Interim Report as of 30 September 2011 HSH Nordbank AG Gerhart-Hauptmann-Platz 50 20095 Hamburg Phone +49 40 3333–0 Fax +40 40 3333–34001

Martensdamm 6 24103 Kiel Phone +49 431 900–01 Fax +49 431 900–34002 [email protected] www.hsh-nordbank.com HSH NORDBANK GROUP AT A GLANCE IMPRINT

Income Statement Published by Forward-Looking Statements (¤ m) 1.1.– 30.9.2011 1.1.– 30.9.2010 HSH Nordbank AG This interim report includes certain forward-looking state- Net income before restructuring 839 157 Gerhart-Hauptmann-Platz 50 ments. These statements are based on our beliefs and Net income before taxes 46 -245 20095 Hamburg assumptions, as well as on conclusions drawn from infor- Group net loss -224 -190 Phone: +49 40-3333-0 mation currently available to us and on sources which Fax: +49 40-3333-34001 we consider to be reliable. Forward-looking statements Internet: www.hsh-nordbank.com include all statements that are not historical facts, in- Balance sheet cluding statements concerning possible or assumed future (¤ bn) 30.9.2011 31.12.2010 Martensdamm 6 growth opportunities and future economic developments. Equity 4.8 5.1 24103 Kiel Total assets 137.6 150.9 Phone: 0431-900-01 Such forward-looking statements are based on a number of Business volume 147.6 163.7 Fax: 0431-900-34002 assumptions concerning future events and are subject to uncertainties, risks, and other factors, many of which are Investor Relations beyond our control. Therefore actual events may differ Capital ratios 1) (%) 30.9.2011 31.12.2010 Phone: +49 40-3333-14601 considerably from those forecast in the forward-looking Fax: +49 40-3333-614601 statements. In view of this, you are advised never to rely Tier 1 capital ratio 17.9 15.4 [email protected] to an inappropriate degree on forward-looking statements. Tier 1 capital ratio excl. hybrid fi nancial instruments 13.0 10.7 We cannot accept any lia bility for the accuracy or com- Regulatory capital ratio 26.8 22.4 Imprint pleteness of these statements or for the actual realisation of Realisation forecasts made in this report. Furthermore, we are not

Employees 30.9.2011 31.12.2010 Heisters & Partner obliged to update the for ward-looking statements follow- Büro für Kommunikationsdesign, Mainz ing publication of this information. In addition, infor- Total 3,770 3,852 mation contained in this report does not represent any Germany 3,252 3,251 Printed by kind of offer for the acquisition or sale of any type of Abroad 518 601 HSH Print + Logistics GmbH, Hamburg securities of HSH Nordbank AG. Full-time positions 3,292 3,388 Germany 2,820 2,824 Abroad 472 564 This interim report is available for download at www.hsh-nordbank.com

Unguaranteed Guaranteed Public-sector Mortgage Ship This is an English translation of the original German 2) Long-term ratings liabilities liabilities Pfandbriefe Pfandbriefe Pfandbriefe version of the interim report. Moody’s Baa2 Aa1 Aaa Aaa A2 Fitch A - AAA – – –

1) including market risk positions 2) Obligations covered by “Gewährträgerhaftung” (guarantee obligation) interim management report 1 | 

HSH Nordbank AG – interim report

contents Letter from the Chairman of the Management Board 2 QUARTERLY Financial Report 4 interim Management Report of the HSH Nordbank Group 4 Underlying conditions and business overview 4 Business developments 8 Earnings situation 9 Net assets and financial position 12 Segment reporting 15 Outlook 27 Risk Report 31 interim financial statements of the HSH Nordbank Group 40 Statement of comprehensive income 40 Statement of financial position 44 Statement of changes in equity 46 Condensed cash flow statement 48 Explanatory Notes 49 General information 49 Notes on the income statement 58 Notes on the statement of financial position 66 Segment reporting 78 Notes on financial instruments 81 Other disclosures 92 reVIEW OPINION 103 responsibility statement by the Management Board 104 2 Q3 2011

Dear Ladies and Gentlemen,

The state aid proceedings conducted by the European Commission regarding HSH Nordbank, which had lasted for more than two years, were finally concluded in Septem- ber 2011. The Bank has thereby secured legal and planning certainty for a sustainable and successful future. The EU Commission has linked a series of conditions and com- mitments to the conclusion of the proceedings, under which the capital measures provided by Hamburg and Schleswig-Holstein in 2009 are to be counterbalanced from a competition law point of view. The Bank has therefore undertaken to place limits on total assets until 2014 and to wind down other businesses.

Our corporate response to the requirements imposed by the EU Commission is our new business model. In the third quarter we launched a comprehensive transformation programme to implement this new model. In the centre of the new strategy is the reorganisation of the HSH Nordbank into a focussed bank with a strong sales force and the structure of a medium-sized “Bank for entrepreneurs”. From its regional base we will focus HSH Nordbank on its role as the preferred banking partner for enterprises and business owners.

However, the implementation of the EU decision and our strategy requires painful cuts. We are reducing operating and personnel costs as part of the continuous reduction in total assets and the realisation of improvements in efficiency. At the same time a reduction in Group headcount by about a third is unavoidable in order to achieve this. The manner in which this is to be effected is currently being determined in close coordination with the works council.

HSH Nordbank was able to continue to improve its operating net income situation over the course of the year. Despite the portfolio downsizing, an increasingly gloomy environment as well as a one-off payment of € 500 million made to the federal states of Hamburg and Schleswig-Holstein that was recognised as an expense and fulfils a con- dition imposed by the EU Commission on the Bank, net income before taxes for the nine months ending 30 September 2011 increased to € 46 million compared to a loss of € − 245 million for the comparable period in the previous year. Without taking the one-off payment into account the results of the Bank have improved significantly. This is reflected in the increase in net income before restructuring to € 839 million com- pared to € 157 million in the previous year.

The decrease in loan loss provisions attributable to the progress made in reducing risk as well as the effect of the state guarantee made a significant contribution to these Letter from the Chairman of the Management Board 3

good results. A Group net loss after taxes of € − 224 million was recorded for the first three quarters. We are also assuming a Group net loss for the whole of 2011 due to the exceptional charges relating to the one-off payment as well as the costs to be incurred in the reorganisation of the Bank.

Thanks to the continued reduction of risk positions it was possible to strengthen the cap- ital of HSH Nordbank even further over the year. The Tier 1 capital ratio as at 30 Sep- tember 2011, including market risk positions, reached 17.9 % thus reflecting a solid capital adequacy of the Bank compared to the banking industry as a whole.

The business development in the current year clearly shows that the reduction in risk and focussing on core businesses are paying off. We will continue to implement our strategy programme in a consistent manner over the coming months. We are strength- ening the foundations for the sustained successful development of business in our future areas of operation through a series of structural measures, not least the internal reorganisation of product and customer responsibility that has already been set in motion.

Dr. Paul Friedrich Lerbinger Chairman of the Management Board of HSH Nordbank 4 Q3 2011

QUARTERLY Financial Report

 Interim management Report of the HSH Nordbank Group as of 30 September 2011

Underlying conditions and business overview

Underlying conditions Increased tension in the financial markets Trends on the financial markets over the year were increas- Global economy is cooling off ingly affected by the European national debt crisis. Con- Largely due to the Western industrial nations, the world cerns about trends in Greece, which are increasingly spill- economy has weakened over the course of the year. Dy- ing over to other eurozone states, but also about the namic domestic demand continued to ensure quite high world economy, led to greater uncertainty among investors growth rates primarily in the emerging markets in Asia, in the summer, who moved their assets into “safe ha- whereas the US economy lost significant steam in com- vens” as a consequence. This drove down yields on German parison with last year, expanding only slowly. Consumer government bonds and treasuries to historic lows in Sep- demand is depressed due to the tense labour situation, tember. In contrast, the risk premiums for government the reduction of private debt, and rapidly rising prices. The bonds issued by some highly indebted peripheral states prolonged depression in the real estate market had an continued to rise. Bonds issued by Italy and Spain and – additional damping effect. The political debate over the in view of fear for the stability of the banks and the rat- consolidation of public budgets also continued, leading ing of France – French government bonds came under to uncertainty among companies and consumers regarding increasing pressure. future trends in government expenses and taxes. The agreement of the European governments in July to After a strong start to the year in the eurozone, special provide a second rescue package for Greece as well as to effects and other influences led to economic stagnation in grant additional powers to the European Financial Sta- the Spring of 2011. In the third quarter of the year, the bilisation Facility (EFSF) only calmed the financial markets gross domestic product – bolstered by an increase in con- temporarily. At the end of October the governments final­- sumption and investment – should have risen slightly. ly decided on additional measures to strengthen trust in German companies still benefited from an increased order the future of the eurozone. In particular the second res- backlog and consumers from favourable labour market cue package for Greece provides for a higher participation trends. Already in spring, however, economic early indica- of private creditors. The impact of the EFSF should be tors had visibly worsened, so that a significant weakening strengthened by the leveraging of the guaranteed funds, of the economy can be expected for the winter half year, and the European banks will be obligated to strengthen with the slowdown now also affecting the previous eco- their equity base. The banks must demonstrate strict Tier 1 nomic powerhouses of Germany and France. capital ratios of at least 9 % by the end of June 2012 taking into account market prices for government bonds. Underlying conditions and business overview | Interim management Report 5

The European Central Bank (ECB) reacted to the new Business overview tensions on the financial markets by extending its uncon- ventional measures even further in August, thereby sup- EU state aid proceedings at HSH Nordbank concluded porting the supply of liquidity to the banks. Thus it issued The European Commission concluded state aid proceedings longer-term funding transactions once again, purchased for HSH Nordbank at the end of September 2011. The European government bonds, and announced the resump- capital measures the Bank received in spring 2009 from its tion of its programme to purchase covered bonds. In main shareholders Hamburg and Schleswig-Holstein – view of the worsening economic forecasts, it lowered the considered state aid by the European Commission – have base rate at the start of November, after having raised it thus been finally approved. With this decision, HSH in April and July. In August, the US Federal Reserve prom- Nordbank has obtained legal certainty and security of plan- ised to keep the base rate at its current low level until ning for the rapid and successful implementation of its at least mid-2013. In order to reduce the longterm yield strategy to prepare the Bank for a sustainable future. One level, it also announced in September the restructuring key result for HSH Nordbank is that the federal states of its government bonds in favour of longer maturities. of Hamburg and Schleswig-Holstein need not relinquish their controlling majority in the Bank. The Euro started to weaken against the US dollar from the end of August, due to the further escalation in the Eu- In the context of the decision of the European Commission, ropean debt crisis as well as the more cautious stance of the Bank undertook to comply with a number of condi- the ECB. The price of oil also suffered from the increased tions and commitments that will require additional pro- uncertainty of investors, but also from the gloomier out- found changes to be made to the Bank’s fundamental look for the world economy, and summer prices remained strategic realignment that has been implemented over the significantly lower than their spring peak. past few years. One central commitment is a further winding-down of business by the end of 2014 that is linked On the stock markets, lower prices on dividend securi- to a restriction placed on total assets. Specifically, the ties very clearly reflected the expectation of the significant Bank will give up object-related aircraft financing and its decrease in corporate profits. By the end of September, international real estate business. Segment assets in the the DAX had lost 20 % of its value since the start of the Shipping division of the core bank will also be reduced to year, with the EURO STOXX 50 losing even more, at approx. € 15 billion by the end of 2014. 22 %. In addition, the Bank was required during the restructur- ing period to limit the market share of new business in worldwide ship financing to at most 5 %, not to grow by acquisitions or mergers (except in the context of a possi- ble consolidation of the German Landesbanken) and to in- crease its share of original US dollar funding while reduc- ing the share of derivative US dollar funding.

As part of the targeted implementation of the committed winding-down measures, the aircraft portfolio, with seg- ment assets of about € 5 billion (as at 30 September 2011), and selected shipping commitments (segment assets: about € 1.3 billion as at 30 September 2011) will be trans- ferred to the Bank’s internal Restructuring Unit in the fourth quarter of 2011. The reduction of the Core Bank’s international real estate business will primarily be 6 Q3 2011

achieved by scheduled principal repayments in this area. The number of full-time employees of the Group should Overall, by the end of 2014 total assets of the Group will be be reduced to about 2,120 by the end of 2014, compared reduced by over 40 % compared to 2008, to € 120 billion, to 3,292 as at 30 September 2011. The foreign branches of which € 82 billion should be in the Core Bank and € 38 and sub­sidiaries of the Bank are hit the hardest by the billion in the Restructuring Unit. planned staff reductions. It is an important concern of the Bank to reduce staff in a fair and socially acceptable The European Commission also required the Bank and the manner. Discussions with the works council commenced federal states to implement additional measures in order at the beginning of October of this year. to compensate for distortions in competition and to distrib- ute the burdens of the restructuring. The Bank is obliged “Future Initiative” (Offensive: Zukunft!) strategic to make a one off payment in the amount of € 500 million programme introduced to the guarantor of the second loss guarantee that is to Based on the agreement with the European Commission, be recovered by means of a contribution in kind. The Bank HSH Nordbank introduced in the third quarter a com- has already recognised this one off payment as an ex- prehensive programme of strategy and transformation, pense in the 30 September 2011 income statement under called “Offensive: Zukunft!”. The goal is to lay the foun- Expenses for government guarantees. Additional details dations for a sustainable successful future of HSH Nord- can be found under Earnings situation in the chapter Busi- bank and to position the Bank as a leading commercial ness developments, as well as in Note [2] and [15]. bank in the north of Germany, with mid-sized structures. In the future, HSH Nordbank will focus on its role as a In addition to the capital increase through contributions partner for companies and entrepreneurs from the region. in kind, the European Commission imposed additional re- That also includes its international specialised expertise quirements for the strengthening of the capital resources in the areas of Shipping and Energy & Infrastructure. To- available. The Bank was obliged to refrain from paying div- gether with the regionally focused Corporate Clients, idends to shareholders until after financial year 2014 Real Estate Clients, and Private Banking divisions and our and from making payments on profit-related instruments cooperation with the savings banks, these activities will unless required to do so by contractual agreement or law. form the future Core Bank.

Moreover, the European Commission required the Bank – The strategic programme includes a number of initiatives in addition to the current compensation of the second loss to optimise business structures, strengthen sales power, guarantee of the federal states of Hamburg and Schleswig- focus strategies for individual business fields, and addition- Holstein – to pay an additional premium in the amount al improvements in the areas of funding and bank man- of 3.85 % of the outstanding guarantee volume, which agement. The implementation of the programme should will however be reimbursed in case the guarantee is not ex- be completed by 2014. ercised. More details can be found on this in Note [2]. It has been possible to implement the first measures of the The Bank will also continue to sell equity holdings and programme and reach important milestones as early as close branches and offices. the third quarter of 2011. For example, the new HSH Nord- bank has been clearly defined by its new mission state- Decision to significantly reduce the cost base ment as the “Bank for entrepreneurs” and measures have The ongoing reduction in business will noticeably reduce been taken to improve the product range and sales of the revenue base of the HSH Nordbank over the next the Bank. One of the major projects is the optimisation of few years. To prepare the Bank for the future under these the business model to achieve the challenging goals with conditions, it was decided to significantly reduce operat- respect to the scope of services, cost base, and efficiency. ing and personnel expenses. Therefore there will be staff At the end of September, the Bank also adopted the out- cuts above and beyond the figures originally planned. line of a new organisational structure in this context. At Underlying conditions and business overview | Interim management Report 7

the centre of the new organisation will be a consistent sep- loss guarantee issued by the federal states of Hamburg and aration between customer and product responsibility. Schleswig-Holstein by another one billion euros in the Product responsibility will in future be bundled in the new- third quarter of 2011. The guarantee amount was reduced ly created ‘Products and Capital Markets’ unit, which from an initial € 10 billion to just € 7 billion in Septem- will also provide support to the savings banks. Sales will ber 2011 through a total of three partial reductions made be grouped into the ‘Corporate and Private Clients’ unit. during the course of the year. With the reduction in the The aim is to pool competences in order to make full use guarantee, the fee payable for the guarantee is also reduced. of the potential of the customer business and to simplify In the coming years, additional reductions are planned. structures. The new organisational structure should be im- plemented in several steps by 1 April 2012.

Winding-down of the equity holding portfolio and closure of locations continued HSH Nordbank continued to reduce its equity holding port- folio. In the third quarter of 2011, the Bank was able to sell its shares in DAL Deutsche Anlagen-Leasing. After the transfer of HSH Nordbank’s 40 % share, DAL Deutsche Anlagen-Leasing became a wholly owned subsidiary of Deutsche Leasing. Deutsche Leasing and DAL Deutsche Anlagen-Leasing will remain cooperation partners of HSH Nordbank in the future.

Also in the third quarter, the sale of private equity fund units held by HSH Nordbank to the investors AXA Private Equity and LGT Capital Partners was arranged. Comple- tion of the transaction is anticipated for the majority of the funds by the end of November 2011. In connection with the reduction in its private equity fund portfolio, the Bank also sold its shares in Swift Capital Partners GmbH, the company responsible for organisation and management of the portfolio, to the company’s own management.

Over the past few months, moreover, several sales proc- esses for non-strategic equity holdings of the Bank were ini- tiated, so that an additional reduction in the total volume of the equity holding portfolio will be achieved.

The number of branches and offices will also be further reduced. In the third quarter of 2011, in particular the operational implementation of the planned closures of business offices in Shanghai, Copenhagen, and London was pushed forward.

Guarantee facility further reduced to ¤ 7 billion Thanks to the progress made in the winding-down of risk positions, HSH Nordbank was able to reduce the second 8 Q3 2011

Business developments

Overview of business performance ing income and net income from financial investments). The earnings of HSH Nordbank are influenced by differ- Further improvement in results ent measurement effects relating to interest income, net HSH Nordbank was able to improve its results in the first trading income, and net income from financial invest- three quarters despite the Bank’s continued portfolio ments. In the operating business, income trends reflected reduction and the increasingly difficult environment, and the re­duc­tion in volume. despite an additional one-time guarantee expense of € 500 million due to the fulfilment of a condition imposed Thanks to the continued winding-down of risk positions it by the European Commission. Net income before taxes was possible to strengthen the capital of HSH Nordbank as at 30 September 2011 increased to € 46 million despite even further over the year. The Tier 1 capital ratio as at these events, compared to € − 245 million in the corre- 30 September 2011, including market risk positions, sponding period of the previous year. Net income before reached 17.9 % (31 December 2010: 15.4 %) thus reflecting restructuring rose even more sharply, achieving a level a solid capital adequacy of the Bank. The Tier 1 capital of € 839 million compared to € 157 million in the previous ratio without taking hybrid instruments into account rose year. sharply to 13.0 % (31 December 2010: 10.7 %).

The good net income situation in the first nine months Overall, the results at the end of the third quarter of 2011 was largely attributable to positive effects in loan loss pro- clearly reflect the strategic focus on the core business visions, however these were partly due to corresponding and the progress made in winding down the risk positions charges to other items of the income statement (net trad- of the Bank. Business developments | interim management report 9

Earnings situation

Following adjustment January – Income statement January – September (¤ m) September 2011 2010 Change in %

Interest income 8,978 11,355 −21 Interest expense −7,917 −10,051 −21 Net income from hybrid financial instruments 60 −115 > 100 Net interest income 1,121 1,189 −6 Net commission income 93 170 −45 Result from hedging 7 9 −22 Net trading income −319 −438 27 Net income from financial investments 161 193 −17 Financial investments accounted for under the equity method −56 – – Total income 1,007 1,123 -10 Loan loss provisions 394 −425 > -100 Administrative expenses −571 −617 −7 Other operating income 9 76 −88 Net income before restructuring 839 157 > 100 Result from restructuring 3 −9 > 100 Expenses for government guarantees −796 −393 > 100 Net income before taxes 46 −245 > 100 Income tax expense(-) / income (+) −270 55 > 100 Group net loss −224 −190 18 Group net income attributable to non-controlling interests 1 50 −98 Group net income attributable to HSH Nordbank shareholders −225 −240 −6

Income affected by asset reductions and measurement The remeasurement of hybrid financial instruments had effects a significantly positive effect. In the reporting period, due The movement in individual income and expense items is to the agreement reached in the EU state aid proceedings, as follows in the first nine months: the future earnings of the HSH Nordbank Group were reas- sessed and the estimate of the future interest and princi- Net interest income for the first nine months of 2011 pal repayments of hybrid financial instruments changed. amounted to € 1,121 million compared to € 1,189 million Taking IAS 39.A8 into consideration, this resulted in a in the previous year. This change is due to partially off- positive effect on earnings in the amount of € 180 million. setting effects. The progress made in reducing total assets Overall, Net income from hybrid financial instruments continued to have an impact leading to a decrease in amounted to € 60 million (previous year: € − 115 million) the interest-bearing business volume. On the other hand, taking discounting and compounding (€ − 120 million) the increased acquisition of new business in the core into account. areas had an effect on earnings that is only slowly starting to be reflected in the accounts. Net commission income, which reached € 93 million com- pared to € 170 million in the corresponding period of the previous year, was not yet able to benefit from the in- creased acquisition of new business. 10 Q3 2011

Net trading income amounted to € − 319 million (previous come items, was further expanded over the course of year: € − 438 million). As at 30 September 2011, trading 2011. In particular the sale of interest rate hedging instru- assets were adversely impacted in particular by measure- ments and investment products contributed to this devel- ment losses, which were largely attributable to the effect opment. of creditworthiness on European government bonds and regional bonds. Impairment losses relating to counter- Trends in individual income items resulted in total party risk in the derivative area also had a negative effect, income in the amount of € 1,007 million (previous year: although to a lesser extent than in the previous year. € 1,123 million). There was a positive effect resulting from the measurement of interest rate and currency derivatives (EUR / USD basis Loan loss provisions relieved swaps) that is primarily determined by the movement in Net income from loan loss provisions as of 30 September the spread of these swaps. Net income from foreign cur- 2011 amounted to € 394 million, compared to an expense rency trading also made a positive contribution to net trad- of € − 425 million in the same period of the previous ing income due to the movements in the US dollar. The year. Overall loan loss provisions profited from the success­ measurement of own liabilities had a slightly negative ef- ful restructuring carried out over the past years. Curren­- fect due to the enhancements made to the parameters. cy translation of loan loss provisions had a slight positive Without these parameter adjustments, this measurement effect in the reporting period, compared to the high ex- effect would have had a significantly positive impact. penses incurred in the previous year. The effect of the bail­ Please refer to Note [8] for more details. out purchase of corporate shares mentioned above also contributed to the increase. Net income from financial investments benefitted in the current year from the further winding-down of financial The risk-reducing effect of the second loss guarantee also investment positions, particularly through the sale of contributed to the reduction in the loan loss provisions. equity holdings and share positions. On the other hand, The decrease in loan loss provisions resulting from the rec- write-offs in the amount of € − 78 million on securities ognition of a compensatory claim against HSH Finanz- whose economic risk was attributable to the Greek state fonds AöR in the amount of € 308 million under Other had a negative impact. The Bank’s overall exposure to assets (Note [30]) was offset by write-offs and impairment Greece, including positions in the trading book, has thus losses on financial investment and trading positions cov- been written down to 37 % of its nominal value. In total, ered by the guarantee. Some of these losses had already net income from financial investments amounted to € 161 been incurred in previous periods. Reversals of portfolio million (30 September 2010: € 193 million). valuation allowances also resulted in a positive contribu- tion to income, which is to a lesser degree also due to the Financial investments accounted for under the equity effect of the guarantee. (Details on the second loss guar- method in the amount of € − 56 million (previous year: € 0 antee can be found in the Notes [2] and [11].) million) include an impairment loss relating to shares held in a company accounted for under the equity method Costs reduced for the first time. Shares in the company were purchased Administrative expenses amounted to € − 571 million com- in April 2011 as part of a bailout in order to protect the ex- pared to € − 617 million for the same period in the previ- isting credit commitment. The Income from loan loss pro- ous year. Thanks to a further reduction to 3,292 employ- visions is currently positively affected by the same amount ees (FTE) (31 December 2010: 3,388), it was possible to due to the reversal of the individual valuation allow- reduce personnel expenses by € − 14 million to € − 276 mil- ances created in the previous year. lion. Operating expenses (including write-offs) fell by € − 32 million to € − 295 million. This is due amongst other The cross-selling business with corporate and private as things to savings made on project and consulting costs. well as institutional clients, recognised in different in- Business developments | interim management report 11

Expenses for government guarantees higher due to one off payment As part of the agreement reached with regard to the EU state aid proceedings, HSH Nordbank AG is obligated to make a one off payment in the amount of € 500 million to the guarantors of the second loss guarantee. This one off effect resulted in a significant increase in expenses for government guarantees. Without this cost, expenses would have fallen again due to the reductions in the guarantees received.

Total expenses for government guarantees increased by € 403 million to € − 796 million (previous year: € − 393 mil- lion), of which € − 742 million (previous year: € − 303 million) is attributable to the second loss guarantee issued by the Free and Hanseatic City of Hamburg and the Fed- eral State of Schleswig-Holstein. The decrease adjusted for the one off effect is a result of the reduction in this guar- antee by a total of € 3 billion to € 7 billion over the course of the current year. Costs for the guarantees of the Finan- cial Market Stabilisation Fund (SoFFin) fell due to planned re­duc­tions to € − 54 million (previous year: € − 90 mil- lion).

Net income before taxes reaches ¤ 46 million Net income before taxes, despite the burden caused by the one off payment and the negative income effects of the reduction of total assets, improved significantly to € 46 mil­ lion (previous year: € − 245 million) particularly as a result of the reduced expenses for loan loss provisions.

After taking into account income tax effects in the amount of € − 270 million (previous year: € 55 million), a Group net loss of € − 224 million (previous year: € − 190 million) remains, which was affected primarily by the updated corporate planning due to the EU conditions imposed and the resulting derecognition of deferred tax assets on losses carried forward. 12 Q3 2011

Net assets and financial position

Following Statement of financial position adjustments Change (¤ m) 30.9.2011 31.12.2010 in %

Assets Cash reserve 1,739 1,410 23 Loans and advances to banks 9,013 10,438 −14 Loans and advances to customers 91,057 102,858 −11 Loan loss provisions −4,115 −4,623 −11 Positive fair values of hedging derivatives 2,109 1,838 15 Positive adjustment item from portfolio fair value hedges 307 232 32 Trading assets 11,746 11,282 4 Financial investments 23,410 25,001 −6 Financial investments accounted for under the equity method 13 102 −87 Intangible assets 94 108 −13 Property, plant and equipment 107 140 −24 Investment property 7 14 −50 Non-current assets held for sale and disposal groups 432 404 7 Current tax assets 192 272 −29 Deferred tax assets 1,046 1,269 −18 Other assets 490 185 > 100 Total assets 137,647 150,930 −9

Liabilities Liabilities to banks 22,894 26,200 −13 Liabilities to customers 44,002 50,446 −13 Securitised liabilities 39,499 44,726 −12 Negative fair values of hedging derivatives 736 362 > 100 Negative adjustment item from portfolio fair value hedge 1,261 981 29 Trading liabilities 12,468 11,412 9 Provisions 1,312 1,332 −2 Liabilities relating to disposal groups 162 6 > 100 Current tax liabilities 17 15 13 Deferred tax liabilities 117 81 44 Other liabilities 1,857 1,556 19 Subordinated capital 8,478 8,719 −3 Equity 4,844 5,094 −5 Share capital 2,635 2,635 0 Capital reserve 1,028 1,028 0 Retained earnings 1,698 1,668 2 Revaluation reserve −228 −227 0 Currency conversion reserve −62 −60 3 Group net loss / income −225 53 > −100 Total before non-controlling interests 4,846 5,097 −5 Non-controlling interests −2 −3 −33 Total equity and liabilities 137,647 150,930 −9 Business developments | interim management report 13

Further significant reduction in total assets Equity capital disclosed on the balance sheet fell compared In the first nine months of 2011, HSH Nordbank continued to year end 2010 to € 4,844 million (31 December 2010: to push forward the reduction of total assets. As a result, € 5,094 million). This was due primarily to the Group net total assets declined by − 9 % to € 137,647 million (31 De- loss recorded as at 30 September 2011. cember 2010: € 150,930 million). Nearly all balance sheet items contributed to this reduction. Decline in business volume Business volume declined compared to the previous year by Loans and advances to banks had fallen by the reporting € − 16,090 million to € 147,636 million (31 December date 30 September 2011 compared to year end 2010 by 2010: € 163,726 million). The reasons for this – in addi- − 14 % to € 9,013 million. Loans and advances to custom- tion to the reduction in total assets – were the decline ers declined to € 91,057 million (31 December 2010: € in guarantees and warranty agreements to € 2,818 million 102,858 million). Loan loss provisions also decreased in (31 December 2010: € 3,270 million) and the reduction line with the reduction of the risk-weighted loan volume in irrevocable loan commitments to € 7,171 million (31 De- and the relief provided by the second loss guarantee to € cember 2010: € 9,526 million). − 4,115 million (31 December 2010: € − 4,623 million). Trading assets, largely consisting of interest-bearing secu- rities, fell slightly compared to 31 December 2010, from € 1,326 million to € 1,144 million. On the other hand, there derivatives held in the trading book increased due to movements in the yield curve. Trading assets increased from € 11,282 million to € 11,746 million compared to the end of the previous year.

Financial investments decreased to € 23,410 million (31 December 2010: € 25,001 million). This was due both to the continued winding down of the credit investment portfolio and to a significant reduction in the equity hold- ing portfolio.

On the liability side of the balance sheet, liabilities to banks declined from € 26,200 million at year end 2010 to € 22,894 million as at 30 September 2011. Liabilities to customers decreased from € 50,446 million to € 44,002 mil­ lion during the same period. This was mainly attributa­- ble to low funding requirements of the Bank accompanied by a reduction in repo transactions. Securitised liabilities as at 30 September 2011 amounted to € 39,499 million (31 December 2010: € 44,726 million). Trading liabilities, comprising mainly negative fair values of derivatives, in- creased slightly in line with the movement in deriva­- tives disclosed as assets. At the end of the first three quar- ters of 2011, they amounted to € 12,468 million (31 De- cember 2010: € 11,412 million). Subordinated capital fell slightly and stood at € 8,478 million as at the reporting date 30 September 2011 (31 December 2010: € 8,719 mil­ lion). 14 Q3 2011

Continued increase in Tier 1 capital ratio incl. market tal ratio pursuant to the German Solvency Regulation (SolvV) risk position to 17.9 % in that silent participations in the amount of € 1.7 billion (31 December 2010: € 1.9 billion) have not been included in

Regulatory figures regulatory capital. (%) 30.9.2011 31.12.2010 Less funding required due to reduction in total assets

Equity ratio (solvency coefficient) 29.2 24.4 In the first nine months of 2011, HSH Nordbank suc- Total ratio / Regulatory capital ratio 26.8 22.4 cessfully continued to focus its issuing activities in longer- Tier 1 capital ratio 19.9 17.3 term maturities on investor groups in Germany. The ma- Tier 1 capital ratio (including jority of the placements involved the sale of retail bonds to market risk positions) 17.9 15.4 customers in the savings bank sector and of unsecured Tier 1 capital ratio excl. hybrid financial instruments (incl. market and secured debt instruments to institutional investors. In risk positions) 13.0 10.7 addition to the issue of bonds, the Bank bases its fund- ing on a well-diversified mix of fixed-term and demand

Regulatory capital in accordance with deposits from corporate customers, banks, and savings KWG (German Banking Act) for solven- banks. This deposit base remained stable despite the in- cy purposes and regulatory capital requirements pursuant to the German creased general uncertainty in the markets. Solvency Regulation (SolvV) (¤ bn) 30.9.2011 31.12.2010 Against the backdrop of the continued winding down of non-strategic business it was possible to further reduce Regulatory capital pursuant to the funding requirement of the Bank. At the same time, Section 3 (1) Sentence 1 in conjunc- tion with Section 2 (6) Sentence the Bank succeeded in improving its image among inves- 1 SolvV 9.7 9.3 tors in a difficult market environment. The announcement Of which: Tier 1 capital for solvency purposes 6.4 6.4 of the agreement with the European Commission partly Total risk assets (including market already had a positive impact on sales in the area of the risks and operational risk) 36.0 41.4 Bank’s bond products. Of which: Risk assets counterparty default risk 28.5 33.1 Against the backdrop of the stable development the Bank, the collateral pool not tied up at central banks, of which The Tier 1 capital ratios of the HSH Nordbank improved the Bank may dispose at any time as a liquidity reserve, was further in 2011, showing solid capital adequacy as at increased on average to about € 19 billion. This comfort- 30 September 2011. The Tier 1 capital ratio (including mar­ able level of reserves is used by the Bank as security against ket risk positions) increased to 17.9 % (31 December any possible negative impact of unfavourable market 2010: 15.4 %) and the regulatory capital ratio rose to 26.8 % trends. (31 December 2010: 22.4 %). The reason behind these increases was in particular the continued reduction in total Detailed information on the liquidity and risk situation assets, as a result of which risk assets were further re- is set out in the Risk Report section of this Management duced. On the other hand, regulatory capital remained Report. more or less stable at the level of 31 December 2010. The explanatory notes take into consideration the relief pro­ vided by the second loss guarantee on the risk assets.

The Tier 1 capital ratio excluding hybrid financial instru- ments but including market risk positions reached 13.0 % (31 December 2010: 10.7 %). It differs from the Tier 1 capi- Business Developments | Segment reporting | interim management report 15

Segment reporting

Segment overview

The Core Bank of HSH Nordbank, with the segments Sec- The Restructuring Unit of HSH Nordbank, which con- tor Specialist Bank, Regional Bank, and Other, reported trols the winding down of non-strategic credit and capital net income before restructuring of € 647 million for the market businesses, earned net income from January first nine months of 2011. In the corresponding period through September of 2011, before restructuring and in- in the previous year, net income of the Core Bank amount- cluding consolidation effects, of € 192 million (previous ed to € 192 million. Total assets of the Core Bank as at year: € − 35 million). It was possible to reduce total assets 30 September 2011 were about € 83 billion (31 December of the Restructuring Unit to € 55 billion as at 30 Septem- 2010: € 88 billion). ber 2011 (31 December 2010: € 63 billion).

Details of market and business trends within the Bank’s individual segments are provided below.

Consoli- dation Sector Consoli- Restruc- Restruc- Total Re- Segment overview as at 30 September 2011 Specialist Regional dation Total Core turing turing structur- (¤ m) Bank Bank Other Core Bank Bank Unit Unit ing Unit

Total income 2011 440 367 361 −117 1,051 −63 19 −44 2010 458 389 78 −297 628 502 −7 495 Loan loss provisions 2011 99 −133 −9 35 −8 −7 409 402 2010 −9 −104 19 11 −83 −342 0 −342 Net income before restructuring 2011 373 77 292 −95 647 −232 424 192 2010 337 121 7 −273 192 −68 33 −35 16 Q3 2011

SECTOR SPECIALIST BANK SEGMENT turing Unit in the fourth quarter of 2011 for the purposes of implementing the planned winding down of this divi­ Results of the Shipping, Aviation and Energy & Infra­ sion. The net income before restructuring in the Sector Spe­ structure divisions as at 30 September 2011 are reported cialist Bank segment, despite the increasing perceptible under the Sector Specialist Bank segment. The Aviation uncertainty in the markets, increased during the first nine portfolio will be transferred to the Bank’s internal Restruc­ months of 2011 to € 373 million (previous year: € 337 mil­ lion).

Sector Specialist Bank Segment (¤ m) 1.1. – 30.9.2011 1.1. – 30.9.2010 Change in %

Net interest income 398 451 −12 Net commission income 24 23 +4 Net trading income 22 −7 > +100 Net income from financial investments −4 −9 +56 Total income 440 458 −4 Loan loss provisions 99 −9 > −100 Administrative expenses −172 −123 +40 Other operating income 6 11 −45 Net income before restructuring 373 337 +11 Average equity 1,247 1,058 +18

(¤ bn) 30.9.2011 31.12.2010

Segment assets 30 31

Worsening of the economic environment noticeable The weakening world economy resulted in a slight slow- The container shipping market experienced a clear decrease down in the growth of global oil demand in the third in the third quarter. Following disappointing turnover quarter. A stronger drop in oil demand in the industrial- growth, particularly in traffic from Asia to North America ised nations was partly compensated by the continued and Europe, the readiness of the shipping line compa- high demand from the emerging markets such as China. nies to extend expiring charters and charter new ships fell. Apart from the weakened demand, the tanker market During the third quarter of 2011 charter rates dropped was hit by the high number of deliveries in the past quar- by an average of 30 % and only a few transactions took ter, especially of large tankers. While spot rates did not place on the market for used container ships. even cover operating costs in some cases, time charter rates still did relatively well, although even they were not Seaside handling of bulk cargo, on the other hand, rose entirely immune from the downward trend. noticeably in the third quarter, after the market was hit by storms in Australia and the natural and nuclear catastro- The international air traffic markets saw increased pas- phe in Japan at the start of the year. The fleet also contin- senger numbers compared to the previous year. However, ued to grow quickly, but charter rates, particularly for the growth has slightly weakened recently. Air cargo Capesize vessels, were still able to recover from their low even saw a drop in volume in July and August. Further- points in the previous quarter. The fact that the market more, the airlines continue to be adversely impacted by still faces considerable challenges was reflected in ship pric- high oil and kerosene prices. es, which continued to fall despite the recovery of the charter market. Segment reporting | interim management report 17

European airports also benefited from increased passenger attractive new business has been selectively acquired and numbers. The big hubs experienced particularly strong concluded in the past few months. At the same time, growth. Some smaller regional airports had problems, on clients continued to be supported with prolongations of the other hand, since some low cost airlines, as key ac- existing financings and restructurings. counts, reorganised their flight schedules. The air traffic tax introduced in Germany and Austria had a negative Sector Specialist Bank income increases to ¤ 373 million impact on demand. In the cargo area, growth fell markedly, In the first nine months of 2011, the Bank was able to in- and in some instances freight volumes even declined. crease net income before restructuring of the Sector Spe- cialist Bank segment to € 373 million (previous year: € 337 European sea ports continued their recovery and were million). This is primarily due to the significant improve- able to grow their goods handling business, particularly ment in the loan loss provision position, which thanks to with regard to containers. The largest ports – Rotterdam, a high level of reversals of portfolio valuation allowances Antwerp, Hamburg and Bremerhaven– all achieved better for individual shipping commitments had a positive effect results than in the previous year. For the EU as a whole, on income of € 99 million (previous year: € − 9 million). however, handling volume remained slightly below its pre- Total income reached € 440 million, compared to € 458 crisis level. German rail freight transport shipped signifi- million in the previous year. The early reduction of new cantly more goods over the course of the year than in the business activities in the Aviation division in anticipation same period of the previous year, and is on its way to of the EU decision had a marked impact on total income. recover to its pre-crisis level. Slow growth in the amount of new business, stable interest margins and earnings from sales of capital market prod- After the natural and nuclear catastrophe in Japan, there ucts, especially interest rate hedging instruments, had posi- was a rethinking of energy policy in many places in Eu- tive effects. rope. This trend gave new life to the market for renewable energy. Despite several clear votes in favour of renewable energy, the area of solar energy in some countries suffered SECTOR SPECIALIST BANK SEGMENT OUTLOOK drastic cutbacks in public funding, which partly hin- dered further development. Despite the continued fall in Significantly more difficult conditions expected module prices – the price for crystalline silicon mod- In the container shipping market, a sustainable recovery ules in Europe in August was a quarter lower than the price or growth rates at the pre-crisis level cannot be expected just 12 months earlier – development is still continuing. in the near future. Despite the restrained outlook, the present order situation shows that the fleet capacity con- In the field of wind energy, project financing activities in tinues to be increased quickly and that orders of large Europe as a whole were at a moderate level. In the area of ships are still being placed. This could lead to a market offshore wind farms, the picture has brightened due to consolidation. the financing promised for the German projects Meerwind Süd and Ost, as well as Global Tech I, in the amount of The bulk carrier market, after a temporary recovery in over € 3 billion. Effective 1 January 2012, an amendment the second half, should cool down again in 2012, since we to the Renewable Energies Act (EEG) was passed in Ger- do not expect the fleet growth to be counterbalanced many, which will in particular increase public funding for by corresponding increases in demand. Nevertheless, we offshore wind energy. assume that this market will reach its low in 2012.

Greater focus on new business The demand for oil tankers in the next few years will After portfolio adjustments and market recoveries in 2010, probably be at the level of the historical average. At the in 2011 the Sector Specialist Bank segment is focussing same time, we expect continued strong fleet growth, on customer relationships in order to expand its business with declining ship values and time charter rates. In addi- in a risk-conscious manner. Due to this increased activity, tion to the current reticence of ship-owners with regard 18 Q3 2011

to new orders, cancellations of new builds and / or scrap- into risk-conscious business expansion. We are concentrat- ping should also increase significantly, in order to avoid ing on selected counterparties and reasonable yield / risk the growing oversupply of ship tonnage. ratios in order to maintain a balanced portfolio structure in all business units. The goal is to offer customers tailor- The slowing economy is suppressing the demand in the made financing solutions and to supply them optimally passenger air traffic sector. This is being felt both by air- with the Bank’s entire range of products. By further in- lines and European airports. Uncertainty due to air traf- creasing the customer deposit base, we want to support the fic fees, the national debt crisis, and geopolitical risk funding of our business. should also dampen demand. Stagnating global trade will cause the weakening of air cargo business and maritime If the overall economic situation does become even more trade. Due to the hinterland business of the sea ports, rail gloomy, we currently anticipate no significant increase freight transport will also be affected by this trend. in loan loss provisions. No new business will be concluded in the Aviation division, since we already curtailed our The expansion of sustainable energy sources continues new business activity in anticipation of the EU decision. to be aggressively pushed forward in many countries. Growth in the field of solar power is currently still depend- ent to a greater extent on funding measures and thus political will. Since funding is often adjusted to the falling prices of installations and other parameters, we expect the attractiveness and the speed of development of the in­ dus­try in the individual countries to vary.

With respect to the construction of onshore wind turbines, the growth trend in some countries is losing momentum. However, the regional market is expanding. The offshore segment is gaining importance and is thus becoming a growth driver.

Risk-conscious expansion of business In the context of the EU decision, the business orientation will be adapted in the Sector Specialist Bank segment. In line with the commitments made to the European Com- mission, the Bank will give up object-related aircraft fi- nancing and reduce segment assets in the Shipping division by the end of 2014. In order to implement the winding- down measures, the aircraft portfolio, with segment assets of about € 5 billion (as at 30 September 2011), and select- ed shipping commitments (segment assets about € 1.3 bil- lion as at 30 September 2011) will be transferred to the Bank’s internal Restructuring Unit in the fourth quarter of 2011.

Despite signs of a cooling economy, there are still good prospects for new business in the segment. The situation still permits the focus to be moved from restructuring Segment reporting | interim management report 19

REGIONAL BANK SEGMENT

The Regional Bank segment is composed of the Corporate Clients, Real Estate Clients, Savings Banks and Private Banking divisions. Net income before restructuring of the segment in the first nine months of 2011 amounted to € 77 million (previous year: € 121 million).

Regional Bank Segment (¤ m) 1.1. – 30.9.2011 1.1. – 30.9.2010 Change in %

Net interest income 286 322 −11 Net commission income 49 49 – Net trading income 14 17 −18 Net income from financial investments 18 1 > +100 Total income 367 389 −6 Loan loss provisions −133 −104 +28 Administrative expenses −160 −139 +15 Other operating income 3 −25 > +100 Net income before restructuring 77 121 −36 Average equity 709 619 +15

(¤ bn) 30.9.2011 31.12.2010

Segment assets 21 23

Strong order backlog among corporate clients modities trading. In view of the strong movements on The economic upswing had palpably lost momentum by the FX market, currency hedging transactions are greatly the end of the third quarter of 2011. However, through- in demand by our customers. out all industries we can see that order backlogs are still at a good level, although incoming orders have decreased In the Structured Finance division, the number of transac- somewhat. tions has increased. The focus of this business has been on capital structuring. The majority of requests is coming Among our corporate clients, sales and the order situa- from the health management industry, trade and service tion improved over the course of the year, but some profit providers. In the leveraged finance area, we are seeing a margins are under pressure due to increased commod- modest but continuous number of transactions. The ities prices. The demand for long-term investment credits, number of banks active in this segment of the market is and particularly for working capital credit lines in the slowly growing. field of trading, have increased in this context. We have succeeded in continuing to increase deposits from cor- The competition for customers with a strong rating has porate clients in the past few months by intensive meas- intensified further. As a result, there is continuing pressure ures to win new clients. on credit margins. In this difficult environment, thanks to many years of customer relationships and close contact In the Global Trade Finance area, there is a high demand with our customers, we have been able to maintain our for letters of credit from companies in the area of com- market position and win new customers as well. 20 Q3 2011

The mood in the German real estate markets in the first the Banque de Luxembourg agreed upon in May was com- nine months of 2011 was primarily characterised by con- pleted in the third quarter. fidence. However, the turbulence in the financial mar- kets in the third quarter caused some market participants The focus of the savings bank business in the first three to become more cautious. However, the number of trans- quarters of 2011 continued to be the sale of bond products actions is still rising. to customers in the Sparkassenverbund (Savings Bank Association), as well as the raising of funds. With regard Increasing office space expansion and fewer relocations to the own investments of the savings banks, the focus were reported in the area of office leasing, so net demand was primarily on the short- and medium-term products increased. Another reason for the falling number of va- with a term of up to two years. cancies was that more than a third less office space came onto the market than in the previous year. Success with cross-selling products The net income before restructuring of the Regional Bank The demand for retail space continued its upward trend. segment amounted to € 77 million by the end of the first International dealers in particular want to take more three quarters, compared to € 121 million in the corre- advantage of the opportunities in the German retail mar- sponding period of the previous year. One significant effect ket. Commercial rents have thus risen markedly since on income was the lower reversal of portfolio valuation the start of the year. allowances than in the previous year. As a result, loan loss provisions increased to € − 133 million compared to the Rents also increased in the residential real estate market. previous year’s € − 104 million. Total income for the seg- The growth momentum accelerated particularly in the ment amounted to € 367 million (previous year: € 389 large cities. Among investors, retail properties are in higher million) against the backdrop of new business slowly gain- demand than other commercial properties. Residential ing momentum. Higher contributions to income resulted real estate was in demand by both private and institution- from successful cross-selling transactions in all business al investors. units of the segment. Interest rate hedging, currency hedging, and investment products were particularly in The increased sales activities carried out in the Real Estate demand among customers. Clients business unit since the start of the year resulted in a significantly higher number of transactions in the third quarter. The focus here was on residential, office and retail space. Competition remained high due to many fin- anciers concentrating on the German market, especially for small and medium financing for long-term leased real estate in very good locations. Nevertheless, we were able to achieve in the new business generated sufficient mar- gins on high credit quality transactions and additional income from cross-selling activities. It was possible to main- tain customer deposits in the real estate client business at a high level due to successful sales activities.

In the private banking business, demand was oriented primarily towards short-term investments that retained their value. This tendency was encouraged by the uncer- tainty prevailing in the stock markets. The sale of the pri- vate customer business of the Luxembourg subsidiary to Segment reporting | interim management report 21

REGIONAL BANK SEGMENT OUTLOOK its international real estate business. The reduction of the Core Bank’s international real estate business will princi- Investment activity stabilises at a high level pally be achieved by scheduled principal repayments in In view of the current economic environment, we antici- this area. pate a slightly lower demand in the business conducted with our corporate customers. The investment activity of In Private Banking, the Bank will strengthen its focus on companies should stabilise at their current level. We the customer segment for wealthy private clients. Particu- expect to generate additional sales increases in the coming lar focus is on foundations and entrepreneurs. A Bank- months from our corporate clients in the trading sector. wide initiative has been able to achieve additional consult- ing success and transactions closed. The range of offers Moreover, the intense level of activity in foreign trade for savings banks is also under continual development and should increase the demand for import and export financ- is oriented particularly on the volatile capital market ing and for products that reduce payment risk. Overall, environment and the need for transparent, conservative we will continue to grow our credit business for existing investment policies. and new customers alike. We also anticipate a gradual increase in transactions in the area of leveraged finance.

For the real estate markets in Germany, we expect the positive trend of the past quarters to continue. This is par- ticularly pronounced in the market segments with high- quality properties and locations. However, growth in the top locations should weaken somewhat and the focus of investors increasingly widen to properties outside the long-term leased real estate in top locations and to port- folio transactions.

We expect vacancies to continue to decline over the course of the current year due to the fact that renting office space is increasingly focussing on expansion rather than on consolidation of floor space. Attractive spaces in city centre locations should become increasingly scarce; this should enable prime rents to rise. The leasing trend of international retailers, particularly in top locations, should continue for now and lead to clear increases in rents. Rents for residential properties in large cities should con- tinue to grow, since demand in conurbations continues to exceed the supply.

In view of the potential available on the market and the high number of transactions in the initial origination phase, we assume that new business in real estate financ- ing will grow significantly. In the context of the EU deci- sion, the business orientation will be adapted in the Region- al Bank segment. In accordance with the commitments made to the European Commission, the Bank will give up 22 Q3 2011

SEGMENT OTHER

The Other segment comprises the financial market busi- ness, the central funding function for the Group, cross- selling activities with the customer segments as well as the overall Bank positions. Net income before restructuring for the segment increased significantly to € 292 million (previous year: € 7 million).

Segment Other (¤ m) 1.1. – 30.9.2011 1.1. – 30.9.2010 Change in %

Net interest income −29 −27 −7 Net commission income 3 8 −63 Net trading income 256 79 > +100 Net income from financial investments 131 18 > +100 Total income 361 78 > +100 Loan loss provisions −9 19 > +100 Administrative expenses −65 −105 −38 Other operating income 5 15 −67 Net income before restructuring 292 7 > +100 Average equity 425 364 +17

(¤ bn) 30.9.2011 31.12.2010

Segment assets 32 34

Customer-oriented business expanded Higher earnings from overall bank positions The cross-selling business with corporate, private and insti­ In the Other segment, the Bank recorded net income be- tutional clients was further expanded over the course of fore restructuring of € 292 million for the nine months the year to date, exceeding the level of the previous year. In end­ing 30 September 2011. This represents a significant the area of sales of investment and risk management increase over the same period of the previous year (€ prod­ucts the main focus of customers was both on interest 7 mil­lion), which is attributable to higher earnings where- rate hedging products due to the expectation of rising as loan loss provisions increased slightly. Earnings in interest rates, as well as on hedging products in foreign cur­ the fi­nan­cial market business amounted to € 65 million rencies due to the pronounced fluctuations in exchange against the backdrop of the continued winding down of rates. Net income from cross-selling activities is primarily risk positions and were in line with the plan. Under the reported in the other segments in line with the business overall bank positions, the sale of equity holdings had a management framework of the Bank. positive impact.

It was possible to expand the funding basis of HSH Nord- The revaluation of hybrid financial instruments also had bank in the first three quarters of 2011. Details on our a positive effect. Due to the agreement reached in the EU funding activities are set out under ‘Less funding required state aid proceedings, the future earnings of the HSH due to reduction in total assets’ in the Chapter Business Nordbank Group were reassessed and the estimate of the developments. Segment reporting | interim management report 23

future interest and principal repayments on hybrid finan- cial instruments changed in the current reporting period. Taking IAS 39.A8 into consideration, this resulted in a pos­ itive effect on earnings in the amount of € 180 million.

Segment Other outlook

Focus on customer business For the fourth quarter, the Capital Markets division is assuming a further increase in customer activity in the core areas, allowing us to expect higher cross-selling oppor­ tunities for the sale of risk management and investment products. In the current volatile environment, we can also see an increasing acceptance among our customers for the uniform analysis of their overall risk structure as part of our advisory approach. 24 Q3 2011

RESTRUCTURING UNIT SEGMENT amounted to € 54 billion as at 30 September 2011. This cor­responds to a portfolio reduction of € 9 billion com- Non-strategic portfolios further reduced pared to year end 2010 and of € 23 billion since year The winding down of the credit and capital market portfo­ end 2009. This means that winding down of the portfolio lios managed by the Restructuring Unit has made very is pro­gressing significantly faster than originally planned. good progress so far in 2011. Total assets of this segment

Segment Restructuring Unit (¤ m) 1.1. – 30.9.2011 1.1. – 30.9.2010 Change in %

Net interest income 316 435 −27 Net commission income 26 83 −69 Net trading income −328 −173 −90 Net income from financial investments −77 157 > −100 Total income −63 502 > −100 Loan loss provisions −7 −342 −98 Administrative expenses −169 −220 −23 Other operating income 7 −8 > +100 Net income before restructuring −232 −68 > −100 Average equity 2,354 2,094 +12

(¤ bn) 30.9.2011 31.12.2010

Segment assets 54 63

Lending business reduced by a further ¤ 5 billion over The situation in the US real estate market remained diffi- the course of the year cult in the first three quarters of the year. The debt and The portfolios of the credit business were reduced as at financial market crisis hindered the reduction of business 30 September 2011 by another € 5 billion to € 30 bil­- for some asset classes. lion (31 December 2010: € 35 billion), with the greatest re­ductions in the real estate financing and corporate cli- The shipping portfolio in the Wind-down Loans division ents divisions. The situation in the relevant markets and developed as planned in the first three quarters of 2011. the associated success in winding down of significant In view of the continued tensions in the market, the op- cred­it port­folios are currently assessed by the Bank as fol- tions for a quick portfolio reduction remained limited. lows: Due to the continued restructuring of risky assets, we are increasing the chance of a faster winding down once the The real estate markets in Germany, Great Britain, France shipping markets recover more strongly. In the Special and Sweden continued to recover in the third quarter. Loans division, loan commitments in the shipping port­ The most robust proved to be the German market. The folio were restructured in several cases due to problems in Dan­ish and Dutch markets, on the other hand, still show individual industry segments in order to safeguard the no noticeable recovery trends. Overall, it was possible in customers’ business. An elevated need for loan loss provi- many cases to implement the winding down of the port- sions should still be anticipated. folio of the Bank in the European markets alongside sched­ uled repayments by means of unscheduled repayments. Segment reporting | interim management report 25

The credit quality of the foreign LBO portfolio continued nomic trend in Germany this exposure developed very to stabilise in 2011. The situation remained difficult positively compared with other European countries, since for only a few customers. Overall, it was possible to reduce German bonds remained in demand among investors. com­mitments at a higher rate while the loan loss provi- The winding down measures were pushed forward against sions only had to be increased by a moderate amount. The the backdrop of this development. In particular the Bank foreign LBO portfolio was reduced by about a quarter succeeded in selling loans to municipal companies without over the year to date. After positive trends in the first half adversely impacting assets and earnings. of the year, the secondary market experienced quickly falling, volatile prices in the third quarter. This led to few- Write-offs on Greek securities er opportunities for syndication. Net income before restructuring of the Restructuring Unit segment amounted to € − 232 million at the end of the The winding down of the Leasing / Retail was continued by first three quarters (previous year: € −68 million). The total means of both scheduled and early repayments, particu­ loss of € − 63 million (previous year: € 502 million) is at­ larly also by the sale of the shares held in DAL Deutsche tributable, inter alia, to impairment losses recognised on Anlagen-Leasing, Wiesbaden, to Deutsche Leasing AG, Greek securities in the amount of € − 78 million, thereby Bad Homburg. writing down the securities to 37 % of their nominal value. Impairment losses on trading portfolios, resulting prima­ Further reductions in capital market portfolios rily from the effect of credit ratings on European govern- The capital market portfolios of the Restructuring Unit ment bonds, also had an impact. On the other hand, the were also reduced further. In a difficult environment, not progress in reducing risk in the lending business had a pos­ least adversely impacted by the national debt crisis, the itive effect. Loan loss provisions decreased to € − 7 mil- segment assets of the capital market holdings as at 30 Sep­ lion, compared to € − 342 million in the previous year. tember 2011 have been reduced to € 24 billion (31 De- cember 2010: € 28 billion). RESTRUCTURING UNIT SEGMENT OUTLOOK The high level of uncertainty in the markets also affected the Credit Investment Portfolio (CIP). A low trading vol- Continued winding down measures ume and increasing spreads highlighted the relatively low The winding down of the portfolio continued to be driv­- level of liquidity in the ABS markets. Nevertheless, some en by regular principal repayments as well as by active asset classes, as well as in general senior positions, which measures undertaken. Success in winding down is large­- make up the greater part of the CIP, performed relatively ly influenced by the development of the economic environ­ well in the current market environment. ment and the financial markets, which should remain volatile particularly as a result of the national debt crisis. The high level of uncertainty following the debt and finan­ As winding down measures are continued, the potential cial market crisis also impacted the public sector financ­­- burden from the portfolios falls, however for individual ing business. In particular the escalation of the situation coun­terparties a higher need for loan loss provisions is in Greece and discussion of the extension of financial to be anticipated. support within the framework of the EFSF led to signifi- cant yield increases on Southern European bonds. Risky In the real estate area, most European markets should con­ public sector financing business only accounts for a rela- tinue to stabilise. Against this backdrop, the Bank antic­ tively low proportion of the overall portfolio. ipates that it can continue its successful strategy to reduce its portfolios in European countries outside of Germany. The greater part of the assets in the public sector financ- The situation in the US real estate market contin­ues to be ing business comprises bonds issued by German federal difficult for the time being, so that we do not expect a states and their municipalities. Thanks to the positive eco­ significant reduction in the US portfolio. 26 Q3 2011

In view of the difficult situation in the shipping markets, an­tee of the SoFFin, which were allocated to the net inter- syndication opportunities remain limited. A quick wind- est income of the segments, but are disclosed separately ing down of the shipping portfolio can therefore only be in the income statement in the item Expenses for govern- expected after a sustainable market recovery. Due to mar- ment guarantees. Reclassifications led to higher interest ket conditions, we cannot transfer our restructuring income and lower net trading income in the consolidation commitments back to the normal management process. compared to the previous year.

In the foreign LBO portfolio, we expect further and even The Loan loss provisions item includes security effects aris­ early reductions in the last quarter of 2011, although the ing on the second loss guarantee recognised in the finan- tense market situation can be seen in the winding down cial statements, which are not allocated to segments. In the process and some planned exits had to be postponed. Risk loan loss provisions of the Core Bank (€ 35 million) this premiums will rise due to the overall tense market situ­ resulted in a slight relieving effect, while the loan loss pro­ ation. visions of the Restructuring Unit (€ 409 million) were re- duced significantly. The slightly positive total income of In the domestic corporate client business (leasing / retail), the Restructuring Unit in the consolidation is also attrib­ we expect further scheduled principal repayments, accom­ utable to the security effect of the guarantee. panied by individual early repayments. The second loss guarantee expense is also not allocated to In the coming months, the uncertainty about the further the segments. development of the sovereign debt crisis can be expected to continue in the capital markets. The as-yet unresolved problems in Southern Europe and the resulting ner­vous­ ness of market participants will continue to have an impact on the winding down measures and individual income positions of the Bank.

Consolidation columns Net income elements not allocated to divisions are also reported in the consolidation columns of the Core Bank and the Restructuring Unit.

The negative total income in the consolidation column of the Core Bank (€ − 117 million) is largely due to nega­tive net trading income, which was only partly offset by posi- tive interest income. The consolidation of the net tra­- ding income was impacted by differences in the mapping of economic hedging relationships as well as chang­­es in value on EUR / USD basis swaps and the measurement of the Bank’s own liabilities, which are not assigned to a segment.

The consolidated net interest income primarily reports meas­urement and disclosure differences. In this context, the total income of the Core Bank consolidation had a positive effect, particularly on costs for the liquidity guar­ segment reporting | Outlook | interim management report 27

Outlook

The following section should be read in conjunction ures, particularly additional security purchases. The ECB with the other chapters in this Management Report. The could reduce the base rate again and should hold its forward-looking statements contained in this outlook course in safeguarding the supply of liquidity to the banks. are based on our beliefs and assumptions made using infor­ The bond markets should continue to be influenced by mation currently available to us. The statements rely on the debt problems. We expect a continued suppressed level a number of assumptions concerning future events and are of yields for German government bonds and US treas­- subject to uncertainties, risks, and other factors, many uries that are considered as being comparatively safe. Only of which are outside of our control. Therefore actual results over the coming year should yields respond to improved may differ materially from the following forward-look­- global economic outlook and the progress made in resolv- ing statements. ing the debt problems. Should more sustainable meas­- ures be taken to overcome the crisis in the eurozone, this should strengthen the Euro against the US dollar. Anticipated underlying conditions On the stock markets, there is potential for a somewhat Recovery of the global economy loses momentum firmer tendency in the final quarter of 2011 following the Overall, we expect the global economy to grow significantly fall in prices over the past few months. Sustained prices less this year than in 2010. The recovery should continue at a level higher than in May are not anticipated soon giv- over the remainder of the year, but will continue to lose en the rather moderate growth outlook. steam. While restrictive political measures in the emerg­- ing economies are contributing to the cooling of the econo­ my, the risk of recession in the Western industrial nations Anticipated business situation has increased, not least due to structural economic weak­ nesses. Consistent implementation of the new strategic programme in the context of the EU decision In the eurozone, uncertainty over political developments in With the conclusion of the EU state aid proceedings in the debt crisis is dampening the appetite for investment Sep­tember of this year, a significant milestone for HSH and consumption. The governmental austerity measures Nord­bank on the road to a stable, successful future was for the consolidation of the public budget are exacerbat- achieved. In the context of the measures committed to the ing the difficult situation. In view of its strong export ori- European Commission, it is the Bank’s goal to imple­- entation, Germany could increasingly suffer from the ment the necessary reorganisation in a manner that both economic slowdown of many of its trading partners. For strengthens the foundation and sustainably increases the USA, we only expect sluggish growth in the coming the profitability of the Bank. To achieve this, the “Future quarters, since the high level of unemployment, the weak- Intiative” (Offensive: Zukunft!) strategic programme al- ness of the real estate market, and the winding down of ready introduced at the start of the third quarter will be private debt will dampen demand. effi­ciently and consistently continued, with a series of initiatives. The monetary policy of the large Western central banks, in view of the economic risks and tension in the financial One focus in the coming months will be on the operational markets, should be extraordinarily expansive. The US Fed­ implementation of the reorganisation of customer and eral Reserve could decide on additional quantitative meas­ product responsibilities in the Bank already underway, par­ 28 Q3 2011

ticularly to strengthen the sales force even further. As is in effect. Drawdowns under the guarantee do not reduce already has been the case in the past few months, the ac­ the calculation basis for the guarantee until the guar- qui­sition of new business by the customer division of the antee is fully repaid taking the follow-up liability of the Core Bank will be pursued in a risk-conscious manner. In guarantor into account. The additional premium result- previous years the restructuring of portfolios had been ing from the conditions imposed by the EU on the second the centre of attention during the course of the financial loss guarantee is treated in the same way as the basic fee crisis. In expanding the new business the whole range of payable on the first loss guarantee and is recognised as an services of the Bank will be marketed aggressively in order expense when paid. In addition the reimbursement claim to open up further earnings potential. for guarantee terminations expected in future is offset in the income statement. For treatment under supervisory Moreover, the plans for the required reduction in operat­ing law it is planned to include as of the fourth quarter 2011 and personnel expenses and the associated cut in jobs a capital deduction item for the risk of the reimburse- will be set out in more detail over the next few months in ment claim in the amount of this sum. The Bank assumes coordination with employee representatives. A large part that this will result, all else being equal, in a burden­ on of the costs incurred in connection with this effort, expect­ the regulatory capital ratio of about 1.2 percentage points ed to a low nine-figure sum, is anticipated to be recorded as at end of 2011. However, the mechanism of a “debtor in the fourth quarter and there­fore recognised in the con- warrant” ensures that the common equity ratio cannot fall solidated financial statements for 2011. The one off pay- below 10 % due to the “additional premium”. This also ment of € 500 million required by the EU to the guarantors limits the potential negative effect of the “additional pre- of the second loss guar­antee, which needs to be returned mium” to the regulatory capital ratio. to the Bank in return for stock, has already been recognised by the Bank in the third quarter’s income statement un­- To stem the EU sovereign debt crisis, additional political der Expenses for government guarantees. measures were taken in October by the European govern- ments. Despite the agreements reached, the effects of Without taking the one off expenses incurred due to the this crisis could still result in additional burdens being felt EU decision in the third quarter into account, the Bank by banks. was able to improve its operating earnings situation signif­ icantly over the course of the year due to the relieving In October 2011, the European Banking Authority (EBA) effect of the second loss guarantee – despite the reduction conducted a stress test to examine the consequences that a in interest-bearing business and the increasingly difficult further escalation of the European debt crisis could have market environment. For the financial year 2011, however, on European banks of systemic importance. EBA considers the Bank is anticipating a Group net loss as a result of HSH Nordbank to be of systemic importance and was test­ the special effects mentioned above. ed accordingly. HSH Nordbank passed this stress test. The Tier 1 capital ratio of HSH Nordbank was significant­ly In the future, too, the hedging effect of the second loss above the required minimum threshold of 9.0 % described guarantee will be of significant importance for the net as- in the strict scenario developed by the EBA. In this sce­ sets, financial position, and results of operations of the nario, loans and advances to states in the European eco­ HSH Nordbank Group. Potential burden or relief of loan nom­ic region – particularly the so-called PIIGS states loss provisions in the future will be compensated by the – would have to be recognised at their fair values as at offsetting effects of the guarantee to a large extent, as long 30 September 2011. The result of the test shows that the as the utilisation of the second loss guarantee lies above capital adequacy of HSH Nordbank is good even on an in- the Bank’s first loss piece of € 3.2 billion. Below that thresh- ternational comparison and that the sovereign risks of old, changes to loan loss provisions will be completely the Bank can be controlled. The results of another review recognised in the income statement. The guarantee premi- carried out by the EBA are expected in the fourth quar-­­ um will continue to be payable as long as the guarantee ter. More detailed information regarding the exposure of Outlook | interim management report 29

HSH Nordbank to the PIIGS nations can be found in the Foreign currency assets, in particular those denominated Risk Report and in Note [45] in this Interim Report. in US dollars, are refinanced at HSH Nordbank via deriva- tives for the most part – as is the case at most European At the 2011 year end, new regulations will come into banks. The Bank is currently assuming that sufficient mar­ effect as part of the implementation of EU requirements ket depth required for this will continue to be available for so-called resecuritisation transactions (Third Capital in the future. At the same time, however, the costs of US Requirements Directive, CRD III). This also concerns the dollar funding which rose during the European debt cri­- second loss guarantee provided to HSH Nordbank by the sis should remain at a high level as long as the marked Free and Hanseatic City of Hamburg and the federal state nerv­ousness in the markets lasts. HSH Nordbank contin­- of Schleswig-Holstein. In this context, a higher risk weight ues to assume that the funding costs can be appropriately must be applied in the future for the securitisations cov- reflected in pricing the US dollar asset business. ered by the guarantee on the basis of the new supervi- sory regulations. It is expected that this will result in low- The rating agency Moody’s has changed its valuation er regu­latory capital ratios of HSH Nordbank as at 31 De- metho­dology for the long-term rating of the German Lan­ cember 2011. des­banken and announced this publicly in mid-Novem-­ ber 2011. With this change, Moody’s has limited the posi- Accounting and measurement are based on the assumption tive influence of the state owners on the rating of the that the enterprise is a going concern. HSH Nordbank Landesbanken. This change in methodology reduces the Group justifies this assumption primarily by the recapitali­ long-term rating of HSH Nordbank from A3 by two notch­- sa­tion by the federal state of Schleswig-Holstein and the es to Baa2 with a stable outlook, while the short-term rat- Free and Hanseatic City of Hamburg in the course of the ing was reduced from Prime-1 to Prime-2. The readiness year 2009 and a viable restructuring concept which will of the majority shareholders, the Free and Hanseatic City en­sure the Bank’s independent competitiveness. With the of Hamburg and the federal state of Schleswig-Holstein, con­clusion of EU state aid proceedings in September to support the Bank is evaluated at the highest possible val­ 2011 the Bank obtained sufficient security of planning and ue of five notches in the future, but is two levels under le­gal certainty. the valuation according to the old method.

With this re-evaluation of HSH Nordbank, Moody’s con- Anticipated funding situation tinues to acknowledge the great commitment of the Ham- burg and Schleswig-Holstein to HSH Nordbank, but sig­ Further strengthening of the funding basis nif­icant advances in the strategic realignment of the Bank The focus of issuing activities in the last quarter of 2011 – such as the reduction in risk assets, the substantial will continue to lie in private placements of debt securities im­prove­ment in capital ratios and the implementation of with domestic investors. The focus is on the developing a sustainable business model – are not adequately tak­- of the potential of retail customers and institutional inves­ en account of in the Moody’s evaluation. tors and the expansion of deposit business with corpo­- rate customers. The EU decision handed down in the third We expect that this new rating will only have a moderate quarter, under which the Bank can implement its future impact on the funding options of the Bank. HSH Nord- strategy quickly and successfully, should have a basically bank has reorganised its funding on a much more crisis- positive effect on the sale of funding products. resistant basis over the past two years. In comparison with the Bank’s previous position, it is now less subject to Despite its success in funding, the Bank will systematically the volatility of the international money and capital mar- continue to strengthen and optimise its range of funding kets. Increased deposit business and a stronger focus on the products and channels as part of its strategic programme domestic market and the savings bank association have “Future Initiative” (Offensive: Zukunft!) introduced in the paid off. third quarter. 30 Q3 2011

Anticipated segment performance

The expectations of the individual segments are influ- enced by developments in the economy and in the finan- cial markets, whereby the effects on future opportunities and risks are expected to differ based on specific market con­ditions within the sectors. Within different credit port­folios, additional specific loan loss provisions may be required depending on economic developments and the markets. The largest burden should still relate to portfolios which no longer belong to the core business and which have been consolidated in the Restructuring Unit for sys- tematic winding down. Details regarding default risk are set out in the Risk Report. Details of developments antici- pated within the individual segments are given in the Segments chapter. outlook | Risk Report | interim management report 31

Risk Report

The Bank’s significant risks include default, liquidity, value approach. In addition to equity capital for econom­ic market and operational risks. The methods, instruments purposes (including changes in the net asset value) the and processes for the management of risks are explained net asset value approach takes into account, amongst oth- in detail in the Risk Report contained in our 2010 Annual er things, unrealised gains and losses arising on securi- Report. ties, equity holdings and the lending business as well as effects from the second loss guarantee provided by the Risk-bearing capacity Free and Hanseatic City of Hamburg and the federal state As part of the monitoring of our risk-bearing capacity of Schleswig-Holstein (total of economic mark-ups and the eco­nomic capital required to cover any unexpected mark-downs). loss­es (overall risk) is regularly compared to the availa­- ble amount of economic risk coverage potential. Economic Over the last five quarters, risk coverage potential devel- risk coverage potential is determined using the net asset oped as follows:

Economic risk coverage potential 30.9.10 31.12.10 31.3.11 30.6.11 30.9.11

(¤ bn) 12.2 11.0 10.8 10.7 10.2

Equity capital for economic purposes 13.0 12.9 12.2 12.1 12.2 Amount retained under second loss guarantee −3.2 −3.2 −3.2 −3.2 −3.2 Net total of economic mark-ups / mark-downs 2.4 1.0 1.2 2.0 1.8 Total 12.2 10.7 10.2 11.0 10.8

In the second quarter 2011, further developments were Since 30 September 2011 the conditions imposed on the made to the methods used to determine risk coverage Bank by the EU Commission resulting from the conclusion potential. The risk coverage potential has increased ceteris of the state aid proceedings have been taken into account paribus as at 30 June 2011 as a result, in particular, of when determining the Bank’s risk coverage potential. The the more refined method used to take account of future additional premium resulting from the conditions im- costs for the second loss guarantee provided by the Free posed by the EU on the second loss guarantee is recognised and Hanseatic City of Hamburg and the federal state of on a present value basis in accordance with the method­ Schles­wig-Holstein, as well as adjustment of the alloca- ology applied to the previous basic fee for the guarantee. tion of the result for the current year to the risk coverage For this reasons the risk coverage potential stood at € potential. 10.8 billion as at the reporting date which is a slight de- 32 Q3 2011

crease compared to the second quarter (31 December 2010: The following diagram shows the change in total economic € 10.7 billion). Limits for individual risk types are derived risk over the course of the last five quarters. from the risk coverage potential within the framework of the risk strategy. In line with Pillar 1 the amount charged Economic capital required 30.9.10 31.12.10 31.3.11 30.6.11 30.9.11 as mentioned above will be used in the economic analysis. This is planned for the fourth quarter 2011. (¤ bn)

The overall risk takes into account default risk, market risk, operational risk as well as the liquidity maturity trans­ 0.3 formation risk as an element of liquidity risk. Economic 0.3 0.5 0.3

capital required is an expression of unexpected losses 0.5

and is determined monthly for default, liquidity and mar- 0.3 1.1 0.3 0.9 0.3 ket risks in a methodical consistent manner with a con­ 0.9 0.4

fidence level of 99.9 % and a risk horizon of one year. In 0.3

order to do so, market risks are scaled up to this one year 0.9 0.8 3.0 2.9 horizon based on the daily value-at-risk. Operational risks 2.9 are determined in accordance with the Standardised 2.3 Ap­proach as defined in the German Solvency Regulation 2.3 (SolvV). The economic capital requirements for the indi- vidual risk types are aggregated to an overall economic risk. In doing so, no risk-reducing correlations are utilised.

Total 4.8 4.6 4.4 3.7 4.0 Default risk Market risk Liquidity risk Operational risk

The fundamental enhancements made to the methodology used to determine economic capital required for default risk, led ceteris paribus to a reduction in the capi­tal re- quired as at 30 June 2011. Since then, based on the cal- culation of the capital backing in accordance with SolvV, economic capital required is determined on the basis of identical data / systems and taking into account adjustments for internal steering purposes that are justified on eco- nomic grounds, e. g. positions classified as being in default. The economic capital required for default risk as at the reporting date amounted to € 2.3 billion (31 December 2010: € 3.0 billion). The second loss guarantee has clear- ly eased the burden, as no economic capital is required for default risk with regard to items that fall within the scope of the second loss guarantee.

According to the risk-bearing capacity concept, market risk (value-at-risk), which is determined on a daily basis at a Risk Report | interim management report 33

confidence level of 99.0 % and a one day holding period, is mation on managing the insolvency risk, amongst other scaled up to show economic capital required for market things, is included in the section ‘Liquidity risk’. risk positions for purposes of managing risk-bearing capac­ ity with a confidence level of 99.9 % and a risk horizon Operational risks are determined in accordance with the of one year. The economic capital required for market risk Standardised Approach as defined in the German Solven­- as at the reporting date amounted to € 0.9 billion (31 De- cy Regulation (SolvV). The corresponding economic capital cember 2010: € 0.9 billion). required amounted to € 0.3 billion as at 30 September 2011 (31 December 2010: € 0.3 billion). HSH Nordbank uses a value-at-risk approach for quanti­ fying liquidity maturity transformation risk. This long- As a result of the effects described above, overall eco­ term / structural liquidity risk is an expression of the dan- nomic risk decreased compared to the end of 2010 and, as ger of increased refinancing costs on the open liquidity at the reporting date, amounted to € 4.0 billion (31 De- position. Compared to the end of the financial year 2010, cember 2010: € 4.6 billion). The utilisation of risk coverage the liquidity value-at-risk (LVaR) as a measurement of this po­tential amounted to 37 % (normal case) as at the report- risk decreased by € 0.1 billion to € 0.4 billion as at 30 Sep­ ing date. The risk-bearing capacity was secured accordingly. tember 2011. In particular, this development reflects the decrease in liquidity gaps to be notionally closed. Insolven­ The following table shows the economic risk coverage po- cy risk, which on a one-year horizon is, in prin­ciple, the tential of the HSH Nordbank Group, the risk limits and more important aspect of liquidity risk as compared with the economic capital required for the individual risk types the liquidity maturity transformation risk, is backed by a and the remaining risk coverage potential buffer. buffer of liquid funds that are available at any time. Infor­

As a % of the Absolute risk coverage potential Risk-bearing capacity of the Group (¤ bn) 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Economic risk coverage potential 10.8 10.7 100 100

Risk limits of which: Default risk 4.0 3.5 37 33 Market risk 2.0 2.2 18 21 Liquidity risk 0.8 0.8 7 7 Operational risk 0.3 0.3 3 3 Total 7.0 6.8 65 64

Economic capital required of which: Default risk 2.3 3.0 21 28 Market risk 0.9 0.9 9 9 Liquidity risk 0.4 0.5 4 4 Operational risk 0.3 0.3 3 3 Total 4.0 4.6 37 44

Risk coverage potential buffer 6.9 6.0 63 56 34 Q3 2011

Furthermore, the Bank determines the utilisation of risk shocks and their specific solvency in hypothetical stress cas­ coverage potential as at the reporting dates, taking into es, which HSH Nordbank passed as well. account stress surcharges for default, market and liquidity risks. Further developments made to the methods used Portfolio management to determine the stress scenarios for market and liquidity Since the beginning of 2011 the newly established Asset risks in the first quarter of 2011 led to a significant reduc- Liability Committee (ALCO) has performed the task of tion in utilisation in the stress case as at the reporting date portfolio management throughout the year. The tasks of as compared to the end of 2010. As at 30 September 2011, the ALCO include the management of the use of the lim­ the risk-bearing capacity was ensured even in this econom­ ited resources liquidity / funding, balance sheet volume, ic stress case. RWA and economic capital. It is composed of the over-­ all Management Board as well as the heads of the divisions Over time, the utilisation of the risk coverage potential Group Treasury, Group Risk Management and Finance. developed as follows: The Transaction Committee is responsible for the operatio­ Utilisation of risk nal management of the use of resources. It decides inde- coverage potential 30.9.10 31.12.10 31.3.11 30.6.11 30.9.11 pendently on the allocation of these resources to indi­vidual (¤ bn) transactions within certain volume limits. In in­di­vidual cases transactions together with a corresponding assess- ment are forwarded to the ALCO for a decision. The basis 12.2 for decision-making is, among other things, the li­quid­ity 10.7 10.8 11.0 10.2 development report, which is prepared in a man­ner con- sistent with the Bank’s business planning and is up­dated regularly. This places the Bank in the position to react flexibly to market trends. 4.8 4.6

4.4 Business segment analyses regularly performed by Group 4.0 3.7 Risk Management form an important basis for the central

in % portfolio management at HSH Nordbank. Detailed risk Normal Case 40 44 43 34 37 analyses taking future market assessments into account are Stress Case 75 77 66 51 60 prepared for the individual portfolios, in which particu­- Utilisation (economic capital required) lar importance is attached to risk concentrations. The rec- Availability (economic risk coverage potential) ommendations derived from the analyses results are sub- mitted to ALCO for a decision. In October 2011 the EBA conducted a stress test at all Euro­ pean banks considered to be systemically important. The The early warning system used to identify adverse trends objective of the test was to determine the consequences of for the Bank on a timely basis is another component of recognising all loans and advances to states of the Eu­ro­ portfolio management. This early warning system was pean Economic Area – and in particular to PIIGS states – enhanced during the reporting period both in terms of pro­ at fair value. According to this stress test the Tier 1 capi­- cedure and content. The implementation of additional tal ratio of HSH Nordbank would be higher than the min- early warning signals will further improve the coverage of imum ratio of 9.0 % required by EBA. the relevant loan portfolio.

In the first half of 2011 the EBA already conducted an Default risk EU-wide stress test exercise with the overall aim to assess In the first nine months of 2011 loan loss provisions ben- the resilience of European banks to serious economic efitted from the comprehensive restructuring activities Risk Report | interim management report 35

of the past years. In addition the risk-mitigating effect of the second loss guarantee was a significant contributory factor in the reversal of loan loss provisions.

The following table provides an overview of changes in loan loss provisions in the individual segments:

1.1. – 30.9.2011 1.1. – 30.9.2010

Net income Net income from foreign from foreign Individual currency Individual currency valuation Portfolio from valuation Portfolio from Changes in loan loss provisions allowances / valuation loan loss allowances / valuation loan loss (¤ m) Provisions allowances provisions Total Provisions allowances provisions Total

Sector Specialist Bank −104 190 13 99 89 −60 −38 −9 Regional Bank −146 13 0 −133 −152 52 −4 −104 Other 0 2 −11 −9 15 33 −29 19 Consolidation Core Bank 70 −34 −1 35 −10 7 14 11 Total Core Bank −180 171 1 −8 −58 32 −57 −83 Restructuring Unit −86 67 12 −7 −485 259 −116 −342 Consolidation Restructuring Unit 240 169 0 409 0 0 0 0 Total Restructuring Unit 154 236 12 402 −485 259 −116 −342 Group −26 407 13 394 −543 291 −173 −425

Total income from loan loss provisions amounted to € Detailed information regarding developments within in- 394 million as at 30 September 2011 compared to an ex- dividual business areas as well as our expectations for the pense of € − 425 million in the previous year. The Re­­struc­ 2011 calendar year are presented in the chapters enti- turing Unit contributed significantly to these improved tled ‘Segment report’ and ‘Outlook’ in this interim man- re­sults thanks to the continued reduction in risk and the agement report. relief obtained under the second loss guarantee. The Core Bank is also reporting a slightly positive change in total Details regarding the total loan loss provisions are present­ loan loss provisions. Currency translation of loan loss pro- ed in Notes [11] and [20]. visions had a slight positive effect in the reporting peri-­ od, compared to the high expenses incurred in the previous Due to the deterioration in their economic situation, a year. number of countries in the eurozone are subject to in- creased monitoring. The limitation of these high-risk coun­ tries was continued in the first nine months of 2011. 36 Q3 2011

Loan amount outstanding IFRS book value Sovereign exposure to selected eurocountries (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Portugal 315 323 261 280 Ireland 0 0 0 0 Italy 654 855 622 706 Greece 254 295 98 206 Spain 234 249 180 184 Total 1,457 1,722 1,161 1,376

The loan amount outstanding on sovereign exposures in Market risk Por­tugal, Ireland, Italy, Greece and Spain totalled € For purposes of measuring and managing market risk, 1,457 million as at 30 September 2011. An advanced meth­ HSH Nordbank employs a value-at-risk approach (99.0 % odology to determine the economic capital required for confidence level, holding period of one day, and histori- default risks was implemented in the second quarter of cal observation period of 250 days). Developments with 2011 and had an impact on the calculation of the loan respect to the individual risk types during the first nine amount outstanding for Portugal. For better comparison months of 2011 are presented in the table set out below. As the previous year figure was adjusted accordingly. at 30 September 2011, the market risk related to our trad- ing book positions amounted to € 2.2 million and that to The outstanding loan amount for the exposure presented our banking book positions amounted to € 43.2 million. includes the volume of loans, securities, derivative finan- Taking correlation effects which reduce risk into account, cial instruments and guarantees before valuation allow- the aggregated market risk amounted to € 45.1 million, ances, not determined at fair value and not taking into of which € 14.1 million relates to the Core Bank and € account pro-rata interest. In the case of derivatives, offset- 50.2 million to the Restructuring Unit. As part of the ting transactions with the same counterparty are not net­- risk-bearing capacity management, the VaR of € 45.1 mil- ted even where netting agreements are in place. lion is scaled up to the amount of € 0.9 billion in the framework of aggregating the individual risk types to the In accordance with their IAS 39 category, the IFRS book overall risk. values reported for the sovereign exposures were deter- mined at fair value, including pro-rata interest, taking into account any impairments and / or measurements.

In order to present risk in a conservative light, a credit linked note (CLN) is reported in full with its loan amount outstanding of € 50 million in the corresponding values for Portugal, Italy and Spain. Contrary to this, from a bal- ance sheet perspective, the IFRS book value of this CLN of € 33 million is taken into account for Portugal only, since the worst rating of the countries stated above is assigned to Portugal.

Note [45] includes more information on the PIIGS coun- tries. Risk Report | interim management report 37

Interest rate risk 1) Credit spread risk 1) Foreign exchange risk

Daily value-at-risk of the Group 1.1. – 1.1. – 1.1. – 1.1. – 1.1. – 1.1. – (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Average 10.1 10.0 36.7 28.7 9.3 12.7 Maximum 13.7 25.9 41.6 45.9 19.5 32.2 Minimum 5.5 6.7 30.4 21.1 4.6 1.9 Period end amount 6.6 9.2 38.4 38.6 19.5 10.2 of which: Core Bank 11.4 14.6 7.9 9.0 1.9 3.7 Restructuring Unit 11.0 18.7 33.9 30.0 19.8 13.6

1) Credit spread risks are a special subtype of interest rate risk. Due to their significance for HSH Nordbank, they are reported separately and not as part of interest rate risk.

Equity risk Commodity risk Total 1)

Daily value-at-risk of the Group 1.1. – 1.1. – 1.1. – 1.1. – 1.1. – 1.1. – (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Average 2.4 3.2 0.3 0.2 40.6 37.3 Maximum 3.5 4.9 0.6 1.2 53.2 65.2 Minimum 2.0 2.5 0.1 0.1 33.0 18.7 Period end amount 2.0 3.3 0.2 0.2 45.1 43.3 of which: Core Bank 1.1 2.4 0.2 0.2 14.1 11.7 Restructuring Unit 1.7 2.0 0.0 0.0 50.2 48.9

1) Due to correlations the value-at-risk does not result from adding up individual values.

Since 31 July 2011 credit spread risk on third-party issues Other improvements in the measurement and calculation has been incorporated in the VaR measurement for cer- of risk for certain products did not have any significant tain valuation units with structured products where the effect on the overall VaR. These also included the fact that hedged item and hedging transaction hedge each other. smiles have been taken into account for interest rate However, the credit spread risk on these hedged items (gov- volatilities since 17 August 2011. ernment bonds) is not hedged. Due to the increasing rel­ evance of credit spread risk it is now integrated into the Liquidity risk risk measurement processes by means of an estimate. As HSH Nordbank divides its liquidity risk into insolvency a result of these enhancements the overall market risk rose risk and liquidity maturity transformation risk. Liquidity ceteris paribus by approx. € 3 million. maturity transformation risk is also a component of our risk-bearing capacity strategy and is discussed in the cor- Another change in methodology relates to the adjustment responding section. The insolvency risk refers to the dan- of the risk measurement for internal funding spreads ger of the Bank not being able to meet its own payment of our Luxembourg branch, which was implemented on obligations or refinancing requirements as they fall due, 29 September 2011. This resulted in an increase in the or not to the extent desired. over­all market risk by approx. € 3 million on that date. The overall market risk increased on 30 September 2011 by The transactions of the Bank impacting liquidity are con- a further amount of approx. € 6 million, which is prima- verted into cash flows and the inflows and outflows allo- rily attributable to transactions entered into to hedge cated to time buckets (liquidity development report) for the foreign exchange risk relating to valuation allowances. purpose of measuring funding requirements. The differ- 38 Q3 2011

ence between inflows and outflows may serve as a meas- which lead to a certain lack of confidence in the interbank ure for the insolvency risk. These so-called gaps are com- market on the part of the market participants. In partic­- pared to the respective liquidity potential which is applied ular some banks in the peripheral states of the eurozone to close the cumulative gaps of the individual time buck- are in­creasingly dependent on the ECB to ensure their ets and consequently represents the respective limit for liquidity. Thanks to the measures implemented by HSH insolvency risk. Utilisation of the limits is monitored on Nordbank the liquidity position of the Bank was further a daily basis. improved. Increased efforts in attracting more short- and long-term funding as well as an expansion of the cover In addition to the normal case liquidity development report pool and the collateral pool at central banks were among which is compiled on the assumption of business devel- the key measures taken by the Bank. opments in a normal market environment, the Bank also compiles the results of a market liquidity stress test on a The following table shows the relative utilisation levels of daily basis in the form of a stressed liquidity development the liquidity potential for individual cumulative liquid- report (stress case assessment) in order to reflect critical­ ity gaps in the normal case and stress case as at 30 Septem­ market developments. ber 2011 as well as at 30 December 2010. Utilisation rep- resents the share of the cumulative gap in total liquidity The markets were characterised in the first nine months of potential, which also includes utilisation of borrowing 2011 by the ongoing debt crisis in Europe and the U.S. options at the central banks.

Normal Case Stress Case Limit on cumulative liquidity gaps Utilisation of liquidity potential (%) 30.9.2011 30.12.2010 30.9.2011 30.12.2010

1st day 0 3 7 4 7th day 28 23 32 24 14th day 39 39 44 42 3rd week 41 46 50 52 4th week 41 52 56 66 8th week 50 57 69 74 3rd month 59 65 83 88 6th month 71 83 103 114 9th month 74 88 111 126 12th month 80 88 122 132

Risk tolerance of the Bank is reflected, among other things, stress case liquidity development report shows that the in the definition of a survival period in the sense of a liquidity potential was not exceeded within the three- minimum survival period, which describes how long a uti­ month survival period established by the Bank. In fact, the lisation of a liquidity potential under 100 % is to be main- liquidity potential as at the reporting date is even main- tained under the normal and stress cases for insolvency tained for a period of five months. Compared to the end of risk. In the normal case assessment the liquidity poten- the year 2010, the majority of the levels of utilisation tial had a peak utilisation of 82 % in the 10th month as have been reduced thanks to the measures implemented. at the reporting date. All limits within the defined survi- No critical limit utilisation levels were recorded in the val period of twelve months were thereby adhered to. The course of the period under review. Risk Report | interim management report 39

The regulatory management parameter for liquidity risks is the liquidity ratio defined by the German Liquidity Reg- ulation. With values between 1.61 and 1.91, our liqui- dity ratio remained above the regulatory minimum value of 1.0 at all times throughout the reporting period. The average value for the first nine months of 2011 was 1.78 (2010: 1.72).

The liquidity position of HSH Nordbank stabilised further thanks to the funding measures implemented by the Bank. The long-term funding in the first nine months of 2011 was largely as planned, while the movement of deposits was stable. However, the Bank still does not have un­limited access to the capital markets due to the glo­- bal debt crisis. The rating agency Moody’s downgraded the long- and short-term rating of HSH Nordbank in the mid­- dle of November 2011. The Bank expects that this will only have a moderate impact on its funding options. Overall, the future long-term funding and the rating of the Bank will remain major challenges. Further information on the rating downgrades can be found in the chapter ‘Out- look’ under the heading ‘Anticipated funding situation’.

The chapters of this Interim Report entitled ‘Business devel­opments’ and ‘Outlook’ provide additional detailed information regarding funding activities.

The additional risks and rewards faced by the Group pre­ sen­ted in detail in the 2010 Annual Report have largely remained unchanged during the course of the year to date.

Hamburg / Kiel, 25 November 2011

Lerbinger van Gemmeren

von Oesterreich Temp 40 Q3 2011

I nterim Report

Statement of Comprehensive Income

for the period 1 January to 30 September 2011

Following adjustment January - January - Income statement September September Change (¤ m) Note 2011 2010 in %

Interest income 8,978 11,355 -21 Interest expenses −7,917 −10,051 -21 Net income from hybrid financial instruments 60 −115 > 100

Net interest income (5) 1,121 1,189 −6

Net commission income (6) 93 170 -45

Result from hedging (7) 7 9 -22

Net trading income (8) −319 −438 27

Net income from financial investments (9) 161 193 -17

Net income from financial investments accounted for under the equity method (10) −56 – – Total income 1,007 1,123 −10

Loan loss provisions (11) 394 −425 > -100

Administrative expenses (12) −571 −617 -7

Other operating income (13) 9 76 -88 Net income before restructuring 839 157 > 100

Result from restructuring (14) 3 −9 > 100

Expenses for government guarantees (15) −796 −393 > 100 Net income before taxes 46 −245 > 100 Income tax expenses (-) / income (+) −270 55 > 100 Group net loss −224 −190 18 Group net income attributable to non-controlling interests 1 50 -98 Group net income attributable to HSH Nordbank shareholders −225 −240 -6

Following adjustment January - January - Earnings per share September September (¤ ) Note 2011 2010

Undiluted (16) −0.85 −0.98 Diluted −0.85 −0.91 Number of shares (millions) 263 246 Potentially dilutive ordinary shares – 17 Weighted average number of ordinary shares outstanding adjusted for the assumed conversion – diluted 263 263 Statement of Comprehensive Income | Interim Report 41

Following adjustment January - January - Reconciliation with total comprehensive income / loss September September (¤ m) 2011 2010

Group net loss −224 −190 Changes in: Revaluation reserve (before taxes) 22 154 of which: from exchange rate effects 2 9 Income taxes not recognised in the income statement −23 −57 of which: from exchange rate effects −1 2 −1 97 Currency conversion reserve −2 19 −2 19 Actuarial gains / losses (before taxes) −35 −64 Income taxes not recognised in the income statement 11 20 −24 −44 Other comprehensive income for the period −27 72 Total comprehensive income −251 −118 Total comprehensive income attributable to non-controlling interests 1 46 Total comprehensive income attributable to HSH Nordbank shareholders −252 −164 42 Q3 2011

Quarterly review Following adjustment Income statement (¤ m) Q3 / 2011 Q2 / 2011 Q1 / 2011 Q4 / 2010 Q3 / 2010 Q2 / 2010 Q1 / 2010

Interest income 2,944 3,058 2,976 3,002 3,531 3,851 3,972 Interest expenses −2,597 −2,708 −2,612 −2,641 −3,104 −3,418 −3,528 Net income from hybrid ­financial instruments 139 −40 −39 −48 −40 −38 −37 Net interest income 486 310 325 313 387 395 407 Net commission income 32 29 32 48 76 52 42 Result from hedging 17 4 −14 −1 6 −1 4 Net trading income −320 35 −34 282 −403 −29 −6 Net income from financial investments −3 99 65 37 79 87 27 Net income from financial ­investments accounted for under the equity method – −52 −4 4 – – – Total income 212 425 370 683 145 504 474 Loan loss provisions 123 195 76 93 225 −195 −455 Administrative expenses −189 −175 −207 −250 −215 −205 −197 Other operating income −4 9 4 −82 112 −44 8 Net income before restructuring 142 454 243 444 267 60 −170 Result from restructuring 1 2 – – 5 −15 1 Expenses for government guarantees −585 −99 −112 −126 −90 −152 −151 Net income before taxes −442 357 131 318 182 −107 −320 Income tax expenses (-) / income (+) −120 −145 −5 −24 8 3 44 Group net income / loss −562 212 126 294 190 −104 −276 Group net income attributable to non-controlling interests – – 1 1 31 17 3 Group net income attributable to HSH Nordbank shareholders -562 212 125 293 159 −121 −279 Statement of Comprehensive Income | Interim Report 43

Quarterly review Reconciliation with total Following adjustment comprehensive income / loss (¤ m) Q3 / 2011 Q2 / 2011 Q1 / 2011 Q4 / 2010 Q3 / 2010 Q2 / 2010 Q1 / 2010

Group net income / loss −562 212 126 294 190 −104 −276 Changes in: Revaluation reserve (before tax) −19 51 −10 −15 61 −8 101 of which: from exchange rate effects 11 – −9 1 −21 18 12 Income taxes not recognised in the income statement −10 −14 1 32 −21 −11 −25 of which: from exchange rate effects – – −1 – −1 2 1 −29 37 −9 17 40 −19 76 Currency conversion reserve 29 −13 −18 11 −6 6 19 Actuarial gains / losses (before taxes) −45 −2 12 88 24 −25 −63 Income taxes not recognised in the income statement 14 1 −4 −27 −8 8 20 −31 −1 8 61 16 −17 −43 Other comprehensive income for the period −31 23 −19 89 50 −30 52 Total comprehensive income −593 235 107 383 240 −134 −224 Total comprehensive income attributable to non-controlling interests – – 1 1 29 18 −1 Total comprehensive income attributable to HSH Nordbank shareholders −593 235 106 382 211 -152 −223 44 Q3 2011

Statement of Financial Position

as at 30 September 2011

Assets Change (¤ m) Note 30.9.2011 31.12.2010 in %

Cash reserve (17) 1,739 1,410 23

Loans and advances to banks (18) 9,013 10,438 −14

Loans and advances to customers (19) 91,057 102,858 −11

Loan loss provisions (20) −4,115 −4,623 −11

Positive fair value of hedging derivatives (21) 2,109 1,838 15 Positive adjustment item from portfolio fair value hedges 307 232 32

Trading assets (22) 11,746 11,282 4

Financial investments (23) 23,410 25,001 −6

Financial investments accounted for under the equity method (24) 13 102 −87

Intangible assets (25) 94 108 −13

Property, plant and equipment (26) 107 140 −24

Investment properties (27) 7 14 −50

Non-current assets held for sale and disposal groups (28) 432 404 7 Current tax assets 192 272 −29

Deferred tax assets (29) 1,046 1,269 −18

Other assets (30) 490 185 > 100 Total assets 137,647 150,930 −9 Statement of Financial Position | Interim Report 45

Following adjustment

Liabilities Change (¤ m) Note 30.9.2011 31.12.2010 in %

Liabilities to banks (31) 22,894 26,200 −13

Liabilities to customers (32) 44,002 50,446 −13

Securitised liabilities (33) 39,499 44,726 −12

Negative fair values of hedging derivatives (34) 736 362 > 100 Negative adjustment item from Portfolio fair value hedge 1,261 981 29

Trading liabilities (35) 12,468 11,412 9

Provisions (36) 1,312 1,332 −2

Liabilities relating to disposal groups (37) 162 6 > 100 Current tax liabilities 17 15 13 Deferred tax liabilities 117 81 44

Other liabilities (38) 1,857 1,556 19

Subordinated capital (39) 8,478 8,719 −3

Equity (40) 4,844 5,094 −5 Share capital 2,635 2,635 – Capital reserve 1,028 1,028 – Retained earnings 1,698 1,668 2 Revaluation reserve −228 −227 – Currency conversion reserve −62 −60 3 Group net loss / income −225 53 > −100 Total before non-controlling interests 4,846 5,097 −5 Non-controlling interests −2 −3 −33 Total equity and liabilities 137,647 150,930 −9 46 Q3 2011

Statement of Changes in Equity

Currency Total before Non- Share Capital conversion Revaluation Group net non-control- controlling capital reserve Retained earnings reserve reserve income / loss ling interests interests Total

including actuarial Statement of Changes in Equity gains / losses (¤ m) Note as per IAS 19

As at 1 January 2010 2,460 1,509 1,607 118 −90 −341 −734 4,411 31 4,442 Changes due to restatements – – −100 – – – 44 −56 – −56 Adjusted as at 1 January 2010 2,460 1,509 1,507 118 −90 −341 −690 4,355 31 4,386 Group net loss – – – – – – −296 −296 50 −246 Changes due to restatements – – – – – – 56 56 – 56 Changes not recognised in the income statement – – −40 −44 – 105 – 65 −4 61 Changes recognised in the income statement – – – – -4 – −4 – −4 Exchange rate changes – – – 19 -4 – 15 – 15 Comprehensive income as at 30 September 2010 – – −40 −44 19 97 −240 −164 46 −118 Dividend payments and distributions – – – – – – – – −4 −4 Changes in retained earnings – −690 – – – 690 – – – Consolidation adjustments – −4 – – – – −4 11 7 Adjusted as at 30 September 2010 2,460 1,509 773 74 −71 −244 −240 4,187 84 4,271 As at 1 January 2011 2,635 1,028 1,724 135 −60 −227 −3 5,097 −3 5,094 Changes due to restatements – – −56 – – – 56 – – – Adjusted as at 1 January 2011 2,635 1,028 1,668 135 −60 −227 53 5,097 −3 5,094 Group net loss – – – – – – −225 −225 1 −224 Changes not recognised in the income statement – – −23 −24 – 7 – −16 – −16 Changes recognised in the income statement – – – – – −10 – −10 – −10 Exchange rate changes – – – – −2 2 – – – – Comprehensive income as at 30 September 2011 – – −23 −24 −2 −1 −225 −251 1 −250 Changes in retained earnings – – 53 – – – −53 – – –

As at 30 September 2011 (40) 2,635 1,028 1,698 111 −62 −228 −225 4,846 −2 4,844 Statement of Changes in Equity | Interim Report 47

Currency Total before Non- Share Capital conversion Revaluation Group net non-control- controlling capital reserve Retained earnings reserve reserve income / loss ling interests interests Total

including actuarial Statement of Changes in Equity gains / losses (¤ m) Note as per IAS 19

As at 1 January 2010 2,460 1,509 1,607 118 −90 −341 −734 4,411 31 4,442 Changes due to restatements – – −100 – – – 44 −56 – −56 Adjusted as at 1 January 2010 2,460 1,509 1,507 118 −90 −341 −690 4,355 31 4,386 Group net loss – – – – – – −296 −296 50 −246 Changes due to restatements – – – – – – 56 56 – 56 Changes not recognised in the income statement – – −40 −44 – 105 – 65 −4 61 Changes recognised in the income statement – – – – -4 – −4 – −4 Exchange rate changes – – – 19 -4 – 15 – 15 Comprehensive income as at 30 September 2010 – – −40 −44 19 97 −240 −164 46 −118 Dividend payments and distributions – – – – – – – – −4 −4 Changes in retained earnings – −690 – – – 690 – – – Consolidation adjustments – −4 – – – – −4 11 7 Adjusted as at 30 September 2010 2,460 1,509 773 74 −71 −244 −240 4,187 84 4,271 As at 1 January 2011 2,635 1,028 1,724 135 −60 −227 −3 5,097 −3 5,094 Changes due to restatements – – −56 – – – 56 – – – Adjusted as at 1 January 2011 2,635 1,028 1,668 135 −60 −227 53 5,097 −3 5,094 Group net loss – – – – – – −225 −225 1 −224 Changes not recognised in the income statement – – −23 −24 – 7 – −16 – −16 Changes recognised in the income statement – – – – – −10 – −10 – −10 Exchange rate changes – – – – −2 2 – – – – Comprehensive income as at 30 September 2011 – – −23 −24 −2 −1 −225 −251 1 −250 Changes in retained earnings – – 53 – – – −53 – – –

As at 30 September 2011 (40) 2,635 1,028 1,698 111 −62 −228 −225 4,846 −2 4,844 48 Q3 2011

Conden sed Cash Flow Statement

Condensed cash flow statement (¤ m) January - September 2011 January - September 2010

Cash and cash equivalents as at 1 January 1,410 1,296 Cash flow from operating activities −1,234 −3,105 Cash flow from investing activities 1,777 3,371 Cash flow from financing activities −220 −427 Change in cash and cash equivalents due to exchange rate fluctuations 6 15 Cash and cash equivalents as at 30 September 1,739 1,150

Cash and cash equivalents are equivalent to the cash reserve item in the statement of financial position and comprise cash on hand, balances at central banks, treasury bills, discounted treasury notes and similar debt instruments issued by public-sector bodies and bills of exchange.

The cash flow from operating activities is calculated using the indirect method, whereby the Group net income / loss is adjusted for non-cash expenses (increased) and non-cash income (reduced) and for cash changes in assets and liabilities used in operating activities. Condensed Cash Flow Statement | General information | Interim Report 49

E xplanatory Notes G eneral information

1. ACCOUNTING PRINCIPLES

HSH Nordbank has issued debt instruments as defined in the framework of the statement of comprehensive in Section 2 (1) sentence 1 of the German Securities Trad­ income was changed as of 31 March 2011 in order to bring ing Act (WpHG) on an organised market as defined it into line with the presentation used in segment report­- in Section 2 (5) WpHG and is thus obliged, as a publicly ing and / or internal reporting purposes. In this context traded company as defined in Regulation (EC) 1606 / total income is stated separately. 2002 (IAS Regulation) of the European Parliament and of the Council of 19 July 2002 in conjunction with Sec­- The consolidated quarterly financial statements as at 30 Sep­ tion 315a (1) of the German Commercial Code (HGB), to tember 2011 are prepared in accordance with IFRS as draw up its consolidated financial statements in accord- published by the International Accounting Standards Board ance with International Accounting Standards (IFRS / IAS). (IASB) and adopted as European law by the Euro­pean International accounting standards, hereafter IFRS or Union (EU). In doing so, particular attention has been paid standards, refer to the International Accounting Standards to IAS 34 (Interim financial reporting). (IAS) and the International Financial Reporting Stan­d- ards (IFRS) and the associated interpretations by the Stand­ In accordance with IAS 34 IE.C4, HSH Nordbank AG ing Interpretations Committee (SIC) and the Inter­- does not prepare any pension obligations reviews in the na­tional Financial Reporting Interpretations Committee course of the current fiscal year and bases its figures (IFRIC), published by the International Accounting on the data from the most recent actuarial valuation as of Standards Board (IASB) and adopted under the IAS Regu- 31 December 2010. Each quarter it is assessed whether lation as part of the EU endorsement. essential parameters related to pension provisions have changed. If this is the case, these are adjusted accord­- In accordance with Section 37x (3) of the German Securities ingly and are taken into account in accounting (in partic- Trading Act (WpHG) in conjunction with Section 37w (2) ular changes in the discount factor). No. 1 and 2, (3) and (4) WpHG and taking into account the requirements stipulated in IAS 34, the quarterly finan-­­ During the current financial year, the following account- cial report consists of condensed interim consolidated finan­ ing standards need to be applied for the first time as a mat­ cial statements and an interim consolidated manage­- ter of principle: ment report. The condensed interim consolidated financial statements consist of a condensed statement of compre- IAS 24 Related party disclosures hensive income, a condensed statement of financial posi- tion, a condensed statement of changes in equity, a con- The International Accounting Standards Board (IASB) densed statement of cash flows and selected explanatory has amended IAS 24 Related party disclosure in order to notes. clarify the definition of a related party. Furthermore, IAS 24 simplifies the disclosure requirements for govern­ Compared to previous reporting periods, the presenta-­ ment-related­ entities. tion of the statement of income disclosed separately with- 50 Q3 2011

IFRS 8 Operating segments the meaning of IAS 39.41. The debtor should measure the equity instruments issued at fair value unless fair value The amendments to IFRS 8 result from changes to IAS 24. is not reliably determinable, in which case the equity instru­ IFRS 8.34, according to which an entity has to provide ments issued are measured at the fair value of the lia­ information about its major customers for the purpose of bility extinguished. The debtor recognises in profit or loss segment reporting, was amended so that additional the difference between the carrying amount of the finan- checks must now be performed to ascertain whether a gov­ cial liability (or part) extinguished and the initial measure­ ernment (national, state, provincial, territorial, local or ment of the equity instruments issued. foreign) and entities known to the reporting entity to be under the control of that government may be consid-­ Application of this standard had no material impact on ered a single customer. The extent of economic integration the consolidated quarterly financial statements. between these entities must be taken into account in the course of the review. Within the framework of application of the German Accounting Standards (GAS), HSH Nordbank Group has, in IFRIC 14 The limit on a defined benefit asset, addition to IFRS, also observed GAS 16 Interim Finan­- IAS 19 minimum funding requirements and their cial Reporting (excluding GAS 16.15 – 16.33) when pre- interaction paring the interim consolidated financial statements. Accounting and measurement are based on the assumption The amendments to IFRIC 14 are relevant in the rare event that the enterprise is a going concern. HSH Nordbank that an entity is subject to minimum funding require- Group justifies this assumption primarily on the basis of ments and makes prepayments of the minimum funding the recapitalisation by the federal state of Schleswig- requirement contributions. Holstein and the Free and Hanseatic City of Hamburg in the course of the year 2009 and the viable restructur­- IAS 32 Financial instruments: presentation ing concept which ensures the Bank’s independent com- petitiveness. With the EU state aid proceedings coming The amendment to IAS 32 addresses the accounting for to an end in September 2011 the Bank obtained sufficient rights issues (rights, options or warrants) on the acquisition security of planning and legal certainty. of a fixed number of equity instruments that are denom­ inated in a currency other than the functional currency of These consolidated quarterly financial statements were the issuer. To date such cases have been accounted for reviewed by the auditors. as derivative liabilities. Such subscription rights, offered pro rata at a fixed currency amount to the existing share- All facts up to 25 November 2011 were taken into account. holders of an entity, are to be classified as equity, irrespec­ tive of the currency in which the exercise price is denom­ inated.

IFRIC 19 Extinguishing financial liabilities with equity instruments

The amendments to IFRIC 19 provide guidance on account­ ing for debt for equity swaps. IFRIC 19 is relevant where an entity issues shares or other equity instruments to extin­ guish all or part of a financial liability. It makes clear that equity instruments issued to a creditor to extinguish a financial liability are “consideration paid” within G eneral information | Interim Report 51

2. PROVISION OF A GUARANTEE FACILITY

On 2 June 2009 the federal state of Schleswig-Holstein and In the reporting period 2011 HSH Nordbank AG has the Free and Hanseatic City of Hamburg granted HSH reduced the guarantee granted by the federal states by € 3 Nordbank AG a guarantee facility in the amount of € 10 bil­lion to € 7 billion. billion via the HSH Finanzfonds AöR in order to secure the future of the Bank. The agreement on the provision of In exchange for the guarantee HSH Nordbank AG pays a the guarantee facility as well as a related recapitalisa­- contractual base premium of 4 % p. a. on the guarantee tion of the Bank are subject to approval by the European volume outstanding. The cost of the base premium is report­ Commission in line with the law regarding state aid. ed under the item ‘Expenses for government guarantees’. The EU Commission concluded these state aid proceedings The premium payments are recognised as an expense pro at the end of September 2011 and entered into an agree- rata temporis. ment on conditions and commitments with all the parties involved. This means that the measures to support Furthermore the EU Commission required the Bank to HSH Nordbank AG have been approved in a legally bind- pay an additional premium of 3.85 % p. a. of the respec- ing manner. tive guarantee outstanding. The additional premium is calculated based on the outstanding guarantee facility not The guarantor guarantees actual rating-related defaults yet cancelled. Drawdowns do not reduce the determina- under debt instruments selected based on certain defined tion basis of the premium. This requirement becomes effec­ criteria that form part of the assets of HSH Nordbank tive four weeks after the signing of the amendment to AG and certain subsidiaries. A first loss piece of € 3.2 bil- the existing guarantee agreement. The premium of 3.85 % lion remains with the Bank as the guarantee holder. on the currently existing guarantee volume of € 7 bil-­ HSH Nordbank AG and the guarantor can jointly agree to lion is due retrospectively as of 1 April 2009 and is to be reduce the Bank’s first loss piece. paid to a blocked account held by HSH Finanzfonds AöR at HSH Nordbank. Since the additional premium only Default on a specific commitment is determined by the becomes due if the guarantee is actually drawn down, amount outstanding, taking into account the exist- HSH Finanzfonds AöR only has the power of disposition ing spe­cific loan loss provision as at 31 March 2009. The of this account in this event. Until any actual drawdown amount outstanding is at most the amount repayable the additional premium is as a contingent liability of the as at 31 March 2009, plus all interest owed and other ancil­ Bank with a corresponding right of recourse to HSH lary payments. Losses may only be allocated under Finanzfonds AöR. In the event of an actual drawdown this the guar­antee once the guarantee case has been examined premium will probably bear additional interest. The and approved by the guarantor. additional premium plus any interest is payable until 31 December 2019 at the latest. The guarantee expires when it is returned to the guarantor after the last reference commitment in the hedged port­ The hedging effect of the guarantee facility granted by folio has been met irrevocably and in full or has resulted the Free and Hanseatic City of Hamburg and the fede-­ in a guarantee claim for the full amount. HSH Nord­- ral state of Schleswig-Holstein via HSH Finanzfonds AöR, bank AG may reduce the guarantee to € 4 billion between which was reported on the balance sheet for the first 1 January 2010 and the end of 2013 through partial time as at 31 December 2010, increased from € 318 mil- cancellations of no more than € 3 billion per year. The guar­ lion to € 810 million in the reporting period 2011. In antee may be cancelled in full from 2014 onwards. addition to reversals of portfolio valuation allowances in Once reduced, the guarantee amount cannot be increased the amount of € 318 million with effect as at the end of again. 52 Q3 2011

the previous year in the context of the hedging effect the Furthermore, HSH Nordbank AG is obliged to make a Bank also reversed the remaining portfolio valuation one off payment in the amount of € 500 million to the guar­ allowances of € 151 million for the hedged portfolio in the antor of the second loss guarantee that is to be recov­- reporting period. This had an effect of € 136 million ered by means of a contribution in kind. The Bank has on Loan loss provions and € 15 million on the Net income recognised this one off payment as an expense in the from financial investments. As a result, portfolio valua- third quarter 2011 under the Expenses for government tion allowances contributed to the hedging effect with a guarantees financial statement line item. total of € 469 million. The guarantee from the federal states is recognised in In the third quarter of 2011 HSH Nordbank recognised a the consolidated financial statements as a financial guar- compensatory claim to HSH Finanzfonds AöR in the antee contract in accordance with IAS 39.9. amount of € 341 million for the first time. It corresponds to the difference between the hedging effect (€ 810 mil- If during the restructuring and workout programme meas­ lion as at 30 September 2011) and the fully reversed port- ures consistent with the guarantee are implemented in folio valuation allowances for the hedged portfolio respect of hedged commitments that conflict with recog- (€ 469 million) recognised in profit or loss. Since the guar- nition of the hedging instrument in the financial state- antee is drawn down on the balance sheet as a result ments as a financial guarantee under IAS 39.9, commit- of this, an additional premium of € 33 million was recog- ments may be transferred to a partial guarantee under nised as an expense for this portion of the drawdown the framework agreement that falls under the definition for the period from 1 April 2009 to 30 September 2011. of a credit derivative under IFRS, subject to approval Since the recovery amount is paid on a net basis vis-à- from a trustee appointed by the guarantor. The maximum vis HSH Finanzfonds AöR, both transactions are netted in guarantee amount is not altered by the creation of the accordance with IAS 32.42. Accordingly, a net receiv-­ partial guarantee, as the sum of the individual amounts able due to HSH Nordbank by HSH Finanzfonds AöR in the remains the same. amount of € 308 million (cf. Note [30]) is disclosed. At the same time the amount of loan loss provisions is reduced Once the credit derivative has been created the guaran-­ by the same amount (cf. Note [11]). tee premium is divided pro rata between the partial guar- antees. The accounting treatment of the derivative is in A cash-effective draw-down of the guarantee or a liability accordance with the requirements of IAS 39. Since the on the part of the guarantor did not result from the accept­ance of the guarantee individual commitments hedging effect as at the reporting date despite the disclo- notified to the guarantor have been transferred to the par- sure of a compensatory claim. tial guarantee of the credit derivative. As at 30 Septem­- ber 2011 this led to a disclosure under Trading assets in Insofar as the obligation to pay the additional premium the amount of € 1 million for the first time. would have the effect of decreasing the Tier 1 capital ratio without hybrid capital (common equity ratio) of the HSH Nordbank Group to below 10 % (minimum com­- mon equity ratio) or of increasing an already existing short­ fall, the guarantor is obliged to waive the portion of the entitlement that would result in the ratio falling below the minimum common equity ratio against the issue of a debtor warrant. The deferred entitlement to the addition- al premium is resurrected during the duration of the debtor warrant by the respective amount by which the mini­mum common equity ratio is exceeded. G eneral information | Interim Report 53

3. ADJUSTMENTS TO PREVIOUS YEAR COMPARATIVE FIGURES

These financial statements contain various adjustments € 100.4 mil­lion more than was actually reported. The of the figures reported as compared to previous reporting Group net loss for the financial year 2009 would have dates. been reduced accordingly by € 44.6 million to € − 698 mil- lion. In the financial year 2010 the Group net profit The adjustments made were reviewed in accordance with would have been increased by € 55.8 million to € 104 mil- the requirements of IAS 8 and classified as a change lion. Equity as at 31 December 2008 was therefore in accordance with IAS 8.14 et seq. and IAS 8.41 et seq. reported at a figure that was € 100 million higher than it should have been and equity as at 31 December 2009 These changes are not referred to or highlighted again in and 30 June 2010 was € 56 million higher than it should the following Notes. have been. We have corrected this error in line with the findings of the FREP in our six-monthly report as at 30 June 2011. I . CHange IN ACCORDANCE WITH IAS 8.14 ET SEQ. The comparative amounts disclosed for the previous year Changed disclosure of currency effects of loan loss have been adjusted on the basis of the above-mentioned provisions in accordance with IAS 8.14 et seq. facts. The following table shows the effects of the adjust- Since the first quarter of 2011 income from the translation ment on the statement of comprehensive income: of loan loss provisions denominated in foreign currency that are not hedged against foreign exchange risk is no lon­ ger reported under Net trading income but under Loan loss provisions. Thanks to this change in accounting poli- cy this item provides more relevant information since currency-induced fluctuations in net trading income and the loan loss provisions are reduced.

II . COrreCTION OF ERRORS IN ACCORDANCE WITH IAS 8.41 ET SEQ.

The Financial Reporting Enforcement Panel (FREP) has reviewed the consolidated financial statements as at 31 December 2008 and 2009 as well as the interim report as at 30 June 2009 and had the following findings:

The goodwill of HSH Nordbank Securities S.A. would have been fully written down in the financial year 2008 due to the negative development of the business. HSH Nord- bank wrote off the goodwill in the consolidated finan­cial statements for 2008 (€ 43.9 million) and 2009 (€ 44.6 mil­ lion) as well as in the third quarter of 2010 (€ 55.8 mil- lion). The full write-down in the financial year 2008 would have resulted in a Group net loss of € − 2,944 million, 54 Q3 2011

January - September 2010 Adjustments 3rd quarter 2010 Income statement Before Following (¤ m) adjustment Adjustment adjustment

Net trading income – change of method in acc. with IAS 8.14 et seqq. −611 173 −438 Loan loss provisions – change of method in acc. with IAS 8.14 et seqq. −252 −173 −425 Other operating income – correction in acc. with IAS 8.41 et seqq. 20 56 76 Other items (without adjustment) 542 – 542 Net income before taxes −301 56 −245 Income tax expenses (-) / income (+) 55 – 55 Net income after taxes / Group net loss −246 56 −190 Group net income attributable to non-controlling interests 50 – 50 Group net income attributable to HSH Nordbank shareholders −296 56 −240

January - September 2010 Adjustments 3rd quarter 2010 Reconciliation with total comprehensive income / loss Before Following (¤ m) adjustment Adjustment adjustment

Group net loss −246 56 −190 Changes in: Revaluation reserve (before taxes) 154 – 154 of which: from exchange rate effects 9 – 9 Income taxes not recognised in the income statement −57 – −57 of which: from exchange rate effects 2 – 2 97 – 97 Currency conversion reserve 19 – 19 19 – 19 Actuarial gains / losses (before taxes) −64 – −64 Income taxes not recognised in the income statement 20 – 20 −44 – −44 Other comprehensive income for the period 72 – 72 Total comprehensive income −174 56 −118 Total comprehensive income attributable to non-controlling interests 46 – 46 Total comprehensive income attributable to HSH Nordbank shareholders −220 56 −164 G eneral information | Interim Report 55

January - September 2010

Adjustments 3rd quarter 2010 Before Following Earnings per share adjustment Adjustment adjustment

Group net income attributable to HSH Nordbank shareholders – undiluted −296 56 −240 Group net income attributable to HSH Nordbank shareholders – diluted −296 56 −240

Number of shares (millions) Average number of ordinary shares outstanding – undiluted 246 – 246 Dilution effects from: convertible bonds 17 – 17 Weighted average number of ordinary shares outstanding adjusted for the assumed conversion – diluted 263 – 263

Earnings per share (¤ ) Undiluted −1.20 0.22 −0.98 Diluted −1.12 0.21 −0.91

The FREP also established that 270 subsidiaries, joint aspects, such as investments in financial vehicles. The ventures and associated companies were not included in Bank is currently adjusting its strategy relating to its scope the consolidated financial statements as at 31 Decem­- of consolidation accordingly and this revised strategy ber 2008, 309 such companies were not included in the will be applied for the first time to the consolidated finan- con­densed statements as at 30 June 2009, and 323 were cial statements as at 31 December 2011. not included in the consolidated financial statements as at 31 December 2009. The assessment of the materiality The errors identified were published separately in the of the companies that were not consolidated did not ade- Electronic Federal Gazette and in the Börsen-Zeitung on quately consider quantitative aspects, such as the im­- 20 September 2011. pact on individual items in the report, and qualitative

4. SCOPE OF CONSOLIDATION

In addition to the parent company HSH Nordbank AG, The following subsidiaries and special purpose entities Hamburg / Kiel, 48 companies (31 December 2010: 49) have are included in the interim consolidated financial state­ been consolidated. This includes 5 (31 December 2010: 5) ments of HSH Nordbank AG: special purpose entities which must only be consolidat­- ed due to the requirements of SIC-12. The companies RESPARCS Funding I and RESPARCS Funding II Limited Partnership are consolidated under the provisions of IAS 27 based on the majority of voting rights that arise solely from contractual relationships. 56 Q3 2011

Share of equity capital Fully consolidated companies Registered office in %

1 Adessa Grundstücksverwaltungsgesellschaft mbH & Co. Vermietungs KG Wiesbaden 0.0 2 AVUS Fondsbesitz und Management GmbH 1) Berlin 100.0 3 Bu Wi Beteiligungsholding GmbH Hamburg 100.0 4 Capcellence Private Equity Beteiligungen GmbH & Co. KG 2) Hamburg 100.0 5 Capcellence Vintage Year 05 / 06 Beteiligungen GmbH & Co. KG 3) Hamburg 83.3 6 Capcellence Vintage Year 06 / 07 Beteiligungen GmbH & Co. KG 3) Hamburg 83.3 7 Capcellence Vintage Year 07 / 08 Beteiligungen GmbH & Co. KG 3) Hamburg 83.3 8 Capcellence Vintage Year 09 Beteiligungen GmbH & Co. KG 3) Hamburg 83.3 9 Capcellence Vintage Year 10 Beteiligungen GmbH & Co. KG 3) Hamburg 83.3 10 Capcellence Vintage Year 11 Beteiligungen GmbH & Co. KG Hamburg 83.3 11 CHIOS GmbH Hamburg 100.0 12 CPM Luxembourg S.A. 4) Luxembourg 3.2 13 CPM Securitisation Fonds S.A. 4) Luxembourg 3.2 14 DEERS Green Power Development Company S.L. 5) Zaragoza 99.0 15 EALING INVESTMENTS LIMITED London 100.0 16 Endor 8. Beteiligungs GmbH & Co. KG 1) Hamburg 94.8 17 EQUILON GmbH Hamburg 100.0 18 HGA Capital Grundbesitz und Anlage GmbH 1) Hamburg 100.0 19 HGA Fondsbeteiligung GmbH 1) Hamburg 100.0 20 HSH Corporate Finance GmbH Hamburg 100.0 21 HSH Debt Advisory ApS Copenhagen 100.0 22 HSH N Composits GmbH Kiel 100.0 23 HSH N Finance (Guernsey) Limited St. Peter Port 100.0 24 HSH N Funding I 6) George Town 100.0 25 HSH N Funding II George Town 100.0 26 HSH Nordbank Private Banking S.A. 4) Luxembourg 100.0 27 HSH Nordbank Securities S.A. Luxembourg 100.0 28 HSH Private Equity GmbH Hamburg 100.0 29 HSH Real Estate AG Hamburg 100.0 30 HSH Restructuring Advisory ApS Copenhagen 100.0 31 International Fund Services & Asset Management S.A. 4) Luxembourg 51.5 32 JANTAR GmbH Hamburg 100.0 33 KAPLON GmbH & Co. KG Hamburg 100.0 34 Leashold Verwaltungs-GmbH & Co. KG Hamburg 100.0 35 Mesitis GmbH Hamburg 100.0 36 MINIMOA GmbH Hamburg 100.0 37 Neptune Finance Partner S.à.r.l. Luxembourg 100.0 38 Neptune Finance Partner II S.à.r.l. Luxembourg 100.0 39 Neptune Ship Finance (Luxembourg) S.à.r.l. & Cie, S.e.c.s. Luxembourg 100.0 40 Northern Blue 2009 S.A. Luxembourg 0.0 41 Plato No. 1 S.A. Luxembourg 0.0 42 PREGU GmbH Hamburg 100.0 43 RESPARCS Funding I Limited Partnership Hong Kong 0.0 G eneral information | Interim Report 57

Share of equity capital Fully consolidated companies Registered office in %

44 RESPARCS Funding II Limited Partnership St. Helier 0.0 45 Solar Holding S.à.r.l. Luxembourg 100.0 46 Sotis S.à.r.l. 4) Luxembourg 100.0 47 Swift Capital 1 Europäische Fondsbeteiligungen GmbH & Co. KG Hamburg 99.3 48 THESTOR GmbH Hamburg 100.0

1) Subsidiaries of HSH Real Estate AG 2) Subsidiary of HSH Private Equity GmbH 3) Subsidiaries of Capcellence Private Equity Beteiligungen GmbH & Co. KG 4) Subsidiaries of HSH Nordbank Securities S.A. 5) Subsidiary of Solar Holding S.à.r.l. 6) Subsidiary of HSH N Composits GmbH

In the reporting period the following companies were fully As at the 30 September 2011 reporting date, shares in consolidated for the first time: three associated companies are included in the consolidat- ed interim financial statements using the equity method: – AVUS Fondsbesitz und Management GmbH, Berlin – Capcellence Vintage Year 11 Beteiligungen GmbH & – Belgravia Shipping Ltd., London Co. KG, Hamburg – Situs Nordic Service ApS, Copenhagen – HGA Fondsbeteiligung GmbH, Hamburg – Relacom Management AB, Stockholm – HSH Debt Advisory ApS, Copenhagen – HSH Restructuring Advisory ApS, Copenhagen Hamborner REIT AG included in the scope of consolida- – KAPLON GmbH & Co. KG, Hamburg tion as at 31 December 2010 is no longer consolidated using the equity method. The company was sold on 25 Feb­ The following companies included in the scope of con­ ruary 2011. solidation as at 31 December 2010 are no longer consoli- dated: Please refer to Notes [10] and [24] for more information on the companies consolidated using the equity method. – LB Immo Invest GmbH, Hamburg – HSH RE 2. Beteiligungs GmbH, Hamburg – HSH RE 3. Beteiligungs GmbH, Hamburg – HSH RE 4. Beteiligungs GmbH, Hamburg – HSH RE 5. Beteiligungs GmbH, Hamburg – HSH RE 6. Beteiligungs GmbH, Hamburg – HSH RE 7. Beteiligungs GmbH, Hamburg

The company LB Immo Invest GmbH was sold with effect from 1 January 2011.

The companies HSH RE 2. to HSH RE 7. Beteiligungs GmbH were merged into HSH Real Estate AG as at 1 April 2011. 58 Q3 2011

N otes on the income statement

5. NET INTEREST INCOME

Net interest income (¤ m) January - September 2011 January - September 2010

Interest income from Lending and money market transactions 2,254 2,666 Fixed-interest securities 464 533 Trading transactions 21 36 Derivative financial instruments 6,012 7,893 Unwinding 140 129 Current income from Equities and other non-fixed-interest securities 12 28 Associated companies 6 5 Equity holdings 63 58 Other holdings 6 7 Interest income 8,978 11,355 of which attributable to financial instruments not classified as HfT or DFV 2,832 3,282 Interest expenses for Liabilities to banks 457 572 Liabilities to customers 960 1,135 Securitised liabilities 811 929 Subordinated capital 196 189 Other liabilities 6 – Derivative financial instruments 5,487 7,226 Interest expenses 7,917 10,051 of which attributable to financial instruments not classified as HfT or DFV 2,099 2,466 Net income from reestimating interest and repayment cash flows 180 – Net income from discounting and compounding -120 -115 Interest expenses on hybrid financial instruments – – Net income from hybrid financial instruments 60 -115 of which attributable to financial instruments not classified as HfT or DFV 60 -115 Total 1,121 1,189

Interest income and expenses relating to trading and Net interest income includes income and expenses ari­s- hedg­ing derivatives are disclosed under interest income ing from the amortisation of the adjustment items for port­ and expenses from derivative financial instruments. folio fair value hedge relationships and corresponding Notes on the income statement | Interim Report 59

proceeds from the closing of the underlying transactions lion are attributable to the income / loss from discounting which contributed to the adjustment items. and compounding (previous year: € − 339 million).

In case of unchanged payment expectations, a change The difference between the valuation for tax purposes and in the present value of impaired loans and advances the measurement according to IAS 39.A8 resulted in (unwinding) occurs over time. The interest income from deferred tax liabilities of € 11 million (previous year: € such loans and advances is calculated as the present 13 mil­lion deferred tax assets). value by adding accrued interest using the original effec- tive interest rate.

Net interest income includes one off expenses from the sale of finance lease transactions in the amount of € 8 mil­lion (previous year: € 0 million). Furthermore Net inte­rest income includes one off income from the sale of receivables amounting to € 14 million (previous year: € 133 million) and one off expenses from the sale of receiv- ables amounting to € 29 million (previous year: € 11 mil- lion).

The term hybrid financial instruments covers silent partic­ ipations, profit participations and bonds measured at amortised acquisition cost. Their interest depends on prof- it and they participate in an annual loss or group loss of the Bank.

Net income or loss from hybrid financial instruments includes both the effects on profit / loss resulting from the application of IAS 39.A8 as well as the current interest income from the instruments that fall under the scope of application of this standard.

In the current reporting period the future earnings situation of the HSH Nordbank Group was re-assessed due to the agreement reached in the EU state aid pro­ceed­- ings. The resulting change in the forecast of future inter- est and repayment cashflows related to the hybrid finan- cial instruments had an effect on income amounting to € + 180 million.

The cumulative net income from hybrid financial instru- ments amounts to € 272 million in 2011 (previous year: € 260 million). € 782 million are attributable to the result from the reassessment of interest and repayment cash­flows (previous year: € 599 million) and € − 510 mil- 60 Q3 2011

6. NET COMMISSION INCOME

January - January - Financial instruments classified as HfT or DFV account­- Net commission income September September (¤ m) 2011 2010 ed for € − 4 million (previous year: € 1 million) of Net com­ mission income.

Commission income from Lending business 51 105 Securities business 64 42 Guarantee business 20 30 Foreign business 13 5 Payments and account transactions 5 10 Other commission income 14 36 Commission income 167 228 Commission expenses from Lending business 10 8 Securities business 53 31 Guarantee business 1 1 Foreign business 2 2 Payments and account transactions 1 1 Other commission expenses 7 15 Commission expenses 74 58 Total 93 170

7. RESULT FROM HEDGING

The change in value attributable to the hedged risk for January - January - Result from hedging September September designated underlying and hedging transactions in effec- (¤ m) 2011 2010 tive hedging relationships is reported under the item Result from hedging. The item contains the correspond- Fair value changes from hedging ing profit contributions from micro and portfolio fair transactions 354 635 value hedges. Hedge accounting is used solely for interest Micro fair value hedge −48 −6 rate risks. Portfolio fair value hedge 402 641 Fair value changes from underlyings −347 −626 Micro fair value hedge 49 4 Portfolio fair value hedge −396 −630 Total 7 9 N otes on the income statement | Interim Report 61

8. NET TRADING INCOME

Net trading income comprises realised income / loss and Income from foreign exchange transactions, credit deriv­ the valuation result for financial instruments classified as atives and commodities is stated under Other products. Held for Trading (HfT) or Designated at Fair Value (DFV). Gains and losses on currency translation are recorded in Interest income and expenses for financial instruments of this income statement item as a matter of principle. The these categories are shown under net interest income. results from the translation of loan loss provisions denom­ inated in foreign currency not hedged against foreign exchange risk are disclosed in the loan loss provisions.

Bonds and interest Equities and rate derivatives equity derivatives Other products Total

January - January - January - January - January - January - January - January - Net trading income September September September September September September September September (¤ m) 2011 2010 2011 2010 2011 2010 2011 2010

Realised net income Held for trading −51 119 16 – 70 285 35 404 Designated at fair value −17 −264 – – −1 1 −18 −263 Total -68 −145 16 – 69 286 17 141 Valuation result Held for trading −493 −147 106 −5 −51 −190 −438 −342 Designated at fair value 15 −278 86 41 1 – 102 −237 Subtotal −478 −425 192 36 −50 −190 −336 −579 Total −546 −570 208 36 19 96 −319 −438

Net trading income includes net income from foreign cur- amounted to € − 17 million (previous year: € − 26 million). rency of € 25 million (previous year: € 16 million). In cumulative terms, a total of € 329 million (previous year: € 316 million) was attributable to changes in the In the period under review, € − 232 million (previous credit spread. year: € − 253 million) of the changes in fair value of the financial assets classified as Designated at Fair Value The parameters used to calculate the rating-related chang- (DFV) related to changes in the credit spread, rather than es in the fair value of DFV liabilities were developed fur- changes in market interest rates. In cumulative terms, ther during the reporting period. The changes had a nega- a total of € − 867 million (previous year: € − 608 million) tive effect on Net trading income of € − 459 million. was attributable to changes in the credit spread.

During the reporting period, changes in value related to changes in the credit spread rather than to market inter­ est rate changes for liabilities in the category DFV 62 Q3 2011

9. NET INCOME FROM FINANCIAL INVESTMENTS

In addition to any realised gains and losses from finan­- January - January - Net income from financial investments September September cial investments classified as Loans and Receivables (LaR) (¤ m) 2011 2010 and Available for Sale (AfS), write-downs and write-ups and portfolio valuation allowances are reported under this Classified as AfS item. In the case of financial investments classified as + Realised gains / losses (-) 204 19 Avail­able for Sale, write-ups are only recognised in the - Depreciation 23 67 income statement for debt instruments up to a maxi­- + Write-ups 2 4 mum of the amortised cost. Subtotal 183 −44 Classified as LaR + Realised gains / losses (-) 24 27 - Depreciation 126 29 + Write-ups 63 167 Subtotal −39 165 - Additions to portfolio valuation allowances 10 7 + Reversal of portfolio valuation allowances 27 79 Subtotal 17 72 Total 161 193

As at 30 September 2011 reversals of portfolio valuation allowances amounting to € 15 million were recorded under Net income from financial investments in connection with the hedging effect of the second loss guarantee.

10. NET INCOME FROM FINANCIAL INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD

As at 30 September 2011, the HSH Nordbank Group owns time using the equity method. Given the full impairment shares in three associated com­panies that are included for the shares in the company, HSH Nordbank’s share in the consolidated financial state­ments under the equity of the company’s current losses, amounting to € − 0.1 mil- method (see Note [24]). lion, was no longer recorded in the current period. The accumulated non-recognised pro rata share in the losses The pro rata net income assigned to the Group from finan­ of the company amount to € − 0.1 million. cial investments accounted for under the equity method amounted to € − 56 million (previous year: € 0 million). This Net income is reported in the segment report as a part includes impairment losses of € − 53 million for shares of Net income from financial investments within the con- in Relacom Management AB, included in the quarterly solidation of the Restructuring Unit. finan­cial statements as at 30 June 2011 for the first N otes on the income statement | Interim Report 63

11. LOAN LOSS PROVISIONS

January - January - January - January - Loan loss provisions September September Net changes in loan loss provisions September September (¤ m) 2011 2010 (¤ m) 2011 2010

- Expenses from allocations to loan loss Individual valuation allowances −437 −663 provisions 1,346 2,000 Income from compensatory claim to + Income from reversal of loan loss HSH Finanzfonds AöR 308 – provisions 1,298 1,597 Subtotal −129 −663 + Income from compensatory claim to Portfolio valuation allowances 389 260 HSH Finanzfonds AöR 308 – Total 260 −403 Subtotal 260 −403 - Expenses from allocations to provisions in the lending business 80 341 + Income from reversal of provisions in As at 30 September 2011 reversals of portfolio valuation the lending business 153 510 allowances amounting to € 136 million were performed Subtotal 73 169 - Direct write-downs 24 62 in the Loan loss provisions in connection with the hedg- + Payments received on loans and ing effect of the second loss guarantee. advances previously written down 72 44 Subtotal 48 −18 The net changes in provisions in the lending business dur­ + F oreign currency income from loan ing the period under review are presented below: loss provisions denominated in foreign currency 13 −173 Total 394 −425 Net changes in provisions January - January - in the lending business September September (¤ m) 2011 2010

With regard to the compensatory claim to HSH Finanz- Individual loan loss provisions fonds AöR please refer to Note [2]. for contingent liabilities 55 46 for loan commitments 3 −19 Loan loss provisions in on-balance-sheet lending busi­- for other credit risks −4 110 ness relate exclusively to loans and advances classified as Subtotal 54 137 LaR. The following table shows the net changes: Portfolio valuation allowances for contingent liabilities 7 7 for loan commitments 12 25 Subtotal 19 32 Total 73 169 64 Q3 2011

12. ADMINISTRATIVE EXPENSES

January - January - Administrative expenses September September (¤ m) 2011 2010

Personnel expenses 276 290 Operating expenses 265 296 Depreciation on property, plant and equipment and amortisation on intangible assets 30 31 Total 571 617

13. OTHER OPERATING INCOME

January - January - Other operating income September September (¤ m) 2011 2010

Other operating income 54 227 Other operating expenses 45 151 Total 9 76

14. RESULT FROM RESTRUCTURING

January - January - Result from restructuring September September (¤ m) 2011 2010

Personnel expenses 9 22 Operating expenses 18 23 Income from the reversal of provisions and of liabilities relating to human resources 30 36 Total 3 −9 N otes on the income statement | Interim Report 65

15. EXPENSES FOR GOVERNMENT GUARANTEES

January - January - Expenses for government guarantees September September (¤ m) 2011 2010

Financial Market Stabilisation Fund (SoFFin) 54 90 HSH Finanzfonds AöR 742 303 Total 796 393

In the first, second and third quarter of the year 2011 HSH Nordbank AG has reduced the guarantee granted by the federal state of Schleswig-Holstein and the Free and Hanse­ atic City of Hamburg by € 1 billion each quarter to the current amount of € 7 billion. Expenses to AöR inclu­ded a one off payment of € 500 million (cf. Note [2]).

16. EARNINGS PER SHARE

To calculate Earnings per share, the Group net income attri­ January - January - September September butable to HSH Nordbank shareholders is divided by Earnings per share 2011 2010 the weighted average number of ordinary shares outstand­ ing during the period under review. The calculation Attributable Group net income (¤ m) was based on non-rounded values. - undiluted −224 −240 Attributable Group net income (¤ m) – diluted −224 −240 Number of shares (millions) Average number of ordinary shares outstanding – undiluted 263 246 Dilution effects from: convertible bonds – 17 Weighted average number of ordinary shares outstanding adjusted for the assumed conversion – diluted 263 263 Earnings per share (¤) Undiluted −0.85 −0.98 Diluted −0.85 −0.91 66 Q3 2011

N otes on the statement of financial position

17. CASH RESERVE

Cash reserve (¤ m) 30.9.2011 31.12.2010

Cash on hand 10 10 Balances at central banks 1,364 994 Of which: At the Deutsche Bundesbank 787 378 Treasury bills, discounted treasury notes and similar debt instruments issued by public-sector institutions 365 406 Of which: Eligible for refinancing at the Deutsche Bundesbank 334 299 Total 1,739 1,410

18. LOANS AND ADVANCES TO BANKS

Loans and advances to banks (¤ m) 30.9.2011 31.12.2010

Payable on demand 5,681 5,397 Other loans and advances 3,332 5,041 Total before loan loss provisions 9,013 10,438 Loan loss provisions 188 194 Total after loan loss provisions 8,825 10,244 N otes on the statement of financial position | Interim Report 67

19. LOANS AND ADVANCES TO CUSTOMERS

Loans and advances to customers (¤ m) 30.9.2011 31.12.2010

Retail customers 1,676 2,014 Corporate clients 82,494 93,352 Public authorities 6,887 7,492 Total before loan loss provisions 91,057 102,858 Loan loss provisions 3,927 4,429 Total after loan loss provisions 87,130 98,429

20. LOAN LOSS PROVISIONS

Loan loss provisions (¤ m) 30.9.2011 31.12.2010

Loans and advances to banks 188 194 Loans and advances to customers 3,927 4,429 Loan loss provisions for items in the statement of financial position 4,115 4,623 Provisions in the lending business 361 439 Total 4,476 5,062

The development of loan loss provisions for banks during the period under review was as follows:

Development of loan loss Individual valuation allowances Portfolio valuation allowances Total provisions for banks (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

As at 1 January 191 363 3 7 194 370 Additions 2 6 4 – 6 6 Reversals 5 28 6 5 11 33 Utilisation – 124 – – – 124 Reclassifications – −28 – – – −28 Unwinding −1 -1 – – −1 −1 Exchange rate changes – 3 – 1 – 4 As at 30 September 2011 / 31 December 2010 187 191 1 3 188 194 68 Q3 2011

Loan loss provisions for customers during the period un- der review developed as follows:

Development of loan loss provisions Individual valuation allowances Portfolio valuation allowances Total for liabilities to customers (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

As at 1 January 3,890 3,165 539 1,183 4,429 4,348 Additions 1,340 2,627 – 139 1,340 2,766 Reversals 900 1,505 387 849 1,287 2,354 Utilisation 382 383 – – 382 383 Reclassifications – 28 – – – 28 Unwinding −138 −183 – – −138 −183 Exchange rate changes −21 141 −14 66 −35 207 As at 30 September 2011 / 31 December 2010 3,789 3,890 138 539 3,927 4,429

The valuation allowances relate exclusively to items clas- sified as loans and receivables (LaR).

21. POSITIVE FAIR VALUE OF HEDGING DERIVATIVES

The positive fair value of derivatives used in hedge account­ Changes in this item are directly related to changes in ing is accounted for in this item. Only interest swaps the item Negative fair value of hedging derivatives (Note and interest rate currency swaps are taken into account as [34]). The overall changes in the items are mainly due hedging instruments currently. If a derivative is only to a change in portfolio composition and movements in partially designated under hedge accounting, this item con­ interest rates in the USD and EUR capital markets. tains the corresponding share of that derivative’s fair value. In these cases, the remainder is stated under Trading assets. Hedge accounting is used solely for interest rate risks.

Positive fair value of hedging derivatives (¤ m) 30.9.2011 31.12.2010

Positive fair value of derivatives used in micro fair value hedges 339 377 Positive fair value of derivatives used in portfolio fair value hedges 1,770 1,461 Total 2,109 1,838 N otes on the statement of financial position | Interim Report 69

22. TRADING ASSETS

Only financial assets classified as HfT are stated under Trading assets (¤ m) 30.9.2011 31.12.2010 Trading assets. Mainly included in this category are origi- nal financial instruments held for trading purposes, including accrued interest, and derivatives with a positive Bonds and other fixed-interest securities 1,085 1,303 fair value which are either not designated as a hedge Shares and other derivative or are used as hedging instruments but do not non-fixed-interest securities 12 15 meet the requirements of IAS 39 for hedge accounting. Positive fair value of financial derivatives 10,602 9,956 Other trading assets 47 8 Total 11,746 11,282

23. FINANCIAL INVESTMENTS

Financial investments include specifically financial in- struments not held for trading classified as AfS and LaR and, to a lesser extent, as DFV. This item includes bonds and other fixed-interest securities, equities and other non- fixed-interest securities, holdings in unconsolidated affil­ iated companies, holdings in joint ventures and associat- ed companies not carried at equity in the consolidated financial statements.

Financial investments (¤ m) 30.9.2011 31.12.2010

Bonds and other fixed-interest securities 22,447 23,367 Shares and other non-fixed-interest securities 549 631 Equity holdings 288 835 Interests in affiliated companies 126 168 Total 23,410 25,001 70 Q3 2011

24. FINANCIAL INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD

Shares in associated companies included in the con­ The equity holding in Hamborner REIT AG was sold with solidated financial statements under the equity method effect from 25 February 2011. are reported in this item. Belgravia Shipping Ltd. made available its most recent As at the balance sheet date 30 September 2011, the financial statements as at 30 June 2011. HSH Nordbank Group owns shares in three associated com­ panies that are included in the consolidated financial statements under the equity method (31 December 2010: 2 companies). The carrying amount of these equity hold­ ings was € 13 million as at 30 September 2011 (31 Decem­ ber 2010: € 102 million).

Net income from financial investments accounted for under the equity method is disclosed in Note [10].

A summary of the financial information as to the associ- ated companies included in the consolidated financial statements under the equity method is presented here:

Associated companies consolidated under the equity method – Financial information (¤ m) 30.9.2011 31.12.2010

Hamborner REIT AG Total assets – 406 Total liabilities – −180 Sales revenue – 26 Net income / loss – 3 Belgravia Shipping Ltd. Total assets 42 42 Total liabilities −1 −1 Sales revenue –– Net income / loss –– Situs Nordic Service ApS, Copenhagen Total assets 2 – Total liabilities −1 – Sales revenue –– Net income / loss –– Relacom Management AB Total assets 295 – Total liabilities –– Sales revenue –– Net income / loss –– N otes on the statement of financial position | Interim Report 71

25. INTANGIBLE ASSETS

Intangible assets (¤ m) 30.9.2011 31.12.2010

Software 91 81 developed in-house 56 58 acquired 35 23 Software in development 3 27 developed in-house 2 9 acquired 1 18 Total 94 108

26. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment (¤ m) 30.9.2011 31.12.2010

Land and buildings 17 45 Operating equipment 73 77 Leased assets 17 18 Total 107 140

27. INVESTMENT PROPERTY

Under the item Investment property all property (land or Investment property (¤ m) 30.9.2011 31.12.2010 buildings) is recorded that is held to earn rent or for capi­- tal appreciation but is not used in the production or sup- ply of goods or services of the Bank. Real estate leased Investment property 7 14 as lessor in the operating leasing business is also included Total 7 14 in this item. 72 Q3 2011

28. NON-CURRENT ASSETS HELD FOR SALE AND DISPOSAL GROUPS

Non-current assets held for sale The assets reported here relate to financial instruments and disposal groups (¤ m) 30.9.2011 31.12.2010 amounting to € 432 million (31 December 2010: € 388 mil­ lion).

Loans and advances to banks 22 – This item also contains disposal groups, individual equi­- Loans and advances to customers 81 144 ty holdings and receivables as well as securities belonging Financial investments 328 241 to the credit investment portfolio. It is highly likely for Intangible assets – 16 these assets and liabilities to be sold within the next twelve Other assets 1 3 months in the course of the strategic realignment. Total 432 404

29. DEFERRED TAX ASSETS

Of Deferred tax assets in the amount of € 1,046 million tegic adjustments and the future taxable income derived (31 December 2010: € 1,269 million) € 348 million (31 De­ from these ensure that the tax claims carried as assets will cem­ber 2010: € 350 million) was attributable to tax loss­- meet expectations. es carried forward. The HSH Nordbank business model, stra­

30. OTHER ASSETS

Other assets (¤ m) 30.9.2011 31.12.2010

Compensatory claim to HSH Finanzfonds AöR 308 – Prepaid expenses 19 19 Tenant loans 16 14 Receivables from fund transactions 7 9 Receivables from other taxes 6 3 Receivables from participations and affiliates 2 8 Other assets 132 132 Total 490 185

With regard to the compensatory claim to HSH Finanz- fonds AöR please refer to Note [2]. N otes on the statement of financial position | Interim Report 73

31. LIABILITIES TO BANKS

Liabilities to banks (¤ m) 30.9.2011 31.12.2010

Liabilities payable on demand 1,737 1,284 Other term liabilities 21,157 24,916 Total 22,894 26,200

32. LIABILITIES TO CUSTOMERS

Liabilities to customers (¤ m) 30.9.2011 31.12.2010

Savings deposits 64 70 Other liabilities Liabilities payable on demand 8,581 8,400 Other term liabilities 35,357 41,976 Total 44,002 50,446

33. SECURITISED LIABILITIES

Securitised liabilities As was the case at the end of 2010 HSH Nordbank AG (¤ m) 30.9.2011 31.12.2010 did not hold any repurchased own money market instru- ments. Bonds issued 39,210 44,425 Money market securities issued 289 301 Total 39,499 44,726

Under the item Securitised liabilities own bonds repur- chased – in part for the purpose of market support – to the amount of € 5,976 million (31 December 2010: € 8,075 million) were deducted. As at the reporting date bonds issued in the amount of € 6 billion are guaran­- teed by the Financial Market Stabilisation Fund (SoFFin) (31 December 2010: € 9 billion). 74 Q3 2011

34. NEGATIVE FAIR VALUES OF HEDGING DERIVATIVES

This item shows the negative fair value of derivatives used Negative fair values of hedging derivatives (¤ m) 30.9.2011 31.12.2010 in hedge accounting. At present only interest swaps and interest rate currency swaps are taken into account as hedging instruments. If a derivative is only partially Negative fair values of derivatives used in micro fair value hedges 191 168 designated under hedge accounting, this item contains the Negative fair values of derivatives used corresponding share of that derivative’s fair value. In in portfolio fair value hedges 545 194 these cases, the remainder is stated under Trading liabili- Total 736 362 ties. Hedge accounting is used solely for interest rate risks. Changes in this item are directly related to changes in the item Positive fair values of hedging derivatives (Note [21]). The overall changes in the items are mainly due to a change in portfolio composition and movements in interest rates in the USD and EUR capital markets.

35. TRADING LIABILITIES

Only financial assets classified as HfT are disclosed under Trading liabilities. Mainly included in this category are derivatives with a negative fair value which are either not designated as a hedging derivative or are used as hedging instruments but do not meet the require­- ments of IAS 39 for hedge accounting. Delivery commit- ments from short sales of securities are also stated in this category.

Trading liabilities (¤ m) 30.9.2011 31.12.2010

Negative fair values from derivative financial instruments Interest rate-related business 11,099 10,447 Currency-related business 620 771 Other business 749 192 Commitments to deliver securities – 2 Total 12,468 11,412 N otes on the statement of financial position | Interim Report 75

36. PROVISIONS

Provisions Provisions in the lending business are composed of the (¤ m) 30.9.2011 31.12.2010 following items:

Provisions for pension obligations Provisions in the lending business and similar obligations 624 580 (¤ m) 30.9.2011 31.12.2010 Other provisions Provisions in the lending business 361 439 Specific loan loss provisions for Provisions for restructuring 66 69 contingent liabilities 121 166 Provisions for litigation risks and costs 110 101 irrevocable loan commitments 168 184 Provisions for personnel expenses 50 60 other credit risks 15 12 Other provisions 101 83 Subtotal 304 362 Total 1,312 1,332 Portfolio loan loss provisions for contingent liabilities 44 52

The net change in pension obligations of € 44 million irrevocable loan commitments 13 25 Subtotal 57 77 com­prises the payments for pension obligations amount- Total 361 439 ing to € 28 million, additions of € 73 million and rever- sals of € 1 million. The increase in pension obligations is main­ly attributable to the decline in market interest rates.

37. LIABILITIES RELATING TO DISPOSAL GROUPS

Liabilities relating to disposal groups (¤ m) 30.9.2011 31.12.2010

Liabilities to customers 162 – Provisions – 6 Total 162 6

In the reporting period, the majority of items reported under Liabilities to customers were liabilities in the area of private banking in the Luxembourg branch which meet the criteria for classification as a disposal group in accordance with IFRS 5.6 et seq. 76 Q3 2011

38. OTHER LIABILITIES

Other liabilities The € 500 million reported under Liability to HSH (¤ m) 30.9.2011 31.12.2010 Finanzfonds AöR relate to a one off payment within the context­ of the EU state aid proceedings (cf. Note [2]). Collateral provided for guarantees given 1,094 1,230 Liability to HSH Finanzfonds AöR 500 – Liabilities for outstanding invoices 33 40 Deferred income 30 27 Personnel liabilities 22 30 Liabilities for restructuring 5 22 Other tax liabilities 8 10 Other 165 197 Total 1,857 1,556

The collateral provided for assumed liabilities serves to hedge leasing transactions of our customers with third parties.

39. SUBORDINATED CAPITAL

Subordinated capital (¤ m) 30.9.2011 31.12.2010

Subordinated liabilities 5,241 5,222 Silent participations 1,411 1,466 Profit participation capital 1,826 2,031 Total 8,478 8,719

The carrying amounts of silent participations and profit par­t­icipation capital were determined on the basis of assump­tions of the future earnings situation of HSH Nord­ bank Group and assumptions with regard to making use of termination or extension options (IAS 39.A8). N otes on the statement of financial position | Interim Report 77

40. EQUITY

Equity (¤ m) 30.9.2011 31.12.2010

Share capital 2,635 2,635 Capital reserve 1,028 1,028 Retained earnings 1,698 1,668 Gains on pension obligations and similar obligations not recognised in the income statement 166 201 Deferred taxes on gains from pension obligations and simi- lar obligations not recognised in the income statement −55 −66 Revaluation reserve −228 −227 Currency conversion reserve −62 −60 Group net income/loss −225 53 Total before non-controlling interests 4,846 5,097 Non-controlling interests −2 −3 Total 4,844 5,094

Changes in ordinary shares (number of shares) 30.9.2011 31.12.2010

Number at the beginning of the year 263,508,277 246,017,368 Capital increase 0 17,490,909 Number at end of the period 263,508,277 263,508,277 78 Q3 2011

Segment reporting

41. SEGMENT REPORT

Consolidation Subtotal Sector Specialist Bank Regional Bank Other Consolidation Core Bank Total Core Bank Restructuring Unit Restructuring Unit Restructuring Unit Group

(¤ m / %) 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010

Net interest income 398 451 286 322 −29 −27 150 21 805 767 316 435 – −13 316 422 1,121 1,189 Net commission income 24 23 49 49 3 8 −9 7 67 87 26 83 – – 26 83 93 170 Result from hedging – – – – – – 7 9 7 9 – – – – – – 7 9 Net trading income 22 −7 14 17 256 79 −283 −351 9 −262 −328 −173 – −3 −328 −176 −319 −438 Net income from financial investments −4 −9 18 1 131 18 18 17 163 27 −77 157 19 9 −58 166 105 193 Total income 440 458 367 389 361 78 −117 −297 1,051 628 −63 502 19 −7 −44 495 1,007 1,123 Loan loss provisions 99 -9 −133 −104 −9 19 35 11 −8 −83 −7 −342 409 – 402 −342 394 −425 Administrative expenses −172 −123 −160 −139 −65 −105 −5 −15 −402 −382 −169 −220 – −15 −169 −235 −571 −617 Other operating income 6 11 3 −25 5 15 −8 28 6 29 7 −8 −4 55 3 47 9 76 Net income before restructuring 373 337 77 121 292 7 −95 −273 647 192 −232 −68 424 33 192 −35 839 157 Result from restructuring – – – – – – 6 5 6 5 – – −3 −14 −3 −14 3 −9 Expenses for government guarantees – – – – – – −339 −212 −339 −212 – – −457 −181 −457 −181 −796 −393 Net income before taxes 373 337 77 121 292 7 −428 −480 314 −15 −232 −68 −36 −162 −268 −230 46 −245 Cost/Income Ratio (CIR) 39 % 27 % 44 % 36 % – – – – 38 % 61 % – – – – – – 57 % 55 % Return on equity before tax and restructuring expenses 40 % 42 % 14 % 26 % – – – – 34 % 12 % – – – – – – 23 % 5 % Average equity 1,247 1,058 709 619 425 364 158 143 2,539 2,184 2,354 2,094 76 51 2,430 2,145 4,969 4,329

30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Segment assets (¤ bn) 30 31 21 23 32 34 – – 83 88 54 63 1 – 55 63 138 151

Segment reporting is in accordance with the provisions of ment. The Regional Bank segment reports the results IFRS 8. The segments are based on the internal organisa- of the divisions Corporate Clients, Real Estate Clients, Sav- tional structure in alignment with product and customer ings Banks and Private Banking as well as the results of groups. the joint administrative function. Net income in these seg­ ments is earned primarily from loan and financial prod- HSH Nordbank’s Core Bank consists of the Sector Special- ucts as well as financing-related services. The Other segment ist Bank, Regional Bank and Other segments. Results of includes the financial market business, with the central the Shipping, Aviation and Energy & Infrastructure divi- refinancing function for the Group and the Bank’s overall sions as well as of the administrative function of the position including strategic participations. segment are reported under the Sector Specialist Bank seg­ Segment reporting | Interim Report 79

Consolidation Subtotal Sector Specialist Bank Regional Bank Other Consolidation Core Bank Total Core Bank Restructuring Unit Restructuring Unit Restructuring Unit Group

(¤ m / %) 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010 30.9.2011 30.9.2010

Net interest income 398 451 286 322 −29 −27 150 21 805 767 316 435 – −13 316 422 1,121 1,189 Net commission income 24 23 49 49 3 8 −9 7 67 87 26 83 – – 26 83 93 170 Result from hedging – – – – – – 7 9 7 9 – – – – – – 7 9 Net trading income 22 −7 14 17 256 79 −283 −351 9 −262 −328 −173 – −3 −328 −176 −319 −438 Net income from financial investments −4 −9 18 1 131 18 18 17 163 27 −77 157 19 9 −58 166 105 193 Total income 440 458 367 389 361 78 −117 −297 1,051 628 −63 502 19 −7 −44 495 1,007 1,123 Loan loss provisions 99 -9 −133 −104 −9 19 35 11 −8 −83 −7 −342 409 – 402 −342 394 −425 Administrative expenses −172 −123 −160 −139 −65 −105 −5 −15 −402 −382 −169 −220 – −15 −169 −235 −571 −617 Other operating income 6 11 3 −25 5 15 −8 28 6 29 7 −8 −4 55 3 47 9 76 Net income before restructuring 373 337 77 121 292 7 −95 −273 647 192 −232 −68 424 33 192 −35 839 157 Result from restructuring – – – – – – 6 5 6 5 – – −3 −14 −3 −14 3 −9 Expenses for government guarantees – – – – – – −339 −212 −339 −212 – – −457 −181 −457 −181 −796 −393 Net income before taxes 373 337 77 121 292 7 −428 −480 314 −15 −232 −68 −36 −162 −268 −230 46 −245 Cost/Income Ratio (CIR) 39 % 27 % 44 % 36 % – – – – 38 % 61 % – – – – – – 57 % 55 % Return on equity before tax and restructuring expenses 40 % 42 % 14 % 26 % – – – – 34 % 12 % – – – – – – 23 % 5 % Average equity 1,247 1,058 709 619 425 364 158 143 2,539 2,184 2,354 2,094 76 51 2,430 2,145 4,969 4,329

30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Segment assets (¤ bn) 30 31 21 23 32 34 – – 83 88 54 63 1 – 55 63 138 151

In the course of the realignment of the Bank the Restruc- (Divestments). In addition the Restructuring Unit performs turing Unit of HSH Nordbank is responsible for the supporting administrative functions. winding down of credit and capital market transactions that are not continued in the Core Bank. The Restruc­ The basis for the segment reporting is internal report­- turing Unit is divided into three divisions and structured ing to management. Income and expenses were assigned independently from the market and trading divisions to the segments in which they originated. of the Bank. The Special Loans division primarily manag- es restructuring cases and the Wind-Down Loans divi­- In accordance with IFRS 8.32 and 8.33, neither geograph- sion mainly manages the other loan portfolios. A third divi­ ical information nor information on products and serv­- sion is responsible for the capital market portfolios ices is disclosed. 80 Q3 2011

The cost / income ratio and return on equity are not bank not subject to any segment allocation as well as dif- shown in the segment report for the segments Restructur- ferences in the mapping of economic hedging relation- ing Unit and Other. The Other segment is a summary ships and reallocations between Net interest income and in accordance with IFRS 8.16. The ratios are not shown for Net trading income. this segment as a joint ratio for the summary provides little information. In the case of the Restructuring Unit, the In addition, changes in value arising from interest rate deri­ segment comprises business areas which are not stra­- vates and currency derivatives, and, in particular, EUR / tegic and are currently being wound down. This segment USD basis swaps not allocated to a particular segment, is not managed on the basis of these ratios. were reported in the net trading income of the Core Bank within the framework of the refinancing of foreign Net interest income is calculated in accordance with Fund currency assets. Transfer Pricing (FTP). The planned investment and financing profit in the Other segment is distributed among The impact of the hedging effect of the second loss guar- the business segments on the basis of economic capital antee is also included in the consolidation columns. committed. The transformation contribution is allocated to the Sector Specialist Bank and Regional Bank seg­- Loan loss provisions are shown in the segments in which ments on the basis of average receivables. The costs of the they originated. Relief on the basis of the hedging effect SoFFin liquidity guarantee are taken into account in of the second loss guarantee is not subject to a segment this allocation. allocation and is reported in the consolidation columns.

Total income recognised in the segments is exclusively gen­ Average (reported) equity capital was allocated to the seg- erated from business conducted with external customers. ments on the basis of risk-weighted assets before effects of guarantees. The cost / income ratio is the ratio of Admin­ Internal cost allocations are used to represent the internal istrative expenses to Total income. Return on equity is service relationships. From 2011 internal cost alloca­- the ratio of Net income before restructuring to average tions are included in the allocation of overhead costs of the equi­ty. See Note [10] for comments on companies con­ Group. Group overhead costs in the Other segment are solidated under the equity method recognised as part of allocated to the segments based on risk-weighted assets Net income from financial investments. before guarantees, directly allocated costs, the balance sheet total and from 2011 onwards the share in the inter- nal cost allocation from 2010.

Net income elements not allocated to divisions are also reported in the consolidation columns of the Core Bank and the Restructuring Unit.

Measurement and recognition differences are principally reported under the consolidation of net interest income. These result mainly from costs for the SoFFin liquidity guar­ antee as part of expenses for public guarantees as well as from pending interest income from items measured at cost externally.

Consolidation of the net trading income includes, among other things, credit rating effects on issues of HSH Nord- Segment Reporting | N otes on financial instruments | Interim Report 81

Notes on financial instruments

42. CARRYING AMOUNTS OF FINANCIAL INSTRUMENTS BY IAS 39 CATEGORY

30.9.2011 Carrying amounts of financial instruments by IAS 39 category No IAS 39 (¤ m) LaR AfS DFV HfT LIA category Total

Assets Cash reserve 1,374 365 – – – – 1,739 Loans and advances to banks 8,857 41 115 – – – 9,013 Loans and advances to customers 89,784 – 1,146 – – – 90,930 Receivables under finance leases – – – – – 127 127 Positive fair values of hedging derivatives – – – – – 2,109 2,109 Trading assets – – – 11,746 – – 11,746 Financial investments 13,198 7,951 2,261 – – – 23,410 Non-current assets held for sale and disposal groups 121 311 – – – – 432 Other assets 490 – – – – – 490 Total assets 113,824 8,668 3,522 11,746 – 2,236 139,996

Liabilities Liabilities to banks – – 316 – 22,578 – 22,894 Liabilities to customers – – 3,465 – 40,537 – 44,002 Securitised liabilities – – 4,862 – 34,637 – 39,499 Negative fair values of hedging derivatives – – – – – 736 736 Trading liabilities – – – 12,468 – – 12,468 Liabilities relating to disposal groups – – – – 162 – 162 Subordinated capital – – 1,882 – 6,596 – 8,478 Other liabilities – – – – 1,857 – 1,857 Total liabilities – – 10,525 12,468 106,367 736 130,096 82 Q3 2011

31.12.2010 Carrying amounts of financial instruments by IAS 39 category No IAS 39 (¤ m) LaR AfS DFV HfT LIA category Total

Assets Cash reserve 1,003 407 – – – – 1,410 Loans and advances to banks 10,188 42 208 – – – 10,438 Loans and advances to customers 101,428 – 1,156 – – – 102,584 Receivables under finance leases – – – – – 274 274 Positive fair values of hedging derivatives – – – – – 1,838 1,838 Trading assets – – – 11,282 – – 11,282 Financial investments 14,438 7,804 2,759 – – – 25,001 Non-current assets held for sale and disposal groups 148 48 193 – – – 389 Other assets 185 – – – – – 185 Total assets 127,390 8,301 4,316 11,282 – 2,112 153,401

Liabilities Liabilities to banks – – 315 – 25,885 – 26,200 Liabilities to customers – – 3,519 – 46,927 – 50,446 Securitised liabilities – – 5,486 – 39,240 – 44,726 Negative fair values of hedging derivatives – – – – – 362 362 Trading liabilities – – – 11,412 – – 11,412 Liabilities relating to disposal groups – – – – – – – Subordinated capital – – 2,030 – 6,689 – 8,719 Other liabilities – – – – 1,556 – 1,556 Total liabilities – – 11,350 11,412 120,297 362 143,421 N otes on financial instruments | Interim Report 83

43. RECLASSIFICATION UNDER IAS 39 (2008)

HSH Nordbank Group exercised the option of reclassify­- ment of the amortised acquisition cost. For reclassifica- ing assets under IAS 39 (2008 revision) as LaR where they tion of financial instruments from AfS to LaR the revalua- meet the relevant requirements, were not intended for tion reserve recognised up to the point of reclassifica­- short-term sale at the time of reclassification and are due tion is released through net interest income on a pro rata to be held for the foreseeable future. The assets were temporis basis in accordance with IAS 39.54 a). reclassified in 2008 and 2009 due to the global financial crisis and the consequences it has had on the valu­ation During the third quarter of 2008, financial instruments of securities holdings. The reclassifications were performed were reclassified from the categories HfT and AfS into in accordance with IAS 39.50D or IAS 39.50E respec­- LAR. These reclassifications are shown in the following tively. table.

The reclassification as LaR measures fair value at the time of reclassification at cost or amortised cost, respective­ ly. At the time of reclassification an effective interest rate is determined which is used for subsequent measure-

30.9.2011 31.12.2010

Carrying amount as at the time of Carrying Carrying (¤ m) reclassification amount Fair value amount Fair value

Reclassified from HfT to LaR 1,020 178 157 211 199 Reclassified from AfS to LaR 1,841 255 249 269 262 Total financial assets reclassified as LaR 2,861 433 406 480 461

The effective interest rate applied in the case of finan-­ More assets were reclassified in the second quarter of cial instruments in the category HfT was between 0.03 % 2009. These are shown in the following table. and 14.72 % and for financial instruments in the cate-­ gory AfS was between 2.97 % and 9.75 %. Anticipated repay­ ments amounted to € 2,988 million.

30.9.2011 31.12.2010

Carrying amount as at the time of Carrying Carrying (¤ m) reclassification amount Fair value amount Fair value

Reclassified from HfT to LaR 399 308 314 371 379 Reclassified from AfS to LaR 6,336 5,467 5,452 5,766 5,706 Total financial assets reclassified as LaR 6,735 5,775 5,766 6,137 6,085 84 Q3 2011

The effective interest rate applied in the case of finan­- For financial instruments reclassified from HfT the valu­ cial instruments in the HfT category was between 1.21 % ation result in the income statement for the current report­ and 5.06 % and between 0.87 % and 5.00 % for financial ing period would have been € − 3 million (previous year: instruments in the AfS category. Anticipated repayments € 9 million) for the financial instruments reclassified in the amounted to € 6,859 million. 2008 financial year and € − 1 million (previous year: € 3 million) for the financial instruments reclassified in The decrease in carrying amounts and fair values of all the 2009 financial year. reclassified financial instruments was due to extensive changes in holdings. At the time of reclassification as HfT, For financial instruments reclassified from AfS the valu­ the carrying amount of the financial instruments affect­- ation result in the income statement for the current report­ ed was € 917 million and the carrying amount of assets ing period would have been € − 3 million (previous year: clas­sified as AfS was € 2,499 million. The changes in € 2 million) for the financial instruments reclassified in the holdings result from sales as well as maturities. The sales 2008 financial year and € 64 million (previous year: were carried out following the realignment of the HSH € 24 million) for the financial instruments reclassified in Nordbank Group and were neither planned nor anticipat- the 2009 financial year. ed at the time of the reclassification. Shown below is the actual impact of all holdings reclas­ Shown below is the impact all holdings reclassified to sified to date on the income statement of the current date would have had on the income statement and revalu­ reporting period: ation reserve if they had not been reclassified.

January - September 2011 January - September 2010

(¤ m) From HfT From AfS Total From HfT From AfS Total

Net interest income 13 123 136 19 123 142 Net trading income – 9 9 4 31 35 Net income from financial investments −3 −76 −79 7 38 45 Subtotal 10 56 66 30 192 222 N otes on financial instruments | Interim Report 85

44. DISCLOSURE OF FAIR VALUE IN ACCORDANCE WITH IFRS 7

In addition to changes to the valuation levels of indivi­du­- ket. These securities have a carrying amount of € 1,069 mil­ al transactions, there were significant changes to the valu­ lion as at the time of level transfer. Furthermore inter­- a­tion levels of interest-bearing securities in the holding est-bearing securities in the AfS holding category in the categories AfS and HfT in the period under review. It was amount of € 153 million were reclassified from level 1 possible to assign these to valuation level 1 instead of to level 2, as quoted prices in active markets were not avail­ their previous level 2 thanks to improvements in the mar- able for these.

45. FINANCIAL TRANSACTIONS WITH SELECTED EUROPEAN STATES

The following tables contain overviews of our commit- statement are only shown for the original items, i.e. ments with European states where an increased economic valuation results arising from hedging derivatives are not risk is assumed. The risk shown is that assigned directly taken into account. to one of the listed European states. Effects on the income

30.9.2011

Accumulated Carrying impairment amount of Gross carrying losses financial Assets classified as LAR Nominal Acquisition amount of recognised assets after Fair value of (¤ m) values costs financial assets through P&L impairment assets

Portugal 215 200 205 – 205 133 Ireland – – – – – – Italy 64 64 65 – 65 53 Greece 115 115 118 −67 51 51 Spain 184 176 180 – 180 156 Total 578 555 568 −67 501 393 86 Q3 2011

31.12.2010

Accumulated Carrying impairment amount of Gross carrying losses financial Assets classified as LAR Nominal Acquisition amount of recognised assets after Fair value of (¤ m) values costs financial assets through P&L impairment assets

Portugal 215 199 200 – 200 154 Ireland – – – – – – Italy 66 66 66 – 66 60 Greece 135 126 127 – 127 82 Spain 190 181 184 – 184 158 Total 606 572 577 – 577 454

30.9.2011

Accumulated Accumulated impairment changes in Gross carrying losses value in the Assets classified as AfS Nominal Acquisition amount of recognised revaluation Fair value of (¤ m) values costs financial assets through P&L reserve assets

Portugal – – – – – – Ireland – – – – – – Italy 41 41 42 – −7 35 Greece 18 18 18 −11 – 7 Spain – – – – – – Total 59 59 60 −11 −7 42

31.12.2010

Accumulated Accumulated impairment changes in Gross carrying losses value in the Assets classified as AfS Nominal Acquisition amount of recognised revaluation Fair value of (¤ m) values costs financial assets through P&L reserve assets

Portugal – – – – – – Ireland – – – – – – Italy 75 75 76 – 1 77 Greece 17 17 19 – −6 13 Spain – – – – – – Total 92 92 95 – −5 90 N otes on financial instruments | Interim Report 87

30.9.2011

Accumulated impairment Gross carrying losses Assets classified as DFV Nominal Acquisition amount of recognised Fair value of (¤ m) values costs financial assets through P&L assets

Portugal 100 100 100 −50 50 Ireland – – – – – Italy 424 427 436 48 484 Greece 120 121 121 −81 40 Spain – – – – – Total 644 648 657 −83 574

31.12.2010

Accumulated impairment Gross carrying losses Assets classified as DFV Nominal Acquisition amount of recognised Fair value of (¤ m) values costs financial assets through P&L assets

Portugal 100 100 100 −26 74 Ireland – – – – – Italy 417 420 425 100 525 Greece 116 117 116 −50 66 Spain – – – – – Total 633 637 641 24 665

In the case of derivatives, the fair values of the assets 30.9.2011 31.12.2010 are reported after credit default adjustments. For deriv­a­ Assets classified as HfT Fair value of Fair value of (¤ m) assets assets tives, there was no offsetting of the fair value of the assets against opposite positions of the same counterpar- ties, even in respect of existing netting agreements. If, Portugal 6 6 with regard to Italy, opposite positions had been taken into Ireland – – account for derivatives, the fair value of the assets as at Italy 38 38 Greece – – 30 September 2011 would have been € 0 million (31 Decem­ Spain – – ber 2010: € 0 million). Total 44 44

The debt haircut of 50 % agreed for Greece has not had a material impact on HSH Nordbank as the relevant assets had already been written down to market value. 88 Q3 2011

46. CREDIT RISK ANALYSIS OF FINANCIAL ASSETS

I Q. CRedit UALITY OF FINANCIAL INSTRUMENTS WHICH ARE NEITHER IMPAIRED NOR OVERDUE

The table below gives information on the credit quality of financial instruments which were neither impaired nor overdue as of the reporting date. The table provides a breakdown of the financial instruments by category and rating class of the respective counterparty.

1 (AAA) to 1 (AA+) 1 (AA) to 1 (A−) 2 to 5 6 to 9 10 to 12 13 to 15 16 to 18 Credit quality (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Held for Trading (HfT) Trading assets 3,999 4,171 4,197 4,027 1,099 940 1,116 795 335 448 464 350 536 551 Designated at Fair Value (DFV) Loans and advances to banks 46 131 – 50 69 27 – – – – – – – – Loans and advances to customers 1,118 1,079 – – 12 11 16 66 – – – – – – Financial investments 431 796 1,482 1,519 35 137 32 175 204 2 41 111 36 20 Non-current assets held for sale and disposal groups – 180 – – – 2 – 11 – – – – – – Available for Sale (AfS) Cash reserve 365 407 – – – – – – – – – – – – Loans and advances to banks 25 26 12 11 3 3 1 2 – – – – – – Financial investments 4,564 4,134 2,275 1,816 570 548 95 379 31 37 4 65 9 6 Non-current assets held for sale and disposal groups 189 29 94 12 23 4 4 3 1 – – – – – Loans and Receivables (LaR) Cash reserve 1,374 1,003 – – – – – – – – – – – – Loans and advances to banks 4,361 4,522 3,837 3,035 364 2,148 59 185 21 63 1 2 – – Loans and advances to customers 7,420 9,893 10,903 12,208 17,873 19,585 19,097 20,625 7,408 9,814 9,060 8,453 3,951 5,472 Financial investments 5,715 8,127 3,983 3,249 2,397 1,689 211 222 42 125 191 398 – 62 Non-current assets held for sale and disposal groups 12 17 17 21 29 34 31 35 12 17 14 15 6 9 Other assets 308 – – – – – 182 185 – – – – – – No IAS 39 category Positive fair values of hedging derivatives 1,055 833 1,022 978 25 14 7 11 – – – 2 – – Receivables under finance leases 12 32 18 39 30 62 32 66 12 31 15 27 7 17 Total 30,994 35,380 27,840 26,965 22,529 25,204 20,883 22,760 8,066 10,537 9,790 9,423 4,545 6,137 N otes on financial instruments | Interim Report 89

1 (AAA) to 1 (AA+) 1 (AA) to 1 (A−) 2 to 5 6 to 9 10 to 12 13 to 15 16 to 18 Credit quality (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Held for Trading (HfT) Trading assets 3,999 4,171 4,197 4,027 1,099 940 1,116 795 335 448 464 350 536 551 Designated at Fair Value (DFV) Loans and advances to banks 46 131 – 50 69 27 – – – – – – – – Loans and advances to customers 1,118 1,079 – – 12 11 16 66 – – – – – – Financial investments 431 796 1,482 1,519 35 137 32 175 204 2 41 111 36 20 Non-current assets held for sale and disposal groups – 180 – – – 2 – 11 – – – – – – Available for Sale (AfS) Cash reserve 365 407 – – – – – – – – – – – – Loans and advances to banks 25 26 12 11 3 3 1 2 – – – – – – Financial investments 4,564 4,134 2,275 1,816 570 548 95 379 31 37 4 65 9 6 Non-current assets held for sale and disposal groups 189 29 94 12 23 4 4 3 1 – – – – – Loans and Receivables (LaR) Cash reserve 1,374 1,003 – – – – – – – – – – – – Loans and advances to banks 4,361 4,522 3,837 3,035 364 2,148 59 185 21 63 1 2 – – Loans and advances to customers 7,420 9,893 10,903 12,208 17,873 19,585 19,097 20,625 7,408 9,814 9,060 8,453 3,951 5,472 Financial investments 5,715 8,127 3,983 3,249 2,397 1,689 211 222 42 125 191 398 – 62 Non-current assets held for sale and disposal groups 12 17 17 21 29 34 31 35 12 17 14 15 6 9 Other assets 308 – – – – – 182 185 – – – – – – No IAS 39 category Positive fair values of hedging derivatives 1,055 833 1,022 978 25 14 7 11 – – – 2 – – Receivables under finance leases 12 32 18 39 30 62 32 66 12 31 15 27 7 17 Total 30,994 35,380 27,840 26,965 22,529 25,204 20,883 22,760 8,066 10,537 9,790 9,423 4,545 6,137 90 Q3 2011

II . CArrying AMOUNTS OF OVERDUE, UNIMPAIRED FINANCIAL ASSETS

The table below shows the financial assets which were over­ due but unimpaired as of the reporting date. The assets are broken down by category. Categories not shown have no overdue assets.

Overdue Overdue Overdue Overdue Carrying amounts of overdue, < 3 months 3 to 6 months 6 to 12 months > 12 months unimpaired financial assets (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Loans and Receivables (LaR) Loans and advances to banks 10 5 – – – – – – Loans and advances to customers 1,669 1,369 229 481 260 691 866 783 Total 1,679 1,374 229 481 260 691 866 783

Payments of € 35 million on transactions with a carry-­ III . Impaired FINANCIAL ASSETS ing amount volume of € 889 million were received up to ten days after the reporting date of 30 September 2011. The table below shows all impaired financial assets and Payments are regarded as being in arrears when they are the associated collateral received as of the reporting date. one day overdue. The financial assets are broken down by category.

The overdue, non-impaired credit portfolio is offset by collateral in the form of real estate liens, ship mort­gages, aircraft mortgages, assignments and transfers of owner- ship by way of security. The collateral assigned large­ly com­ prises physical assets.

Carrying amount of Gross carrying amount of financial assets impaired financial assets Impairment after impairment Impaired financial assets (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Loans and Receivables (LaR) Loans and advances to banks 204 228 187 191 17 37 Loans and advances to customers 11,049 12,054 3,788 3,890 7,261 8,164 Financial investments 1) 1,185 1,080 525 514 660 566 Available for Sale (AfS) Financial investments 1) 729 1,353 327 535 402 818 Total 13,167 14,715 4,827 5,130 8,340 9,585

1) Financial investments classified as LaR and AfS are shown net in the statement of financial position, i. e. at their carrying amounts less impairment. N otes on financial instruments | Interim Report 91

The impaired credit portfolio is secured with collateral [42] as well as off-balance sheet liabilities as presented in the form of real estate liens, ship mortgages, aircraft in Note [47]. mort­gages, assignments and transfers of ownership by way of security. The collateral assigned largely comprises In the case of Loans and advances to banks and customers, physical assets. the credit risk exposure corresponds to the carrying amount after value adjustments as presented in Note [20]. The maximum default risk of the loans and advances IV . CRedit RISK EXPOSURE designated at fair value (DFV) is not reduced by associated credit derivatives. With the exception of Loans and advances to banks and customers, credit risk exposure in accordance with IFRS Collateral as well as other risk-reducing agreements are 7.36 (a) as at the balance sheet date corresponds to the not reflected in these amounts. carrying amount of financial assets as presented in note

47. CONTINGENT LIABILITIES AND IRREVOCABLE LOAN COMMITMENTS

Off-balance-sheet business (¤ m) 30.9.2011 31.12.2010

Contingent liabilities 2,818 3,270 Irrevocable loan commitments 7,171 9,526 Total 9,989 12,796

As part of the implementation of the restructuring required under the EU state aid proceedings the HSH Nordbank Group is legally obliged as at 30 September 2011 to reduce administrative expenses by 2014. A large proportion of the associated restructuring expense that is expected to be a nine-figure sum will probably have to be recognised in the fourth quarter 2011. At the present time it is not yet possible to quantify the restructuring costs in more pre- cise detail as the planning for achieving the reduc­tion tar- gets has not yet been completed. 92 Q3 2011

Other disclosures

48. REPORT ON BUSINESS IN DERIVATIVES

Derivative financial instruments are used to a considerable degree in order to hedge risk efficiently, to take advan-­ tage of market opportunities and to cover special custom- er financing needs. The derivatives business of HSH Nordbank Group is predominantly transacted with banks based in OECD countries.

I . VolumeS

Nominal values Positive market values Negative market values Derivative transactions with interest rate risks (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Interest rate swaps 308,971 378,890 8,221 7,490 9,396 8,574 FRAs 2,395 4,122 2 – 1 2 Swaptions Long positions 1,456 1,781 91 59 1 – Short positions 1,994 2,748 2 2 200 130 Caps, floors 14,077 17,637 189 206 129 146 Exchange-traded contracts 6,389 5,211 – – – – Other forward interest rate transactions 6,950 9,870 38 165 127 64 Total 342,232 420,259 8,543 7,922 9,854 8,916

Derivative transactions with interest rate Nominal values Positive market values Negative market values and foreign exchange risks (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Cross currency interest rate swaps 37,015 43,188 593 838 1,245 1,145 Total 37,015 43,188 593 838 1,245 1,145 Other disclosures | Interim Report 93

Derivative transactions with foreign Nominal values Positive market values Negative market values exchange risks (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Forward exchange transactions 14,187 19,421 226 237 289 468 Currency options Long positions 2,130 1,859 349 333 – – Short positions 1,870 1,609 – – 331 303 Total 18,187 22,889 575 570 620 771

Derivative transactions with equity Nominal values Positive market values Negative market values and other price risks (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Equity options Long positions 333 469 35 42 – – Short positions 120 143 – – 33 36 Forward equity transactions – – – – – – Exchange-traded contracts 10 33 4 5 – 7 Equity/index-based swaps 201 287 2 2 56 53 Commodity-based transactions 1,543 1,115 109 114 89 82 Total 2,207 2,047 150 163 178 178

Nominal values Positive market values Negative market values Credit derivatives (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Guarantor position 258 589 – 6 9 9 Secured position 824 1,113 26 100 1 5 Total 1,082 1,702 26 106 10 14

Derivative transactions in Nominal values Positive market values Negative market values structured products (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Structured products 10,273 12,087 715 357 561 386 Total 10,273 12,087 715 357 561 386

The derivatives reported under this item include interest sification, the comparative figures from the previous rate, credit, foreign exchange and price risks. From the year for derivative transactions with interest rate risks are first quarter of 2011 onwards, these transactions are no changed accordingly. long ­er disclosed under derivative transactions with inter- est rate risks, but under a separate item. Due to the reclas- 94 Q3 2011

Derivative transactions in Nominal values Positive market values Negative market values fair value hedge accounting (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Fair value hedges Interest rate swaps 32,397 35,317 2,070 1,793 714 357 Cross currency interest rate swaps 342 306 39 45 22 5 Total 32,739 35,623 2,109 1,838 736 362

II . MaturitieS

Positive market values Negative market values Positive market values of of derivatives from fair Negative market values, of derivatives from fair derivatives value hedging derivatives value hedging Maturities (¤ m) 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010 30.9.2011 31.12.2010

Residual terms Up to 3 months 384 401 – 3 481 689 – – 3 months to 1 year 519 734 123 91 945 769 38 14 1 year to 5 years 3,420 3,867 1,139 1,297 3,852 4,340 354 184 More than 5 years 6,279 4,954 847 447 7,190 5,612 344 164 Total 10,602 9,956 2,109 1,838 12,468 11,410 736 362

49. DISCLOSURES ON COLLATERAL TRANSFERRED AND RECEIVED

I. COLLATERAL TRANSFERRED Carrying amounts of transferred collateral (¤ m) 30.9.2011 31.12.2010

As at 30 September 2011 HSH Nordbank Group had assets transferred as collateral with a carrying amount of Loans and advances 6,105 5,650 € 6,120 million (31 December 2010: € 5,735 million) Loans and advances to banks 4,733 4,408 which do not meet the requirements for derecognition Loans and advances to customers 1,372 1,242 under IAS 39. The assets transferred as collateral con­- Trading assets/Financial investments 15 85 tinue to be recognised by the HSH Nordbank Group, as the Total 6,120 5,735 interest rate risk, credit risk and other material risks as well as the prospects of appreciation and interest income The collateral transferred comprises mainly assets used largely reside with the HSH Nordbank Group. for the collateralisation of OTC derivative transactions. Repurchase agreements are separately reported below. A small amount of collateral has been transferred in the course of securities lending business. O cther dis losures | Interim Report 95

The following table shows the carrying amounts of the lia­ in value and interest income continue to be borne by HSH bilities related to the collateral transferred: Nordbank Group.

Carrying amounts of liabilities Repo and securities lending transactions are monitored (¤ m) 30.9.2011 31.12.2010 by measuring transactions on a daily basis. If there is a short­fall in collateral the counterparty may require Liabilities to banks 418 545 HSH Nordbank Group to provide additional securities to Trading liabilities 5,877 4,809 increase collateral. Where HSH Nordbank Group has Total 6,295 5,354 provided collateral and the market situation changes such that the cover provided is excessive, it is entitled to The carrying amounts of liabilities to development require the counterparty to release collateral. The collat- banks are recognised in the amount of the corresponding eral provided is subject to a full transfer of rights, i.e. loans transferred as collateral. the party receiving collateral may act like an owner and in particular may transfer or pledge such collateral. In the Money market borrowing generally involves pledging and case of securities collateral, securities of the same type and transferring securities lodged with the European Cen­- quality (‘the same sort’) must be delivered or returned tral Bank. Loan notes and other receivables from lending unencumbered. Where collateral has been provided in the are not pledged to the European Central Bank, but are form of securities, it may not be returned in cash. assigned without this being disclosed. It is not possible to resell or pledge in the interim. The above conditions and collateral modalities apply to tri- party repo transactions between HSH Nordbank Group The HSH Nordbank Group securitised customer loans and its counterparties accordingly. The transactions are exe­ as part of structured transactions and thereby generated cuted via a tri-party agent. senior notes which were eligible for refinancing at the central bank and which were received by the ECB pledged securities account in the amount of € 756 million as at II . COllateral RECEIVED 30 September 2011. The underlying customer loans are included in Loans and advances to customers. The HSH Nordbank Group received collateral from counterparties with a total fair value of € 3,689 million In addition, the HSH Nordbank Group concludes repur- (31 December 2010: € 3,591 million). The collateral chase agreements under repo master agreements both on received is split up as follows: € 492 million (31 December a national and international scale. The associated liabil­i­- 2010: € 566 million) related to OTC derivatives and ties are recognised under Liabilities to banks or Liabilities structured transactions. The Group received collateral in to customers. At the end of the reporting period, the car­ the amount of € 3,197 million (31 December 2010: rying amount of the securities transferred as collateral in € 3,025 million) within the framework of genuine repo the framework of repo transactions was € 3,473 million transactions where it acted as the lender. This includes (31 December 2010: € 7,106 million). The correspond­ing cash collateral in the amount of € 448 million (31 Decem- liabilities are recognised in the amount of € 2,388 mil­- ber 2010: € 566 million). Of the collateral received lion (31 December 2010: € 6,889 million). The requirements € 1,831 million (31 December 2010: € 1,843 million) was for derecognition under IAS 39 are not met. The securi- resold or pledged. There are no restrictions on dispos-­ ties sold under repurchase agreements continue to be rec- al or realisation. HSH Nordbank Group is obliged to return ognised in the statement of financial position of the all collateral resold or pledged to the guarantor with­- Group, as the interest rate risk, credit risk and other mate­ out exception. rial risks as well as opportunities related to appreciation 96 Q3 2011

The HSH Nordbank Group carries out securities repur- Holstein and the Free and Hanseatic City of Hamburg via chase and lending transactions as well as tri-party repo HSH Finanzfonds AöR was repaid in the first three quar- trans­actions under standard master agreements with ters of 2011, reducing the outstanding balance to current- selected counterparties. The same conditions and collater- ly € 7 billion. alisation methods apply as for collateral transferred. For further information on the second loss guarantee please refer to Note [2]. III C . Other OLLATERAL RECEIVED The costs of these guarantees are disclosed in the income In the reporting period no assets were recognised from the statement under the item Expenses for government guar- realisation of collateral that are still disclosed on the antees (see Note [15]). face of the balance sheet as at the reporting date (31 Decem­ ber 2010: € 0 million).

In November 2008, HSH Nordbank AG received a guaran- tee facility for up to a maximum of € 30 billion from SoFFin. This was reduced to € 17 billion in coordination with SoFFin with effect from the end of the year 2009. The guarantee facility expired as agreed on 31 December 2010. The guarantees for the existing issues remain in force. As at 30 September 2011 issues of € 6 billion (31 Decem­ber 2010: € 9 billion) are still outstanding.

€ 3 billion of the guarantee facility of an initial amount of € 10 billion provided to HSH Nordbank AG and certain group companies by the federal state of Schleswig-

50. RELATED PARTIES

The HSH Nordbank Group does business with related par- In the course of the normal business operations trans­ ties and companies. These include the HSH Finanzfonds actions are entered into at arm’s length with companies AöR as parent company, the federal state of Schleswig- and parties that are related parties. These transactions Hol­stein and the Free and Hanseatic City of Hamburg, include loans, sight and term deposits, derivatives and secu­ which each participate in HSH Finanzfonds AöR at 50 %. rities transactions. Furthermore, business relations exist with subsidiaries which are controlled but not consolidated for reasons of materiality, associated companies, joint ventures, indi­ viduals in key positions and their relatives and companies controlled by these individuals. Individuals in key posi- tions comprise exclusively the members of the Manage- ment and Supervisory Boards of HSH Nordbank AG. O cther dis losures | Interim Report 97

January – January – I . the Parent COMPANY AND COMPANIES WITH Subsidiaries – income statement September September JOINT MANAGEMENT OR SIGNIFICANT INFLUENCE (¤ m) 2011 2010 ON THE COMPANY Net interest income 8 14 For transactions with HSH Finanzfonds AöR as well as Net commission income – 1 with the federal state of Schleswig-Holstein and the Free Result from hedging – 2 and Hanseatic City of Hamburg, which each participate Net trading income 18 14 in HSH Finanzfonds AöR at 50 % the Bank makes use of Net income from financial investments −2 −11 IAS 24.25. According to IAS 24.25 the HSH Nordbank Loan loss provisions 9 −4 Group is exempt from the disclosure requirement regard- Other operating income 3 – Total 36 16 ing public authorities, unless transactions are involved that have a significant impact on the consolidated finan- cial statements. Furthermore there are contingent liabilities to subsid­ iaries of € 3 million (31 December 2010: € 7 million) and The guarantee amount with regard to the guarantee € 34 million (31 December 2010: € 33 million). facility provided by the federal state of Schleswig-Holstein and the Free and Hanseatic City of Hamburg to HSH There are no other financial liabilities to subsidiaries as at Nordbank AG and certain subsidiaries via HSH Finanzfonds the reporting date (31 December 2010: € 3 million). AöR is identified as a significant transaction within the meaning of IAS 24. Please refer to Note [2] and [15] for more details. III S . AS OCIated COMPANIES

The following tables show transactions with associated II S . SUB IdiarieS companies not included in the consolidated financial state­ ments under the equity method: The transactions with unconsolidated subsidiaries are shown below: Associated companies – assets (¤ m) 30.9.2011 31.12.2010

Subsidiaries – assets (¤ m) 30.9.2011 31.12.2010 Loans and advances to customers 770 843 Loan loss provisions −21 −36

Loans and advances to customers 469 479 Trading assets 8 8 Loan loss provisions −28 −15 Financial investments 349 899 Trading assets 47 44 Other assets 1 4 Financial investments 181 316 Total 1,107 1,718 Other assets 2 4 Total 671 828

Subsidiaries – liabilities (¤ m) 30.9.2011 31.12.2010

Liabilities to customers 108 118 Trading liabilities – 1 Provisions in the lending business 9 1 Other liabilities 1 3 Total 118 123 98 Q3 2011

Associated companies – liabilities Joint ventures – assets (¤ m) 30.9.2011 31.12.2010 (¤ m) 30.9.2011 31.12.2010

Liabilities to customers 66 67 Loans and advances to customers 130 134 Securitised liabilities – 98 Loan loss provisions −6 −5 Trading liabilities – 1 Trading assets 13 14 Provisions in the lending business – 1 Total 137 143 Other liabilities 1 1

Total 67 168 Joint ventures – liabilities (¤ m) 30.9.2011 31.12.2010

January – January – Associated companies – income statement September September Liabilities to customers – 1 (¤ m) 2011 2010 Total – 1

Net interest income 31 32 January – January – Loan loss provisions 7 3 Joint ventures – income statement September September Net commission income 2 −1 (¤ m) 2011 2010 Result from hedging – 1

Net trading income 3 7 Net interest income 6 – Net income from financial investments – 10 Net commission income 1 – Total 43 52 Loan loss provisions −1 – Total 6 –

In addition, there are € 9 million (31 December 2010: € 12 mil­lion) of contingent liabilities to associated compa- nies and € 62 million (31 December 2010: € 88 million) V. OTHER RELATED PARTIES AND COMPANIES of irrevocable credit commitments. The following table contains information about indivi­- Other financial liabilities to associated companies amount du­als in key positions at HSH Nordbank AG and their to € 183 million (31 December 2010: € 151 million). close relatives as well as companies controlled by these individuals.

IV . JOint VentureS Related parties and companies – liabilities (¤ m) 30.9.2011 31.12.2010

The following tables show transactions with joint ven- tures not included in the consolidated financial statements Liabilities to customers 1 – under the equity method: Total 1 – O cther dis losures | Interim Report 99

51. OTHER FINANCIAL OBLIGATIONS DUE TO THE BANK LEVY (BANKENABGABE)

The Restructuring Fund Act provides for retrospective charges with respect to the so-called bank levy (Bankenab- gabe). Here the difference between the actual bank levy established (minimum amount) and the standard amount calculated for the contribution years 2011 through to 2019 can be charged subsequently within a period of two years. The obligation to pay the amount charged subse- quently only comes into effect once profits in the later financial years are obtained up to a level stipulated as reasonable in the Restructuring Fund Act. The amount to be charged subsequently is therefore dependent on prof­- it generation in the years to follow. HSH Nordbank will probably have to pay the bank levy in 2014 for the first time. The bank levy is likely to amount to an eight-figure sum according to the Bank’s internal current calcula- tions inclusive of the amounts to be charged subsequently. 100 Q3 2011

52. NAMES OF BOARD MEMBERS AND DIRECTORSHIPS HELD

I S. the UperviSORY BOARD OF THE Torsten Heick, Rellingen HSH NORDBANK GROUP Employee of HSH Nordbank AG

Hilmar Kopper, Rothenbach Oke Heuer, Kiel Former spokesperson of the Management Board of Deputy Head of Internal Audit, Savings Banks Association Deutsche Bank AG for Schleswig-Holstein Chairman Dr. Rainer Klemmt-Nissen, Hamburg Olaf Behm, Tangstedt Managing Director of HGV Hamburger Gesellschaft für Employee of HSH Nordbank AG Vermögens- und Beteiligungsmanagement mbH Deputy Chairman Lutz Koopmann, Altenholz Sabine-Almut Auerbach, Neumünster Former Chairman of the Management Board, District manager, ver.di Southern Holstein district Investitionsbank Schleswig-Holstein

Astrid Balduin, Kiel Dr. Joachim Lemppenau, Korschenbroich Employee of HSH Nordbank AG Former Chairman of the Management Board, Volksfürsorge Versicherung Hans-Werner Blöcker, Helmstorf Former Managing Director, Vereinigte Asphalt- Manfred Lener, Kiel Mischwerke GmbH & Co. KG Employee of HSH Nordbank AG

Berthold Bose, Hamburg Rieka Meetz-Schawaller, Kiel Regional financial services representative, ver.di Employee of HSH Nordbank AG Hamburg district Dr. David Morgan, London Detlev Bremkamp, Munich Managing Director of J.C. Flowers & Co. UK Ltd Former member of the Management Board, Allianz AG Holding Dr. Hans Reckers, Bad Homburg (until 1 August 2011) Former member of the Management Board, Deutsche Dr. Alexander Erdland, Suttgart-Degerloch Bundesbank (since 1 August 2011) Head of the Management Board, Wüstenrot & Edda Redeker, Kiel Württembergische AG ver.di, Northern district

Jürgen Friedland, Kiel Bernd Wrede, Hamburg Employee of HSH Nordbank AG Former Chairman of the Executive Board of Hapag Lloyd AG Jens-Peter Gotthardt, Moorrege Employee of HSH Nordbank AG O cther dis losures | Interim Report 101

II R. MemBE S OF THE RISK COMMITTEE Hilmar Kopper

Dr. Hans Reckers (until 1 August 2011) Rieka Meetz-Schawaller Chairman

Dr. Alexander Erdland (since 25 August 2011) IV R . MemBE S OF THE GENERAL COMMITTEE Chairman Hilmar Kopper Dr. David Morgan Chairman Deputy Chairman Olaf Behm Astrid Balduin Oke Heuer Olaf Behm Dr. Rainer Klemmt-Nissen Jürgen Friedland Lutz Koopmann Torsten Heick Rieka Meetz-Schawaller Dr. Rainer Klemmt-Nissen Dr. David Morgan Hilmar Kopper

Manfred Lener V R. MemBE S OF THE MEDIATION COMMITTEE

Bernd Wrede Hilmar Kopper Chairman

III R . MemBE S OF THE AUDIT COMMITTEE Olaf Behm

Dr. Joachim Lemppenau Dr. Rainer Klemmt-Nissen Chairman Manfred Lener Lutz Koopmann Deputy Chairman

Olaf Behm

Jürgen Friedland

Jens-Peter Gotthardt

Oke Heuer 102 Q3 2011

VI . the Management BOARD OF THE Bernhard Visker HSH NORDBANK GROUP Left the company as at 31 August 2011 until 31 July 2011 responsible for the following divisions: Dr. Paul Lerbinger Corporate Clients, Real Estate Clients, Private Banking, since 1 March 2011: Member of the Management Board Savings Banks, until 31 March 2011 also responsible for: since 1 April 2011: Chairman Capital Markets Clients, Capital Markets Structuring & Responsible for the following divisions: Group Commu­ Trading, Group Treasury (organisational / disciplinary allo- nications, Human Resources, Legal, Internal Audit, Corpo- cation; technical responsibility lies with the overall Man- rate Development, IT, Operations (organisational / dis­ agement Board) ciplinary allocation), Capital Markets Clients, Capital Mar- Born 1966 kets Structuring & Trading, Group Treasury (organisa­ tional / disciplinary allocation; technical responsibility lies Prof. Dr. Dirk Jens Nonnenmacher with the overall Management Board)1) Left the company as at 31 March 2011 Born 1955 until 31 March 2011: Chairman until 31 March 2011 responsible for the divisions: Corpo- Dr. Martin van Gemmeren rate Communication, Human Resources, Legal, Inter­- Responsible for the Restructuring Unit with the divisions: nal Audit, Corporate Development, Finance, Taxes (on a Wind-down Loans, Special Loans, Divestments temporary basis), IT, Operations (organisational / disci­ Born 1970 plinary allocation) Born 1963 Constantin von Oesterreich Responsible for the following divisions: Group Risk In the capacity of Chief Operating Officer Mr Ulrich Voß Management, Credit Risk Management, Loan and Collater- is responsible for the IT and Operations divisions. al Management, Restructuring, since 1 April 2011 also responsible for: Finance, Taxes (on a temporary basis until 30 September 2011) Hamburg / Kiel, 25 November 2011 Born 1953

Torsten Temp Responsible for the following divisions: Aviation, Energy & Infrastructure and Shipping, since 1 August 2011 Lerbinger van Gemmeren also responsible for: Corporate Clients, Real Estate Clients, Private Banking, Savings Banks1) Born 1960

von Oesterreich Temp

1) As part of the future business allocation the Capital Markets Clients and Capital Markets Structuring & Trading business units were combined under a new Capital Markets business unit as at 1 October 2011. Dr. Lerbinger is responsible organisationally / disciplinarily for Capital Markets, Savings Banks and Group Treasury as well as the new division Products, the overall Management Board bears the technical responsibility.

With effect from 1 October 2011 the former Market Support for the Regional and Sector Bank have been merged into the new Market Management division under the responsibility of Mr. Temp and the Shipping business unit divided into Shipping Clients Domestic and Shipping Clients International. O cther Dis losures | RevieW Opinion | Interim Report 103

REVIEW Opinion Based on our review, no matters have come to our atten- tion that cause us to presume that the condensed interim consolidated financial statements have not been pre- TO HSH NordBANK AG, HAMBURG AND KIEL pared, in material respects, in accordance with the IFRS applicable to interim financial reporting as adopted by We have reviewed the condensed interim consolidated the EU, or that the interim group management report has finan­cial statements of HSH Nordbank AG, Hamburg and not been prepared, in material respects, in accordance Kiel, – comprising the statement of financial position, with the requirements applicable to interim group man- the statement of comprehensive income, the statement of agement reports. changes in equity, the condensed cash flow statement and selected explanatory notes – together with the inter- Hamburg, dated 25 November 2011 im group management report of HSH Nordbank AG for the period from 1 January to 30 September, 2011. The pre­ paration of the condensed interim consolidated finan­- KPMG AG cial statements in accordance with those IFRS applicable Wirtschaftsprüfungsgesellschaft to interim financial reporting as adopted by the EU, and of the interim group management report in accordance with the requirements applicable to interim group man- agement reports, is the responsibility of the Company’s management. Our responsibility is to issue a report on Madsen König the condensed interim consolidated financial statements Wirtschaftsprüfer Wirtschaftsprüfer and on the interim group management report based on our review.

We performed our review of the condensed interim con- solidated financial statements and the interim group management report in accordance with the German gen- erally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprü­ fer (IDW). Those standards require that we plan and perform the review so that we can preclude through criti- cal evaluation, with a certain level of assurance, that the condensed interim consolidated financial statements have not been prepared, in material respects, in accord- ance with the IFRS applicable to interim financial report- ing as adopted by the EU, and that the interim group management report has not been prepared, in material respects, in accordance with the requirements applica­- ble to interim group management reports. A review is lim­ ited primarily to inquiries of company employees and analytical assessments and therefore does not provide the assurance attainable in a financial statement audit. Since, in accordance with our engagement, we have not performed a financial statement audit, we cannot issue an auditor’s report. 104 Q3 2011

R esponsibility statement by the Management Board

We hereby affirm that to the best of our knowledge the interim consolidated financial statements have been pre- pared in accordance with the applicable accounting principles and give a true and fair view of the net assets, financial position and results of operations of the HSH Nordbank Group and that the interim consolidated mana­ gement report presents the course of business, includ­ing the results of the business and the HSH Nordbank Group’s situation, in such a manner that it gives a true and fair view and describes the main opportunities and risks for the HSH Nordbank Group’s foreseeable performance.

Hamburg / Kiel, 25 November 2011

Lerbinger van Gemmeren

von Oesterreich Temp HSH NORDBANK GROUP AT A GLANCE IMPRINT

Income Statement Published by Forward-Looking Statements (¤ m) 1.1.– 30.9.2011 1.1.– 30.9.2010 HSH Nordbank AG This interim report includes certain forward-looking state- Net income before restructuring 839 157 Gerhart-Hauptmann-Platz 50 ments. These statements are based on our beliefs and Net income before taxes 46 -245 20095 Hamburg assumptions, as well as on conclusions drawn from infor- Group net loss -224 -190 Phone: +49 40-3333-0 mation currently available to us and on sources which Fax: +49 40-3333-34001 we consider to be reliable. Forward-looking statements Internet: www.hsh-nordbank.com include all statements that are not historical facts, in- Balance sheet cluding statements concerning possible or assumed future (¤ bn) 30.9.2011 31.12.2010 Martensdamm 6 growth opportunities and future economic developments. Equity 4.8 5.1 24103 Kiel Total assets 137.6 150.9 Phone: 0431-900-01 Such forward-looking statements are based on a number of Business volume 147.6 163.7 Fax: 0431-900-34002 assumptions concerning future events and are subject to uncertainties, risks, and other factors, many of which are Investor Relations beyond our control. Therefore actual events may differ Capital ratios 1) (%) 30.9.2011 31.12.2010 Phone: +49 40-3333-14601 considerably from those forecast in the forward-looking Fax: +49 40-3333-614601 statements. In view of this, you are advised never to rely Tier 1 capital ratio 17.9 15.4 [email protected] to an inappropriate degree on forward-looking statements. Tier 1 capital ratio excl. hybrid fi nancial instruments 13.0 10.7 We cannot accept any lia bility for the accuracy or com- Regulatory capital ratio 26.8 22.4 Imprint pleteness of these statements or for the actual realisation of Realisation forecasts made in this report. Furthermore, we are not

Employees 30.9.2011 31.12.2010 Heisters & Partner obliged to update the for ward-looking statements follow- Büro für Kommunikationsdesign, Mainz ing publication of this information. In addition, infor- Total 3,770 3,852 mation contained in this report does not represent any Germany 3,252 3,251 Printed by kind of offer for the acquisition or sale of any type of Abroad 518 601 HSH Print + Logistics GmbH, Hamburg securities of HSH Nordbank AG. Full-time positions 3,292 3,388 Germany 2,820 2,824 Abroad 472 564 This interim report is available for download at www.hsh-nordbank.com

Unguaranteed Guaranteed Public-sector Mortgage Ship This is an English translation of the original German 2) Long-term ratings liabilities liabilities Pfandbriefe Pfandbriefe Pfandbriefe version of the interim report. Moody’s Baa2 Aa1 Aaa Aaa A2 Fitch A - AAA – – –

1) including market risk positions 2) Obligations covered by “Gewährträgerhaftung” (guarantee obligation) Interim Report as of 30 September 2011 HSH Nordbank AG Gerhart-Hauptmann-Platz 50 20095 Hamburg Phone +49 40 3333–0 Fax +40 40 3333–34001

Martensdamm 6 24103 Kiel Phone +49 431 900–01 Fax +49 431 900–34002 [email protected] www.hsh-nordbank.com