – –

Cumulated depreciation 33.1 55.7 33.1 51.7 – – Book value on December 31, 1999 102.2 148.2 102.1 146.5 3.2 9.3

€ million Office Intangible equipment assets

Bank Group Bank Group

Acquisition cost 87.7 143.4 29.8 31.0

Additions 15.0 26.2 – –

Subtractions 6.1 12.7 0.7 0.7

Write-ups / transfers – – – -0.5

Depreciation in current business year 17.8 33.9 3.5 3.5

Cumulated depreciation 66.7 110.0 10.2 10.7

Book value on December 31, 1999 29.9 46.9 18.9 19.1

Financial Assets € million Equity investments in Equity Securities shown non-affiliated companies investments in as fixed assets affiliated companies Bank Group Bank Group Bank Group Book value on December 31, 1998 781.4 113.6 139.2 40.6 6,436.5 13,392.3 Changes in 1999 -3.5 -2.9 24.4 35.2 137.3 425.8 Book value on December 31, 1999 777.9 110.7 163.6 75.8 6,573.8 13,818.1

64 Notes to the Annual Accounts and Group Annual Accounts INFORMATION ON LIABILITIES as at December 31

Liabilities to Associated € million Bank Group Bank Group Savings Banks 1999 1998 Liabilities to associated The item ”liabilities to banks“ includes savings banks 1,703,3 1,956.0 1,580.7 1,897.9 liabilities to associated savings banks in the amount of:

Affiliated Companies € million Bank Group Bank Group Liabilities to affiliated companies are 1999 1998 Liabilities to banks 1,628.7 – 1,811.8 – included in the following items: Liabilities to customers 65.2 65.2 2.4 2.4 Certificated liabilities bonds issued by the Bank 0.8 0.8 1.3 1.3 Other certificated liabilities – – – –

Companies in Which Interests € million Bank Group Bank Group Are Held 1999 1998 Liabilities to banks 184.7 267.6 458.2 168.7 Liabilities to companies in which Liabilities to customers 3.3 21.5 9.6 9.7 interests are held are included in the Certificated liabilities following balance sheet items: bonds issued by the Bank 484.3 484.3 70.4 70.4 Other certificated liabilities – – – –

Assets Pledged as Collateral € million Bank Group Bank Group The assets pledged as collateral stem 1999 1998 Assets pledged as collateral 1,577.8 4,582.0 987.9 1,338.5 from open-market transactions with Deutsche Bundesbank and from claims under loan agreements assigned as part of the promotion activities.

Trust Liabilities € million Bank Group Bank Group Trust liabilities comprise the following: 1999 1998 Liabilities to banks payable on demand 2.1 2.1 2.4 2.4 with agreed maturity or period of notice 110.2 120.0 119.8 132.0

Liabilities to customers payable on demand 16.5 16.5 14.4 14.4 with agreed maturity or period of notice 1,096.4 1,183.4 1,236.5 1,310.7

65 Notes to the Annual Accounts and Group Annual Accounts Other Liabilities € million Bank Group Bank Group This item mainly comprises: 1999 1998 Other liabilities Interest rates on subordinated liabilities, profit participation rights 56.0 112.2 32.2 69.6 Liabilities under options and collateral 22.7 43.3 16.8 232.8 Swap deferrals – 408.7 – 409.3 Equalization item for foreign currency conversion – – 60.1 28.0

Deferred Items € million Bank Group Bank Group Deferred items include: 1999 1998 Deferred items Deferred discounts 215.4 272.4 203.7 264.1 Deferred premiums 7.0 14.5 4.7 12.9

Subordinated Liabilities € million Bank Group Bank Group Volume of subordinated liabilities: 1999 1998 Subordinated Liabilities 890.0 1,464.2 697.0 1,126.9

Expenditure of € 50.7 (1998: 45.4) million was incurred in connection with subordinated liabilities. At Group level, it amounted to € 73.9 (1998: 64.7) million. Each of the following subordinated liabilities exceeded 10 % of the total subordinated debt: Amount Currency Interest rate in % Maturity in € million 161.2 GBP 6.5 2004 161.2 GBP var. 2006

The remaining funds were raised in CAD, Yen, NLG, PTE, LUF, DEM and EUR in an equivalent amount of € 1,141.6 million. Carrying interest between 2.4 % and 16.0 %, these liabilities mature between 2001 and 2039. The subordination cannot be limited and the maturity and period of notice cannot be shortened; otherwise the terms of subordinations are in accordance with the relevant provisions of the German Banking Law.

66 Notes to the Annual Accounts and Group Annual Accounts Profit Participation Capital The profit participation capital raised in DM and € stands at € 564.8 million (1998: € 153.4 million). Group profit participation capital stands at € 986.8 million (1998: € 498.4 million). Of the profit participation capital shown, € 518.8 million were raised in the year under review.

Contingent Liabilities € million Bank Group Bank Group The majority of contingent liabilities 1999 1998 Contingent liabilities 2,306.4 4,209.8 2,491.9 3,897.6 are loan guarantees.

Breakdown According to € million Bank Group Bank Group Original Maturities 1999 1998 Liabilities to banks Liabilities according to original with agreed maturity maturities: or period of notice up to three months 13,422.7 24,446.9 9,800.2 20,459.3 more than three months up to one year 2,047.4 6,447.0 2,418.1 5,701.6 more than one year up to five years 4,851.7 8,476.0 5,299.1 9,252.5 more than five years 5,567.5 6,412.7 4,766.0 5,727.0

Savings deposits up to three months 46.5 88.6 42.2 84.5 more than three months up to one year 0.6 1.1 0.1 0.5 more than one year up to five years 3.4 4.7 3.5 4.9 more than five years – 0.1 – 0.1

Other liabilities to customers with agreed maturity or period of notice up to three months 1,180.0 5,546.3 1,160.6 5,604.5 more than three months up to one year 232.5 791.1 309.7 1,016.1 more than one year up to five years 1,812.7 3,201.4 1,478.8 2,586.1 more than five years 6,024.8 8,896.9 5,416.5 8,138.3

Certificated liabilities

Bonds issued by the Bank Bonds issued maturing in the following year 7,718.5 9,582.9 4,560.8 5,836.2

Other certificated liabilities up to three months 2,704.1 3,570.3 938.4 1,692.8 more than three months up to one year 414.5 602.3 689.8 810.3 more than one year up to five years – – – – more than five years – – – –

67 Notes to the Annual Accounts and Group Annual Accounts Information on the Statement of Income:

Geographic Breakdown € million Germany Europe Asia Germany Europe Asia of Profit Components: excl. excl. Germany 1999 Germany 1998

Interest 5,019.1 1,713.8 154.6 4,781.6 1,499.5 142.5 Current income from shares and other non-interest- bearing securities, equity investments in non-affiliated and affiliated companies 70.2 0.3 – 67.8 – –

Commission income 115.9 30.1 2.1 104.5 23.8 2.2

Other operating income 101.5 1.5 – 102.5 3.1 – Net result from trading activities 23.8 1.2 -0.7 37.5 3.4 -0.2

Other operating income € million Bank Group Bank Group 1999 1998 This item mainly comprises

Refund of expenses by third parties 32.8 37.3 30.4 33.5 Liquidation of investments – – 11.1 20.6 Income from promotion activities – 42.9 – 38.0

Other operating expenses € million Bank Group Bank Group 1999 1998 This item mainly comprises Special building depreciation – – – 15.1 Expenses related to promotion activities – 110.5 – 104.4

Deferred/Accrued Taxes Provisions for deferred/accrued taxes amount to € 3.7 (3.5) million. Accrued taxes are not netted with deferred taxes.

68 Notes to the Annual Accounts and Group Annual Accounts OTHER INFORMATION

Capital and Reserves € million 1999 1998 Including allocations to reserves and Liable capital of the Bank acc. to § 10 other changes resulting from the 1999 of the German Banking Law (KWG) annual accounts, the Bank’s liable Subscribed capital 340.5 296.5 equity capital amounts to € 3,103.2 Capital reserves 909.7 918.6 (1998: 2,454.4) million. Group liable Reserves from retained earnings 393.1 354.8 Fund for general bank risks 40.0 – equity capital stands at € 5,282.3 Intangible fixed assets -18.9 -22.5 (1998: 3,922.1) million. Core capital 1,664.4 1,547.4 The capital resources of € 57.9 million Supplementary capital 1,433.6 908.9 Equity investments acc. to § 10 section 6a with which Investitionsbank was clause 1 No. 4a of the German Banking Law -2.0 -1.9 provided in conjunction with the Tier 3 capital 7.2 – formation of the ”state properties“ special-purpose fund are not used to Total liable capital - Bank 3,103.2 2,454.4 back risk-weighted assets. Liable capital of the Group companies acc. to §␣ 10a of the German Banking Law (KWG) Core capital 1,273.1 749.6 Supplementary capital 928.9 733.8 Deduction from equity -15.7 -15.7

Total liable capital - Group companies 2,186.3 1,467.7 Tier 3 capital -7.2 – not counting towards the capital base Total liable capital - Group 5,282.3 3,922.1

Banking Law Ratios Liability not Shown in the Balance Sheet Having consistently complied with the capital adequacy and As a result of being a shareholder in a number of smaller liquidity stipulations under German Banking Law during the companies, the Bank may be obliged to pay up certain year under review, the Bank has fulfilled the requirements fractions of share capital not yet fully subscribed and paid. for recognition as a suitable bank as defined by § 54a section 2 No. 9c of the German Insurance Supervision Act There is a commitment to put up further capital when (VAG). called, resulting from the Bank’s participation in the Liqui- ditäts-Konsortialbank GmbH as well as a limited contingent Deposit Security Fund liability for the payment obligations of other shareholders. The Bank is a member of the Landesbanken/Girozentralen deposit security fund, which falls under the security system Landesbank Schleswig-Holstein holds a 49.5 % stake in of the German Savings Bank Organization. This ensures full Hamburgische Landesbank. satisfaction of all maturing customer deposits and certificated liabilities as well as all other claims. Letter of Comfort Landesbank Schleswig-Holstein will, except in the case of Regardless of this, LB Kiel’s liabilities are fully backed by its political risk, ensure that the following Group companies guarantors. will be in a position to meet their obligations: Landesbank Schleswig-Holstein International S.A., Luxem- bourg, and LB Schleswig-Holstein Finance B.V., Amsterdam.

69 Notes to the Annual Accounts and Group Annual Accounts Forward Transactions The Bank’s and the Group’s unsettled foreign currency, interest-related and other forward transactions outstanding at year-end were primarily entered into to cover fluctuations in interest rates and market prices. The proportion of transactions entered into for trading purposes is not significant. The following types of transactions are involved:

Currency-Related Interest-Related Forward Transactions Forward Transactions - Forward exchange transactions - Forward securities transactions - Forex swap deals - Stock futures transactions - Interest-rate/currency swaps - Forward rate agreements - Written currency options - Written interest-rate options - Purchased currency options - Interest-rate swaps - Interest-rate forward transactions - Purchased interest-rate options - Interest-rate futures

Other Forward Transactions Credit derivatives - Sold share options - Credit default swaps - Index forward transactions (guarantee/guarantor) - Sold index options - Total return swaps (guarantor) - Purchased share options - Credit spread options (guarantor) - Purchased index options - Gold futures

70 Notes to the Annual Accounts and Group Annual Accounts Foreign Currency Assets, € million Bank Group Bank Group Foreign Currency Liabilities 1999 1998

Foreign currency assets 15,382.4 30,485.1 14,806.6 32,376.8 Foreign currency liabilities 18,067.9 27,228.9 16,605.8 28,094.9

Cover € million Bank Group Bank Group 1999 1998 Mortgage-backed bonds Bearer bonds -2,174.1 -3,090.1 -1,701.1 -2,864.7 Registered bonds -1,972.2 -2,531.4 -1,449.9 -1,892.9 Registered bonds used as collateral -553.6 -581.8 -496.0 -531.9 Redeemed and terminated bonds -86.3 -86.3 -25.6 -25.6 -4,786.2 -6,289.6 -3,672.6 -5,315.1 Assets used for covering purposes Claims on customers 5,269.6 7,557.7 4,895.3 6,845.6 Claims on banks – – – 1.0

Excess cover 483.4 1,268.1 1,222.7 1,531.5

Municipal bonds used as cover Municipal bearer bonds -11,679.6 -14,152.6 -10,271.9 -13,169.0 Municipal registered bonds -7,049.0 -9,025.1 -5,243.2 -6,482.7 Registered bonds used as collateral -1,020.0 -1,080.0 -999.3 -1,055.5 Redeemed and terminated bonds -69.7 -69.7 – – -19,818.3 -24,327.4 16,514.4 -20,707.2 Assets used for covering purposes Claims on customers 10,947.3 13,065.9 10,246.2 12,317.0 Claims on banks 7,141.4 10,449.1 7,057.1 10,019.8 Securities and bonds of public issuers 1,750.1 1,750.1 – – Replacement cover 800.2 800.2 76.7 76.7 20,639.0 26,065.3 17,380.0 22,413.5

Excess cover 820.7 1,737.9 865.6 1,706.3

71 Notes to the Annual Accounts and Group Annual Accounts Average Number of Employees female male total 1998 in 1999 Landesbank 656 738 1,394 1,381 Landes-Bausparkasse 118 89 207 188 Investitionsbank 186 129 315 315 Sub total 960 956 1,916 1,884 LB Schl.-Holst. International S.A. 35 30 65 64 Hamburgische Landesbank * 1,065 1,044 2,109 2,044 Gudme Raaschou 18 51 69 72 Total 2,078 2,081 4,159 4,064 including: part-time employees 493 47 540 513 plus: apprentices 107 75 182 163

* Total headcount of Hamburgische Landesbank

Remuneration Paid to the Members of the Managing Board and the Supervisory Board The total remuneration paid to the Managing Board in the business year was € 2.0 (1998: 1.9) million, including € 0.1 (1998: 0.1) million for the subsidiaries. Remuneration paid to the Supervisory Board amounted to € 0.3 (1998: 0.3) million. Total remuneration paid to former members of the Managing Board or their survivors was € 1.0 (1998: 1.1) million. Pension provisions in an amount of € 8.4 (1998: 8.2) million have been made for members or former members of the Managing Board or their survivors.

Loans to Members € million Bank Konzern Bank Konzern of the Executive Bodies 1999 1998 Managing Board 1.2 1.2 1.2 1.2 Supervisory Board 2.6 2.6 3.0 3.0

72 Notes to the Annual Accounts and Group Annual Accounts Seats on other supervisory boards of the Members of the Managing Board

Dr. Dietrich Rümker DGZ Deka Bank Deutsche Kommunalbank, Frankfurt/Main Hamburgische Landesbank – Girozentrale –, Hamburg Landesbank Schleswig-Holstein International S.A., Luxemburg Minimax GmbH, Bad Oldesloe

Hans Berger dvg Hannover Datenverarbeitungsgesellschaft mbH, Hannover Flender Werft AG, Lübeck Hamburgische Landesbank – Girozentrale –, Hamburg SIZ Informatik – Zentrum der Sparkassenorganisation GmbH, Bonn Deka Deutsche Kapitalanlagegesellschaft mbH, Frankfurt/Main eBanking Services Nord GmbH (eBS), Kiel SNetLine GmbH, Kiel

Peter Pahlke A/O WestLB Vostok, Moskau BIG Bau-Investitions-Gesellschaft mbH, Kronshagen Gudme Raaschou Bankaktieselskab, Kopenhagen W. Jacobsen AG, Kiel Landesbank Schleswig-Holstein International S.A., Luxemburg LBS Immobilien GmbH, Kiel WestInvest Westdeutsche Grundstücks-Investment GmbH, Düsseldorf WestLB Polska S.A., Warschau BIG Heimbau AG, Kiel SVEDEG-Schwedisch-Deutsche Portfolio Management GmbH, Düsseldorf Despa Deutsche Sparkassen-Immobilien-Anlage-Gesellschaft mbH, Frankfurt

Dieter Pfisterer Deutsche Factoring Bank – Deutsche Factoring GmbH & Co., Bremen Gesellschaft für Wagniskapital Mittelständische Beteiligungsgesellschaft Schleswig-Holstein GmbH – MBG –, Kiel IKB – Leasing GmbH, Hamburg Wankendorfer Baugenossenschaft eG, Wankendorf Stadtwerke Kiel AG, Kiel eBanking Services Nord GmbH (eBS), Kiel ORGA Kartensysteme GmbH, Flintbek

Ernst Schröder Landesbank Schleswig-Holstein International S.A., Luxemburg LBS Immobilien GmbH, Kiel S-direkt Schleswig-Holstein Dienstleistungsgesellschaft für die Sparkassenfinanzgruppe GbR, Kiel

73 Notes to the Annual Accounts and Group Annual Accounts Shareholdings Pursuant to § 285 No. 11 of the German Commercial Code (HGB) The Group financial statements include Companies 1) to a true and fair view of the net assets, financial condition 4). The other companies were not consolidated as they are and earnings of the group. All computations reflect the of minor importance for meeting the obligation to provide companies’ most recent financial statements.

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

1) Landesbank Schleswig-Holstein International S.A., Luxemburg 135.09 100.00 12.78 2) LB Schleswig-Holstein Finance B.V., Amsterdam 0.71 100.00 3) 3) Hamburgische Landesbank – Konzern, Hamburg 3,385.6 49.50 50.34 4) Gudme Raaschou Bankaktieselskab, Kopenhagen 11.12 100.00 0.02 5) LiLux Management S.A., Luxemburg 0.77 100.00 4) 6) Verwaltungs- und Treuhandgesellschaft von 1963 mbH, Kiel 0.03 100.00 2) 3) 7) Wirtschafts- und Aufbaugesellschaft Stormarn mbH, Bad Oldesloe 26.93 24.00 3) 8) Kieler Grunderwerbsgesellschaft mbH, Kiel 0.03 100.00 2) 3) 9) Schleswig-Holsteinische Kapital-Beteiligungsgesellschaft mbH, Kiel 0.51 100.00 2) 3) 10) Anker Schiffsbetreuungsgesellschaft mbH, Kiel 0.03 100.00 2) 3) 11) W. Jacobsen AG, Kiel 7.98 92.51 3) 12) Schleswig-Holsteinische Immobilienfonds KG, Kiel 0.21 100.00 3) 13) BIG Bau-Investitions-Gesellschaft mbH, Kiel 13.12 24.00 3) 14) LBS Immobilien GmbH, Kiel 0.26 100.00 2) 15) Gesellschaft für Wagniskapital Mittelständische Beteiligungsgesellschaft Schleswig-Holstein GmbH, Kiel 13.02 56.10 3) 5) 16) Grundstücksverwaltungsgesellschaft der schleswig-holsteinischen Sparkassenorganisation mbH, Kiel 0.03 100.00 3) 17) Cape May Shipping Company Ltd., Monrovia 0.001 100.00 3) 4) 18) LBSH Leasing Verwaltungs GmbH, Lockstedt 0.04 100.00 2) 19) LBSH Leasing Geschäftsführungs GmbH, Lockstedt 0.02 100.00 2) 20) LBSH Leasing Objekt GmbH, Lockstedt 0.03 100.00 4) 21) LBSH Leasing GmbH & Co. KG, Lockstedt 13.33 100.00 3) 5) 22) LBSH Leasing Objekt GmbH & Co. KG Immobilienprojekt Heide, Lockstedt 0.42 100.00 3) 5) 23) LBSH Fondsmanagement GmbH, Lockstedt 0.02 100.00 2) 4) 24) LBSH Fonds Verwaltung GmbH, Lockstedt 0.03 100.00 4) 25) LBSH Fonds Verwaltung GmbH & Co. Objekt Mobilien LISTAR KG, Lockstedt 0.02 100.00 3) 5) 26) LBSH Fonds Verwaltung GmbH & Co. Objekt Mobilien MERKUR KG, Lockstedt 0.02 100.00 3) 5) 27) LBSH Fonds Verwaltung GmbH & Co. Objekt Mobilien SAMUS KG, Lockstedt 0.02 100.00 3) 5) 28) LBSH Fonds Verwaltung GmbH & Co. Objekt Mobilien SATURN KG, Lockstedt 0.02 100.00 3) 5) 29) Bausteine für Kinder, Kindertagesstätten Bau- und Entwicklungs GmbH, Lockstedt 0.02 100.00 2) 30) Spielbank SH GmbH, Kiel 0.03 100.00 2) 31) Spielbank SH GmbH & Co. Casino Stadtzentrum Schenefeld KG, Schenefeld 4.89 100.00 3) 5) 32) Immobilienverwaltungsgesellschaft Schleswig-Holstein mbH, Kiel 5.01 40.00 4) 33) Grundstücksverwaltung O.Z.W. GmbH, Lockstedt 0.03 100.00 4) 34) Spielbank SH GmbH & Co. Casino Kiel KG, Kiel 2.83 100.00 3) 5) 35) Spielbank SH GmbH & Co. Casino Lübeck-Travemünde KG, Lübeck-Travemünde 2.32 100.00 3) 5) 36) Spielbank SH GmbH & Co. Casino Westerland auf Sylt KG, Westerland 1.02 90.00 3) 5) 37) Kieler Förde-Verwaltungsgesellschaft mbH, Kiel 0.03 100.00 2) 38) Baltic Sea-Verwaltungsgesellschaft mbH, Kiel 0.03 100.00 2) 39) Nord-Ostsee Verwaltungsgesellschaft mbH, Kiel 0.02 100.00 3) 40) Kiel-Hörn Vermarktungsgesellschaft mbH, Kiel 0.32 24.50 3) 41) MDK Holdings Limited, London 0.03 33.33 3) 42) Gudme Raaschou AB, Stockholm 0.01 100.00 3) 43) eBanking Services Nord GmbH, Kiel 0.03 33.33 3) 44) LB Kiel Nordic Finance AB, Stockholm 5.49 100.00 3) 45) Gebäudemanagement Schleswig-Holstein, Kiel 10.23 24.9 3)

Notes: 3) Not published according to § 286 section 3 sentence 1 and § 313 1) The term ”Capital“ corresponds to the definition in Articles 266 and section 2 No. 4 of the German Commercial Code (HGB) 272 of the German Commercial Code (HGB) 4) Indirect shareholding 2) There is a profit and loss transfer agreement with the company 5) Direct and indirect shareholding

74 Notes to the Annual Accounts and Group Annual Accounts Executive Bodies

GUARANTORS’ MEETING

Chairwoman Members Representing the State Members Representing Westdeutsche of Schleswig-Holstein Landesbank Girozentrale Heide Simonis acc. to § 8 sec. 2 of the Statutes acc. to § 8 sec. 2 of the Statutes Minister President of the State of Schleswig-Holstein, Kiel Horst Günter Bülck Dr. Karlheinz Bentele Minister of Economic Affairs, President of the Rhineland Savings Banks Technology and Transport of the and Giro Association, First Deputy Chairman State of Schleswig-Holstein, Kiel Düsseldorf Dr. h.c. Friedel Neuber Chairman of the Managing Board Claus Möller Dr. Wolf-Albrecht Prautzsch Westdeutsche Landesbank Minister of Finance and Energy of Deputy Chairman of the Managing Board Girozentrale, Düsseldorf the State of Schleswig-Holstein, Kiel Westdeutsche Landesbank Girozentrale, Münster

Second Deputy Chairman Dr. Jürgen Miethke Members Representing the Savings President of the Savings Banks Banks and Giro Association Member Representing and Giro Association for acc. to § 8 sec. 2 of the Statutes Landesbank Baden-Württemberg Schleswig-Holstein, Kiel acc. to § 8 sec. 2 of the Statutes (up to September 30, 1999) Geerd Bellmann District Administrator of Heinrich Haasis Olaf Cord Dielewicz the Rendsburg-Eckernförde district, President of the Württemberg President of the Savings Banks Rendsburg Savings Banks and Giro Association, and Giro Association for Stuttgart Schleswig-Holstein, Kiel Rudolf Konegen (since October 1, 1999) Chairman of the Managing Board Sparkasse Elmshorn, Elmshorn

Third Deputy Chairman Josef Schmidt President of the Baden Savings Banks and Giro Association, Mannheim

75 Executive bodies SUPERVISORY BOARD

Chairwoman First Deputy Chairman Third Deputy Chairman

Heide Simonis Dr. h.c. Friedel Neuber Josef Schmidt Minister President of Chairman of the Managing Board President of the Baden Savings Banks the State of Schleswig-Holstein, Kiel Westdeutsche Landesbank and Giro Association, Mannheim Girozentrale, Düsseldorf Substitute acc. to § 11 sec. 3 Substitute acc. to § 11 sec. 3 of the Statutes Substitute acc. to § 11 sec. 3 of the Statutes of the Statutes Klaus Gärtner Heinrich Haasis State Secretary Dr. Adolf Franke President of the Württemberg Head of the State Chancellery of Member of the Managing Board Savings Banks and Giro Association, the State of Schleswig-Holstein, Kiel Westdeutsche Landesbank Stuttgart Girozentrale, Düsseldorf

Second Deputy Chairman

Dr. Jürgen Miethke President of the Savings Banks and Giro Association for Schleswig-Holstein, Kiel (up to September 30, 1999)

Olaf Cord Dielewicz President of the Savings Banks and Giro Association for Schleswig-Holstein, Kiel (since October 1, 1999)

Substitute acc. to § 11 sec. 3 of the Statutes

Wolfgang Stut Association Director of the Savings Banks and Giro Association for Schleswig-Holstein, Kiel

76 Executive bodies Members Representing the State Members Representing the Members Representing of Schleswig-Holstein Savings Banks and Giro Association Westdeutsche Landesbank for Schleswig-Holstein Girozentrale Horst Günter Bülck Minister of Economic Affairs, Günter Anders Theo Dräger Technology and Transport of the Chairman of the Managing Board Chairman of the Managing Board State of Schleswig-Holstein, Kiel Sparkasse Schleswig-Flensburg, Drägerwerk AG, Lübeck Schleswig Substitute acc. to § 11 sec. 3 Hans-Peter Krämer of the Statutes Geerd Bellmann Chairman of the Managing Board District Administrator of the Kreissparkasse Köln, Cologne Dr. Bernd Rohwer Rendsburg-Eckernförde district, State Secretary at the Ministry of Rendsburg Dr. Ingrid Nümann-Seidewinkel Economic Affairs, Technology and Senatrice, Head of the Ministry of Transport of the State of Schleswig- Olaf Cord Dielewicz Finance of Free and Hanseatic City of Holstein, Kiel Lord Mayor of the City of Flensburg, Hamburg, Hamburg Flensburg Peter Deutschland (up to September 30, 1999) Dr. Wolf-Albrecht Prautzsch Chairman of the DGB’s Deputy Chairman of the Managing Board Nordmark District, Hamburg Norbert Gansel Westdeutsche Landesbank Lord Mayor of the City of Kiel, Girozentrale, Münster Uwe Döring Kiel State Secretary at the Ministry (since October 1, 1999) Dr. Fritz Süverkrüp of Finance and Energy of the State President of the Chamber of of Schleswig-Holstein, Kiel Rudolf Konegen Industry and Commerce of Kiel, Kiel Chairman of the Managing Board Claus Möller Sparkasse Elmshorn, Elmshorn Jorma Juhani Vaajoki Minister of Finance and Energy of the President and CEO of Metsä-Serla State of Schleswig-Holstein, Kiel Corporation, Espoo/Finland Members Representing both the State of Schleswig-Holstein and the Savings Banks and Giro Association for Schleswig-Holstein

Dr. Hans Lukas Chairman of the Managing Board Sparkasse Stormarn, Bad Oldesloe

Member Representing the Landesbank Baden-Württemberg

Werner Schmidt Vorstandsvorsitzender der Landesbank Baden-Württemberg, Stuttgart

77 Executive bodies MANAGING BOARD

Members Elected by the Employees Dr. Dietrich Rümker Chairman Astrid Balduin Kiel Hans Berger Deputy Chairman Katarina Blanking Copenhagen Peter Pahlke

Waltraut Fuhrmann Dieter Pfisterer Vice President, Kiel Ernst Schröder Helmut Gründel Kiel

Ditmar Höret Kiel

Knuth Lausen Kiel

Karl-Heinz Ravn Vice President, Kiel

Michael Schmalz Kiel

Bettina Scholtys Kiel

Gaby Woelk-Hens Kiel

As at 31.12.1999

78 Executive bodies AUDITOR’S CERTIFICATE

We have audited the Annual Accounts and accounting records of Landesbank Schleswig-Holstein Girozentrale as well as the Group Annual Accounts and the statement of financial condition of Landesbank Schleswig-Holstein Giro- zentrale and the Group for the year ending December 31, 1999. The preparation of these documents according to German accounting standards and the complementary provisions in the articles of partnership is the responsibility of the legal representatives of Landesbank Schleswig-Holstein Holstein Girozentrale and the Group are primarily exa- Girozentrale. It is our task to assess the Annual Accounts mined on a sample basis. The audit includes appraisal of and accounting records as well as the Group Annual Ac- the accounting and consolidation principles, the key counts and the statement of financial condition of Landes- assumptions of the legal representatives and the overall bank Schleswig-Holstein Girozentrale and the Group on presentation of the Annual Accounts and the Group Annual the basis of our audit. Accounts as well as the statement of financial condition of Landesbank Schleswig-Holstein Girozentrale and the Group. We carried out our audit of the Annual Accounts and the We believe that our audit provides a sufficiently sound basis Group Annual Accounts in accordance with the German for our assessment. audit regulations in sec. 317 of the German Commercial Code (HGB) and the auditing principles of the Institut der Our audit produced no negative findings. Wirtschaftsprüfer (IDW - Institute of German Certified Public Accountants). These stipulate that the audit must be We are satisfied that the Annual Accounts and the Group planned and carried out in such a way that it is possible Annual Accounts provide a true and fair view of the asset, to identify with reasonable certainty any errors or infringe- finance and profit situation of Landesbank Schleswig- ments with a material impact on the view of the asset, Holstein Girozentrale and the Group in accordance with finance and profit situation of the company which is provi- generally accepted accounting principles. The statement ded by the Annual Accounts and the Group Annual Ac- of financial condition of Landesbank Schleswig-Holstein counts in accordance with generally accepted accounting Girozentrale and the Group as a whole gives a true and principles and by the statement of financial condition of fair view of the position of Landesbank Schleswig-Holstein Landesbank Schleswig-Holstein Girozentrale and the Girozentrale and the Group and of the risks in their future Group. Specification of audit work is based on knowledge development. of the company’s business operations and its economic and legal circumstances, as well as on expectations with regard to possible errors. In the course of the audit, the effec- Kiel, April 7, 2000 tiveness of the internal control system and documentation of the information in the accounting system, the Annual Wollert-Elmendorff Accounts and the Group Annual Accounts as well as the Deutsche Industrie-Treuhand GmbH statement of financial condition of Landesbank Schleswig- Wirtschaftsprüfungsgesellschaft

Dr. Göttgens Bottermann German Public Accountant German Public Accountant

79 Notes to the Annual Accounts and GroupAuditor’s Annual Certificate Accounts Organizational Structure

Responsibilities of the Members of the Managing Board

Dr. Dietrich Rümker Chairman Executive Services /Communications Legal Affairs Internal Auditing Personnel Controlling /Finances Taxes Investitionsbank Schleswig-Holstein

Hans Berger Deputy Chairman Information Systems /Organization Administration Ship Financing Private Banking Payment Systems

Peter Pahlke Real Estate Financing Financial Institutions / International Finance Copenhagen Branch Landes-Bausparkasse Gudme Raaschou Bankaktieselskab

Dieter Pfisterer Trading and Securities Settlement Structured Finance /Transportation /Leasing Corporate Clients Credit Office

Ernst Schröder Savings Banks / Public Clients Capital Markets Money Market /Foreign Exchange Luxembourg Branch Landesbank Schleswig-Holstein International S.A.

80 Organizational Structure Investment Banking Corporate Banking Division Division

Capital Markets Corporate Clients Wolfgang Delfs Eckhardt Fischer Senior Executive Vice President Senior Vice President

Money Market / Foreign Exchange Structured Finance/ Guenther Gerson Transportation /Leasing Executive Vice President Klaus Bernhart Executive Vice President

Financial Institutions/ Ship Financing International Finance Friedrich Bunzen Dr. Rainer Lemor Executive Vice President Executive Vice President

Copenhagen Branch Credit Office Ulrich Ellerbeck Holger Freytag Senior Executive Vice President Executive Vice President

Flemming Jensen Branch Manager

Real Estate Financing Division

Luxembourg Branch Real Estate Financing Wolfgang Delfs Benno Mokwinski Senior Executive Vice President Executive Vice President

Dr. Hans-Albrecht Sasse Branch Manager

81 Savings Banks / Public Clients / Private Banking/Payment Systems Division

Savings Banks / Public Clients Internal Auditing Heinrich Haverkampf Hans-Joachim Gorsulowsky Executive Vice President Internal Auditing Director

Private Banking Personnel Ernst-Wilhelm Münster Hans-Wilhelm Grabbe Executive Vice President Executive Vice President

Payment Systems Trading and Securities Settlement Werner Bak Peter Krull Executive Vice President Executive Vice President

Administration Rainer Krause Staff and Services Executive Vice President Division

Executive Services /Communications Controlling/Finances Dr. Jörn W. Winterfeld Anke Lilienthal Executive Vice President Executive Vice President

Legal Affairs Taxes Dr. Michael Berghaus Hans-Peter Hoffmann Executive Vice President Executive Vice President

Information Systems/Organization Dr. Wolfgang Botschatzke Executive Vice President

82 Central Divisions

Investitionsbank Gudme Raaschou Schleswig-Holstein Bankaktieselskab Lutz Koopmann Kåre B. Dullum Executive Vice President Chairman of the Management

Dr. Heinz Engelhaupt Per Skovsted Executive Vice President General Manager

Dr. Klaus Rave Aage Jacobsen Executive Vice President General Manager

Landes-Bausparkasse Schleswig-Holstein Dieter Heymann Senior Executive Vice President

Sönke Koch Executive Vice President

Landesbank Schleswig-Holstein International S.A. Dr. Hans-Albrecht Sasse General Manager

Guenther Gerson General Manager

Wolfgang Dürr General Manager

83 Addresses

Landesbank Schleswig-Holstein Representative Office Berlin Investitionsbank Girozentrale Kiel Kurfürstendamm 45, Schleswig-Holstein Postfach 1122, 24100 Kiel 10719 Berlin Zentralbereich der Landesbank Martensdamm 6, 24103 Kiel Phone: +49 30 88 57 36-0 Schleswig-Holstein Girozentrale Phone: + 49 431 900-01 Real Estate Financing/ Postfach 1128, 24100 Kiel Telefax: +49 431 900-24 46 Corporate Clients Fleethörn 29–31, 24103 Kiel Telegramm: Landesbank Kiel Telefax: +49 30 88 57 36-53 53 Phone: +49 431 900-03 Telex: 292822 gzki d Private Banking Telefax: +49 431 900-33 83 T-Online: * 23230 # Telefax: +49 30 88 57 36-53 54 Internet: http://www.ibank-sh.de Internet: http: //www.lb-kiel.de E-mail: [email protected] E-mail: [email protected] Representative Office Hamburg Lilienstraße 3, 20095 Hamburg Schleswig-Holsteinische Lübeck Branch Phone: +49 40 32 56 22-0 Kapital-Beteiligungsgesellschaft mbH Postfach 19 04, 23507 Lübeck Real Estate Financing Postfach 1122, 24100 Kiel Breite Straße 36– 40, 23552 Lübeck Telefax: +49 40 32 56 22-54 16 Martensdamm 6, 24103 Kiel Phone: +49 451 70 35-0 Corporate Clients/Asset Management Phone: +49 431 900-10 37/16 44 Telefax: +49 451 70 35- 5119 Telefax: +49 40 32 56 22-54 15 Telefax: +49 431 900-10 49 Telegramm: Landesbank Lübeck T-Online: * 23230 # Real Estate Financing Office LBSH Leasing GmbH & Co. KG Dresden Kellinghusener Weg 1 Rostock Branch Königstraße 5a, 25551 Lockstedt Grubenstr. 20, 18055 Rostock 01097 Dresden Phone: +49 48 77 906-01 Phone: +49 3 81 4 54 84-0 Phone: +49 351 8 26 40 -0 Telefax: +49 48 77 906-17 Telefax: +49 381 4 54 84-52 53 Telefax: +49 351 8 26 40-54 52 T-Online: * 23230 # Landes-Bausparkasse Schwerin Branch Schleswig-Holstein Spieltordamm 9, 19055 Schwerin Postfach 70 55, 24170 Kiel Phone: +49 385 5 58 20-0 Wellseedamm 14, 24145 Kiel Telefax: +49 385 5 58 20-53 02 Phone: +49 431 900-04 T-Online: * 23230 # Telefax: +49 431 900- 46 78 Telegramm: Landesbank Kiel Internet: http://www.LBS- SCHLESWIGHOLSTEIN.de E-mail: [email protected]

LBS Immobilien GmbH Postfach 70 55, 24170 Kiel Wellseedamm 14, 24145 Kiel Phone: +49 431 900-45 72 /45 73 Telefax: +49 431 900-45 89 E-mail: LBS-ImmoSchleswig [email protected]

84 Addresses Landesbank Schleswig-Holstein Landesbank Schleswig-Holstein LB Kiel Nordic Finance AB Copenhagen Branch United Kingdom Norrmalmstorg 1, 3rd floor Kalvebod Brygge 39-41, Representative Office S-111 46 Stockholm DK-1560 Copenhagen V 50 Gresham Street, Phone: + 46 854 5010 70 Phone: +45 33 44 99 00 GB-London EC2V 7AY Telefax: +46 8 11 94 20 Telefax: +45 33 44 99 99 Phone: +44 20 76 00 70 60 Södergatan 16, Telex: 27228 kila dk Telefax: +44 20 76 00 70 20 S-21134 Malmö Phone: + 46 40 30 63 10 Landesbank Schleswig-Holstein Landesbank Schleswig-Holstein Telefax: +46 40 30 63 12 Luxembourg Branch Tallinn Representative Office 2, rue Jean Monnet, 2 Roosikrantsi Str., PCA Corporate Finance OY L-2180 Luxembourg EE-10119 Tallinn Eteläranta 12, Phone: +352 42 4137 Phone: +372 6 11 06 70 FIN -00130 Helsinki Telefax: +352 42 41 41-330 Telefax: +372 6 1106 71 Phone: + 358 961 33 44 00 Telex: + 402 60779 lshbx lu Telefax: +358 961 33 44 55 Landesbank Schleswig-Holstein Landesbank Schleswig-Holstein Stockholm Representative Office International S.A. Norrmalmstorg 1, 3rd floor 2, rue Jean Monnet, S-11146 Stockholm L-2180 Luxembourg Phone: +46 8 54 5010 70 Phone: +352 42 4141-1 Telefax: +46 8 54 5010 89 Telefax: +352 42 4196/97 Telex: +402 1806 Ishi lu Landesbank Schleswig-Holstein E-mail: [email protected] Oslo Representative Office Drammensveien 111 B, LB Schleswig-Holstein N-0273 Oslo Finance B.V. Phone: +47 2212 82-10 Strawinskylaan 3111, 6th floor Telefax: +47 2212 82-22 NL-1077 ZX Amsterdam Phone: +31 2 04 42-1118 Landesbank Schleswig-Holstein Telefax: +31 2 04 42 -1119 Helsinki Representative Office Telex: +44 15614 altru nl Fredrikinkatu 48 A, FIN-00100 Helsinki Phone: +358 9694-2040 Telefax: +358 9694-2810

Gudme Raaschou Bankaktieselskab Kalvebod Brygge 39-41, DK-1560 Copenhagen V Phone: +45 33 44 90 00 Telefax: +45 33 44 90 01 Telex: 15071 GUDME DK

85 Addresses Imprint

LB Kiel Landesbank Schleswig-Holstein Girozentrale Presse und Kommunikation/Volkswirtschaft Martensdamm 6, D-24103 Kiel Postfach 1122, D-24100 Kiel

Photographs Fotostudio Jürgen Müller, Hamburg

Annual Report in the internet: http://www.lb-kiel.de