2008 Annual Report

Our commitment is our strength 2008 was a year of significant challenges for the global economy, for the financial services industry and for our business. To date, our business model remains sound, and the outlook for our future operations is positive.

We remain positive because we know that we can count on our greatest strength. It is our firm commitment – to our customers, to our people, to our investors, to the communities we serve, to our core values, to culture, to quality in everything we do, and to the sustainable success of our enterprise.

Every day we renew that commitment through the efforts and expertise of more than 174,000 people in 22 countries.

That is why this year’s Annual Report features the photographs and words of UniCredit Group employees. No one can express our commitment more eloquently than the men and women who live it every day.

They speak to you from our branches and offices across Europe. Each message is different. Each expresses what commitment means to them, to their customers, and to their colleagues every single working day.

We feel that their words, their ideas truly capture the spirit of UniCredit Group – the spirit of commitment, our greatest strength.

2008 Annual Report Bank Austria at a Glance

Income statement figures (€ m) 2008 2007 +/–

Net interest income 5,367 3,936 36.3% Net fees and commissions 2,076 2,124 –2.2% Net trading, hedging and fair value loss/income –414 141 – Operating income 7,231 6,414 12.7% Operating expenses –3,935 –3,351 17.4% Operating profit 3,296 3,063 7.6% Profit before tax 1,505 2,740 –45.1% Consolidated profit 1,144 2,254 –49.2%

Volume figures (€ m) 31 dec. 2008 31 dec. 2007 +/–

Total assets 222,152 209,186 6.2% Loans and receivables with customers 131,973 115,216 14.5% Primary funds 127,761 119,699 6.7% Equity 14,237 15,332 –7.1% Risk-weighted assets (overall, Basel I) 131,981 117,993 11.9%

Key performance indicators 2008 2007

Return on equity after tax (ROE) 7.8% 17.0% Cost/income ratio 54.4% 52.2% Risk/earnings ratio 18.8% 12.3% Provisioning charge/avg. lending volume (cost of risk) 0.80% 0.46% Marginal Economic Value Added € 1,091 m € 1,262 m Marginal RARORAC 12.5% 15.8% Total capital ratio (2008: Basel II, 2007: Basel I) 9.19% 11.16% Tier 1 capital ratio 6.82% 8.20% Tier 1 capital ratio without hybrid capital (Core Tier 1 capital ratio) 6.52% 7.86%

Staff*) 31 dec. 2008 31 dec. 2007 +/–

Bank Austria (full-time equivalent) 67,002 54,387 23.2% Central Eastern Europe business segment 56,058 43,648 28.4% Other business segments 10,944 10,739 1.9% Austria 10,175 9,953 2.2% *) Employees of companies accounted for under the proportionate consolidation method are included at 100%

Offices*) 31 dec. 2008 31 dec. 2007 +/–

Bank Austria 3,166 2,343 35.1% Central Eastern Europe business segment 2,824 1,977 42.8% Other business segments 342 366 –6.6% Austria 331 348 –4.9% *) Offices of companies accounted for under the proportionate consolidation method are included at 100%. From 2008 without representative offices.

2 2008 Annual Report · Bank Austria Contents

Introduction 5 Preface by Alessandro Profumo 6 Preface by Erich Hampel 8

Strategy and Results 11 UniCredit Group Profile 12 Development and Strategy of Bank Austria 18 Management Board of UniCredit Bank Austria AG 26 Retail Division 28 Private Banking & Asset Management Division 31 Corporates Division 36 UniCredit Markets & Investment Banking 41 Central Eastern Europe Division 46 Global Banking Services Division 70

Human Resources and Corporate Sustainability 75 Human Resources 76 Responsible Management: Our Commitment to Sustainability 81 *) Consolidated Financial Statements: Management Report of the Group for 2008 87

Consolidated Financial Statements in accordance with IFRSs 121 Income statement 122 Balance sheet 123 Statement of changes in equity 124 Cash flow statement 125

Notes to the consolidated financial statements incl. risk report 127 Concluding Remarks of the Management Board 211 Report of the Auditors 212 Report of the Supervisory Board for 2008 214

Corporate Governance, Statement by Management, Supervisory Board and Management Board of UniCredit Bank Austria AG 217 Corporate Governance 218 Consolidated Financial Statements of the Bank Austria Group for 2008 Statement by Management 221 Supervisory Board and Management Board of UniCredit Bank Austria AG 222

Additional Information 225 Corporate Governance Report for the 2008 financial year of UniCredit Bank Austria AG 226 Office Network 232 Investor Relations 236

*) Part of the consolidated financial statements in accordance with IFRSs

Bank Austria · 2008 Annual Report 3 “The secret of our “The network of our Group strength is quite simple: allows us to support our customers we do not follow with different specialised products. corporate values handed The values of the Integrity Charter down to us from a sheet differentiate our Group. Different of paper. languages, different cultures, We exemplify through our different working experiences, own lives what the sheet but one Group, one commitment of paper has to say!” and one way – straight forward! That is our strength.” Oliver Riedl Germany Christian Kiss Austria Introduction

Preface by Alessandro Profumo 6

Preface by Erich Hampel 8

Bank Austria · 2008 Annual Report 5 Introduction Preface by Alessandro Profumo

It is important to Ladies and Gentlemen, and meet their needs. This strong “ focus on customer needs has been The series of events that shook financial and will always be the driving force be- recognize that institutions around the globe over the hind our strategy. second half of the year was unique, the ﬁnancial largely unmatched in scope and rapidity. Our Group operations in CEE continued to deliver good results, and the long- industry needs to This created an unprecedented lack of term strategic focus on this area is trust among financial operators that was unchanged. We cannot ignore the work in order to reflected in the huge liquidity drop in the repricing of risk on the markets, and interbank markets and in high market that some of the countries where the restore conﬁdence volatility. Group is operating are experiencing among all some difficulties. Notwithstanding that, „ It is important to recognize that the we are committed to the development financial industry needs to work in order of the CEE region and of all the nations stakeholders. to restore confidence among all stake- where the Group is present, including holders. Banks must rebuild their reputa- Austria. Europe is our home, and we tion, which was quickly compromised, trust in Europe and in its ability to and demonstrate to the markets that they weather this stormy environment are able to support the economy even in through coordination of efforts from moments of difficulty. different players.

In this troubled environment, however, the I want to thank the Management Board operating performance of Bank Austria and the employees at Bank Austria and was even better than the record level of in the CEE banks, whose commitment the previous year. The bank focused on its helped the Group achieve these results core competencies and continued to de- in such difficult market conditions. liver high quality services to its Austrian and international customers, and it per- 2009 will be another challenging year fectly fulfilled its responsibilities for CEE for the banking sector. However, we business within UniCredit Group. are encouraged by Bank Austria and the Group’s achievements in 2008, not The divisional business model which was because they were easily achieved, but implemented in Austria in 2007 has pro- because they provide a reliable foun- duced good results: the bank is closer to dation on which to continue our impor- its customers and can better understand tant work in the months ahead of us.

6 2008 Annual Report · Bank Austria Our reputation remains central to our identity and to the sustainability of our mission as both a business and a civic institution. We are guided by the Group’s core values, which today more than ever are central to all aspects of our business. We are confident that our adherence to these standards will reinforce us, and that our commitment to a sustainable business model is the most certain path to long-term success and stability.

Sincerely,

Alessandro Profumo

Chief Executive Ofﬁcer of UniCredit, Chairman of the Supervisory Board of UniCredit Bank Austria AG

Bank Austria · 2008 Annual Report 7 Introduction Preface by Erich Hampel

We aim to Ladies and Gentlemen, The 2008 financial statements reflect both the “ operating performance in the financial year Bank Austria coped well in addressing the and the dramatic deterioration in the operating enhance our challenges in 2008, one of the most difficult environment in the final months of 2008. years in banking history. Operating profit rose As the financial market crisis escalated in the competitiveness by 8% to € 3.3 billion. middle of September, it became necessary to make loan loss provisions for banks for the by bundling The direct impacts of the crisis, in which our first time. But it was the abrupt downturn in results from trading activities turned nega- global economic activity in the fourth quarter product know- tive, were more than offset by increases in that created a new situation. These develop- other revenue components and continued ments had an adverse impact on international how of the entire cost discipline. assessments of the situation in CEE countries – whether this is justified or not. As a conse- UniCredit Group Operations in our core markets of Austria and quence, we had to make valuation adjust- Central and Eastern Europe made contribu- ments in respect of acquisitions in CEE, with internationally tions to this steady performance. Revenues in impairment losses of over one billion euros the three segments of Austrian customer on goodwill being recognised in the income and making more business were maintained at a high level and statement. Consolidated profit for 2008, at effective use continued improvements in cost efficiency € 1.1 bn, was significantly lower than in the „ produced good results in these business seg- previous year. ments. Operating profit generated in the CEE of it locally. growth markets in 2008 exceeded the figure The leitmotiv of this report is “our commit- for 2007 by more than one half. Even without ment”. First and foremost, we are committed the acquisitions included in results for the to serving our customers. The yardstick cur- first time, operating profit in CEE rose by rently used by the public for measuring a 27%, as almost all banks contributed to the bank’s commitment is its readiness to grant increase with double-digit profit growth. loans. Our lending volume in Austria and CEE has been growing. We have a sound balance The good operating performance in the past sheet and our portfolio is well diversified in year fully confirms our universal banking regional terms and by customer group. While strategy. Our customer-focused business the overall structure of demand and credit model, the widely diversified regional pres- ratings may change, we do of course see our ence and the risk-taking capability of business function as granting loans to sup- UniCredit Group have proved effective. port the economy in Austria and in the CEE countries. I would like to thank all our employees. It was due to their strong commitment that Overall, we are determined to enhance cus- we were able to convince our customers of tomer satisfaction: we want to provide prod- our services in the difficult weeks of the ucts which are secure and easy to under- banking crisis. stand. In providing advisory services, we are

8 2008 Annual Report · Bank Austria not guided by the latest trends but by what is suitable and useful for our customers. Based on our Integrity Charter, we are committed to retaining the trust of our customers.

Second, our commitment to the CEE countries has not changed. We are convinced that the long-term catching-up process, which is currently affected by a temporary cyclical slowdown, is intact; in this context it should be noted that the impact of the slowdown varies signiﬁcantly from country to country. European integration will continue, leading to general gains in prosperity.

Third, especially in times of major change, we are fully committed to using opportunities available in our large perimeter of operations and making use of the talents of our local employees. We aim to enhance our competitiveness by bundling product know-how of the entire UniCredit Group internationally and making more effective use of it locally. For this purpose we share cross-regional platforms as far as possible.

Bank Austria and the entire UniCredit Group, together with our customers, will emerge stronger from these difﬁcult times.

Yours sincerely,

Erich Hampel

Chairman of the Management Board of UniCredit Bank Austria AG

Bank Austria · 2008 Annual Report 9 “We are the people who determine our future. There is no doubt that the atmosphere of our Group and beneficial relationships with our clients depend on us. To achieve this, we should stand by our moral and professional convictions and also consider our people’s opinions. When we commit ourselves to that principle, then we will succeed at everything we do.“

Julia Shagova Russian Federation Strategy and Results

UniCredit Group Profile 12 Highlights 12 Focus on CEE 14 Divisional Model 15 Our Values 16

Development and Strategy of Bank Austria 18

Management Board of UniCredit Bank Austria AG 26

Retail Division 28

Private Banking & Asset Management Division 31

Corporates Division 36

UniCredit Markets & Investment Banking 41

Central Eastern Europe Division 46 Baltic states 50 Bosnia and Herzegovina 51 Bulgaria 52 Kazakhstan 54 Croatia 55 Romania 57 Russia 58 Serbia 59 Slovenia 60 Slovakia 62 Czech Republic 63 Turkey 64 Ukraine 66 Hungary 67

Global Banking Services Division 70

Bank Austria · 2008 Annual Report 11 Strategy and Results UniCredit Group Profile

Highlights

UniCredit Group operates in 22 European countries, with more than 174,000 employees and over 10,200 branches.

UniCredit Group benefits from a strong European identity, extensive international presence and a broad customer base. Its strategic position in Western and Eastern Europe gives it one of the region’s highest market shares.

Countries where UniCredit Group has banking subsidiaries or banks in which it has a significant equity interest.

Employees 1 over 174,000

1) FTE = number of employees including delegation from companies, excluding delegation to companies and unpaid leave. All the people are counted for the rate of presence (paid quota). This number includes apprentices.

12 2008 Annual Report · Bank Austria EMPLOYEES BY COUNTRY1 (%)

26 33

Italy Germany Austria 10 Poland 13 Turkey 12 Others 6 branches 2 branches by region2 10,251

REVENUES BY GEOGRAPHIES 5,053 COMMERCIAL BANKING ACTIVITIES2 (%) over 10,200 2,962 n.a. 1,043 796

2) These figures include all branches of subsidiaries consolidated 349 48 proportionately, such as Koç Financial Services branches. The increase n.a. over 31 December 2007 is partly due to the inclusion of Ukrsotsbank (472 branches as at 31 December 2008). CEE n.a. LY ITA TOTAL O THER S Pol a nd AU S TRIA GER M A NY Italy CEE n.a. Germany Bank Austria · 2008 Annual Report 13 Austria Strategy and Results

UniCredit Group Profile (c o n t i n u e d )

Focus on Cee

UniCredit Group is a market leader in Central and Eastern Europe. As a long-term investor, its approach has always been the pursuit of growth through a well-articulated strategy, carefully executed, that builds on the region’s structural strengths.

Operating in 19 CEE countries, UniCredit Group benefits from geographical diversity and lends its strength to its local CEE banks in the form of substantial competitive advantages, which include its strong brand and reputation, its network’s access to international markets and significant economies of scale.

Employees by country3 Branches by country4 20,776 1,043 931 16,887 16,233 536 269 259 4,966 161 152 3,903 3,964 140 3,236 119 92 89 72 1,902 1,902 1,640 67 41 1,322 27 3 2 2 113 L y y A tr akia akia n Cz ech Cz ech Serbia u ss ia u ss ia e v ia Lat R Bosn ia R Bosn ia T urke y R epub l ic R epub l ic T urke y Pol a nd Pol a nd C r o atia Es t on ia U krai n e s C s CR O ATIA Rom a n ia H u n gar S lov Rom a n ia S lov e n ia H u n gar S lov B u l garia B u l garia Lithua n ia M on te n egr o n Ky rg yzs ta n K a z akh s ta E a s t ER N E ur o pe Other s C e n tr A L Other W e s t ER N E ur o pe

14 2008 Annual Report · Bank Austria Divisional Model

Network Management Centralised Product Factories/ Retail Networks, Corporate Banking Key Business Functions and Private Banking – in charge Markets & Investment Banking, Asset of customer coverage to maximise Management, Leasing, Household long-term value and customer Financing, Global Transaction Banking satisfaction. and Retail Marketing & Segments – as value added centres for all regions. Divisional Model

Global Service Factories Back office, ICT, credit collection, procurement services and real Multi-local approach estate – supplying network Empowering the Group’s local banks management divisions and product to oversee the distribution network factories with specialised services. and customer relationships.

3) FTE = number of employees including delegation from, excluding delegation to and unpaid leave. All the people are counted for the rate of presence (paid quota). This number includes apprentices. 4) These figures include all branches of subsidiaries consolidated proportionately, such as Koç Financial Services branches. The increase over 31 December 2007 is partly due to the inclusion of Ukrsotsbank (472 branches as at 31 December 2008).

Bank Austria · 2008 Annual Report 15 Strategy and Results

UniCredit Group Profile (c o n t i n u e d )

Our Values

Freedom to act

Fairness

Reciprocity

Our

Values

rust

espect R

Transparency

For UniCredit Group, generating profit is an professional life and it sets forth our values: essential, but not sufficient, condition for Trust, Transparency, Fairness, Freedom to act, success and growth over time. To ensure the Respect and Reciprocity. sustainability of profits, the latter must be pursued with integrity, thereby building our The Integrity Charter is the framework upon reputation both internally and externally. which our daily professional conduct is based. It determines our actions when we are faced The Group created the Integrity Charter with both routine and unexpected challenges to reflect the shared values that form the at work and it helps us make consistent and basis of our identity. It guides us in our daily responsible working decisions.

16 2008 Annual Report · Bank Austria The Integrity Charter: the basis of The Restorative Justice System is now our Group’s identity operational in 15 countries and will be progressively extended across the entire The Integrity Charter is a living document Group. designed to evolve over time to be in line with the ever-changing needs of the environment in All colleagues can consider the Restorative which all UniCredit Group companies exist. Justice System as a forum in which disputes can be mediated through dialogue The creation of our integrity framework started if relationships have been damaged by in 2003, when we defined our core values. behaviour deemed inconsistent with the In 2005, these values were codified in the values set out in the Integrity Charter. The Integrity Charter, which was the year we first Restorative Justice System is brought to launched the “Integrity Charter Day” in Italy. life by a group-wide Ombudsmen network We have steadily extended this initiative, year composed of Ombudsmen and Mediators. by year, to include all of the countries and companies that comprise UniCredit Group. The Ombudsmen are independent This annual event, devoted to our values, appointees who report directly to UniCredit provides a time each year to discuss “where Group’s Chairman. The Mediators are third we are” in our work to apply our values to our parties, outside UniCredit Group, who seek professional life. to facilitate dialogue between the involved parties. In 2006, in order to ensure that Integrity Charter values were properly applied among The Restorative Justice System underlines the all colleagues in the Group, we established fact that we strongly believe in the Integrity the Restorative Justice System and the Charter and that we are committed to bringing Ombudsmen network. These two institutions our values to life for each colleague in our commenced operations in 2007. Group.

Our Integrity Charter: the values that drive our business.

Bank Austria · 2008 Annual Report 17 Strategy and Results Development and Strategy of Bank Austria

Universal banking strategy and customer-focused business model prove successful in a challenging environment. Convergence of Western and Eastern Europe offers long-term potential for value creation. Synergies in a large cross-border banking group improve competitiveness in local customer business.

Structures In its Austrian home market, Bank Austria three major integration processes in the holds market shares of 17.1% in lending bank’s more recent history: the integration of Bank Austria’s function is to further develop business and 15.1% in deposits. One in six the CEE subsidiaries of the two predecessor operations in two core markets of UniCredit private customers (17%) in Austria, and one institutions Bank Austria and Creditanstalt; Group. In the mature Austrian market it holds in four (26%) high net worth individuals, the inclusion of the CEE network of HVB at a leading position based on its universal maintains an account relationship with Bank the beginning of 2000; and finally, as a deci- banking strategy with an international out- Austria. Bank Austria is market leader in the sive step, the transfer of UniCredit’s CEE look. At the same time, Bank Austria is the Austrian corporate banking sector, with banks (with the exception of Poland’s Mar- sub-holding company for UniCredit’s opera- 18.3% of total lending volume and 23.4% kets) to Bank Austria, which thereby became tions in the growth market of Central and of total deposits, and it also holds the leading a sub-holding company with effect from the Eastern Europe and has responsibility for their position in business with public sector enti- beginning of 2007. performance – based on decades of experi- ties. Bank Austria’s services are used by ence gained as one of the first banks which 45% of small businesses, 68% of medium- Most recently, we acquired ATF Bank in became active in the CEE region with a long- sized companies and 88% of large corporate Kazakhstan (consolidated as from December term commitment. customers. Moreover, Pioneer Investments 2007) and Ukrsotsbank in Ukraine (consoli- Austria accounts for 16.7% of the total vol- dated as from the beginning of 2008), thereby Bank Austria is fully integrated in UniCredit ume of mutual funds, giving it a leading posi- expanding the network to include banks in Group’s divisional and functional structure, tion in the Austrian mutual fund industry. markets which are rich in raw materials, and implementing the business model of Uni- extending the geographical perimeter of our Credit Group in its perimeter of operations. Bank Austria’s banking subsidiaries in activities to Central Asia. Our perimeter now The business model is based on proximity to Central and Eastern Europe (CEE) together encompasses banking subsidiaries in 18 customers and a needs-focused customer are market leader in CEE by a wide margin. countries and representative offices in three service approach of the divisional networks, This outstanding position is the result of a other countries. 56,058 employees in 2,824 on the cross-regional bundling of expertise in long development which started more than branches serve some 24 million customers. product factories and global competence 20 years ago with the establishment of sub- The region in which we operate has more centres, and on the use of synergies in pro- sidiaries and continued as the CEE network than 300 million inhabitants. duction according to best practice principles. grew into ever larger dimensions through Standing the test in 2008 Bank Austria: two complementary core markets – The year 2007 saw the integration of the CEE fully integrated in UniCredit Group banking subsidiaries as Bank Austria assumed the sub-holding company function for STRUCTURAL DATA AUSTRIAN CUSTOMER CENTRAL EASTERN BANK AUSTRIA operations in CEE countries. This involved a BUSINESS 1) EUROPE (CEE) AS A WHOLE 2) substantial increase in size; and apart from Customers 1.8 million about 24 million about 26 million Offices 331 2,824 3,166 the consolidation effect, the CEE business Employees (FTEs) 3) 5,358 56,058 67,002 segment also achieved strong growth in busi- (Austria 10,175) ness volume and profits, despite integration Volume (avg. risk-weighted assets) € 49.3 bn € 67.7 bn € 129.3 bn activities. While the momentum gained in … Share 38 % 52 % 100 % 2007 continued into the early part of 2008 in … Growth in 2008 4) + 4 % + 45 % / + 27 % (adj.) + 24 % / + 15 % (adj.) both Austria and CEE, the reporting year put Operating income € 2,320 m € 4,736 m € 7,231 m the bank to the test. Based on a strong oper- … Share 32 % 65 % 100 % ating performance we coped well with the di- Operating profit € 1,095 m € 2,502 m € 3,296 m rect and indirect impacts which originated … Share 33 % 76 % 100 % from financial markets, from the banking Value creation (marginal EVA) 5) € 316 m € 783 m € 1,091 m sector and finally from global economic Marginal RARORAC 10.7 % 12.5 % 12.5 % trends in the course of 2008 and which increasingly affected banking business in our 1) Retail, Corporates and Private Banking & Asset Management business segments. / 2) The difference is accounted for by Markets & Invest- ment Banking (including mainly UniCredit CAIB) and the Corporate Center (including Global Banking Services and subsidiaries that support the core markets. bank’s core business). / 3) FTEs, year-end 2008. / 4) Adjusted figures without changes in the group of consolidated companies. / 5) Marginal Economic Value Added (value creation beyond the cost of capital, without goodwill impairment), marginal RARORAC (risk-adjusted return on risk-adjusted capital).

18 2008 Annual Report · Bank Austria Operating profit rose by 8% to € 3.3 bn CEE drives growth in 2008. Even adjusted for special factors (in Young markets with exponential profit growth … particular, without the contributions from the Operating profit in € m banks in Kazakhstan and Ukraine, which were included for the first full year), operating profit 2,000 Central Eastern Europe (CEE) business segment of Bank Austria was only 9% below the high level of the pre- (respective perimeter) vious year. Revenue growth was so strong 1,500 (+35%) that the substantial swing in the net trading, hedging and fair value result – from net income of € 141 m in 2007 to a net loss 1,000 Austrian customer business of € 414 m in 2008 – was more than offset.

This means that the bank also absorbed the 500 indirect repercussions of the crisis, more speciﬁcally the slump in demand for securi- 0 ties investments, which led to a decline in net 2002 2003 2004 2005 2006 2007 2008 fees and commissions.

2008 proved that the mature Austrian market … with a disproportionately low provisioning requirement over the past years Risk/earnings ratio and the young CEE markets are complementary: growth was again driven by CEE, where 35% volume and operating profit rose by 27%, One-off effects also in the old perimeter. A multi-year com- 30% parison shows exponential growth (see chart). 25% Austrian customer business In Austrian customer business, volume and 20% operating profit increased by 4% and 3%, respectively, a good performance in view of the 15% exceptional circumstances experienced in 10% 2008. Over the past years there has been a CEE business segment of Bank Austria 5% (respective perimeter) steady upward trend in profits resulting from the bank’s strong market position and suc- 0% 2002 2003 2004 2005 2006 2007 2008 cessful cost management. In this context, cooperation with the CEE subsidiaries is becoming increasingly important. Good regional diversification of business portfolio Operating income for 2008: € 7,231 m Corporate Center 0.6% The diversification of Bank Austria’s business Kazakhstan 4.5% Austria portfolio proved effective in several respects Broader Ukraine 5.7% (without in 2008: net writedowns of loans and provi- Europe Corporate 33.9% Center) sions for guarantees and commitments in CEE Turkey 13.5% 34.0% (proportionate share) rose more strongly than in Austria, but measured as a proportion of net interest income Russia 10.2% (and against lending volume) the provisioning charge in CEE remained below the average for the bank as a whole. Serbia 1.1% Slovakia 2.3% Bosnia-H. 1.6% Slovenia 0.9% Central SEE Croatia 7.8% Czech Republic 5.3% Europe 19.3% Romania 4.2% Hungary 3.7% ➔ Based on its broadly diversified business 12.2% portfolio and its flexibility as a universal bank, Bulgaria 4.2% Baltics 0.3% Bank Austria coped well in what was the most difficult year in recent banking history.

Bank Austria · 2008 Annual Report 19 Strategy and Results Development and Strategy of Bank Austria (CONTINUED)

While Bank Austria’s operations proved to Overall, the “non-operating” items in the in- Our lending criteria have not changed, and be highly resilient throughout 2008, several come statement between operating profit lending volume has continued to increase in factors combined in the final months of the and profit before tax were a net charge of both CEE and Austria (by 6% from year-end year to lead to a completely new assessment € 1.8 bn. Thanks to the large operating profit, 2007 to year-end 2008). An improved capi- of risks associated with banking activities and profit before tax for 2008 was € 1.5 bn and tal base will make funding easier for us the outlook for such business. This reassess- consolidated profit amounted to € 1.1 bn. while enabling us to provide additional loans ment had an impact on the financial state- to the business sector and private house- ments of Bank Austria for 2008. In view of developments in the global holds. Moreover, the inevitable cyclical dete- From the middle of September 2008, banking sector, economic risks and the less rioration in corporate credit ratings will when the US investment bank Lehman Broth- favourably assessed outlook for CEE, mar- translate into higher capital requirements to ers collapsed, the financial market crisis esca- kets demanded more comfortable capital underpin “expected risk” pursuant to Basel II lated into a loss of confidence in the entire cushions for banks in general and espe- rules. And finally, as prudent business man- banking industry. cially for banks with extensive operations in agers we see it as our responsibility to The fourth quarter of 2008 saw an un- CEE. Higher capital ratios were expected in create an additional safety buffer for precedented abrupt downturn in the global the primary market for issues by banks in “unexpected risk”. economy. Exports, industrial output and particular; the related pro-cyclical effect investment fell sharply in all global regions, threatened to make funding more expensive resulting in a severe recession which also at a time when there is an urgent need for Strategy confirmed impacted emerging markets. low-cost credit. This situation prompted gov- by crisis Moreover, against the background of in- ernments to put in place stabilisation and vestors’ risk aversion and deleveraging in the support packages, which were used by The banking sector is currently experiencing global financial sector, currency depreciation many of our competitors in various coun- the most difficult situation in many decades. and balance-of-payments problems experi- tries. The crisis has caused serious problems enced by countries in Central and Eastern Eu- especially for those financial market partici- rope prompted investors, analysts and rating After detailed examination of the banking pants whose business is not customer driven agencies to take a very critical view of the package approved by the European Union, and is characterised by excessive investment CEE region. the Board of Directors of UniCredit Group in structured securities, high leverage and decided to enter into negotiations with the short-term funding via the interbank market. In response to the deteriorating economic en- governments in Italy and Austria on the Our strategy as a customer-focused univer- vironment, Bank Austria increased the provi- raising of state capital under the respective sal bank, on the other hand, proved suc- sioning charge for lending business in the banking packages. The objective is to cessful. We maintain our long-term strategy 2008 financial statements. Part of the in- increase the Core Tier 1 capital ratio in and we are even determined – in the entire crease related to – previously unfamiliar – UniCredit Group to 7.3 per cent; for this UniCredit Group – to further accelerate the credit risk in the banking sector and in con- purpose we want to raise a total of € 4 bn implementation of our business model. nection with counterparties in trading activi- in Italy and Austria. At the end of 2008, the ties. Moreover, as the credit cycle passed a Core Tier 1 capital ratio of Bank Austria was In this context, Bank Austria reaffirms its low point in both core markets in the second 6.5%. commitment to Central and Eastern half of 2008, credit risk started to rise again Europe and to taking advantage of the con- also in the non-financial sector. By comparison with other banks, UniCredit vergence of our two core markets. This is and Bank Austria have a strong capital base our mission. The bank has seen its commit- In addition, the reassessment of the medium- enabling them to cope with the current cri- ment as a long-term undertaking from the term outlook for CEE countries with highly ex- sis on their own. But most of our national very beginning. The structural catching-up posed economies required a revision of busi- and international competitors want to take process in Central and Eastern Europe is ness cases which applied when acquisitions up additional capital from the state or have only temporarily affected by an economic were made. This entailed substantial value already done so. This has competitive disad- slowdown. Convergence will continue and adjustments in respect of equity interests vantages for us – in the form of higher will offer substantial opportunities to both (goodwill impairment). funding costs or a lower rating. core markets.

20 2008 Annual Report · Bank Austria CEE story to continue

The long-term potential of the CEE region is intact. The story of institutional and regulatory environment in these countries, economic and income convergence towards the standards of which improves the business climate. EU post- and pre-acces- western European countries, coupled with the potential arising sion funds may also support the competitiveness of the region. from banking sector penetration, is still valid today. The long- Finally, the mutual interdependence of Western and Eastern term convergence prospects are good both as far as the real Europe provides a powerful incentive for international institu - economy and the banking sector are concerned. tions, such as the IMF and the World Bank, to play a supportive and proactive role in maintaining economic and ﬁnancial Financial deepening process stability in the region (as is currently the case in Hungary, Ukraine, Latvia and Romania). 600 The high cumulated FDI stock constitutes another structural 500 strength of the region as it shows that many investors are in

400 CEE in the longer term. FDI is much more stable and not with- Western Europe drawn as quickly as portfolio investments. Foreign investors 300 moved into those countries in the last 10–15 years with a view to investing over the longer term, a strategy based on the CEE 200 CEE countries’ convergence prospects towards Western Europe.

100 Foreign banks are part of those long-term oriented and committed investors to the CEE region. Their increasing presence

Financial intermediation: banking assets as % of GDP 0 10,000 20,000 30,000 40,000 in these countries, since the late 90s, has helped the region to Level of prosperity: GDP per capita (US$ at PPP) improve the bank regulatory environment and risk management practices. Their presence has of course also played a key Therefore, even though the CEE’s current weaknesses are role in fostering economic growth, with lending to companies significant – sharp economic slowdown, relatively high and households driving respectively investment and consump- external financing requirements and relatively high foreign tion growth. In the current environment foreign banks are exchange leverage ratios in some countries – they are cyclical, acting as a “lobby” in order to support the area, by prompting whereas the region’s remarkable key strengths are structural. international institutions to take appropriate measures, as well as running their business with a view to avoiding a credit The strong links with the European Union play an important crunch. Lending growth will be much more strongly linked to role. Most countries are part of the EU – Slovenia and Slovakia deposit expansion. Banks will try to restructure their balance are also in the eurozone – and apart from Russia, Kazakhstan sheet in a more sustainable way by attracting more deposits, and Ukraine, the others are candidates or potential candidates but external funding will remain relevant. A more balanced for EU entry. EU membership or, in any case, the strong ties structure will emerge, with banking penetration, measured as with the EU, not only give the CEE countries the advantage of total loans or total deposits as a percentage of GDP, continuing being able to rely on EU financial support in the current crisis, to increase, even if – at least in the short term – at a slower but also supports the gradual establishment of a strengthened pace than in the past.

Bank Austria · 2008 Annual Report 21 Strategy and Results Development and Strategy of Bank Austria (CONTINUED)

Sustainable value creation through … through swift implementation Over the past few years, retail banking op- targeted growth and efficiency … of the UniCredit business model erations in Austria have stabilised their rev- With our value-based management system In the past two years we introduced the di- enue base by enhancing sales efficiency. we aim to create value through targeted visional business model step by step, tak- Cost reductions in cooperation with Admin- growth and efficiency in our core markets. ing account of local conditions in our mar- istration Services have improved profitabil- For this purpose the focus of our business kets. We started by adjusting the divisional ity, resulting in a positive contribution to policy and our capital allocation are geared to structure in Austria and the underlying fine value creation. We aim to simplify products Marginal Economic Value Added (mEVA) as a segmentation by customer group in 2006 and strictly gear our activities to customer key measure of performance. Marginal EVA and 2007. The next step involved the inte- satisfaction, which is also a factor taken can only be enhanced through long-term gration of various specialist teams in the into account in employee compensation. In growth and profitability, not by downsizing in Group’s first international product lines in this way we intend to achieve sustainable the short term. In 2008 we achieved a mar- 2007 and 2008. This process was accom- business success. ➞ For details see the ginal EVA of € 1,019 m. This means that panied by the outsourcing of back-office Retail Division section on page 28f. value creation was 12% lower than in the and settlement activities and the initial previous year, mainly due to exceptional im- stages of near-shoring. At the end of 2008 we refocused the pacts in the MIB Division. Operations in CEE previous Private Banking & Asset Manage- in the old perimeter expanded strongly We use the current situation in the banking ment Division of Bank Austria on the cus- through organic growth supported by more industry as an opportunity to further align tomer network of our two private banking efficient capital employment, and the new our structure. This will enable us to take units, Bank Privat and Schoellerbank. Pio- acquisitions made a positive contribution to advantage of the economic recovery when neer Investments Austria, a production unit, value creation beyond the cost of capital from it arrives, with a structure which optimally was transferred to Pioneer Investments. the very start. In Austria, the Retail Division combines local and cross-regional features From now on our private banking activities confirmed the turnaround achieved in the in the entire Group and in which our CEE will concentrate on high net worth individu- previous year, and EVA was maintained also subsidiaries are integrated according to a als. Conversely, all customer service net- in the other business segments thanks to flexible plan. works of Bank Austria can draw on the strict cost management. Risk-adjusted return complete range of products available from on risk-adjusted capital (RARORAC) was We are strengthening our divisional net- a leading global provider in the mutual fund 10.7% for Austria, following close behind the works and are thus moving our organisa- industry, thereby enhancing their competi- level achieved in CEE (12.5%). tion closer to customers. Local sales units tiveness. ➞ Details are given in the Private using a more detailed customer segmenta- Banking section on page 31f. The main lesson from the current crisis in the tion serve the entire customer base, from banking sector is that sustainable value retail customers to corporates, financial in- In the past years, Bank Austria’s Corpo- creation for all stakeholders must be based stitutions and private banking clients. The rates Division implemented targeted cus- on the following principles: networks are supported by product devel- tomer service models for various customer … proximity to customers, i.e. providing opment and marketing functions which are segments ranging from Small Caps and products and services which meet customer organised on a cross-regional basis, while Mid-Caps to Large Caps. In this context the needs and serving customers locally; this back-office and administrative activities are Division has responded to differences in benefits customers and leads to measurable performed by specialist units. customer needs by providing different customer satisfaction; service levels and a tiered sales channel … efficiency and expertise, which we aim UniCredit Group’s retail network is de- mix. The Division has thereby responded to to enhance through cross-regional coopera- fined in clear terms and geared to regional different degrees of internationalisation tion and by using talent available in the entire market characteristics. Operations in Ger- and capital market affinity. International Group, many and Austria closely share relevant ex- product lines play an important role in this … our commitment, more specifically the pertise and involve intensive joint market- connection. Following the transfer of our qualifications and dedication of our highly ing efforts, while retail business in Italy is leasing subsidiary to UniCredit Leasing in motivated employees, in line with our shared the responsibility of a separate network 2007, we now operate through specialised values. recognising the difference in language. subsidiaries in each of our markets – as

22 2008 Annual Report · Bank Austria the leading European provider in this busi- professionals responsible for products. In differentiated plan first in the larger coun- ness area. Global Transaction Banking the target structure, the CIB networks to tries, which have reached advanced (GTB) follows the model of a cross-regional be newly created will have customer re- stages in structural convergence. A cross- product line whose specialist teams are in- sponsibility for the entire corporate bank- regional focus is on sharing expertise on tegrated in local networks. With its range of ing business in their respective region. the basis of best practice. This relates to cash management, export finance and Production will be organised along global product development and production, trade finance services, GTB is market product lines, which will be available at where we use relative competitive advan- leader in our perimeter of operations and regional centres for local customer busi- tages available in the various countries, has received several awards. Moreover, the ness. In the former MIB Division, these in- and benefit from successfully realised activities of GTB are of particular signifi- clude the Financing & Advisory product ideas. Again, the global product lines are cance in the currently difficult economic line – comprising investment banking, cor- of special significance in this context. We situation. ➞ For details see the Corporates porate finance and advisory products – offer their services to our customers via Division section on page 36f. and the Markets product line, which will the local banks – in capital market activi- continue to be responsible for trading and ties with the MIB Division units; in asset The Markets & Investment Banking capital market activities. Two further prod- management with Pioneer; with UniCredit (MIB) Division has always operated in line uct lines of the CIB Division are Global Leasing and with the Global Transaction with two principles which became even Transaction Banking (GTB) and Leasing. In Banking product line. We aim to enhance more important in 2008: giving priority to the new organisational structure, CIB will the efficiency of our services by establish- customer-driven business over proprietary benefit from cost and revenue synergies ing shared platforms for information tech- trading; and forming a closely integrated while avoiding duplication and unneces- nology, back-office functions and admin- international network enabling the Division sary internal competition. Shorter process istrative activities. With greater emphasis to operate effectively in capital markets. chains will lead to faster decision-making being placed on internal division of labour, First, in the past few months we reduced also on large-volume transactions. Finally, our CEE subsidiaries are increasingly as- portfolios in those areas which are not di- aligning the Group with industry standards suming functions for the mature Austrian rectly related to customer business. And we will further enhance external transparency. market. ➞ Details on the business seg- have focused our trading activities on areas ment and on the banking subsidiaries are characterised by lower risk, lower volatility In the CEE Division we are taking a given in the Central Eastern Europe Divi- and lower leverage while pursuing a strin- very pragmatic approach in response to sion section on page 46f. gent cost reduction programme. Second, the current economic environment. As we combined international capital market mentioned before, the countries in Central Global Banking Services performs an activities of Bank Austria within UniCredit and Eastern Europe are affected by the essential task in establishing comprehen- CAIB in order to integrate them more global economic crisis in varying degrees sive structures based on division of labour. closely in the MIB Division network. and the structure of their economies also After completing integration work directly differs widely. Quite generally, our long- related to mergers of banks and to recent At the end of March 2009, we made a de- term strategy of organic growth with a acquisitions, GBS now concentrates on cision in UniCredit Group to proceed further focus on retail banking remains effective. consolidating the CEE banking network in this direction. It is intended at Group But in the currently difficult environment and harmonising control mechanisms, and level to create a Corporate and Investment we are paying special attention to addi- on procurement and facility management. Banking (CIB) Division combining the tional factors that are of relevance in con- Major Group-wide projects relate to the strengths of Corporate Banking (CB) with nection with growth, i.e. allocated capital establishment of efficient back-office in- MIB expertise. As a result, the two Divisions at levels as low as possible, high cost effi- frastructure and further steps on the way will move closer together and there will be ciency and risk management. In CEE, too, to a shared IT platform. At the beginning a more distinct separation of functions of we use the current situation to implement of 2009 we combined the back-office customer service, i.e. in the sales network, our business model – with a step-by-step subsidiaries in Italy, Germany, Austria, the from production, i.e. trading and capital approach differentiated according to re- Czech Republic and Romania to form market activities. This will further enhance gion. This includes the divisionalisation “UniCredit Business Partner” (UCBP). This specialisation of relationship managers and process, which will take place in line with a move has created one of the world’s

Bank Austria · 2008 Annual Report 23 Strategy and Results Development and Strategy of Bank Austria (CONTINUED)

largest providers of back-office services, One of the lessons to be learnt from know that we can only make a permanent with a total of 7,000 employees. The back- the 2008 banking year is how important contribution to general prosperity if we op- office units of the other CEE banks will be the confidence is which customers, em- erate profitably. Our sustainability manage- integrated at a later project stage. With the ployees and other stakeholders place in ment team sees its task as strengthening objective of creating a Global IT Factory, the company. UniCredit Group attaches awareness of the interdependence of eco- we also bundled the IT service units of the utmost importance to corporate sus- logical and social aspects and economic UniCredit, HVB and Bank Austria to form a tainability. We see corporate social re- performance. ➞ “Responsible Manage- common provider of IT services for the sponsibility as a condition of sustainable ment: Our Commitment to Sustainability” entire Group, centralising specific areas of success in business. Conversely, we on page 81f. competence according to their specialisation. ➞ For details see the GBS section on page 70f.

A large international group opens up Awards 2008/09 many opportunities also in Human Re- sources, both from the bank’s point of view and in the form of international career Bank of the Year in Austria (The Banker) opportunities for employees. Our human Best Bank in Austria (Global Finance) resources management activities are Best Bank in Italy (Global Finance) geared to cultural identity and shared val- Best Bank in Poland (Euromoney) ues. The HR team lays claim to developing Best Bank in Bulgaria (Euromoney) the best leadership team, identifying and encouraging talents at an early stage, and Best at Investor Services in the CEE region (Euromoney) maintaining diversity within the Group while Best Bank for Risk Management for Western Europe (Global Finance) remaining close to the needs of business Best Bank for Payments and Collections in CEE (Global Finance) operations. Under our Leadership Compe- Best Trade Finance Provider in Austria and CEE (Global Finance) tence Model, we systematically invest in Best Debt House in Slovakia (Euromoney) talented young executives. The Executive Best Equity House in Bulgaria (Euromoney) Development Process (EDP) involves con- Best Custodian Bank (UniCredit Bulbank) (Global Custodian) structive dialogue between executives and Best Investment Bank in CEE (Global Finance) their managers. The Talent Management Best Debt Bank in CEE (Global Finance) Review Process at Group level identifies Best CEE Equity House / Best EMEA Privatisation (MAV Cargo) (Emeafinance) young talents for UniCredit Group’s Talent Best Bank for Covered Bonds 2008 (Euroweek) Pipeline early on. And our performance- Best FI House in Russia (Global Finance) oriented modern personnel management Best FX Bank in CEE (Global Finance) system is always guided by the core values Best Deal of the Year 2008: Generali and PPF Holding Joint Venture of the Integrity Charter – especially trans- for Generali / PPF (The Banker) parency and fairness. As part of our MbO Best Deal of the Year 2008: Bite High Yield Bonds for Mid Europa Partners process we use target group-specific (The Banker) scorecards to define concrete targets to be Best Fixed Income House in Russia 2008 (Global Finance) met. The modern incentives system facili- tates the more efficient implementation of Best Bank for Payments & Collections 2009 (Global Finance) our corporate targets. ➞ More details are Best Trade Finance Provider in Austria 2009 (Global Finance) given in the Human Resources section on Best Trade Finance Provider in CEE 2009 (Global Finance) page 76f. Best Trade Finance Bank in CEE 2009 (Global Finance) Best Custodian 2009 (Bosnia) (Global Finance)

24 2008 Annual Report · Bank Austria

Strategy and Results Management Board of UniCredit Bank Austria AG

Erich Hampel Carlo Vivaldi Stephan Winkelmeier Chairman of the Member of the Member of the Management Board Management Board Management Board

Chief Financial Ofﬁcer (CFO) Chief Risk Ofﬁcer (CRO) Private Banking & Asset Management Division Markets & Investment Banking Division

26 2008 Annual Report · Bank Austria Robert Zadrazil Ralph Müller Helmut Bernkopf Federico Ghizzoni Member of the Member of the Member of the Member of the Management Board Management Board Management Board Management Board

Chief Operating Ofﬁcer (COO) Retail Division Corporates Division CEE Division Global Banking Services

Bank Austria · 2008 Annual Report 27 Strategy and Results Retail Division

Committed to retaining the trust of our customers

In 2008 the Retail Division faced the Affluent Customers demand in previous years. The sustained switch challenge of maintaining positive trends of of demand to conservative types of investment previous years in a volatile market environ- and attractive benefited classic savings products: for example, ment. The successful turnaround had led there was strong demand for the capital sav- to an increase in the contribution to overall investment products ings account with its attractive deposit rate of value created by Bank Austria in 2007. 5% and a 7-month term, or the savings book The Retail Division thereby underlined its Quality of advice and ongoing attention to with a cover designed by the Austrian painter position as a stable success factor within investment portfolios are essential elements Markus Prachensky and offered around World Bank Austria. of our services for our core customer group. Savings Day (from 27 September to 11 Novem- We were nevertheless unable to escape mar- ber) with an interest rate of 4.75 % and a With a view to continuing the positive trend ket volatility and did not match the previous deposit period of 11 months. in a difficult market situation, our attention year’s performance. General uncertainty in in 2008 focused on the following areas: markets, especially in the second half of By offering investment products such as the optimising customer satisfaction, exploiting 2008, led to a downturn in demand for Pioneer Austria GarantieFonds series of mutual cross-selling potential while keeping risks financing instruments and mutual funds – funds, we responded to the fact that customers and costs under control, and achieving the very product groups which were in great attach increasing importance to security. These growth in the three sub-segments of the Retail Division’s customer base, i.e. Mass Market, Affluent Customers, and Small Businesses. Customer satisfaction – key to success As we make progress on our way to becoming THE bank for Affluent Customers in Austria, we focus on meeting specific Consistent growth in customer satisfaction is the long-term key to success. needs of defined customer groups. For this The results from customer satisfaction measurement are one of the components purpose we take a differentiated approach used for determining performance-related variable salary components of our taking income, invested assets and prod- employees. Relevant studies show a clear correlation between rising customer uct use into account. We serve our Mass satisfaction, loyalty and growth. Market customers via a standardised dialogue concentrating on needs at specific We use an extensive mystery shopping programme and gradually refine the stages in their lives. In the Affluent Cus- methodology for measuring customer satisfaction in our branch network in Austria. tomers sub-segment we provide personal Customer satisfaction improved over the previous year, bringing us closer to our advisory services using AnlageCheck, a target. The improvement was mainly due to the positive trend seen in the first six tool which enables us to optimise the months of 2008. investment strategy according to the customer’s risk appetite. As the market situa- Other important steps on the way to reaching our goal are the professional expan- tion remains volatile, we maintain intensive sion of our IT-supported complaints management process and the successful pilot - contact with customers to evaluate and, ing of customer satisfaction terminals in selected branches as well as customer where required, adjust their investment satisfaction measurement within the Retail Division. portfolios in line with the specific risk tolerance and return expectations of cus- As part of Programme No. 1, which aims at optimising sales activities, we gave tomers. closer attention to customer contact management in 2008. Our structured customer dialogue approach enables account managers to use regular opportunities for contact and build confidence through high-quality advisory services in a volatile market environment and through after-sales calls subsequent to significant transactions.

28 2008 Annual Report · Bank Austria mutual funds were successfully placed via and an attractive fixed coupon in the first Mass Market customers the following four issues with a total volume year and a variable EURIBOR-linked coupon of over € 500 m: in the second and third years. The two In the context of our role as a national Global Emerging Markets tranches were placed within a few days. supporter for UEFA EURO 2008™ in the first Brazil, Russia, India, China and Africa half of the year, we offered a special edition Austria In addition to insurance-linked investment of the Bank Austria MasterCard and organised European Potential (SMEs). products such as the three varieties of a prize draw for tickets. 5 % revenue growth FokusLife or “VorsorgePlusPension mit among existing customers and 4,000 new The mutual funds offer double security: Zukunftsbonus”, which have proved to be Bank Austria MasterCards are impressive with a term of 7 years, they carry a 100 % attractive to customers, Bank Austria offers proof of the success of these activities. capital guarantee and an 80 % peak value S.M.I.L.E. Garant, a long-term investment guarantee. product with a 100 % capital guarantee at We are now focusing on preparing and the end of the term, 100 % compensation providing assistance to our customers for Bank Austria’s own issues successfully for inflation and a guaranteed 10 % return. SEPA, a European project aimed at standard- placed in 2008 include Weltaktienindex- The product thus combines value stability ising the payments infrastructure in the GarantieAnleihe and Championsbond, as well with attractive earnings opportunities medium term. Since September 2008, we as two tranches of ErfolgsAnleihe offered in through the link to the Dow Jones EURO have gradually adjusted cards by including the second half of the year, with a total STOXX 50 and S&P GSCI Gold indices. the IBAN code, a process which will probably volume of about € 580 m, a three-year term be completed by 2011.

Market position in Austrian Retail business

Customer shares1) Market shares

Private customers 17% Loans 16.2%

thereof high net worth Deposits 12.2% individuals 26%

Business customers 26% Mutual funds 2) 16.7%

1) x% of 100 maintain an account with Bank Austria; 2) Pioneer Investments Austria + BA real estate funds

Bank Austria · 2008 Annual Report 29 Strategy and Results

Retail Division (cONTINUED)

Small Businesses Sales channels – Outlook for 2009 As in 2007, our activities for small businesses closer to customers To meet the challenges presented by a concentrated on investment products and persistently volatile market environment, the services in line with our Group-wide efforts Bank Austria is Austria’s largest bank and Retail Division will concentrate in 2009 on to be the bank of choice for the personal operates a country-wide network of over the continued and consistent implementation banking needs of business owners. We offer 340 branches and customer service centres of the business model. The turn of the year optimum advice and integrated service for small businesses, including specific does not mark a turning point in our efforts based on our one-stop shopping concept. BusinessServiceCentres with extended advis- to serve customers: we will continue to focus Additionally, we focus on optimising credit ory service hours. While gradually combining on customer satisfaction. We will maintain risk and intensifying government-assisted branches located close to each other, we our commitment to retaining the trust of our lending business. also opened three additional branches in customers also in more difficult conditions. Salzburg, Tyrol and Styria in 2008. Moreover, We are aware that time is an essential factor customers can use alternative sales channels in meeting customer requests and offer our such as OnlineB@nking, TelefonB@nking, services through several BusinessService- call centres and mobile sales teams. Centres. By the end of 2008, some 13,000 customers used our flexible services by Employees telephone, e-mail and fax, also in two new locations in Villach and Salzburg. In 2008, the Retail Division defined 23 regions of more or less equal size in Austria A customer service centre for independent to optimise direct management and control. professionals working in the health sector Training schemes included advanced bank- was opened in Vienna in autumn 2008, specific training and executive training as where a team of specially trained employees well as the further development of a per- meets the needs of this customer group. The formance-oriented and customer-focused experts assist employed or self-employed service culture (First Steps, Leadership for physicians, pharmacists, veterinary surgeons, Results, etc.). Moreover, Bank Austria trained psychotherapists and physiotherapists. 99 apprentices and thus held a leading position in this area among financial services companies in Austria in 2008.

30 2008 Annual Report · Bank Austria Private Banking & Asset Management Division

The Private Banking activities of Bank Austria Family Office, which helps high net worth in- focus on serving high net worth individuals, dividuals, business owners and companies families, companies and independent profes- with complex ownership structures to find sionals. In the top segment of the market “Bank Privat” is the premium brand of the the optimum portfolio structure. To this end, Bank Privat primarily services the top cus- Bank Austria Group. It is Bank Austria’s issues such as future heirs, the successor to tomers recommended by Bank Austria. private banking specialist and serves high a company’s previous owner or the setting Schoellerbank – with a tradition reaching back net worth individuals with assets of a mini- up of a private foundation are taken into ac- 175 years – covers a broadly defined group of mum € 1 million or disposable gross annual count. For this purpose we coordinate our customers and focuses on asset management. income of at least € 150,000, as well as external network of lawyers, tax consultants, private foundations. It is one of Austria’s public accountants, real estate specialists Developments on stock markets in 2008 un- leading private banks in this segment. and art experts, and draw on the banking derline the need for individual and integrated services offered by UniCredit Bank Austria. customer services, with the objective of main- Bank Privat’s activities are guided by the taining the value of assets in the longer term principle of maintaining close relationships Bank Privat benefited from this approach in over and beyond periods characterised by between the financial adviser and the client, the very difficult conditions in 2008. This is difficult market conditions. The trust between the creation of exclusiveness, providing reflected by the fact that we won new cus- the personal financial adviser and his client is comprehensive, efficient services and, most tomers in the past year, especially through the central element of Private Banking culture. importantly, working through the client’s our close cooperation with Bank Austria. This trust is essential for acquiring a precise wishes and objectives. This philosophy is Bank Privat generated net inflows of funds knowledge of the client’s needs for the pur- best expressed by Bank Privat’s guiding prin- through its integrated advisory services and pose of preparing an individual investment ciple: “There are no standard investment by stepping up the sale of defensive prod- strategy. Professionalism, product know-how strategies. It is the client who gives us the ucts, although the market value of the total and internationalism are becoming increas- full picture”. volume – € 5.9 bn in total financial assets – ingly indispensible for the implementation of declined with the sharp fall in prices in finan- such strategies. In line with the UniCredit Clients of Bank Privat are served by highly- cial markets. business model we concentrate on both the qualified financial advisers, and they have specialisation of local Private Banking ser- access to a well-established range of serv- The favourable growth experienced by the vices and supra-regional production. This is ices which includes financial planning. Bank Private Banking market is expected to con- reflected in the integration of Pioneer Invest- Privat is represented in all Austrian federal tinue, boosted by the upward trend in the ments Austria in the worldwide Pioneer provinces. A further advantage is Bank Aus- number of high net worth individuals. Bank Group at the end of 2008, thus enabling us tria’s comprehensive branch network, provid- Privat will be prepared for the high demands in Austria to offer our clients the full range ing Bank Privat clients with specialists for of its clients by giving greater priority to proof products of a global asset manager. all financial issues. Bank Privat clients can viding personal services and tailoring its moreover use the international network services to meet its clients’ specific needs. The growth of the Private Banking market in provided through Bank Privat’s inclusion in With its country-wide coverage and Bank Austria is identical to that of Europe. Local, UniCredit Group. Austria’s branch network in Austria, Bank well-established banks with the backing of a Privat is well-placed for the future. We are large supra-regional banking group operate Aside from the entire range of private bank- responding to the growing requirements of with competitive advantages in terms of repu- ing products offered as part of Bank Privat’s the international Private Banking market with tation, product development, investment strat- integrated investment advisory services, ongoing training and advanced training pro- egy and research. Private Banking belongs to high net worth individuals and private foun- grammes for our financial advisers. the core business of UniCredit Group, a univer- dations are invited to use the services of the sal bank. 1,500 relationship managers meet the needs of over 200,000 up-market private customers in 256 branches alongside the leading private banking institutions in Austria, Italy and Germany, as well as in Switzerland, Luxembourg, Lugano and San Marino.

Bank Austria · 2008 Annual Report 31 Strategy and Results Private Banking &

Asset Management Division (cONTINUED)

A thorough analysis of customers’ needs is (sales, product management, special prod- the starting point and central element of a ucts, performance reporting and technical relationship based on mutual trust. Needs support). Our activities relating to individual Schoellerbank was founded in 1833 and is and goals can change. Schoellerbank is asset management for private and institu- today one of Austria’s leading private banking therefore planning to conduct another com- tional customers focused on launching new, institutions. As a bank specialising in sophisti- prehensive analysis of the needs of all its mostly fund-based products on the market cated investments for demanding clients, its customers in the course of the next two (VM PREMIUM, VM Exklusiv and FokusIn- core competence is the provision of invest- years. vest). Fund-based asset management man- ment advisory services, asset management ages funds of funds and the PIA Master and retirement planning. The bank’s invest- A test of asset management skills: “Elite Re- Fonds. Brokerage activities largely focus on ment philosophy is: “Investing is better than port” and the German newspaper “Handels- private customers. speculating”. A wholly-owned subsidiary of blatt” again looked for the best banks in UniCredit Bank Austria, Schoellerbank oper- German-speaking Europe in 2009 (Germany, Structured products were very well received ates within UniCredit Group’s Private Banking Austria, Switzerland, Liechtenstein). Of the in 2008, even if the record sales of previous Division. 348 asset management companies that years were not matched. With our guarantee were tested, 51 were considered by the jury products we offer the ideal solution for un- Schoellerbank is represented throughout Aus- to be worthy of recommendation, which certain times, especially as these products tria with 13 units and 351 employees. At the awarded them the distinction of “Elite”. The allow investors to participate in the market end of 2008, Schoellerbank managed the as- best banks (39 private banks) were pre- without any risk of losing their invested cap- sets of some 28,400 clients. The bank’s serv- sented in the form of a “pyramid of the hon- ital. As the products focus on a large variety ices are targeted at private customers with a oured”. 26 banks were awarded the highest of market segments, investors have suffi- minimum investment potential of € 500,000 distinction “summa cum laude”. These in- cient opportunity for a good potential return: (€ 1 million for corporate customers and insti- cluded Schoellerbank, which received the with their risk / opportunity profile – 100 % tutional investors). title for the fourth year in succession after capital guarantee (a minimum amount coming in third place in a ranking of all corresponding to the invested capital is On 31 December 2008, Schoellerbank man- banks and achieving the highest score returned at the time of redemption) and an aged assets totalling € 6.4 bn. Inflows of new among its Austrian competitors. 80 % peak value guarantee (80 % of the funds in 2008 were more than offset by price highest net asset value achieved during the declines on international stock markets. At no life of the fund) – product sales reached point was Schoellerbank in danger of being favourable levels in 2008, notwithstanding sucked into the vortex of the financial market a decline in fund volume due to losses in crisis. The bank’s own portfolio and the market value. In 2008 we launched securities funds managed by the bank never Asset Management GmbH (AMG) has product 14 structured bonds in the market (six for contained any problematic products or issues responsibility at UniCredit Bank Austria for UniCredit Bank Austria’s Retail Division, of insolvent borrowers, nor were such prod- individual and standardised asset manage- eight for Bank Privat). These bonds comple- ucts or issues ever part of asset management ment and acts as competence centre for ment sales of PIA guarantee funds, which activities. third-party funds and funds of funds (which were again successfully placed. At year-end operate as retail funds and special funds of 2008, AMG managed assets of € 1.6 bn. The core message communicated by funds). The company also creates products Schoellerbank to its clients when it provides and functions as service provider for broker- An objective of the new organisational advisory services also applies to investments age activities and structured products (asset structure of the Private Banking Division in its own portfolio and to the products man- management for capital-guaranteed prod- referred to above is to bring asset manage- aged by it. “A good performance is important, ucts), and is active in research. In addition, ment activities and the service units of but it is much more important to avoid AMG performs important Group-related func- AMG closer to the units with customer mistakes that lead to losses!” tions for Bank Austria in securities business responsibility.

32 2008 Annual Report · Bank Austria The procedure for selecting securities and for portfolio management decisions. Modern the asset management approach rest on risk management methods focus on avoid- three pillars: ing any portfolio risk. To this end, there is Pioneer Investments is UniCredit Group’s close cooperation between legal experts, asset management company that operates Fundamental analysis: in-house analyst the quantitative research unit with auto- on a worldwide basis; 2,500 employees cur- teams are responsible for fundamental matic models and the investment team. rently manage funds in excess of € 153 bn. analysis at Pioneer Investments. The teams In 2008, Pioneer Investments Austria – analyse on a global basis and filter the com- With over 80 years of experience in the in- which succeeded Capital Invest at the end of panies with the best prospects from each vestment field, Pioneer Investments is one 2006 – maintained its position as top sector, regardless of their region. More than of the world’s oldest, most renowned and provider in Austria’s fund market and even 90 % of the research required for portfolio most experienced investment companies. increased its market share. The strong global management is performed by Pioneer Invest- The wide selection of products – from links with Pioneer Investments enabled the ments’ own analyst teams. money market funds through bond and company to enhance its range of products equity funds and total return funds to com- through the inclusion of funds which are Quantitative analysis: quantitative re- modities funds – offers every investor at- successful in the global market. search involves maintaining a reliable data- tractive investment opportunities in line with base and monitoring portfolios. This enables an investor’s personal objectives and risk Pioneer Investments’ global network reaches fund managers to assess the risk profile tolerance. Fitch, the international rating from Sydney, Beijing and Milan to New York. of their portfolios every day. All investment agency, has given Pioneer Investments an Boston, Dublin and Singapore are global in- decisions are supported by analyses and M2+ rating (“strong”). vestment centres where fund managers and simulation models. Any possible impact on analysts conduct their fundamental and a portfolio is examined prior to the purchase Numerous awards received at the German quantitative research for global operations. of securities by playing through different Fund Awards 2009, the Lipper Fund Awards This is complemented by the regional experi- scenarios. Austria 2009 or the Morningstar Fund ence contributed by our local investment Awards 2009, for example, show that the centres in cities which include Milan, Munich, Portfolio management: the results of high quality of Pioneer Investments prod- Prague and Vienna. Pioneer thus covers the quantitative research and of the fundamen- ucts is recognised even in difficult times. world’s most attractive investment markets. tals-oriented industry teams form the basis

Worldwide presence: investment and sales centres

Global investment centre, Geneva Luxembourg and sales and marketing centre Paris Zurich Local investment centre, London Berne and sales and marketing centre Madrid Budapest Sales and marketing centre Warsaw Bucharest Dublin Alternative investments Prague Boston Munich Singapore Back Ofﬁce Milan Chicago Vienna Moscow Beijing Amsterdam Taipei Bahrain Hong Kong Omaha New York Bombay Miami Bermuda Tel Aviv Soﬁa Zagreb Turin Sydney

Bank Austria · 2008 Annual Report 33 Stefan Beck Germany

“If I see a light left on, I turn it off. It saves the environment. If I see a problem, I try to solve it. It improves our processes. If I see something is too complicated, I try to simplify it. It makes work easier. If I have an idea, I try to make it happen. It represents a chance for us and our customers.” Rosmarie Reiter Austria

“I help our customers even if I cannot sell them one of our products. A woman who Efren Maldonado had to help pay a debt Slovenia for her son could not qualify for credit from us at the time. “Our commitment = So I helped her through understanding + asking her son’s innovation = creditor for a repayment financial solutions = extension and I was customer satisfaction.” able to make her a very happy and satisfied customer!” Strategy and Results Corporates Division

In 2008, the Corporates Division continued Customer segments and € 250 m, we have created homogeneous to refine and further develop its strategy of customer portfolios for our relationship man- a needs-based customer segmentation, Large & Multinational Corporates agers. Our customers benefit from more rapid and of bundling product know-how in Bank Austria has been the undisputed leader decision-making processes and the bundling cross-border competence centres. This in this segment for many years, but was of extensive competencies assigned to spe- creates significant additional value for our nonetheless able to boost its market share cific relationship managers. These managers customers, particularly given the difficulty slightly during the past year to 89%. At the are supported by product specialists when ad- of the present economic situation, since same time, the bank expanded its business vising customers. In addition, due to increased companies with specific requirements volume with this customer group, with results demand for investment advisory services, we require tailor-made solutions. By virtue of that surpassed those of the previous year. have assigned “investment specialists” in our Group-wide best-practice approach, each of our 13 RegionalCenters. we have access to a wealth of experience Given the slowing economy, customer gained by one of Europe’s leading banks demand focused primarily on financing. In Homogeneous customer portfolios matching serving the corporate customer segment, the second half of the year in particular, the size of the respective companies offer a and can make this expertise available to customers showed a greater interest in significant benefit to the relevant customers: both our Austrian and international corpo- measures to manage liquidity. Thus while experience has shown that companies within rate customers. developing strategies for our customers, we the same customer group place similar de- worked carefully to integrate both financing mands on their financial services provider and We responded to the rapidly deteriorating and investment requirements. This approach share a number of interests. Since Austrian economic situation in the second half of enabled Bank Austria to achieve healthy companies are among the most internation- 2008, and the additional demands it placed risk/return ratios. ally-oriented bank customers in Europe, we on our customers, with initiatives such as have worked to strengthen our ties within WorkingCapitalCheck and the “Konjunktur- In addition, our “Cross-Border Business UniCredit Group. As a result, we have been able kredit” (“business cycle loan”). In the Solutions” were well-received by large and to present numerous medium-sized Austrian coming year as well, our advisory services multinational corporates. As part of UniCredit companies with additional business opportuni- will continue to focus on areas such as Group, we were able on numerous occasions ties in new markets. At the same time, we liquidity management and assistance to help our customers successfully take have reorganised risk management activities schemes. As a strong and reliable partner, advantage of important market opportunities. for corporate customers, thereby allowing we will work together with our customers even greater local autonomy for credit deci- as they navigate through the continuing As a logical further development of our sions affecting medium-sized customers. This crisis on the financial markets. business model, we decided towards the end ensures that credit decisions are taken as of the year to place and service large and quickly as possible, and that industry-specific multinational corporates together within the developments are taken into consideration. framework of a new sub-segment. In the future, the Large & Multinational Corporates Furthermore, in 2008 we significantly broad- sub-segment should help to ensure faster, ened our integrated corporate finance more efficient customer services which are advisory approach. The “integrated corporate even more focused on customer needs. finance approach” aims to increase the value of the respective customer’s company in the Corporates Austria longer term by providing a combination of Our focus on small and medium-sized com- advisory, financing, investment and business panies has sharpened since the introduction transaction services. In times of a global of a new service model in 2007. By dividing economic downturn, measures ensuring an medium-sized companies into a small-caps adequate level of liquidity, in particular, are segment with an annual turnover of between of greater relevance for companies. For this € 3 m and € 15 m, and a mid-caps segment reason we launched an innovative new with an annual turnover of between € 15 m service in mid-2008 for our customers called

36 2008 Annual Report · Bank Austria WorkingCapitalCheck. This service, offered Some 45% of small Austrian companies and situation. With the help of key financial ratios, to customers free of charge, was inspired by 68% of all medium-sized companies rely on working capital is analysed, i.e. receivables, the internal best-practice approach within our know-how. We were able to further liabilities and inventory. After this step, the UniCredit Group, and is based on the well- expand our market position in this segment company’s potential liquidity is identified, established RatingScenarioCalculator. Our through a marketing initiative which pro- and various scenarios along with their account managers use this tool to analyse moted WorkingCapitalCheck and our interna- potential impact on key performance data companies’ liquidity potential, and then sug- tional networking possibilities to medium- are discussed. In a final step, the relationship gest ways for the companies to strengthen sized companies. manager presents instruments which should their self-financing base. In addition to help to optimise the company’s liquidity RatingBeratung, PlanungsWorkshop and WorkingCapitalCheck, which is free of through better receivables and liabilities BusinessPlanner, WorkingCapitalCheck is charge to customers, is a multi-tiered management. Working together, Bank Austria now the fourth advisory tool in the inte- advisory service offered to medium-sized and its customers strive to develop solutions grated corporate finance service portfolio at Austrian companies by Bank Austria. The first which are designed to improve both liquidity Bank Austria. step is to determine a company’s liquidity and profitability.

Trends in the lending and deposit business against the background of the current market situation

The global financial market crisis began to dominate economic launched a number of measures to promote economic developments beginning in the second half of 2008. It was growth. Bank Austria has played an important role in this precisely in this situation that the business model pursued by regard as a “hub” for the implementation of such assis- UniCredit Group, with its traditional emphasis on the classical tance measures. Our customers have undoubtedly bene- corporate customer business along with a focus on stable, fited from the fact that the specialists for assistance long-term customer relationships, proved to be effective. While schemes in the Export & Investment Promotion Finance unit small and medium-sized businesses in Austria were able to are in constant contact with the agencies providing such improve both equity capital levels and profitability in the past assistance, in order to obtain the most up-to-date informa- years, numerous companies are unable to escape the harsh tion and to help customers submit funding requests. winds of the global financial market crisis. As a result, liquidity- related issues increasingly became the focus of customer Advisory services for assistance schemes and WorkingCap- interest. Bank Austria reacted to customer demand by intro- italCheck clearly reveal the integrated corporate finance ducing the WorkingCapitalCheck service. In order to preserve advisory approach: Bank Austria discusses the opportunity/ existing lines of credit, small and medium-sized companies risk situation with its corporate customers, optimising the grew more interested in alternative financing methods such as opportunity/risk structure in order to ensure that sustained factoring, the sales of receivables and leasing. Since banks value is created for its customers, either through suitable throughout Europe have become more cautious with regard to investments or financing. Against the background of the higher-risk, long-term investment projects, the significance of international financial market crisis and slowing economic collateral also grew in 2008. Among Treasury products, hedg- growth, Bank Austria launched its own “Konjunkturkredit” ing instruments became more important. loan for small and medium-sized companies at the end of 2008 in order to make it easier for these companies to In order to optimise corporate financing, it is also important resolve liquidity bottlenecks caused by economic conditions that assistance schemes be properly included in the financing and to safeguard the competitiveness of small and medium- mix. Given the difficult economic situation, the government has sized Austrian companies.

Bank Austria · 2008 Annual Report 37 Strategy and Results

Corporates Division (cONTINUED)

Public Sector customers, we further expanded business Major steps have been taken to create The Public Sector unit is the undisputed activities despite the financial market crisis. synergies on the cost side and to bundle leading financial partner for the public sec- With new business amounting to over our intra-Group payment and transaction tor and institutional customers such as € 3.5 bn, we once again exceeded the processing business while further aligning churches and religious communities. Like volumes of previous years. our products and services to the needs of no other financial provider, we are able to our institutional clients. combine the network advantages of an The volume of subsidised real estate internationally active banking group with finance, funded mainly via BA-CA Wohn- We added a major US money-centre bank a strong historical regional presence. baubank, also continued to grow. In 2008, to our client list of the bank-to-bank Virtual Customer service centres in all federal the total issue volume of BA-CA Wohn- Bank service enabling, indirectly, interna- provinces and a central competence centre baubank rose by 7.6 % to € 4.14 bn and tional corporate clients to use our payment in Vienna ensure that there is a compre- facilitated the co-financing of about 90,000 infrastructure in Austria and CEE to meet hensive office network which serves our residential units. their payment and cash management more than 3,000 customers. Despite the needs. The Virtual Bank is a white-label difficult economic environment, we Bank Austria Real Invest GmbH, our com- payment product providing the user with a expanded our business volume to almost petence centre for investment in real competitive advantage and facilitating cost- € 24 bn in 2008, and maintained perform- estate, once again proved to be resilient in efficient expansion into CEE. Preparatory ance at the very gratifying level seen in adverse conditions. The two open-end real steps were initiated to extend the service to 2007. Payment transactions, in particular, estate funds attracted further capital from Poland, Bulgaria and Romania in 2009, turned in a very positive performance. We investors and reported a very positive per- thereby increasing geographic coverage to further expanded our leading market posi- formance. With about € 837 m in com- 6 CEE countries. tion through exclusive ties with large cus- bined total fund assets under management tomers. Crisis-related declines in financing (current market share: 48.8 %), Bank activities were offset by greater investment Austria Real Invest GmbH further strength- International activity. In 2009, we will continue to do our ened its leadership role among real-estate product lines best to support the government as it imple- investment funds in Austria. Thus every ments the measures needed to provide the second investor in real-estate funds Companies in Austria are continually facing economy with the necessary economic already invests in a fund managed by new challenges on account of the ongoing stimulus. Bank Austria Real Invest. globalisation process. Thanks to our office network in Central and Eastern Europe, we Real Estate Financial Institutions can offer our export-oriented customers a Commercial real estate financing compa- Correspondent banks worldwide are not local presence on these growth markets. nies and real estate investors represent a only customers of ours in bank-to-bank Moreover, in addition to this local presence, group of customers working in a clearly de- business but also constitute important it is also our goal to offer customers a com- fined segment, and their cash flow is business relationships for our trade finance prehensive range of products and services, largely generated from the rental or sale of activities. The careful selection of the right including structured finance, export and real estate. Bank Austria’s Real Estate sub- partner bank is a key factor for successful investment finance and private equity / segment is market leader in this area, foreign trade activities. Our export-oriented mezzanine finance. In the inter-company meeting the needs of commercial and non- clients expect proper risk evaluation and product field of Global Transaction Banking, profit property developers in both Austria high standards of service along the whole as well as the international leasing and fac- and CEE. Our comprehensive service strat- product line. These parameters became toring product lines, we have bundled to- egy provides customers with the complete even more important in the increasingly gether additional product expertise for our range of products from one source. Thanks challenging global economic and financial customers. The developments of the past in part to a stronger presence among top environment we experienced in 2008. few months have confirmed the validity of this “total supplier” model.

38 2008 Annual Report · Bank Austria Global Transaction Banking experienced staff strives to continuously UniCredit Leasing offers a broad range of Global Transaction Banking (GTB) at Bank adapt existing services to the specific needs services in the areas of vehicle, equipment Austria serves the domestic market with in- of customers. and real estate leasing. Complementary, cus- novative products and services, and it is the tomised services include insurance, construc- department in which the international serv- Structured Trade and Export Finance offers tion management and fleet management. ice and advisory competencies of various cross-border financing solutions to a number business units are concentrated. GTB as- of Austrian exporters and commodities In the past year, we saw growth of 26.8 % in sists customers as a globally-active banking traders. This unit bundles together expert Austria. New business volume amounted to partner which offers global solutions that knowledge for Export Finance, Commodity just under € 1 bn. With a market share of help them to optimise their business rela- Trade Finance and Receivables Finance 22.7 %, we both maintained and significantly tionships. Customers of GTB benefit from products. expanded our position as market leader the advantages offered through the global among Austrian leasing companies in 2008. network of UniCredit Group, combined with The first gas storage financing for a Euro- the expertise of local experts. pean company was arranged in 2008, with There was a significant increase in new gas stored in tanks of OMV Gas GmbH serv- business volume – which was up some Activities relating to Cash Management & ing as collateral. In view of current market 71.4% to € 397 m – in the area of equip- eBusiness Sales cover advisory services developments, we feel that such solutions ment leasing. This strong growth was due and sales of products in the areas of cash will become increasingly attractive. mainly to significant gains made in the area management, e-banking and payment of aircraft finance. Altogether, we concluded transactions for domestic and foreign cor- The strengths of Bank Austria and UniCredit 3,783 new equipment leasing contracts porate customers. The greatest strength of Group as global players were highlighted during the 2008 business year. this unit is its ability to develop optimal once again this year thanks to the recogni- cross-border solutions. tion accorded them through prestigious In the area of real estate leasing, new busi- awards. These include “Best Bank for ness volume grew by 22.1% to € 317 m, a The team of trade finance specialists in Payments & Collections 2009” for Cash growth rate which is well above the market Global Financial Institutions & Trade Finance Management & eBusiness Sales, “Best Trade average. This is therefore another area in is committed to meeting the needs of our Finance Provider in Austria 2009” for Global which we are again the market leader in export-oriented customers. This unit focuses Financial Institutions & Trade Finance and Austria. on cooperating closely with renowned bank- “Best Trade Finance Bank in Austria 2009” ing partners throughout the world and the for Structured Trade & Export Finance In the vehicle leasing segment, we experi- accurate assessment of risks through pre- awarded by the magazine Global Finance. enced a 4.28 % decline in new business cise evaluation. volume to € 284 m. Domestic new business UniCredit Leasing volume grew by 4.2 %, largely due to strong The Documentary Business, Guarantees & Leasing, a flexible form of financing, offers growth in lorries and buses (+8.7 %) and Trade Finance Sales unit mainly provides both private and corporate customers a wide other vehicles (+ 27.2%). The area of customers with advice and fast, high-quality range of varied and attractive financing passenger cars/estate cars saw growth of transaction settlement services. The unit’s possibilities. As a universal leasing provider, merely 1.3 %.

Best Bank for Best Trade Finance Best Trade Finance Best Trade Finance Payments & Provider in Austria Provider in CEE Bank in CEE Collections 2009

Bank Austria · 2008 Annual Report 39 Strategy and Results

Corporates Division (cONTINUED)

In 2008, numerous Austrian companies de- Fuhrparkmanagement holds a market share measure created the largest leasing com- cided to spin off their fleet management re- of 9.6 %. pany in Europe based on new business sponsibilities to professional fleet managers. volume. In order to highlight the company’s During the last year, UniCredit Leasing In the reporting period, leasing companies in membership of UniCredit Group and benefit Fuhrparkmanagement concluded more than a total of 17 countries with more than 2,500 from the advantages offered by a global 3,000 full service and management con- employees were bundled under the manage- brand name, the company was renamed tracts, which represents new business ment structure of UniCredit Leasing S.p.A., a “UniCredit Leasing” in May 2008. volume of some € 53 m. UniCredit Leasing sub-holding company based in Milan. This

No credit crunch in 2008: bank loans are expanding. Volume trends dictated by demand.

Contrary to the view often expressed in public discussion, analysis of the correlation between the expansion of invest- Austria’s banks have during the crisis increased their readiness ment within the Austrian economy and the growth of corporate to extend loans. They normally account for about one-third of loans, credit growth should have slowed noticeably in the the funds raised by Austrian companies – in 2008 this may second half of the year. have increased to as much as one half following the collapse of the capital market. Austria’s banks have therefore above all Interest rates for new corporate lending business rose sharply replaced the equity market as a source of funding. until October 2008. The increase was however slower than that of interest reference rates. Interest rates for new cor- This is underlined by the strong growth in corporate loans in porate loans of amounts in excess of € 1 m rose by only 2008, which accelerated to as much as 9% towards the end 24 basis points between February and August 2008, while of the year. In 2008, Austria’s banks consequently increased the 3-month Euribor increased by 61 basis points. Since the the total volume of corporate loans by over € 11 bn – a growth middle of 2007, which marked the onset of the ﬁnancial mar- rate that is without precedent. ket crisis, the margin computed on this basis has been well below the average level of the previous years. Prompted by The terms and conditions of lending were however tightened falling money market rates, the difference between the money in the past year, something which is partly reﬂected in efforts market rate and the interest rate for new lending business did to increase margins, in the collateral demanded by banks, and not return to its pre-crisis level until towards the end of 2008. in the size of individual loans granted. This is a result of the This means that it was a fairly long time before Austria’s banks economic downturn and of the funding liquidity constraints passed some of their higher funding costs on to corporate cus- experienced by banks. tomers.

The acceleration of credit growth under these restrictive condi- 2009 will probably see a marked decline in credit demand on tions is explained by the drying up of other funding sources. account of the economic downturn. Corporate loans will slow The number of loans extended by Austria’s banks in the second by some 4% following a contraction of gross ﬁxed capital half of 2008, in particular, was much higher than one would formation (by over 3% in real terms). As this anticipated decline have expected under the prevailing economic conditions. is largely explained by the slowdown in demand, it would be This shows that there has not yet been any credit crunch in wrong to infer that negative credit growth in 2009 is attribut- the recession currently experienced by Austria. Pursuant to an able to a credit crunch.

40 2008 Annual Report · Bank Austria UniCredit Markets & Investment Banking

Creating an effective cross-regional trading and capital markets organisation which serves as a gateway to global ﬁnancial markets. UniCredit Markets & Investment Banking provides full continuity and enhanced competitiveness for customers in our core markets.

Bank Austria has always been active in the adverse impact was further aggravated Concentrating on financial markets with the objective pur- by a dramatic economic downturn. Finally, sued by a universal bank: priority is given the collapse of Lehman Brothers, the US customer-driven to customer-driven business and a com- investment bank, on 15 September 2008 plete range of services for customers. This was a decisive event for the entire industry: core business includes capital market transactions for continued market price losses, the increase our corporate, institutional and public-sec- in credit spreads, and the downturn on stock The new post-Lehman environment for the tor customers – from origination to place- markets combined with credit risk to culmi- banking industry is characterised by a struc- ment and trading in the secondary market; nate in a loss of confidence; the only way to tural break and cyclical factors. All financial advisory services and interest-rate, ex- deal with this situation was state interven- market participants are reducing their risk change-rate and price risk management tion. In the fourth quarter, volatility in stock positions (deleveraging) and strengthening for almost all customer groups; and the markets rose to unprecedented levels while their capital base, in some cases with gov- development, issuance and market man- the global economic downturn had a strong ernment aid; the focus has shifted back to agement of products for retail customers. impact on all regions and markets simultane- simple and transparent products. This coin- Proprietary trading operations perform ously, so that diversification proved to be cides with significant changes – reflecting tasks related to the bank’s funding, inter- virtually ineffective (correlation). Even closed economic trends – in the pattern of demand est-rate, liquidity and risk management; positions were affected as the previously sta- from commercial customers, and with a they also perform complementary func- ble relationship between spot markets and pronounced risk aversion of investors in the tions for other activities, e.g. acting as a related derivatives collapsed (basis risk). current environment. recognised market player with strong pricing power. Markets & Investment Banking Substantial mark-to-market adjustments, In October 2008, the UniCredit Markets & (MIB) continues to be a major source of challenging trading conditions in the fourth Investment Banking Division adjusted its expertise in our banking business. quarter and a sharp decline in demand in strategy to the new conditions under the some market sub-segments were the main motto “Back to the Basics”. Rather than reasons why the MIB Division of Bank Aus- being geared to volatility and risk-taking, the 2008 – a turning point in tria recorded a negative net trading, hedging significantly modified approach now focuses financial markets and fair value result (–€ 662 m) in 2008. on: Thanks to the good performance in cus- expanding customer-driven business in There is no doubt that 2008 marked a turn- tomer-related business – including interest- the primary and secondary markets, with ing point in the multi-year upward trend by rate, exchange-rate and liquidity manage- special emphasis on the Group’s target cus- which financial markets reached ever higher ment, Corporate Solutions and Financing, the tomers and core markets; levels of complexity. In the past year, atten- sales teams and Brokerage, and the emerg- continuing to reduce trading portfolios tion refocused on the basic functions of ing markets specialists – this loss was more which are not part of core business, and trading and capital markets activities. As than offset by other income components, redimensioning proprietary trading activities; explained in the Management Report of the giving total operating income of € 142 m. reorganising credit market activities and Group, the financial market crisis had an Costs were reduced by 12%, limiting the op- reducing the ABS portfolio; impact on credit markets via structured erating loss to € 64 m. The loss before tax suppporting the reorientation through a securitisations and then also affected the (– € 253 m) also included net writedowns of strict cost reduction programme with signifi- corporate sector and emerging markets as loans – for more details see the Manage- cant staff reductions and no voluntary bonus the year progressed. In the case of the latter, ment Report of the Group on page 106f. payments.

Bank Austria · 2008 Annual Report 41 Strategy and Results UniCredit Markets &

Investment Banking (cONTINUED)

MIB: a centralised the use of synergies through central yet 100 %. UniCredit CAIB AG has conducted multi-local structures. the above activities as legal successor to product factory of UniCredit Bank Austria AG since 1 October The organisational changes reﬂect deter- 2008. Measures were taken to adequately UniCredit Group mined action to implement the business capitalise the company; it is to be trans- model of UniCredit Group without departing ferred to HVB with a view to creating an At the beginning of 2009, a number of addi- from the original intentions. For Bank Austria, efﬁcient cross-regional unit of European tional initiatives were launched to pursue the this means the realisation of plans made stature (see Management Report of the reorientation of MIB activities. Proximity to when the new UniCredit Group was created Group, page 108). customers is to be enhanced by bringing the (with the Restated Bank of the Regions MIB Division closer to the Corporates Division Agreement, REBORA, at the beginning of ➔ A cross-regional trading and capital in organisational terms. Two central hubs, 2006). In 2008, we bundled Bank Austria’s markets unit which has a strong presence London and Munich, will coordinate the ac- trading and capital markets activities in sev- and operates on a uniform legal basis will tivities of risk-taking units. Other objectives eral stages to integrate them in UniCredit enhance Bank Austria’s competitiveness in include the reduction of risk-weighted assets CAIB AG, a subsidiary in which UniCredit business with customers in Austria and and proprietary trading activities, as well as Bank Austria AG has an indirect interest of Central and Eastern Europe.

Our proven track record: selected corporate bond deals 2009

Telekom Austria Joint Bookrunner for Telekom Austria’s EUR 750 m 7-year bond issue UniCredit Group through UniCredit CAIB together with RBS, BNP and Erste lead managed the ﬁrst bond issue for an Austrian corporate in 2009 for Telekom Finanzmanagement EUR 750,000,000 GmbH, guaranteed by Telekom Austria AG and Telekom Austria TA AG. This 7-year EUR 6.375 % Senior Bond benchmark transaction mandate once again underlines UniCredit’s capabilities in one of its Joint Bookrunner Jan 2009 – Jan 2016 core markets.

ENI Joint Bookrunner for ENI S.p.A EUR 1.5 bn 7-year bond issue UniCredit Group through HVB was selected, together with BBVA, HSBC and SG, to lead

EUR 1,500,000,000 manage a EUR 1.5 bn 7-year issue for ENI S.p.A, the ﬁrst EUR public benchmark 5.00 % transaction out of the Italian corporate sector this year. UniCredit added signiﬁcant value to Senior Bond Joint Bookrunner the transaction, with 45 % of orders coming from its core markets Italy, Germany and Austria. Jan 2009 – Jan 2016

Thyssen Krupp Joint Bookrunner for EUR 1.5 bn two-tranche EUR benchmark issue for ThyssenKrupp AG UniCredit Group through HVB was mandated, for the ﬁrst time, together with joint lead EUR 1,500,000,000 managers and joint bookrunners Calyon, Commerzbank and Deutsche Bank for a 6.75 % / 8.50 % EUR 1.5 bn two-tranche EUR benchmark. The two tranches were split into EUR 500 m Senior Dual Tranche Joint Bookrunner for 4 years and EUR 1,000 m for 7 years. This transaction was the largest bond issue Feb 2009 – Feb 2013 / 16 for ThyssenKrupp and clearly an exceptional success for all involved parties.

42 2008 Annual Report · Bank Austria UniCredit Markets & Investment Banking

The Markets & Investment Banking Division is UniCredit countries supported by an international platform of core com- Group’s competence centre for all financial markets and in- petence products including Acquisition & Leveraged Finance, vestment banking activities. It is an integral part of UniCredit Project Finance, Structured Commodity Finance, Capital Mar- Group, leveraging on the existing Group platform and client kets, M&A, Principal Investments, Structured Derivatives, franchises and giving the Group access to capital markets. Rates, FX, Equities and Research. As a centralised product The combination of the investment banking businesses of factory, the Division coordinates the Markets & Investment Bayerische Hypo- und Vereinsbank AG, UniCredit Bank Aus- Banking business globally. tria AG and the former Capitalia S.A. results in a highly complementary international investment banking platform and is The MIB Division unites 3,810 employees in 39 locations: in one of the oldest investment banking networks in Emerging addition to Munich and London as well as Vienna and the CEE Europe. countries (where operations in Moscow, Warsaw, Bucharest and Istanbul are of major significance), the network comprises As a regional specialist, the Division offers fully-fledged in- New York, South America, the Asian financial centres Hong vestment banking services in UniCredit Group’s 22 core Kong, Singapore and Tokyo, and China.

A recognised player with a strong track record in core products/core markets

Selected leading market positions 2008 Selected awards and rankings 2007 / 2008 DCM Best Investment Best CEE Equity Emerging Market Bookrunner European Jumbo Covered Bonds: Bank in CEE / House / M&A Deal of the Year: Best Debt Bank in Best EMEA PPF / Generali # 2 by Volume and No. of Issues CEE / Privatisation Source: EuroWee Best Bank in Italy (MAV Cargo) Bookrunner All Jumbo Covered Bonds # 2 by Volume and No. of Issues Source: Thomson Financial Global Finance emeaﬁnance (Exporta) Acquisitions Monthly Bookrunner Municipal, City, State, Province Issues 2008 2008 2008 in EUR: # 1 by Volume and No. of Issues Source: Thomson Financial Best Bank for Continental Financial Best Custody House Financing Covered Bonds Advisor of the Year in Austria, Bulgaria, Croatia, Czech MLA Italian LBOs Republic, Estonia, #1 by Volume and No. of Issues Romania, Slovakia, Slovenia and Ukraine MLA & Bookrunner European LBOs and Recaps

# 2 by Volume and No. of Issues The Cover / EuroWeek Acquisitions Monthly Global Investor MLA German LBOs and Recaps 2008 2007 2007 # 2 by Volume and No. of Issues MLA & Bookrunner CEE LBOs Infrastructure Deal of Best FI House in # 1 Structured the Year 2007 in Russia / Best FX Bank Products Overall # 2 by Volume Europe / Middle in CEE / Best Trade Source: Dealogic East / Africa: Mersin Finance Provider in Mergers & Acquisitions Port, Turkey Austria and CEE Financial Advisers to Central & Eastern European M&A (excluding Russia) Project Finance International Global Finance Risk Magazine # 2 by Volume (“Value”) 2007 2008 2007 Source: mergermarket

Bank Austria · 2008 Annual Report 43 “After 26 years working for the Group, I thought I had seen everything. Then came 2008, which was the most professionally challenging year ever. I have seen the dynamism of the Group and its workforce. I know we can rise to the challenge. I know our commitment. I know our strength. I know the best is yet to come.”

Tony Hall United Kingdom Edina Fajkovic Croatia

“Commitment means giving your heart, time and dedication at work until everyone is satisfied with the result. Extraordinary results are not possible without my colleagues and I appreciate the opportunity to work with talented people. Together we provide creative and effective business solutions for our customers.”

Massimo Negrini Italy

“The reason for my commitment? I am a customer, like you.” Strategy and Results Central Eastern Europe (CEE) Division

2008 was another successful year for the Group’s growth driver. Long-term upward trend well supported despite cyclical impacts. Local banking subsidiaries integrated in UniCredit Group’s banking and production network.

Since the beginning of 2007, Bank Austria 2008 was another very successful year Strategic and operational as member of UniCredit Group has acted for the CEE business segment. Business as sub-holding company for the Group’s volume grew by a combined 45%; if con- projects operations in CEE countries except those solidation effects are excluded, growth within Poland’s Markets, which are under reached 27%. This provided the basis for Integration programme UniCredit’s direct management responsi- strong revenue growth. Costs remained In 2007, the very first year in which our bility. Our two most recent acquisitions, under control, despite our investment in the function as sub-holding company was ex- ATF Bank in Kazakhstan and Ukrsotsbank branch network and the integration of the tended, we completed the integration of in Ukraine, were included in the consolida- two new banks. Net writedowns of loans operations in the various countries. In this tion perimeter for the first time in 2008. and provisions for guarantees and commit- process we merged local banks in countries The geographical perimeter covers bank- ments developed in line with expectations, with a multiple presence while also imple- ing subsidiaries in 18 countries and repre- remaining below the risk/ earnings levels in menting numerous projects to standardise sentative offices in an additional three the mature West European economies. and harmonise control instruments. We have countries. Some 57,000 employees serve Profit before tax rose by 50% to over created a clear governance system, unified about 24 million customers in 2,824 € 2 bn in 2008. The banking subsidiaries in management information systems, cen- branches. The region in which we operate all countries – with only two exceptions – tralised risk management and put it on a has more than 300 million inhabitants. achieved double-digit profit growth (see the uniform basis, and – last but not least – Management Report of the Group, page streamlined the IT system landscape. The in- Bank Austria’s commitment to CEE is 109). tegration process was visually reflected in widely diversified in regional terms. The the rebranding, by which we converted the countries in the region differ significantly Several unfavourable factors combined various brand names to a uniform brand ar- with regard to their economic structure, to produce an economic environment for chitecture under the UniCredit master brand. stage of economic development and size. the countries in Central and Eastern Europe They include EU member states and candi- which was increasingly seen in a critical 2008 saw the integration of the two most re- dates for EU membership which are al- light in the course of 2008. After a strong cent acquisitions, ATF Bank in Kazakhstan ready closely integrated in Europe’s indus- increase in world market prices for com- and Ukrsotsbank in Ukraine. In these cases, trial sector; South-East Europe, Ukraine modities and primary products in the first too, the process started with equity interest and Kazakhstan, a country bordering on half of the year, price levels fell dramatically management, then focused on regulatory re- Asia which is a promising market with in the summer, hitting Russia, Ukraine and porting and the internal management infor- enormous natural resources. Russia and Kazakhstan. International investors’ risk mation system for controlling purposes, and Turkey are large countries attractive be- aversion was initially reflected in sharp in- finally concentrated on technical and organi- cause of their size and dynamic moderni- creases in credit spreads; towards the end sational changes. Special attention was sation process. In all of these countries, of 2008, inflows of international capital given to risk management – not only in the real economic growth – in a long-term per- dried up, leading to balance-of-payments light of current developments in financial spective – is more than double the figure problems and currency depreciation in markets. In the Kazakh banking sector, work for Western Europe. Financial intermedia- countries with an external financing gap. on adjusting the loan portfolio has been un- tion in this region expands at even higher Most recently, the sharp downturn in indus- derway for some time, recently in a more rates, and the same applies to asset accu- trial activity spilled over into EU member challenging environment. In Ukraine, eco- mulation, though starting from a low level. states and candidates for EU membership nomic trends are the main consideration. Market penetration with modern banking in Central and Eastern Europe. Added to country-specific factors is the strict services is also increasing. All these fac- application of UniCredit risk management tors offer sustained growth prospects for ➔ However, we see the long-term catch- methodologies with a view to putting the loan local banking business in the CEE coun- ing-up process as being intact and continu- portfolio on a healthy basis (for details see tries. ing. The currently weaker development is a the Management Report of the Group, page cyclical phenomenon while the conver- 110). gence of East and West, i.e. European integration, is a structural process which continues to offer significant growth potential.

46 2008 Annual Report · Bank Austria Strategy: organic growth, network Operational implementation: fraud prevention) were further improved. advantages and synergies opening new branches, customer Moreover, we invested in improvements to Strategy aims at pursuing organic growth in satisfaction, Group solutions banking services (front-office support, ATMs, CEE and making available the resources and In 2008 we implemented a significant part of POS, etc.). Intensive work on consolidating IT capital required for this purpose and for cur- our branch opening programme. Originally, it platforms is underway. rent investment. The objective was – and still was planned to open about 1,200 new is – to take advantage of the growth poten- branches, depending on economic trends, in Strengthening the divisional tial available in CEE countries for sustained those high-growth countries where the approach value creation. These efforts are being made branch network is too small relative to the In Corporate Banking we launched initiatives along several strategic lines: size of the market (Turkey, Russia and Roma- in several countries to expand business while nia). In 2008 we opened 433 new branches, keeping the increase in risk-weighted assets A regional focus is on Russia, Turkey and bringing the total number in the network to (RWA) as low as possible, thereby enhancing Romania, given the size of these fast-grow- 2,824. The programme concentrates on RWA productivity in order to optimise capital ing markets and the strong market position growth markets: in Turkey we opened 176 employment. The application of control in- of our banks in Romania and Turkey. branches, followed by Romania with 101 new struments and business guidelines will be branches, Hungary (34), Russia (20), Serbia extended to include all countries in CEE in A divisional focus is on expanding retail (22) and Bulgaria (10) as well as the promis- the current year. In Global Transaction Bank- banking operations as a sustainable source ing markets of Ukraine (24) and Kazakhstan ing, specialised teams at all banks use a of revenue with large long-term potential. In (23). When the economic outlook started to joint international product catalogue for cash the past, the young banks in CEE built up deteriorate in September 2008, we put the management, documentary business and corporate banking activities; retail activities plan for 2009 on hold until further notice. trade finance. Work to integrate the Global are of special significance when it comes to Leasing product line in the entire CEE region funding the expansion of lending business We have strongly intensified our efforts to made good progress, with cooperation out of local deposits to a larger extent. create a customer-focused business culture. agreements concluded between UniCredit We now use the same methodologies to Leasing and the local banks country by A cross-regional focus is on sharing ex- measure customer satisfaction in all banks country. pertise by applying the best practice princi- and we set up specific customer satisfaction ple. This relates to product development and teams in several locations. Moreover, in all In the Retail Banking sector we are improv- production, areas in which we use existing CEE countries, we carried out surveys among ing the quality of advisory services and relative competitive advantages available in our private and corporate customers and sub- moving closer to customers in all three sub- CEE countries and ideas that have been sequently launched projects to enhance prox- segments: Small Businesses, Affluent Cus- implemented successfully. This means that imity to customers and identify their specific tomers and Mass Market. Our “Small Busi- exchange works in both directions of our needs. Our incentives systems are now also ness Partnership Programme”, designed in network. We can use top-quality global plat- linked to increases in the level of customer 2007 using best practice in the Group, was forms – in capital markets business with satisfaction. successfully introduced in Romania and Bul- units of the MIB Division, in asset manage- garia in 2008 and will be implemented in ment with Pioneer, and with UniCredit Leas- Global Banking Services focused on strict Croatia, Hungary, the Czech Republic and ing and the Global Transaction Banking prod- cost discipline and carried out programmes to Slovakia in 2009. Our Private Banking busi- uct line – whose services we offer to our enhance efficiency in the areas of Information ness model is currently being adjusted to the customers via the local banks. & Communication Technology (ICT), Back Of- CEE market of high net worth individuals and fice and Facility Management. With a view to potential up-market private customers in this An operational focus is on enhancing meeting regulatory requirements in a more sub-segment, based on positive experience efficiency by establishing joint platforms for efficient manner, Group-wide solutions (MIFID, in core countries such as Turkey, the Czech information technology, back-office and Basel II, SEPA) were also applied in CEE. In- Republic and Slovakia. administrative functions. ternal reporting and risk monitoring (including

Bank Austria · 2008 Annual Report 47 Strategy and Results

CEE Division (CONTINUED)

48 2008 Annual Report · Bank Austria MARKET SHARE RANKING Q3 2008 (%) 31 DEC. 2007

Russia, UniCredit Bank 2.2 10 Estonia, UniCredit Bank 0.7 6 Latvia, UniCredit Bank 2.3 9 Lithuania, UniCredit Bank 1.1 10 Poland, Bank Pekao (UniCredit Division Poland’s Markets) 13.5 1 Ukraine, UniCredit Bank, Ukrsotsbank 6.2 4 Czech Republic, UniCredit Bank 7.0 4 Slovakia, UniCredit Bank 7.3 5 Hungary, UniCredit Bank 6.1 7 Romania, UniCredit Tiriac Bank 5.4 7 Slovenia, UniCredit Banka 5.5 7 Croatia, Zagrebačka banka 23.8 1 Kazakhstan, ATF Bank 8.1 5 Serbia, UniCredit Bank 5.0 7 Bulgaria, UniCredit Bulbank 15.4 1 Turkey, Yapı Kredi 9.0 5 Bosnia and Herzegovina, UniCredit Bank and UniCredit Bank Banja Luka 19.6 1 ● Representative offices in Macedonia, Montenegro and Belarus

Source: CEE Strategic Analysis

Bank Austria · 2008 Annual Report 49 Strategy and Results

CEE Division (CONTINUED)

Baltic states: UniCredit Bank

UniCredit Bank Tallinn Lithuania The financial year 2008 was a year of Population 3.4 million change and development and further inte- Area 65,300 sq. km gration into UniCredit Group. Loan volume Capital Vilnius grew by 10% and deposits by 41% com- Currency Lithuanian litas pared to last year. Operating income in- GDP (nominal) € 32.8 bn creased significantly in 2008. The cost/ in- Riga Per capita GDP € 9,752 come ratio improved considerably to 61% GDP growth in 2008 (real) 3.2 % and operating expenses were kept under control. Despite growth for most of 2008 and a lesser degree of overheating compared with As a pan-Baltic bank with its headquarters its Baltic peers, Lithuania’s economy shrank in Riga, operating with two branches in Vilnius in the fourth quarter. Lithuania (Vilnius) and Estonia (Tallinn) and two corporate offices in Latvia (Riga) and Domestic demand is expected to be weak in Lithuania (Klaipeda), AS “UniCredit Bank” 2009, with low levels of exports and invest- strengthened its position in the three Baltic ment activity. As a result of a strong decline countries. The bank continued to develop Latvia in imports, the current account will probably its business by providing services in corpo- improve significantly. rate banking, including trade finance, pri- Population 2.3 million vate banking and commercial real estate Area 64,590 sq. km Estonia finance. Capital Riga Currency Latvian lat Population 1.3 million As part of one of the leading European GDP (nominal) € 22.0 bn Area 45,230 sq. km banking groups, AS “UniCredit Bank” of- Per capita GDP € 9,688 Capital Tallinn fered its customers customised products GDP growth in 2008 (real) –2.9 % Currency Estonian crown and services based on the extensive inter- GDP (nominal) € 16.2 bn national expertise of UniCredit Group. The Latvian economy is experiencing a hard Per capita GDP € 12,063 Cross-border products, e.g. opening of ac- landing. Economic performance has strongly GDP growth in 2008 (real) – 3.5 % counts in any country with a Group pres- declined since the second half of 2008, with ence, FlashPayment and cross-border real GDP falling by 10.5% in the fourth quar- Falling consumer demand and lower exports loans, were offered. ter. The economy is expected to have con- pushed the economy into recession in 2008. tracted by 2.9% in 2008 (after 10.3% The downturn and the fragile global environ- With the implementation of the new CORE growth in 2007). Latvia has applied for inter- ment suggest that 2009 will be a difficult banking system, the bank initiated the in- national support and accepted an IMF-led year. troduction of its GlobalWebSolution (GWS), € 7.5 bn assistance programme. The eco- an internet-based cash management sys- nomic difficulties have had a negative impact While foreign direct investment still showed a tem and OPUS/ Wallstreet, a portal for on risk assessments for the country, and the stable trend in 2008, there is a downside Treasury products and services. In addition, cost of borrowing has increased. Austerity risk in the current year. Although the Eston- a new trading front-office and monitoring measures initiated by the government have ian government does not see a need for in- system was introduced as a basis for effec- raised a storm of protest among the popula- ternational support, it is poised to make tive customer support for dealing with tion, resulting in the resignation of the gov- some unpopular decisions as tax revenues Treasury products. ernment. are falling.

50 2008 Annual Report · Bank Austria Bosnia and Herzegovina: UniCredit Bank

The bank in 2008 continued its close coop- mainly thanks to competitive housing loans eration as strategic partner with SIA “Uni- and several sales promotion activities aimed Credit Leasing” – in which the bank holds a at expanding the existing loan portfolio. The 49% shareholding – and Ergo Insurance bank also worked on improving its offer of Groupas. electronic banking and card services to pri- Sarajevo vate customers, confirming its leading market In October 2008, UniCredit Bank opened a position in the card business.The ATM net- joint branch together with Ergo in Estonia work was expanded by 20 units, increasing (Tallinn) – the first in this partnership. This the number at the end of 2008 to 169 ATMs. cooperation provides a basis for a broader range of financial service solutions, both in Corporate customers Estonia and at an international level. The Corporates Division is organised on the basis of a large and medium segment, serv- Outlook icing more than 4,000 clients through 10 Due to the sharp economic downturn in all business centres. In 2008, the Corporates three Baltic countries, a main focus is on a Population 3.9 million Division made steady progress in enhancing risk-averse credit policy with a very cautious Area 51,130 sq. km the loan portfolio, expanded its client base approach to critical sectors such as commer- Capital Sarajevo and achieved further improvements in the cial real estate. Currency Convertible mark area of short-term and long-term financing, GDP (nominal) € 12.5 bn deposit operations, domestic and cross-bor- € m 2008 2007 Per capita GDP € 3,253 der payments, card operations and financial GDP growth in 2008 (real) 5.8 % and advisory support to client development; Customer loans 908 828 all of this was realised through an individual Customer deposits 200 144 Growth will slow in 2009, along with the rest approach. Backed by strong electronic distri- Operating income 22.7 14.1 of the region, though the resumption of pro- bution channels, our closely-knit business Profit before tax – 2.4 4.3 duction at the Bosanski Brod oil refinery will centre network is a key component for the Cost / income ratio 61.2% 75.8% potentially see industrial output rising over efficient servicing of all clients. In 2008 the Employees (full-time equiv.) 210 173 20% y-o-y, contributing over 4 percentage Corporates Division, among other products, Branches 5 5 points to growth. Additionally, this will lower extended more than € 300 m in loans and refined oil imports, which will in turn help to issued guarantees with a value of around reduce the current account deficit. €70m.

Markets & Investment Banking UniCredit Bank d.d., The bank successfully managed to sell its Mostar hedging products, achieving its main objective of increasing customer awareness of UniCredit Bank d.d., Mostar was created hedging needs and other possibilities. The through the merger of HVB Central Proﬁt custody department received the “Best Cus- Banka and UniCredit Zagrebačka banka in todian in Bosnia and Herzegovina” award February 2008, becoming one of the largest from Global Custodian. banks in the country. Outlook Retail customers In 2009, based on the strengths of the two With 95 branches, the bank has a strong predecessor banks, we intend to create an presence on the BiH market. In 2008, the Re- even larger and more successful bank with tail Division, despite the year-end global ﬁ- better business conditions for our clients, i.e. nancial turmoil, achieved good results in to further improve the product range and loans to private and business customers, service quality.

Bank Austria · 2008 Annual Report 51 Strategy and Results

CEE Division (CONTINUED)

Bulgaria: UniCredit Bulbank

UniCredit Bank a.d. Outlook At the end of the first quarter of 2009 the Banja Luka bank will commence the migration process to the new software platform of UniCredit On 1 August 2008 the former Nova ban- Bank d.d., Mostar. The expected benefits are Sofia jalučka banka (NBB) changed its name to lower IT expenses and higher gains through UniCredit Bank a.d. Banja Luka. At the same the existing network, service model and time, a new business model was imple- product mix, thus creating a basis for suc- mented and the benefits from this are re- cess in a more difficult economic environ- flected through very good performance. The ment. number of customers increased by over 25,000 to almost 272,000; the bank’s total € m 2008 2007 Population 7.6 million assets increased by 22% to BAM 632 m, Area 110,990 sq. km Customer loans 1,423 1,273 supported by a significant growth of busi- Capital Sofia Customer deposits 1,288 1,450 ness volume (loans to customers +49%, de- Currency Bulgarian lev Operating income 113.5 111.6 posits +7%). Total revenues increased by GDP (nominal) € 34.2 bn Profit before tax 24.7 32.3 18% while operating expenses decreased by Per capita GDP € 4,497 Cost / income ratio 71.1% 65.4% 2%, which resulted in a significantly lower GDP growth in 2008 (real) 5.9 % Employees (full-time equiv.) 1,894 1,804 cost/ income ratio in comparison with 2007. Branches 155 166 Recent data point to a significant slowdown Combined figures for UniCredit Bank d.d., Mostar, and Retail customers UniCredit Bank a.d., Banja Luka. in economic activity which has led to a dete- The goal for 2008 was to increase the client rioration in the short-to-medium term outlook base and to develop the loan and deposit for the Bulgarian economy. We now forecast portfolio both for private and business cus- just 0.2% growth in 2009 and a moderate tomers. Total lending volume in the retail recovery to 2.0% growth in 2010. customer segment increased by 45% to BAM 291 m, with consumer loans remaining The brighter side to the sharp slowdown in the main growth component within the total domestic demand and significantly lower en- loan structure. The total volume of retail de- ergy prices is a significant improvement in posits rose by 25% to BAM 166 m. the current account outlook. Corporate customers UniCredit Bulbank Lending business and cash management services were further diversified in line with UniCredit Bulbank (UCB) is Bulgaria’s largest local market trends. In 2008, the corporates bank and serves over 1.2 million customers. segment reaffirmed its strong position in As of 31 December 2008 it had market business with state-owned companies and shares of 15.8% in total assets, 15% in government agencies. The bank also focused total loans and 14.5% in total deposits. Uni- on expanding business with large and Credit Bulbank offers its wide product range medium-sized companies. to customers through a network of 260 branches and alternative, but increasingly popular, channels such us electronic and telephone banking.

In 2008, total revenues of UniCredit Bulbank increased by 7.1%, reaching BGN 611.9 m. Net operating income was up by 5.7% to

52 2008 Annual Report · Bank Austria BGN 352.7 m. Gross loans increased by Despite a very difficult market for investment Project and Structured Finance marked 38.4% to BGN 7,518 m, with somewhat products at the end of the year, UniCredit Bul- significant progress in implementing large- higher growth in corporate lending. Cus- bank ended the period with positive net sales scale projects with very high profitability tomer deposits declined by 4.9% and of Pioneer funds. Assets under management mainly in the field of renewable energy and amounted to BGN 6,029 m as of 31 Decem- of retail clients at the end of 2008 amounted launching several strategic deals to be ber 2008. to BGN 43 m. closed in 2009. UniCredit Bulbank remained leader on the In 2008, the bank deployed various strategic Corporate customers Public Finance market, maintaining its mar- customer satisfaction initiatives in order to The post-merger period was crucial for the ket share of about 30%. One of the major promote the customer-oriented culture. A Corporates and International Banking Divi- achievements: the bank won the right to be comprehensive customer satisfaction meas- sion as the joint efforts for consolidation of the service institution for the Fund for Local urement system was established (personal the existing business activities proved to be Authorities and Governments – FLAG. and telephone interviews, “mystery shop- highly successful in terms of both market Cooperation Agreement with the State pers”, online questionnaires, internal sur- share and profitability. Agriculture Fund regarding the Rural Devel- veys, etc.), with the results broadly publi- opment Programme, Special Guarantee cised and affecting the motivation system of The clear negative impact of the macroeco- Mechanism for the projects under SAPARD, both the head office and front office. nomic factors did not prevent the Corporates CIP LG facility with the EIF for SMEs etc., are Division from maintaining its solid pace of some of the activities initiated with the sup- Retail customers expansion – revenues grew by 20.6% to port of EU funds. In the reporting period, the network was opti- BGN 251.3 m. Revenue from foreign ex- mised in terms of market share and geo- change transactions, documentary opera- Outlook graphical presence, and the focus was di- tions, assets under management and cards UniCredit Bulbank is well-positioned to rected towards increasing clients, sales and was very favourable, with significant growth sustain its momentum in 2009. customer satisfaction. Retail banking rev- and a higher share in fee and commission One of the key challenges for 2009 enues grew by 19%, reaching BGN 288.1 m. income. Net interest income from loans and should be to increase customer deposits. Ef- Retail deposit volumes (private customers deposits expanded by 17.8% and 13.5%, forts primarily focus on the development of and small businesses) reached BGN 3,712 m respectively, reflecting sustained and bal- new deposit products and on attracting new as of 31 December 2008 (up by 3.4% year anced strong growth. volumes. on year). Retail loans (private customers and The bank will continue to invest in its dis- small businesses) grew by 36.6% to The successful performance was further un- tribution channels, improving direct sales BGN 2,951 m. Lending activities relating to derscored by many achievements in the spe- and in further branch development based on private customers focused on preserving the cialised areas of UniCredit Bulbank’s corpo- specialisation. quality of the portfolio in such a rapidly grow- rate banking activities. The bank will deploy new initiatives to fur- ing market. UniCredit Bulbank continued to leverage ther improve customer satisfaction and serv- on a comprehensive and unique product ice quality. In 2008, UniCredit Bulbank achieved 52.4% shelf in the area of cash management and growth with a small business loan portfolio, trade finance by developing a new service € m 2008 2007 reaching BGN 779 m through its differenti- entitled “UniCoRecT” to suit the growing Customer loans 3,847 2,778 ated and focused approach as well as a ded- needs of large corporate customers concern- Customer deposits 3,080 3,241 icated service model to provide fast and out- ing the collection and reconciliation of re- Operating income 306.9 267.8 standing services to SME customers. In addi- ceivables. Although this is the most recent Profit before tax 166.5 129.6 tion, 2008 was a year of special focus on item in the product line, it is anticipated that Cost / income ratio 42.1 % 43.5 % this segment since it is recognised as being there will be a significant number of projects Employees (full-time equiv.) 3,903 3,787 the backbone of the economy and, as such, in this area by the end of H1 2009, thus en- Branches 260 260 of critical importance to the bank’s future. hancing the deposit base and generation of revenue.

Bank Austria · 2008 Annual Report 53 Strategy and Results

CEE Division (CONTINUED)

Kazakhstan: ATF Bank

order to reduce its exposure to particular industries, to expand its client base and to improve the quality of its loan portfolio. Aside Astana from its lending activities, the bank offers a range of banking products and services to its corporate clients which includes, but is not limited to, deposit-taking, payroll management, custody services, etc. In 2008 the corporate service model was extensively revised in order to adapt it to the new challenging market environment. To strengthen its market position and optimise service quality, ATF Bank relied on the experience, structures and methods of UniCredit Group. In order to leverage on the UniCredit Group’s franchise and to expand the portfolio of non-credit products a separate unit was set up where Population 15.8 million process of acquiring 94.65% of all placed all transactional products are now consoli- Area 2,717,300 sq. km shares of ATF Bank, and by the end of 2008 dated. Moreover, a multi-lingual International Capital Astana it had increased its shareholding to 99.88%. Desk for serving international clients became Currency Kazakh tenge Since the acquisition, ATF has begun to im- fully operative. GDP (nominal) € 89.5 bn plement the global standards of UniCredit Per capita GDP € 5,682 Group and to run various projects such as SME banking GDP growth in 2008 (real) 2.8 % Basel II. The bank is involved in programmes with international development organisations, in- The slowdown started earlier in Kazakhstan With consolidated assets of € 5.9 bn and a cluding the KfW, EBRD, the Asian Develop- than in the rest of the region. Large fiscal re- market share of 8.3% in terms of total bank- ment Bank, the World Bank, and several local serves nevertheless put the government in a ing assets as at year-end 2008 (preliminary and regional organisations. ATF Bank partici- relatively strong position to support the bank- figures, local accounting standards), ATF pates in the country’s stabilisation pro- ing sector. We consider the National Bank of Bank ranks among the top five domestic grammes in cooperation with the Entrepre- Kazakhstan’s 20% KZT devaluation in banks. ATF offers a broad range of financial neurship Development Fund “Damu” to sup- February a sensible move and look for the products through its branch network of 150 port small and medium-sized businesses. By USD / KZT exchange rate to be held steady outlets throughout Kazakhstan as well as means of this programme, ATF, and conse- in the coming months. But we would not rule subsidiaries and affiliates. ATF furthermore quently its SME clients, receive access to rel- out another move thereafter if oil prices were has subsidiaries and affiliates in Kyrgyzstan atively cheap funds in tenge. to decline. and Russia (Omsk region). Large corporate loans still dominated the loan portfolio, com- Retail customers ATF Bank prising 62% of gross loans, while loans to Retail banking is increasingly important for SMEs accounted for about 22% and those to the growth of the bank’s business; the share In June 2007, Bank Austria signed a share private customers for 16%. of retail loans accounted for 16% of ATF’s purchase agreement with the previous loan portfolio at the end of 2008. As part of shareholders to acquire a majority stake in Corporate customers this focus, the bank is developing its busi- ATF Bank, and in November 2007 ATF Bank The bank’s primary objectives with respect ness with high net worth and middle income became a member of UniCredit Group. In De- to its corporate lending activities are to diver- individuals, primarily management and em- cember 2007, Bank Austria had finished the sify into different sectors of the economy in ployees of the bank’s present corporate and

54 2008 Annual Report · Bank Austria Croatia: Zagrebačka banka

SME clients. The bank offers these clients a Retail customers wide range of retail banking services and Zagrebačka banka is the market leader in products, including traditional services such Zagreb business with private customers. The bank is as deposit-taking and consumer lending particularly focused on its advisory and part- which mainly comprises mortgages and car nership role in finding optimal solutions for loans, as well as services such as safekeep- its customers. With a view to further ing and custodian services, insurance prod- strengthening its regional presence, the bank ucts, etc. opened several new branches in 2008 – the private banking centre in Zagreb Eurotower Outlook and branches in Crikvenica, Gospić and The successful integration of the bank into Slavonski Brod. UniCredit Group and a further improvement of the risk management profile are the top Total deposits of private customers reached priorities for 2009. The bank is committed to € 4.9 bn (+8% y/y), driven by the growth of developing its SME banking business and in- time deposits (+16.5% y/y). Total loans to tends to open additional branches for servic- private customers reached € 4 bn (+13.4% ing SME customers. Population 4.4 million y/y). Housing loans accounted for more than Area 56,600 sq. km one half of the total loan portfolio. € m 2008 2007 Capital Zagreb Currency Croatian kuna Aiming to underline its position as the bank Customer loans 5,138 GDP (nominal) € 41.2 bn of first choice for small business clients, Za- Customer deposits 2,222 Per capita GDP € 9,295 grebačka banka opened four new small busi- Operating income 326.5 29.3 GDP growth in 2008 (real) 2.1 % ness centres in 2008, bringing the number Profit before tax 82.2 22.0 to 46. Lending volume to the small business Cost / income ratio 37.6 % 35.9 % The growth outlook remains poor on the segment reached € 0.5 bn (+15.6% y/y), Employees (full-time equiv.) 5,066 5,277 back of a weak international environment. while deposit volume amounted to € 0.4 bn Branches 197 140 Monetary policy continues to be tight and (+12.3% y/y). Together with the wide range double-digit interest rates in the interbank of cash management services and financing market constrain credit growth. products, the bank’s successful cooperation with relevant ministries continued in the field Fiscal policy has no room for countercyclical of subsidised financing of entrepreneurs’ management. With tax revenues slowing, the programmes, HBOR credit lines and the private sector is exposed to the risk of HAMAG guarantees programme, thus sup- crowding out by increased government bor- porting successful entrepreneurs’ ideas and rowing. models. Zagrebačka banka Corporate customers In 2008, Zagrebačka banka reaffirmed its Zagrebačka banka is the leading bank in leading position in the market by providing Croatia in terms of capital and total assets, banking services to the bulk of Croatia’s cor- having the largest market share in customer porate clients, central and local government loans and deposits. It attends to the needs of and multinationals. In addition, it continued around 1.2 million clients. Its business net- to pursue infrastructure and real estate fi- work comprises 130 branches and almost nancing activities. Market share in loans to 800 ATMs.

Bank Austria · 2008 Annual Report 55 Strategy and Results

CEE Division (CONTINUED)

corporate customers grew from 23.4% in The bank played a leading role in several venting a deterioration of its portfolio. The 2007 to 24.1%. At the same time, market high-profile transactions, e.g. buy-side strengthening of the mid-corporate segment share in deposits grew from 21.5% in 2007 advisory in the public takeover of Veterina in all regions of Croatia, and further strength- to 22.4% in 2008. Total loans to corporate (€ 28 m), bond issues of UniCredit Bank BiH ening the Large Corporates segment are clients reached € 3.4 bn (+15.9%), while (€ 50 m) and City of Split (€ 8.2 m), Pliva among the goals for 2009. deposits amounted to € 2 bn. In 2008, a bond buy-back (€ 75 m), commercial paper special focus was on, inter alia, expanding issues (Zagreb Montaža, Konstruktor Inžen- € m 2008 2007 business across the regions in Croatia. This jering, Varteks, HG Spot, Žito, IGH) and Customer loans 8,501 8,013 substantially boosted the bank’s business helped arrange the syndicated loan for the Customer deposits 7,568 7,920 volume, and the bank occupied a prominent Bina Istra (€ 693.5 m) and Zagreb-Macelj Operating income 565.0 495.4 position in areas where it was traditionally (€ 381 m) motorways. The bank also Profit before tax 270.8 235.6 less represented. The growth of business ac- arranged PPP financing for the construction Cost / income ratio 53.9 % 51.8 % tivities and strong regional expansion was of the Lora-Split sports hall (€ 150 m) and Employees (full-time equiv.) 4,966 4,784 accompanied by increased satisfaction levels received advisory mandates from the gov- Branches 130 127 of corporate customers as determined and ernments of Montenegro and Albania for pri- confirmed by independent research. vatisation projects. Despite the negative trends in capital markets and liquidity bottle- The bank has developed a number of prod- necks caused by the global financial crisis, ucts for users of EU pre-accession funds, Markets recorded strong growth in activities and for corporate customers who participate and revenues from institutional and corpo- in public tenders for projects financed by EU rate customers in 2008. Income from the funds. Activities focused on the development sale of treasury products increased by nearly of special product solutions in the “client 60% compared to 2007. Notwithstanding centricity” regime with the goal of strength- the decline in turnover of the Zagreb Stock ening the bank’s position in cross-selling. Exchange, Brokerage recorded an increase Cooperation continued with municipalities in market share and sales. Zagrebačka and ministries on the implementation of vari- banka Custody holds a dominant position in ous SME and mid-corporate financing pro- the Croatian market. grammes. Outlook Markets & Investment Banking In an environment of sluggish economic The Croatian capital market was charac- growth and increased macroeconomic risks terised by negative trends in the first half of both in Croatia and in neighbouring coun- 2008, which have additionally been accentu- tries, the bank will continue to adhere to its ated by the pressure of the global financial fundamental values represented by a reli- crisis in the second half of the year. In spite able, strong and profitable institution with a of that, Zagrebačka banka further strength- specific focus on the stability of its client ened its competitive position in the Markets base, the quality of client relationships, and & Investment Banking segment. proactive risk management aimed at pre-

56 2008 Annual Report · Bank Austria Romania: UniCredit Tiriac Bank

ures provided the basis for a 31% year-on- Corporate customers year increase in revenues to RON 1,129 m; In 2008, UniCredit Tiriac Bank further devel- almost 80% of this was generated by com- oped its dedicated corporate branch distribu- mercial banking operations. Net operating tion channel, improved its customer relation- profit grew 41% and net profit 37% to ship infrastructure and strengthened its mar- RON 360 m. UniCredit Tiriac Bank closed the ket making positions. As a result, the corpo- Bucures¸ti year on a sound financial footing. Its return rate loan portfolio grew 52% to RON 7.5 bn, on equity was 21.5% (23.4% less the im- while deposits increased 57% to pact of newly-opened branches) and return RON 4.8 bn. Revenues were up 36% com- on assets 2.4%. Its Basel II solvency ratio pared to 2007, with medium-sized compa- Population 21.4 million was 10.4%, well above the 8% norm. It had nies making the largest contribution. Area 238,390 sq. km stable liquidity, with 54% of customer de- Capital Bucharest posits covered by cash. Its cost /income ratio Outlook Currency Romanian leu was 49.5% (46.4% without the impact of UniCredit Tiriac Bank intends to moderately GDP (nominal) € 136.9 bn the newly-opened branches). All current risks expand its business operations in 2009, con- Per capita GDP € 6,391 were properly covered, and respective assets tinuing to pursue value creation and taking GDP growth in 2008 (real) 8.0 % were covered by provisions. Loan portfolio advantage of any opportunities in the deteri- provision coverage at the end of the year orating market conditions. Attention will at Economic growth is forecast to slow rapidly was 2.34%. UniCredit Tiriac Bank improved the same time be paid to maintaining a in 2009, against a tight global capital flow its market positioning during the year, in- strong liquidity and capital position. A special backdrop. This will also result in the ex- creasing its market share in deposits by 50 bp focus will be on risk management and fur- pected significant reduction in the current to 5.3% and in loans by 90 bp to 6.2%. The ther improving efficiency, profitability and account deficit and a strong improvement in staff turnover, high during the mergers, re- productivity. This includes the further devel- the inflation outlook. turned to normal levels and was significantly opment of systems and infrastructure, and reduced to a single digit number at the end process optimisation. Fiscal policy and further sovereign credit rat- of the year. The bank served over 606,000 ing downgrades remain risk factors, however, customers at the end of 2008, including al- € m 2008 2007 which would have an impact on the ex- most 45,000 companies. Customer loans 3,054 2,228 change rate. Customer deposits 2,129 1,802 Retail customers Operating income 306.5 258.3 In a fast growing and highly competitive mar- UniCredit Tiriac Bank Profit before tax 117.7 96.1 ket, the volume of lending to private individu- Cost / income ratio 49.5 % 52.9 % 2008 was a year of rapid expansion, devel- als grew 46% to RON 4.2 bn with a focus on Employees (full-time equiv.) 3,235 2,601 opment and repositioning after a period that consumer loans (77% growth). Particular Branches 242 141 saw the merger of 3 banks in two consecu- emphasis was on developing services to tive years, 2006 and 2007. The bank almost small businesses, and as a result their loan doubled its distribution network, opening 101 portfolio soared 142% and their deposits in- new branches which increased the number creased by 13%. Retail registered a 35% in- of total outlets to 242 at the end of 2008, crease in revenue compared to 2007, with and it acquired the operations of the local the greatest contribution coming from the branch of Banca di Roma. The bank in- small business segment. Focused invest- creased its loan portfolio by 53% to ments were carried out via IT intensive serv- RON 12.3 bn. Total assets grew 36% to ices such as 24h self-service banking units, RON 17.5 bn, and customer deposits by 31% SMS banking, ASV (FOREX machines), tele- to RON 8.5 bn. Products, marketing activi- phone banking; in this context we worked to- ties, productivity, processes and sales-force wards increasing customer satisfaction and effectiveness were enhanced. These meas- enhancing operational efficiency.

Bank Austria · 2008 Annual Report 57 Strategy and Results

CEE Division (CONTINUED)

Russia: UniCredit Bank

620,000 private customers and SME clients, and about 4,200 corporate clients. To support the dynamic growth a capital increase of RUR 7.6 bn was carried out in mid-2008.

In November, UniCredit Bank became one of the few major Russian banks to sign a special agreement with Russia’s central bank to Moscow stabilise the Russian banking system. The central bank’s initiative is directed at supporting and strengthening the country’s financial system in its efforts to counter the consequences of the global capital crisis. The initiative takes the form of guarantees issued to large banks that are fundamental to the system, to safeguard their activities in the interbank market. Population 141.6 million UniCredit Bank Area 17,075,400 sq. km Corporate customers Capital Moscow ZAO UniCredit Bank is one of Russia’s top Corporate banking is still the core business Currency Russian rouble universal banks in terms of service quality, of the bank, both in terms of revenue and GDP (nominal) € 1,127.6 bn profitability and efficiency. As of 31 Decem- volume. Although lending activities were Per capita GDP € 7,963 ber 2008, total assets came to RUR 596 bn scaled back in the last quarter due to in- GDP growth in 2008 (real) 5.6 % and shareholders’ equity amounted to creasing market uncertainty, the portfolio RUR 53 bn. With a market share of around grew by 54% to RUR 301 bn. Much of this Russia has been hit by the collapse in com- 2.2% (as of November 2008) the bank ranks growth comes from loans to mid-market modity prices and the sharp turnaround in among the country’s 10 largest banks by companies through the bank’s wide network global capital flows. Taken together, they total assets. UniCredit Group, through of regional offices. Growing demand from re- point to a 0.8% contraction of GDP in 2009 UniCredit Bank Austria AG, is the bank’s sole gional mid-market companies supported our and pressure for the rouble to depreciate. shareholder. strategy for accelerated regional expansion, With the rouble having already depreciated and thus additional offices were opened in by more than 50% versus the US dollar we During 2008 the bank continued its dynamic Barnaul, Cheboksary, Irkutsk, Orenburg and see the currency as increasingly fairly val- development and grew strongly in all busi- Yaroslavl. Within lending business, special at- ued. Even if a free float is forced by the ness areas. Total assets increased by more tention was paid to structured finance prod- market, we would ultimately see the rouble than 60%. A steadily expanding loan portfo- ucts like the financing of investment projects, rebounding. lio, healthy margins and good operating effi- factoring, leasing, trade finance and real es- ciency supported high profitability. ZAO Uni- tate, and to the development of financial so- Credit Bank consistently pursues a conserva- lutions combining both credit and non-credit tive risk and liquidity policy which ensures products. High standards of customer service that it enjoys a reliable financial standing have been our traditional priority and thus even in situations of market turmoil. An addi- the bank serves about 150 of the top 200 tional 20 offices were opened in 2008. The Russian companies (by turnover) as their bank currently maintains a country-wide net- bank of account. Customers significantly work of 83 outlets plus one Representative benefited from the bank’s close cooperation Office in Minsk, Belarus, serving more than with other UniCredit Group banks, which par-

58 2008 Annual Report · Bank Austria Serbia: UniCredit Bank Serbia ticularly increased our ability to provide ment and fine-tuning of service models for longer-term financing. As a member of an in- different segments. Within retail banking our ternational banking group with a large cus- priorities are to focus on deposit and invest- tomer base we focus on expanding our busi- ment products, boost fee and commission Beograd ness with international companies operating income and optimise service quality, stream- in Russia. line processes and increase the effectiveness of sales activities. Among our main pri- Retail customers orities in corporate banking are preserving Retail banking is a key pillar of UniCredit core relationships, enhancing efficiency of Bank’s strategy. In 2008 the bank success- the loan portfolio and paying close attention fully continued the dynamic development of to credit risk. recent years and considerably expanded both business volume and the customer € m 2008 2007 base. Due to the difficult economic environ- Customer loans 9,850 7,593 ment we intentionally curbed our lending ac- Customer deposits 6,028 5,562 tivities in the last quarter. In the whole of Operating income 735.9 465.6 2008 the retail loan portfolio expanded by Population 7.4 million Profit before tax 406.4 247.9 62% to RUR 83 bn, with a steady increase in Area 88,360 sq. km Cost / income ratio 34.6% 38.6% the contribution from the regional network Capital Belgrade Employees (full-time equiv.) 3,709 2,814 outside Moscow and St. Petersburg. Key Currency Serbian dinar Branches 84 64 products are still car loans and residential GDP (nominal) € 33.2 bn mortgages. The car loan portfolio increased Per capita GDP € 4,513 by 67% while residential mortgages grew by GDP growth in 2008 (real) 5.5 % 78%. In both segments the bank intensified cooperation with distribution partners and The economic outlook has deteriorated in further developed its partnership pro- Serbia along with the rest of the region and grammes. The customer base (private cus- we forecast 1.0% growth in 2009. While the tomers and SME clients) increased by almost growth slowdown coupled with a large exter- 50% to over 620,000, boosting the bank’s nal financing gap has weakened the dinar, market share in retail lending from 1.4% in the export outlook has improved. The IMF 2007 to a current level of 1.81%. The ex- support programme and some stabilisation in pansion of the regional network is fully on the political environment should help the track. The bank now has a presence in 29 of economy. the 88 Russian regions. The ATM network was moreover increased by nearly 30% to UniCredit Bank Serbia the current country-wide 615 units. General Outlook UniCredit Bank Serbia substantially improved Due to the current financial crisis, which we its market position from no. 8 to no.6, with a expect to continue in 2009, the short-term 6% market share in terms of total assets priorities are efficient funding, liquidity and and loans with a strong growth of the corpo- capital management, as well as risk man- rate portfolio and 22 new branches. It is one agement and an accelerated completion of of the leaders in the local foreign exchange ongoing projects related to product infra- and money markets. structure, processes, centralisation, develop- Compared with 2007, the bank’s net profit was up by over 52%. Total assets increased by 22% and loans to customers by 71%.

Bank Austria · 2008 Annual Report 59 Strategy and Results

CEE Division (CONTINUED)

Slovenia: UniCredit Banka Slovenija

Corporate customers Markets & Investment Banking In 2008, corporate banking outperformed the UniCredit Bank remained one of the largest market through growth in corporate lending. participants in the local foreign exchange The credit portfolio expanded by 70% and and money market. The healthy market amounted to € 389 m. The number of cus- share strongly supported the activities of the Ljubljana tomers increased by 30% to almost 2,400 Customer Sales Desk which services corpo- corporate customers in 2008. The deposit rate customers with Treasury products. portfolio remained unchanged at € 252 m The bank completed the implementation of due to the global financial crisis. The crisis interest rate derivatives and successfully has shaken confidence in the banking sys- concluded the first transaction in 2008. tem, resulting in significant deposit with- UniCredit Bank consequently became the drawals from Serbian banks. first bank to conduct derivatives transactions in the Serbian market. Population 2.0 million The Large and International Customers seg- Area 20,270 sq. km ment remained the main generator of corpo- Outlook Capital Ljubljana rate banking activities in 2008, accounting With its enhanced position on the market Currency Euro for more than 60% of total credit exposure, with 22 new branches (70 altogether) and a GDP (nominal) € 36.8 bn overall revenues and net profit. There was a sound customer portfolio, the bank aims to Per capita GDP € 18,310 strong focus on the Small and Medium-Sized further improve its market position. Customer GDP growth in 2008 (real) 3.9 % Customers segment with the clear objective satisfaction will be the focus of all business of enlarging the customer base, diversifying divisions as well as deposit collection. Rapidly slowing growth is a result of EU the credit portfolio and increasing market demand for exports drying up. However, the presence in regional centres. In relative € m 2008 2007 government is in a strong fiscal position to terms, UniCredit Bank recorded the biggest help the economy – implementing an Customer loans 579 345 growth in the SME segment, but the Large € 860 m package, which will help support Customer deposits 447 487 Customers segment continued to predomi- jobs. Operating income 77.5 58.7 nate in corporate banking. Profit before tax 38.5 26.0 Lower oil and commodity prices should see Cost / income ratio 42.4 % 49.8 % Retail customers the current account deficit narrow despite Employees (full-time equiv.) 851 719 The goal for 2008 was to improve sales by the evidently unfavourable environment for Branches 70 48 enlarging the client base and by increasing exports. loan and deposit volumes, as well as by taking advantage of new sales channels – UniCredit Banka Slovenija through the introduction of alternative channels and through the branch expansion proj- UniCredit Banka Slovenija d.d. has been ect. The number of retail clients increased by among the fastest growing banks in Slovenia 14.4%. As loan approval for retail clients in the last years and despite turbulent mar- was regulated by administrative measures ket conditions increased its profit before tax through 2008, the sale of loan products fo- in 2008 by 19% to € 23.5 m compared to cused on housing loans and credit cards. 2007, representing an increase of € 3.8 m. Total loan volume grew by 22.8%. The retail As the bank’s core business, loans to cus- deposit base remained stable.

60 2008 Annual Report · Bank Austria tomers grew in 2008 by close to € 500 m to less favourable macroeconomic environment. central focus of the management’s attention € 2.1 bn, resulting in a market share of 6.1%. The increase in the volume of total corporate in the upcoming years. A revised investment This puts our bank in 4th place among all loans amounted to 19%, reaching € 1.3 bn, plan and strict cost control will be of the ut- Slovenian banks in a ranking by total assets. while the bank further pursued its conserva- most importance in an economic downturn. tive risk policy. But in the end the quality of our customer UniCredit Banka Slovenija also launched one service will have the final say about our mar- of its largest investment programmes ever. In the area of derivatives UniCredit Banka ket performance. UniCredit Banka Slovenija Six new branches were opened in 2008, giv- Slovenija retained its top position on the is well prepared for this challenge. ing the bank the opportunity to reach out to Slovenian market despite the difficult market new client segments in areas previously not conditions. Expertise was built in the com- € m 2008 2007 covered by us in Slovenia, while enabling us plex area of project finance, where the bank Customer loans 2,090 1,609 to more effectively service some of the exist- established itself as one of the major players. Customer deposits 642 722 ing client segments. The dominant position in serving interna- Operating income 62.8 56.9 tional clients was confirmed yet again. Profit before tax 23.5 19.7 Retail customers Cost / income ratio 55.9 % 53.7 % In 2008 we successfully completed all major Markets & Investment Banking Employees (full-time equiv.) 501 432 strategic initiatives. Revenues increased by Against the backdrop of extremely difficult Branches 20 14 13% to € 26.1 m in this segment. Loans to market conditions, the Markets & Investment retail customers, including business cus- Banking Division achieved a very good result. tomers, rose by 34% to € 681 m and clearly Total revenues increased by 6% to € 8.5 m. outperformed the volume growth of the mar- Contributions to the overall strong perform- ket by 19%. ance came from both customer business and trading activities. By opening branches in Sežana, Logatec, Radovljica, Kamnik, Slovenska Bistrica and The negative impact on the results from Ljubljana Rudnik, the network was expanded revaluations of the trading bond portfolio was by more than 40% and the bank improved offset by good results from currency and in- its regional coverage, now serving almost terest rate derivatives trading. UniCredit 70,000 retail customers. In addition, alterna- Banka’s Brokerage unit defended its top po- tive sales channels were enhanced signifi- sition in Slovenia by finishing the year as cantly. UniCredit Banka Slovenija, as a lead number two broker by traded volume. Cus- retail sales agent, substantially contributed to tody managed to match the record result of the only IPO in Slovenia in 2008 - Sava Re. the previous year and maintained its unchal- Just before the end of 2008, we introduced lenged number one position on the Slovenian unit-linked products jointly with ERGO. custody market.

Corporate customers Outlook UniCredit Banka Slovenija again achieved ex- In 2009, the bank plans to retain its good cellent business results in the Corporates Di- position on the Slovenian market with rea- vision in 2008. Revenues amounted to sonable and proﬁtable growth. Liquidity and € 29 m despite strong competition and a the stability of the loan portfolio will be the

Bank Austria · 2008 Annual Report 61 Strategy and Results

CEE Division (CONTINUED)

Slovakia: UniCredit Bank Slovakia

With a network of 86 branches throughout the bank´s cautious risk approach. Corporate the country, UniCredit Bank Slovakia services deposits increased by 4.7% to € 1.6 bn. By more than 183,000 clients, of which 5,300 establishing a new unit for Global Transaction are corporate customers. Electronic banking, Banking, UniCredit Bank Slovakia further im- card business and an increasing penetration proved its services for clients with a strong Bratislava with POS terminals made UniCredit Bank focus on cross-border business, which is im- Slovakia one of the most active providers on portant for the Slovak economy. the Slovak market, putting it in 5th place in a ranking of the country’s banks. Outlook In 2009, UniCredit Bank Slovakia will con- ,Population 5.4 million Compared to 2007, UniCredit Bank Slovakia centrate on addressing the economic chal- Area 49,030 sq. km increased revenues by 15% and net profit by lenges by further strengthening its ties with Capital Bratislava 33% to € 71.8 m. The cost / income ratio its clients, making up for the shortfall in trad- Currency Euro was further reduced to 47.4%, reflecting a ing and fee income which resulted from the GDP (nominal) € 65.3 bn very disciplined cost management. The net adoption of the euro, improving its presence Per capita GDP € 12,086 volume of loans granted totalled € 2.6 bn, in the retail banking market, and continuing GDP growth in 2008 (real) 6.7 % while net deposit volume increased by 6.7% to carefully monitor the development of to € 2.7 bn. costs. Slovakia entered the euro area on 1 January 2009. This has shielded markets from a re- Retail customers € m 2008 2007 duction of capital flows while creating addi- In 2008, the total volume of loans granted to Customer loans 2,577 2,384 tional downward pressure on exports. EMU private and business customers increased by Customer deposits 2,726 2,293 membership means interest rates are 16.1% to about € 400 m, driven by the Operating income 168.3 135.1 already negative in real terms, though any bank´s performance in mortgage business Profit before tax 85.9 59.7 easing of Slovakia’s policy now needs to and lending business with SMEs. Deposits Cost / income ratio 47.4% 48.9% come from fiscal policy. We look for 2009 from retail and Private Banking customers Employees (full-time equiv.) 1,323 1,272 growth to come in at 1.8 %. rose by approximately 10% to € 1.2 bn. Branches 86 85 UniCredit Bank mainly focused on affluent UniCredit Bank Slovakia retail customers and Private Banking customers as well as on business clients and In 2008, UniCredit Bank Slovakia mainly fo- SME clients. With innovative products like a cused on two major events: preparations for structured deposit, where the capital is guar- the successful adoption of the euro and cop- anteed and linked to a basket of gold and ing with the effects of the global financial platinum price indices, UniCredit Bank Slova- and economic crisis. This required a very ef- kia successfully targeted new clients and fective management of the bank´s liquidity business. together with a further streamlining of the bank’s risk policy. These measures did not Corporate customers primarily focus on growth, but on asset qual- With an average market share of 12.5% in ity and on improving EVA. corporate loans, UniCredit Bank maintained and further improved its position as top partner of Slovak companies and entrepreneurs. The overall volume of loans declined slightly to € 2.2 bn, reflecting the cooling of the Slo- vak economy in the last quarter of 2008 and

62 2008 Annual Report · Bank Austria Czech Republic: UniCredit Bank Czech Republic

Corporate customers Retail customers In the Large Corporate segment, a strength- The bank’s strategy in positioning itself in the ening of the bank’s market position was sup- retail business as a bank for Affluent and Praha ported by leveraging on the Group approach Small Business customers was the right ap- to multinational clients and by the Cross-Bor- proach. Both segments account for a signifi- der Client Group project, helping the bank to cant share of new revenue pools (aggregated maintain its leading position in serving inter- share of 82%). The overall market share per national clients. sub-segment is 5% for Affluent customers, 6.6% for Small Businesses, and only a mar- UniCredit Bank also sharpened its focus on ginal 0.9% for the Mass Market sub-seg- Population 10.4 million small and medium-sized enterprises. We ment. Area 78,870 sq. km have launched new SME teams in Prague Capital Prague and Brno, launched new SME products and The Czech Republic, as a pilot country within Currency Czech crown focused on cross-selling within UniCredit UniCredit Group CEE, successfully imple- GDP (nominal) € 148.3 bn Group (UCFactoring, UCLeasing, UCFleet mented the common GWS (Group Web Solu- Per capita GDP € 14,230 Management). The bank benefits from being tion) Internet banking system platform and GDP growth in 2008 (real) 2.9 % the only (together with its partner, Ceska plays an important role in the platform’s de- pojistovna) financial institution to disburse ployment in additional countries and in the GDP growth decelerated rapidly in Q4 2008 subsidies from EU funds. UniCredit Bank thus development of its cross-border functions. and we forecast a contraction of 1.2% in offers its clients comprehensive services 2009 against the backdrop of weak external relating to subsidies, including consulting, The volume of retail deposits declined by 2% demand and contracting investments. pre-financing and the disbursement of as of year-end 2008, mostly in response to subsidies to clients. the financial turmoil in the autumn. The re- Given low macroeconomic vulnerability and a covery in December, although very positive, proactive policymaker response to the slow- In 2008, UniCredit Bank managed to keep its was not sufficient to offset the one-off im- down, we nevertheless see recovery extraordinary strong position in Commercial pact in October and November. The total prospects as strong in 2010. Real Estate financing, focusing on high qual- volume of retail loans amounted to nearly ity projects in excellent locations. In the field CZK 24.1 bn (i.e. growth of 8% compared to of Structured Finance (especially in the seg- 2007). UniCredit Bank ment of Acquisition & Leveraged Finance) the Czech Republic bank confirmed its leading role in the Czech Outlook market with 25 new deals executed during The Affluent and Small Business sub-seg- UniCredit Bank Czech Republic (UniCredit the year (special attention was paid to ex- ments will continue to drive growth in the re- Bank) was established in 2007 through the panding Structured Finance products in the tail banking segment in the next three years merger of HVB Czech Republic and Živnos- country’s regions). In Trade Finance, in an environment characterised by a slow- tenská banka. With a new business model in UniCredit Bank showed particularly strong down of GDP growth. Retail banking activities place, a new IT platform, and after finalising growth in the areas of export finance projects will focus on acquiring new Small Business the resegmentation of clients in order to pro- and receivables advances, with a focus on clients from defined industry clusters, and on vide teams and relationship managers with the Commonwealth of Independent States. In stepping up cross-selling activities in both homogenous portfolios, the bank continued line with the Group’s focus, a division of segments. to pursue its focused strategy of providing Global Transaction Banking was successfully individualised banking solutions and compre- launched. UniCredit Bank is also one of the hensive services to corporate customers. leading banks in hedging the market risks of corporate customers with treasury products.

Bank Austria · 2008 Annual Report 63 Strategy and Results

CEE Division (CONTINUED)

Turkey: Yapı Kredi

The impact of the liquidity crisis will result in some deposit products being overhauled. 3 1 1 4 Istanbul 1 Furthermore, marketing initiatives will sup- 11 301 6 1 9 2 18 2 3 port the robust pool of the bank’s liabilities, 7 36 2 3 1 3 3 5 6 1 i.e. deposit volume. As for lending, and hous- 6 32 2 1 90 2 1 11 1 ing loans in particular, the overall volume of 7 Ankara 4 1 4 3 newly-granted mortgages in the market is 1 10 6 3 expected to stay flat or decline slightly. 3 9 3 2 63 1 3 19 6 10 11 2 6 1 2 3 In the Corporates segment, some sectors are 2 18 19 3 3 expected to record a lower level of activity 41 1 10 6 15 1 due to lower foreign direct investment, e.g. 9 Commercial Real Estate. Due to the expected further positive development of Czech small Number of branches per region and medium-sized enterprises, the successful positioning of the bank in these segments together with its comprehensive range of Population 70.8 million YKB offers a comprehensive range of retail, customised products will ensure further Area 783,560 sq. km SME, corporate, commercial and private growth. Capital Ankara banking products and services. Other activi- Currency Turkish lira ties include asset management, leasing, pri- The continued volatility of international cur- GDP (nominal) € 498.5 bn vate pension planning, insurance, and bro- rencies and interest rate markets will support Per capita GDP € 7,040 kerage services. As at the end of 2008, with the further growth of treasury and hedging GDP growth in 2008 (real) 0.8 % 861 branches, YKB had the fourth-largest business. This will also apply to the develop- branch network in Turkey and a market share ment of the financing of the Czech econ- Turkish growth slowed ahead of other coun- of 9.9%. In addition, the bank has the third- omy’s export business, particularly further to tries in the region, already turning in a weak largest ATM network in Turkey and award- the east. performance in Q3 2008. This suggests a winning Internet and telephone banking ap- 1% contraction in GDP in 2009, although plications. € m 2008 2007 the positive side to this will be a significant improvement in the external balance, along- 2008 was a very successful year for YKB, Customer loans 6,583 5,930 side lower commodity prices. despite a progressive worsening of the Customer deposits 6,354 7,390 macroeconomic environment. YKB pursued a Operating income 380.9 325.2 The central bank’s proactive policy of mone- strategy of sustainable growth mainly driven Profit before tax 229.0 136.8 tary easing, coupled with a sound banking by branch expansion, and focused on retail, Cost / income ratio 40.9% 48.1% sector, sets up Turkey for a relatively rapid SME and commercial (mid-corporate) bank- Employees (full-time equiv.) 1,640 1,724 growth rebound in 2010. ing, maintaining a conservative risk approach Branches 56 63 with a constant emphasis on efficiency. Due Yapı Kredi to the further deterioration of the global macroeconomic environment in the second Yapı Kredi (YKB) is the fourth largest private half of 2008 the bank, while confirming its bank in Turkey. Through a customer-centric long-term commitment to growth, progres- strategy and segment-based service model, sively shifted its focus on sustaining prof-

64 2008 Annual Report · Bank Austria itability. This is reflected inter alia in addi- Retail customers Corporate customers tional cost containment and asset quality In 2008, YKB developed new products for its In the commercial (mid-corporate) segment, measures, while maintaining adequate levels different customer segments and introduced partly through a stronger focus on cash of capitalisation and liquidity to cope with in- a number of firsts to the banking sector. As a management products and other high mar- creasing market volatility. result of the implementation of the credit gin areas, YKB recorded 42% y/y growth in card co-branding partnerships with Vakıf- lending to this segment, leveraging on leas- As a result of focused commercial efforts, in- bank, Fortis and Anadolu Bank, the total ing and factoring products. YKB achieved cluding the review and fine-tuning of the ex- number of “World” branded credit cards in 42% y/y growth in lending to the commer- isting service model, and a number of inno- Turkey exceeded 10 million, making YKB’s cial segment and 43% y/y growth in lending vative products / projects, YKB achieved sig- credit card platform “World” Turkey’s largest to the corporate segment. The main driver of nificant market share gains in strategic seg- credit card brand network. YKB’s excellence 29% y/y revenue growth in the commercial ments / products both in lending and deposit in alternative delivery channels was under- segment was volume growth with a greater gathering. On the lending side, market share lined by the 2008 IMI conferences award for focus on revenue-oriented initiatives and up- gains were concentrated in consumer, SME the “Best Call Center” and the PC Magazine ward repricing. In the corporates segment, and commercial loans. Strong above-sector award for “Best Internet Bank”. 678 ad- the bank boosted revenue growth by 13% by credit growth (29% y/y) was accompanied vanced ATMs (Tele 24 Plus) were installed focusing on upward repricing on cash and by healthy deposit growth in 2008. YKB during 2008. non-cash lending to improve the return on achieved above-sector growth in deposits by capital coupled with selective volume growth. expanding its total deposit base by 31% y/y Branch network expansion, one of the key (market share of 10%), mainly driven by de- pillars of YKB’s strategy, is an area in which Outlook posits in local currency. YKB recorded significant developments in Yapı Kredi expects 2009 to be a tougher and 2008. Under its branch expansion plan, an- challenging year, yet remains firmly commit- YKB entered the turbulent and challenging nounced in July 2007, YKB opened 185 ted to long-term growth. The bank aims to period with a strong emphasis on capitalisa- branches in 2008, the highest number of emerge from this period, which is marked by tion, liquidity and funding. While the bank openings in a year among Turkish banks. The a significant macroeconomic slowdown and strengthened its capital base in August 2008 expansion was also accompanied by im- uncertainty, in a stronger position. This will through a YTL 920 m rights issue which was provements in efficiency such as the earlier- be achieved through a flexible approach to fully subscribed, it also managed to assure a than-planned shift of about 750 employees proactively align the bank’s strategy and pri- strong liquidity position by securing an ap- from operational back-office to new orities to the rapidly changing environment proximately US$ 1bn syndication in Decem- branches to support branch expansion and with the objective of maintaining profitability. ber. Finally, driven by a balanced effort in foster growth. Yapı Kredi will take advantage of this period both lending and deposit collection, YKB to further focus on efficiency and productivity maintained a comfortable funding position YKB increased its market share from 6.2% so as to be best positioned for rapid growth with a loans to deposits ratio of 97% on a to 7.7% of total consumer loans, driven by when macroeconomic conditions stabilise. consolidated basis at year-end 2008. YKB’s all three consumer loan product categories capital adequacy ratio stood at 14.0% at a (general purpose loans, auto loans and mort- € m 2008 2007 consolidated level and at 15.7% at bank- gages). Through its dedicated service model Customer loans 20,701 19,970 only level at the end of 2008. and unique product offerings for the SME Customer deposits 20,407 20,205 segment, YKB registered 39% y/y growth in Operating income 979.5 865.4 SME lending in 2008. Profit before tax 375.1 282.5 Cost / income ratio 47.4 % 51.8 % Employees (full-time equiv.) 17,122 16,619 Branches 930 676

The figures for operating income and profit before tax are pro-rata figures.

Bank Austria · 2008 Annual Report 65 Strategy and Results

CEE Division (CONTINUED)

Ukraine: Ukrsotsbank

In addition, many non-performing branches 11 7 were closed and cost control and cost saving 6 8 measures were taken, with a focus on both 8 Kyiv staff and non-staff expenses. 19 54 14 40 11 13 Retail customers 7 18 12 USB’s business model is primarily geared to 12 11 27 retail banking (which accounts for 55% of 9 8 46 the loan portfolio and a 9% market share in retail loans as of 31 December 2008). As of 23 12 28 December 2008, USB’s network consisted of

9 472 branches. UniCredit Group segmentation was introduced in retail business and new Number of branches per region banking insurance products were launched on the market. 34 Corporate customers With a solid presence in the corporate and SME sector, the focus in corporate business was on the segmentation of operations by Population 46.6 million Ukrsotsbank splitting large and medium-sized clients into Area 603,700 sq. km separate sub-segments, and on network op- Capital Kiev In January 2008, the acquisition of a 94.2% timisation and the establishment of an Inter- Currency Ukrainian hryvnia shareholding in CJSC Ukrsotsbank (USB), national Desk. GDP (nominal) € 117.8 bn Ukraine, was finalised. As of 31 December Per capita GDP € 2,541 2008, USB was the fifth-largest bank in Outlook GDP growth in 2008 (real) 2.1 % Ukraine by net customer loans (+81% com- The branch expansion programme was put pared to 2007, representing a market share on hold for 2009, and a special focus will The unfolding global economic crisis – re- of 6%) and fifth by customer deposits (3.4% continue to be on asset quality, reflecting the flected by capital inflows drying up and de- market share). As of the same date, the bank currently difficult economic situation in mand for Ukrainian products slumping – has had total assets of approximately € 4.9 bn, Ukraine. In addition, loan restructuring meas- exposed the need for a period of painful making it the country’s fifth-largest bank in ures are in place. macroeconomic adjustment. this category (+59% compared to 2007, representing a market share of 5.4%). € m 2008 2007 Moreover, internal political strains have Customer loans 4,081 dampened the initial confidence boost from In 2008 many initiatives were launched to Customer deposits 1,303 the US$ 16.4 bn IMF package (which worked align Ukrsotsbank with UniCredit Group stan- Operating income 413.3 to add 50% to central bank FX reserves), dards. A special focus was on New Gover- Profit before tax 161.7 leading to sharp UAH depreciation and the nance and on the alignment of policies (i.e. Cost / income ratio 39.3 % associated risks for banks. HR, Credit and Accounting). The reorganisa- Employees (full-time equiv.) 9,670 tion project for the macro regions, involving a Branches 472 reduction from 27 regions to 7 macro regions, was launched and is making good progress (e.g. the macro region of Kiev was successfully completed).

66 2008 Annual Report · Bank Austria Hungary UniCredit Bank Hungary

In regard to business volumes, the main A new business line – Global Transaction business segments continued to gather mar- Banking – has been set up in order to pro- ket share. In particular, the Retail Division de- vide the bank’s corporate customers with the Budapest livered an excellent performance both in its Group’s experience and network. Focusing lending and deposits business, winning the on cross-border group clients’ services, the award for the best savings product in 2008. advisory and financial intermediate activities Corporates business, a traditional “pull” seg- of the International Desk were expanded and ment of the bank, maintained its high prof- leveraged. The EU Competence Centre of itability levels and strengthened its prominent UniCredit Bank Hungary further concentrated presence in the market. The number of on providing extensive services and advice clients served by the bank reached 300,000 on EU subsidies which are locally available. Population 10.1 million in 2008, mainly due to the increased number In 2008, UniCredit Bank Hungary was the Area 93,030 sq. km of branches and the competitive sales initia- first Hungarian bank to join the “Competitive- Capital Budapest tives and products in the retail segment. ness and Innovation Framework Programme” Currency Hungarian forint of the European Investment Fund. GDP (nominal) € 105.8 bn Assets under management were adversely Per capita GDP € 10,530 affected by the unfavourable environment, Retail customers GDP growth in 2008 (real) 0.7 % with investors shifting funds to bank de- The growth of UniCredit Bank’s retail loans posits. outperformed the market and reached a GDP is set to contract by 3.0% in 2009 with 47.0% annual increase. The bank’s market a significant fall-off in domestic demand. The Corporate customers share of household loans increased continu- policy response to the growth slowdown is In spite of the global and local effects of the ously during the year, from 3.1% to 3.5% at also constrained by high external indebted- credit crunch, corporate business success- the end of 2008. Retail deposit volume in- ness. fully maintained its market share of 9.1% creased by an outstanding 49% in 2008, both in the loan and deposits markets. The mainly driven by private households. The On a brighter note, the significant IMF / EU profit and volume targets were exceeded, market share of household deposits jumped balance-of-payments support meaningfully and operating income increased by 12% from 3.6% to 5.1% at the end of 2008. In reduces external financing risks and in- compared to the previous year. 2008, the bank opened 34 new branches, creases policymakers’ scope to stabilise the both in Budapest and throughout the coun- currency at slightly weaker levels. In 2008, the main target segment was mid- try, so that the total number of branches market corporate clients, with special em- reached 117. UniCredit Bank Hungary phasis on lower mid-market corporates. The key account segment succeeded in retaining Markets & Investment Banking In spite of many challenges and the turbu- its excellent market position. UniCredit Hun- Despite the global financial crisis – with its lence on local and international markets, gary is also one of the market leaders in the huge impact on emerging markets for all UniCredit Bank Hungary achieved its best real estate finance market. business lines throughout the year – the MIB performance ever. The bank maintained its Division made its contribution to the bank’s market share of 6.2%. A record profit before In order to provide corporate customers with overall result. The main sources of income taxes was generated due to one-off capital a comprehensive range of products and fi- were the stable fee income from Custody, gains from the sale of the shareholding in nancial services, a strong focus was on co- the steadily growing business of Corporate the Budapest Stock Exchange and through operation with the other members of Uni- Treasury Sales, and FX Trading which was further strong growth in profits from ordinary Credit Group within Hungary (e.g. UniCredit underpinned by high market volatility. At the business. By opening 34 new branches in Leasing, UniCredit Factoring, Pioneer Fund same time, risks were reduced and we main- 2008, the bank achieved a very dynamic ex- Management) and also abroad. tained a healthy share of the local market pansion of its network while holding the (custody no.1, equity brokerage no. 3), pro- cost/ income ratio at 50.9%. viding customers with a now renowned level of service quality.

Bank Austria · 2008 Annual Report 67 Strategy and Results

CEE Division (CONTINUED)

Outlook Within a scenario of economic recession in 2009, the bank is focusing on further improving efﬁciency through the development of support areas and by strengthening customer and employee satisfaction. The bank’s aim is to maintain its key roles in the Mar- kets & Investment Banking Division and in business with corporate customers, and plans to increase its market share in retail business.

€ m 2008 2007

Customer loans 4,722 4,121 Customer deposits 3,383 2,939 Operating income 267.4 245.8 Proﬁt before tax 144.9 109.8 Cost / income ratio 50.9 % 48.8% Employees (full-time equiv.) 1,921 1,583 Branches 117 83

68 2008 Annual Report · Bank Austria “Working together, we “There are moments when became friends. In the course our operating decisions have of our daily activities we to be made both rapidly consolidated our relationships and efficiently. Clients must with our colleagues in the not be exposed to pressure branches and also with our of any kind, as they are clients. Through our work, consumers of the end-product. TOGETHER, we participated in Professionalism and good the creation of a new status – collaboration are the roots of Business Partner – representing our commitment. a new beginning for all of us. And our commitment is our So the key word to achieving our strength.” dreams is TOGETHER.”

Simona Vlasie Alexandru Sandu Romania Romania Strategy and Results Global Banking Services (GBS) Division

Efﬁciency in back-ofﬁce operations

Global Banking Services and operating efficiency. We paid special Back Office – combines important consideration to the competencies available banking functions on a within our Group and to the convergence of Competence Centres supraregional basis and the Group’s operational objective models in comprises the following the individual CEE countries in the implemen- Administration Services (AS) business units: tation of these measures. Administration Services’ activities in 2008 focused entirely on the international GBS CEE Cost Management One4ALL project. The One4All project was Cost Management launched in the spring of 2008 with the ob- Back Office – Competence We were able to reduce costs even further in jective of establishing a Europe-wide back- Centers 2008 through consistent cost management. office company within UniCredit Group. One Information & Communication As is the case for UniCredit Group as a of the company’s main objectives is the har- Technology (ICT) – whole, the GBS Division is responsible for the monisation of processes on a cross- border Global Factories management of all costs at Bank Austria with basis, supported by the establishment of Organisation the exception of payroll costs. “operation lines” within the organisational Global Procurement structure. This should help the company to Facility Management The costs that are directly managed by GBS achieve its strategic goals, such as efficiency at the UniCredit Bank Austria AG level have gains, a reduction of settlement costs and in- been reduced by € 120 m, or 15.5 %, in the creased competitiveness. This step involves GBS A & CEE last three years. Despite this cost reduction, the creation of a company that will go from we once again achieved our objective of performing back-office activities to providing A number of decisive initiatives were imple- maintaining – and in some areas further im- innovative services of its own. mented in Central and Eastern Europe under proving – the high quality of service for our the leadership of GBS in 2008. These in- internal customers in 2008. cluded the successful completion of the integration programmes for the newly acquired subsidiary banks, ATF Bank in Kazakhstan and Ukrsotsbank in Ukraine. These programmes were initially aimed at assessing the banks’ compliance with the statutory requirements and provisions applicable for Group-wide reporting and their risk management. We also succeeded in introducing ad- Direct costs under management by Global Banking Services ditional technical, organisational and management-related changes in both banks in order Direct costs reduced by € 120 m Structure of direct costs to ensure their complete integration into in the past three years in 2008 in % UniCredit Group. 773 –€ 120 m/–15.5% 653 11% Following the implementation of the merger and integration programmes, our focus for 41% 2008 shifted to the consolidation of the CEE 23% banking network and to achieving efficiency gains in the areas of ICT, back-office processes and real estate. Because initial 25% synergies were created in 2008 in line with expectations, the programmes were expanded in order to further improve financial 2005 2006 2007 2008 ICT (Information & Back Office Communication Real Estate Technology) Organisation

70 2008 Annual Report · Bank Austria The integration of the back-office units in Italy, FÜK-Dialog, a similar platform, was intro- Information Technologies Germany, Austria, the Czech Republic and Ro- duced at the same time in order to provide mania will be completed in the first phase of information for AS managers. These meas- – Global Factories the project, which is scheduled to run through ures allowed AS to successfully establish a 2010. In a later phase of the project (from new communications culture. Another impor- Global IT factory 2010 / 2011), the back-office units in the re- tant measure is the implementation of the UniCredit Group’s divisionalisation model is maining CEE banks will be incorporated into Communication & Marketing initiative, which aimed at unlocking synergies and reducing the company. UniCredit Business Partner focuses on increasing the involvement of costs in order to create value for the Group. (UCBP), which was founded on 1 January employees in ongoing communication activi- This is realised through the concentration of 2009, will initially have 7,000 employees. This ties. individual areas of competence according to makes UCBP one of the biggest providers of specialisation. back-office services in the world and sets an Business Transaction Services (BTS) example for the rest of the banking industry. BTS successfully implemented an efficient The consistent pursuit of this strategy has and cost-effective solution for executing pay- resulted in the merger of the three existing The integration of back-office activities in ment transactions via SEPA (Single European IT companies, UGIS (UniCredit), HVB Austria involved a number of adjustments. Payments Area) in the CEE banks. This once Information Services (HypoVereinsbank) and Treasury and Securities Services was carved again proved the innovative power of the WAVE (Bank Austria), into one global IT serv- out of Bank Austria and integrated into AS, shared service centre concept and demon- ice provider for the entire Group. and nearshoring activities were started, and strated the resulting competitive advantages. ownership of AS was transferred from Bank Since the launch of SEPA payments at the Activities in 2008 were focused on realising Austria to the Italian company UniCredit end of January 2008, 150,000 SEPA credit the first steps of the programme, which is Business Partner (UCBP). Bank Austria owns transfers have been processed in the nine called 2B1 (to be one) and is based on the a 28.8 % stake in UCBP, and UniCredit and CEE banks belonging to the group. This cor- following three pillars: HVB own 53.1 % and 18.1 % stakes respec- responds to about 3 % of all transactions. service model tively. Administration Services therefore be- operating model comes a wholly-owned subsidiary of UCBP The unit also successfully supported integration while remaining an independent company. Slovakia’s transition to the euro. Due to further economies of scale achieved in the area As part of the service model, which defines As part of a restructuring process, the busi- of international payments as a result of the the collaboration between IT and the bank, ness segments of AS successfully prepared 60 % growth in the number of transactions a Management Board resolution adopted in for the integration into the new company by (7.6 million transactions per year), especially July 2008 assigned responsibility for Bank transitioning from a product- oriented to a due to the processing of payments in Austria’s portfolio and demand management process-oriented structure, which also re- Hungary, transaction costs were again to WAVE and also delegated 43 employees to quired a new collaboration model for working reduced considerably, which clearly demon- WAVE. with customers. strates the advantages of the shared service centre concept. The operating model details the collaboration Due to these far-reaching changes, commu- within the new IT company and is aimed at nication and change management were im- Business process insourcing activities in- implementing uniform processes and rules. portant issues again in 2008. Forum DIALOG cluded the transfer of Bank Austria’s foreign A significant milestone was reached in – an open discussion platform between AS exchange and money market settlement October 2008 with the introduction of a management and employees that is free of business to BTS, which resulted in consider- global process map and the definition of hierarchies – was introduced for the purpose able cost savings for the Group. roles and responsibilities with regard to of providing transparent information for em- process management. ployees.

Bank Austria · 2008 Annual Report 71 Strategy and Results

GBS Division (CONTINUED)

With regard to integration, the legal require- Audit in accordance with SAS 70: After at- Further steps in the ments for the incorporation of WAVE into the taining SAS 70 certification in previous years, restructuring of MIB new IT company were in place in 2008, iT-AUSTRIA once again underwent this audit The transfer of Bank Austria’s trading activi- which allowed the preparations for the Aus- for the 2008 financial year and was success- ties to UniCredit CAIB AG represented a fur- trian portion of the merger to be made in fully certified. The audit report that has now ther step towards the Group-wide time. become available confirms the fact that iT- concentration of investment banking. Our AUSTRIA has an effective internal control subsidiary has been the bank’s exclusive iT-AUSTRIA – central location for system in place – the company has been market player on capital markets since the banking systems SAS 70 compliant since 2005. beginning of October 2008. Extensive iT-AUSTRIA operates Bank Austria’s com- technical and organisational changes had puter centre and telecommunications serv- already been successfully implemented at ices. The company worked on the following Organisation – large- the end of the first half of 2008. projects in addition to its normal operations: scale group-wide projects Rebranding Continuous improvements in the cost / per- The key task of Organisation is the collabo- The bank’s brand name was changed to form ance ratio: The consistent implementa- ration in and management of large-scale “Bank Austria” on 31 March 2008 and its tion of a stringent cost management strategy strategic projects within Bank Austria and legal name was changed to “UniCredit in recent years has led to a further reduction UniCredit Group. The following projects Bank Austria AG” on 26 September 2008. of unit costs. were launched, implemented or continued in 2008: UniCredit Group aims to establish a strong High level of service quality: System avail- European bank. The new brand name and ability was not only maintained at a high Savings Law 262 the inclusion of the name “UniCredit” in the level, but was also increased to nearly 100 % The Group project Savings Law was launched bank’s legal name are intended to express in almost every sub-segment. Thus, service in autumn 2007. The goal of the project is this intention. quality has reached a peak value that, realis- the implementation of an adequate internal tically speaking, cannot be exceeded. control system in order to improve the Business Process Management processes related to financial reporting and The goal of this project is to create a uniform UniCredit Group Integration CEE: The Integra- ensure the accuracy of balance-sheet data. standard for process management across tion CEE programme was launched in April In the course of the project, GBS carried out the Group. This is the only way to make 2006 and represents the organisational tie all of the data collection, documentation and benchmarking – the comparison of our between all of the integration projects that quality assurance activities for the relevant processes with other banks within the Group have been implemented in the last two years. processes and also performed quality assur- in order to help improve efficiency – possi- The programme was successfully completed ance for the processes documented at the ble. The basis for this was created in 2008 in May 2008 with the integration of HVB CEE locations in accordance with the method with the establishment of a Group-wide proj- Central Profit Banka (CPB) and UniCredit specified by the Group. The GBS Division will ect team (GroupWide Methodology for Busi- Zagrebačka banka in Bosnia and Herzegovina. continue to support the project in 2009. ness Process Management) with members from Bank Austria, UniCredit and HVB. This EURO 2008 SK: The euro became the official SEPA collective process structure is already being currency of Slovakia on 1 January 2009. Bank Austria has been offering its customers implemented in the documentation of iT-AUSTRIA supported the transition to the the ability to make SEPA payments in the processes relevant to BASEL II in the CEE euro by providing additional resources both entire extended EU area (EU countries plus countries. during the preparatory phase and during the Iceland, Liechtenstein, Norway and Switzer- actual transition. The transition was land) just as quickly and with the same de- 2008 Branch/service centre analysis completed successfully. gree of security as domestic payments since This project focused on the collection of data 28 January 2008. regarding the activities/ processes carried out within the bank on a day-to-day basis

72 2008 Annual Report · Bank Austria and a quantification of the bank’s activities Facility Management Corporate Social Respon- outside of its core business. The data collection pro cess involved 132 interviews in 31 In Austria the focus in 2008 was on the con- sibility in Global Banking branches and 9 service centres throughout sistent implementation of the site optimisation Austria. The collected data were compiled, programme. Domus Facility Management took Services – efficiency and evaluated, analysed and presented to the a major step in further reducing office space climate protection management of the Retail Division so that costs with the successful sale of the central they could develop measures in response to locations at Am Hof 2 and Vordere Zollamts- Today, the management of banking opera- the findings. strasse 13. (Cost reduction of € 5.9 m to tions requires a stronger focus on issues re- € 161.4 m, resulting in savings of € 51.8 m or lated to sustainability. Large office buildings 24 % since 2002.) and extensive branch networks, modern Global Procurement – computer systems and the use of materials The main focus in the area of corporate so- determine the ecological footprint of a major international responsibility cial responsibility (CSR)/ sustainability is a bank. Bank Austria has been very proactive and value creation three-year sustainability operations manage- in managing its consumption of resources for ment plan aimed at improving the bank’s many years, and a number of projects and In 2008, Procurement Office Austria used carbon dioxide emissions in Austria. Despite measures that had positive effects for the the Group’s auction platform (i-Faber) for the growing demands placed on the IT sec- bank’s environmental footprint were imple- 39 % of its procurement volume – this repre- tor, further reductions in energy consumption mented once again in 2008. sents a 12 % increase compared to the pre- were achieved by replacing and installing vious year. The use of the Group-wide elec- speed regulators for ventilation systems, ad- A wide range of measures aimed at increas- tronic auction platform has resulted in sus- justing the volume of conditioned air and re- ing efficiency in the bank’s heating and air tained cost savings and allowed procurement placing air conditioners at branches and cen- conditioning systems were implemented as processes to be significantly shortened. tral buildings. part of UniCredit Group’s Energy Efficiency In terms of cost efficiency, this has resulted Programme. A new online system for moni- in the optimisation of purchase prices and The combination of the measures aimed at toring energy data allows power consump- a reduction of process costs throughout reducing carbon dioxide emissions (renovation in the branch network to be managed in UniCredit Group. tion of technical systems, switching to en- a targeted manner. “Green IT” concepts, such ergy from renewable sources) and the idea as server virtualisation in the computer cen- The project related to the consolidation of of generating clean energy with systems tre, are being implemented in the bank’s the procurement units in Germany and Aus- owned by the Group (photovoltaics, solar and computer systems. In addition to achieving tria was successfully launched and will be wind power) will provide further sustainable positive cost effects, all of these measures completed on schedule in 2009. Additional effects. help to reduce greenhouse gas emissions projects related to the establishment of and represent an active contribution to cli- cross-border competence centres will also The bank continues to emphasise renewable mate protection on the part of Bank Austria. be continued in 2009. energy in its energy procurement activities.

Energy consumption in per cent 2005 2006 2007 2008 Renewable energy 52.0 59.5 66.5 67.9 Fossil fuels 48.0 40.5 33.5 32.1 Nuclear energy 0.0 0.0 0.0 0.0

Bank Austria · 2008 Annual Report 73 Urska Kolar Stuklek Slovenia

“Any offering or proposal I prepare for customers or colleagues is always checked by my conscience. I ask myself, “Have I considered all options? Is this the best solution?” I can only commit to my customers and colleagues if the proposal would satisfy me were I standing in their shoes.” Human Resources and Corporate Sustainability

Human Resources 76

Responsible Management: Our Commitment to Sustainability 81

Bank Austria · 2008 Annual Report 75 Human Resources and Corporate Sustainability Human Resources

Working for a banking group such as HR model supported by a culture of mediation and/or UniCredit Group creates many possibilities notification, which are used as instruments for employees. On account of the Group’s HR Business Partners support – both at a of redress. The main emphasis in this regard international reach, job options and opport- holding company level and in Austria – top is on restoring inter-personal relationships, unities for development go well beyond the management and the managers of the re- relationships between company and employ- home market and extend to all countries in spective Divisions, adapt HR strategy to meet ees, and relationships between the company which UniCredit Group operates. Over the needs of the respective Divisions and and a third party. 174,000 (67,002 full-time equivalent – FTEs serve as the initial point of contact for issues – in Austria and CEE) colleagues are working related to personnel development, strategic together throughout the world to achieve personnel planning, recruiting, etc. Developing the best common goals, realise interesting projects, leadership team and contribute materially to the success of The activities of Business Partners within a UniCredit Group. At year-end 2008, 10,175 cross-border network serve as the basis for The Executive Development Process is one FTEs were employed in Austria, 6,072 of achieving divisional objectives throughout the of the core processes for the development of them at UniCredit Bank Austria AG. Group. In Austria as well, HR managers executives and for talent management. Our function as a team working to implement goal is the systematic, ongoing development The network maintained by Human Resources common personnel objectives. Another factor of management skills and leadership quali- within the Group also opens up many opport- behind the Group’s success is the close co- ties needed in the Group. unities. In Austria, too, UniCredit Group’s operation with HR experts and service units personnel management stands for such as executive management, training, The Leadership Competence Model focuses cultural identity and core values, diversity management, staff compensation, on: a claim to having the best leadership etc. investment in employees who face team, challenges successfully talent management – recognising and benefiting from international diversity in developing talent, Core values guarantee the composition of our leadership teams making use of the diversity within the sustainability strengthening our “development culture” Group, and internal promotion of employees business-based networked personnel The Integrity Charter encompasses the set better and earlier identification of talented management. of values shared by all employees of Uni- young executives. Credit Group. The six core values – fairness, transparency, respect, reciprocity, freedom to EDP promotes constructive dialogue between act, and trust – serve as practical guidelines middle and top management. Ensuring the for all of us, from board member down to long-term success of the EDP process, how- young apprentice, with regard to our dealings ever, requires the firm commitment of every- with colleagues and customers. They also one involved. The Group Heads of Division serve as the basis for HR management assume an important role in this context as activities and for qualifications of employees they are responsible for ensuring that each with management responsibilities. executive is provided with individual feedback and a personal development plan by his Two ombudspeople are available to handle or her immediate superior. complaints arising from conflicts or from infractions against the values of the Integrity Charter. Employees can turn to these ombudspeople with complete confidentiality. “Restorative justice” serves as the basis or set of rules used by the Group to implement the Integrity Charter. This approach is

76 2008 Annual Report · Bank Austria The UniManagement Center in Turin fulfils year, and to exchange relevant information Pipeline” at a very early stage. The objective the ambitious objective of “Developing with other participants. At this workshop, is to develop these promising young employ- Leadership”. For this purpose, the UniMan- held at the UniManagement Center, partici- ees into highly-qualified and passionate agement Team has developed a number of pants develop strategies and visions for leaders. This group-wide TMR process also innovative strategies: addressing future challenges from an opera- identifies talented divisional and local em- physical architecture – the work environ- tional and managerial perspective. The ployees in Austria. ment offers space for teamwork, engages all collaborative approach taken at this meeting aspects of the human intellect and permits further strengthens the sense of solidarity The talent management process is supported real-time processing within UniCredit Group. by two centralised development programmes: content architecture – management capability is acquired through dealing success- Talent management UniQuest is the development programme for fully with specific challenges and realistic successful, talented young employees of situations Talent management at UniCredit Group is not UniCredit Group which operates on a volun- process architecture – improves the the sole responsibility of the HR department tary basis. Divisional projects form the core ability to learn based on the most recent – on the contrary, talent management is a key of this international programme. Each research results. managerial function which is supported by HR. respective project is then taken under the aegis of a member of the Management For top management executives, the annual The Talent Management Review Process Committee (Group Management Board). Leadership Meeting offers a unique oppor- (TMR process) at Group level is a key ele- tunity to become familiar with the organisa- ment. This process identifies talented young UniFuture is a leadership development pro- tional and corporate priorities for the new employees for the “UniCredit Group’s Talent gramme for managers who have been identified as possible management successors to the leadership team. The objective is to promote the participants’ further development through the exchange of knowledge and ex- Leadership Competence Model perience. They work out a new business idea or an idea to modify or improve a relevant process. Each team is sponsored by a senior Market and product knowledge executive of the Group. Five Austrian man- Customer Focus And Value Proposition agers have already successfully concluded (customer focus; customer value proposition; connected with the community) UniFuture. Risk Management (risk management focus) Quality Orientation (quality oriented; cost focused) Feedback as a basis for corporate success Values Leadership Integrity And Trustworthiness Thought Leadership In line with the motto “Your voice – our fu- (live the “ethics” rules – integrity; (project the future state/communica- ture”, we invited all employees to participate trustworthy) tion; intellectual curiosity/analytical) in a group-wide staff survey (“People Sur- vey”), allowing them to actively shape their Growth Oriented (growth oriented) Execution (performance driven; future in UniCredit Group by providing feed- Team Culture (accountable; make tough calls – on people and ideas; entrepreneurship) back and submitting suggestions on an team culture – open to feedback and anonymous basis. ideas; equitable) Committed To People Embrace Diversity (committed to people development) (embrace diversity, globally connected) Energising (energising) Change Oriented (change oriented; innovation)

Bank Austria · 2008 Annual Report 77 Human Resources and Corporate Sustainability

Human Resources (CONTINUED)

The results provide a clear picture of em- Compensation management ensures a fo- specific job requirements, strengths and ployee satisfaction across the Group, and cused distribution of budgeted funds and areas of development for the employee based they indicate where improvements need to that compensation is in line with market re- on Group competence criteria and personal be made. The high level of participation quirements, while serving to strengthen the development planning. reflects the strong commitment of employ- commitment of key personnel to the bank ees, the People Engagement with UniCredit over the longer term. Training and development Group. While the results are analysed by Di- vision at Group level, they are also very sig- Performance management Our training programme in 2008 continued nificant when evaluated by country. A key element of this system is the MbO the approach adopted in the previous year, process (Management by Objectives). Pur- i.e. gearing the training programme to the Building on these results, employees in the suant to this process, concrete work goals divisional business models. Divisions worked together with their man- are established based on target-group-spe- agers to establish action plans for improve- cific scorecards, making it possible to imple- The programme for Banking & Finance and ments which will be implemented in the ment corporate objectives more efficiently. Sales was revised and brought into line with course of 2009. A subsequent evaluation during the following the requirements of job profiles in the year of whether the objectives have been Divisions. The bank provided special sales- realised serves as the basis for the award of based training for its account managers to Personnel management performance-based incentives. With the MbO enable them to address the challenges of the – transparent and fair system, business activities can be efficiently difficult economic environment in the second managed and employees compensated half of the year. With Job Families we have implemented a based on performance. Another key aspect of performance-oriented, effective and modern the performance management system is the In 2008, the bank continued its strategy of personnel-management system which is new annual performance review. This review counteracting the growing demands on em- closely aligned with the core values of the In- focuses on the employee’s sustained, future- ployees’ individual performance capabilities tegrity Charter – in particular with regard to oriented overall performance with regard to with a variety of training courses in the “Per- transparency and fairness. All processes and decisions are made in a manner which is both calculable and transparent for employees.

Consistent with the concept of a comprehensive and integrated personnel management system, the job families approach ties in with other system components such as compensation management (Compensation & Compensation Benefits), performance management and the Career system & Benefits career system. This system is applied throughout the Group as the archetype for a Group-wide job model. Job families Compensation & Benefits Functions Compensation Committees were established Personnel Performance in 2007. These committees convene twice a planning management year to determine salary increases, taking into consideration current market benchmarks and personal factors (a sustained level of exceptional performance, values-based approach). Personnel development

78 2008 Annual Report · Bank Austria sonal Skills” segment. The courses largely Internal service regul- Negotiation Panel” comprising Employees’ focused on employees’ personal work atti- Councils from various EU countries. “Euro- tudes, maintenance of performance, efficient ations, labour relations pean Works Council” (EWC) is the name of work methods and stress prevention. the body established by the EU whose goal Thanks to the cooperation between HR is to strengthen the right of employees to The courses provided for management Management and the Employees’ Council, it information and consultation. The body training across the bank’s Divisions form the was possible to successfully address a comprises representatives from all countries basis of a common management under- number of issues involving the bank’s in Europe where UniCredit Group is active. standing within UniCredit Group. Manage- internal service regulations and working HR managers and representatives from top ment networking and the understanding for relationships. Such issues included the management will regularly inform the EWC socio-political factors, which influence creation of a legal framework for the transfer of planned or approved measures. market opportunities in other countries, were of employee data within UniCredit Group for supported by the large number of managers the purpose of ensuring an efficient person- Diversity management from Austria who participated in seminars nel management system, discussions for organised by UniManagement in Turin. achieving an out-of-court arrangement with Mutual respect, candour and the recognition former employees on pension-related and appreciation of differences are integral The broad range of courses offered by the benefits, and the creation of an appropriate components of our corporate culture. In bank in terms of content and method further labour legislation-based framework for the order to maintain the high level of commit- raised the level of general competency in spinning off of companies. ment, performance and health of all our staff English. In addition to topic- and target members, we consider it important to pay group-specific classroom training, employees EWC – European Works Council due regard to the various circumstances in were offered a large number of e-Learning The “European Works Council of UniCredit the lives of our employees to enable us to courses as well as near-the-job training Group – UEWC” was established after con- create general conditions in which they can through courses offered by departments and structive negotiations between HR at the achieve a good balance between work and on the basis of individual hours. holding company level and the “Special family. For this reason UniCredit Bank Austria offers numerous part-time work models, flexible working time, sabbaticals and the possibility of telecommuting. Assistance for families includes company kindergartens with a capacity for some 200 children, selective support during maternity leave and “come-back days”.

Total training days in 2008: 33,432 In 2008, 50 pairs of employees took part in the national Mentoring Programme, which is now in its sixth year and incorporates staff Basic training development and diversity measures as well 1% 15% 16% Banking & Finance as initiatives for supporting the role of Sales women in the bank. Women moreover ac- 7% Project and process management count for as much as two-thirds of the pro- Computing gramme’s mentees. Under the programme, 8% 25% Personal skills Management mentees and mentors from diverse areas 15% Foreign languages and with different functions work together for 9% Trainers one year on a cross-divisional basis. In doing External seminars so, they learn from one another, they provide 2% 1% mutual support and are confronted with new views. Aside from the mentoring relationship

Bank Austria · 2008 Annual Report 79 Human Resources and Corporate Sustainability

Human Resources (CONTINUED)

between mentor and mentee, networking is Human Resources CEE Another means to promote cooperation and an important component of the national an exchange of information are the regular mentoring programme. Within UniCredit Group, CEE Human CEE HR events that became an effective Resources is organised in two main areas: forum for discussion, alignment and net- The individual mentee networks in UniCredit strategy and operations, and learning and working within the HR community and be- Bank Austria include a women’s network development. tween HR and Business as well as with other which was presented in the autumn as part Divisions and Competence Lines in CEE. of the kick-off event entitled “Frauen-Power” CEE HR develops overall strategic HR (“Women’s Power”). The network maintains guidelines for CEE and supports the imple- In 2008, CEE HR actively supported the inte- contact with the Group-wide international mentation of local HR plans in the relevant gration of ATF (Kazakhstan) and Ukrsotsbank women’s network UWIN (UniCredit Women’s countries. In addition, it designs and organ- (Ukraine) into the Group by providing and International Network). In addition to various ises programmes to promote cooperation supporting the implementation of various HR measures for women in the bank, the within the HR community and between HR tools as well as new structures and women’s networks also have the purpose of and business in CEE countries. processes. increasing the proportion of women in higher positions. For that purpose the initiative for Cross- On the development side, the CEE Mentoring Border Projects and Competence Centers Pilot for Executives was launched in July Health and employee safety was developed further. Whereas some Cross- 2008, with 26 participants arriving from At a number of locations, employees have Border Projects were completed according to 11 countries. The one-year period of the pilot access to advice and treatment by a highly- plan, the scope of other such projects was offers both mentors and mentees the oppor- qualified team of doctors and therapists from adapted in response to the changes in the tunity to experience this strong personal different medical disciplines and in line with macroeconomic environment. The activities development tool. state-of-the-art occupational medicine. of the Competence Centers were also Specialists in occupational safety provide reviewed and measures were taken to In the context of the Employer Branding onsite advice on ergonomic issues. Numer- maximise their value and strengthen their activities, the UniCredit CEE Student Cercle ous precautionary measures as well as phys- position in CEE. opened its doors officially in April 2008 in ical exercise and relaxation programmes cooperation with the Vienna University of intended to promote healthy lifestyles are In regard to training initiatives relating to Economics and Business Administration. By offered at reasonable prices. Cost-benefit Cross-Border Projects, local trainers deliv- the end of the year 300 students had signed analyses show that these investments ered the state-of-the-art “Basic Selling up and became part of this community, lead to significant reductions in employee Skills” training in 12 CEE countries to 2,150 expressing strong interest in the CEE region absences. sales people in the respective local lan- and its activities. guages. The delivery of the new uniform “Basic Leadership Skills” training started in In strong alignment with the Group Ombuds- 6 countries to 560 young managers in order man, the implementation of the Restorative to provide them with the basic management Justice System in the CEE countries continued tools. An advanced selling skills training for in 2008, and the system is now operative in Affluent Relationship Managers was devel- most CEE countries. The 2nd Ombuds man oped and successfully tested in the pilot meeting took place on 2 and 3 December country. Furthermore, the rollout of a Corpo- 2008; the event was also attended by the rate Relationship Manager training started in newly appointed Ombudspeople. the autumn with the delivery of the trainer courses.

80 2008 Annual Report · Bank Austria Responsible Management: Our Commitment to Sustainability

Responsibility and sustainability are the cornerstone of our understanding. For us, acting responsibly means economic, ecological and socially sustainable management.

We are guided primarily by values based on The purpose of the UniCredit business model Social considerations: A company want- the principle of sustainability. The financial – which is based on four pillars: divisional ing to manage its affairs responsibly must market crisis has shown that sustainability structure, global product lines, the bundling also consider the social dimension of its should be a matter of course: a company of infrastructure functions and local identity actions. This applies to its employees and to that manages its business responsibly has – is to create sustainable added value. the social environment. For many years now, laid the groundwork for long-term economic Added value can be sustainable if it takes Bank Austria has been committed to helping success, aware that this success has impor- equal account of economic, ecological and socially disadvantaged persons. We have tant social and ecological dimensions. Cur- social issues. Information on the Group’s also always supported cultural events. Our rent trends clearly show that economic sus- commitment is contained in UniCredit’s focus is on education, learning and science, tainability is the key to a company’s success, Sustainability Report, to which we also con- where we aim to take new initiatives. and that it must be taken seriously if eco- tribute. nomic measures are to benefit society. To consider and treat the three dimensions of Our approach is to effectively sustainability as an integrated whole is a The situation today also shows how impor- combine the three dimensions of complex challenge for any company. Be- tant it is to have the trust of customers, em- sustainability cause there is often not a harmonious rela- ployees and other social groups (stakehold- Our actions are guided by the values of the tionship between economic, ecological and ers). It is evident for everyone now – and this Integrity Charter. Drawing on these values, social requirements. The three can be bal- is especially true for the financial industry – we see responsibility and sustainability as anced only through prudent and reasonable that trust and credibility are precious assets three-dimensional concepts. Anyone wanting decisions. Such decisions are required also that have to be carefully handled. This in- to act responsibly must integrate the three for the optimum ratio of long-term to short- volves recognising the ecological and social dimensions: economic activity – ecology – term goals, or for the balance between aspects of economic measures and system- social considerations. profitability and safety. atically integrating these in strategic and operative decisions. Economic activity: Economic sustainability is an economic given: anyone who thinks Economic sustainability only short term and fails to consider the fu- From corporate social ture will not be successful in the market. The and economic financial market crisis has clearly shown that performance responsibility to corporate short-term thinking is a dangerous strategy: sustainability sustainable management means creating A company cannot operate in the longer long-term added value. term without economic sustainability. Sus- In line with these principles we are develop- tainability therefore forms the basis of every ing our corporate social responsibility into a Ecology: The environmental aspects of economic activity. For us, this means that comprehensive concept of corporate sustain- business management are of growing impor- rather than being grafted on core business, ability. In other words, we see our responsi- tance, also in the way they are perceived by corporate sustainability must be an integral bility to society as an integral part of our the public. The economic use of natural component of our actions. Corporate sustain- economic success. And conversely: we know resources such as materials, energy and ability moreover constitutes part of a com- that in the longer term, we can only act space, is a part of our social responsibility. pany’s risk management. responsibly and for the good of society if we For this reason, we try to make our are economically successful. In this context, processes and products as environmentally Safeguarding the basis of our as member of UniCredit Group, we are in an friendly as possible, especially in regard to success international group which gives high priority climate protection. For this reason, responsibility and sustain- to responsibility and sustainability. ability are a part of our understanding. This means that we have to respond to changes in society and changing market conditions. This applies to various types of risk – especially reputational risk. As a company and

Bank Austria · 2008 Annual Report 81 Human Resources and Corporate Sustainability Responsible Management:

Our Commitment to Sustainability (cONTINUED)

player in society we have to be receptive Climate protection combined. We will continue on this path and to what is happening around us, and we seek to make increasing use of synergies want to participate in actively shaping the between economic, ecological and social process of positive change in society. Climate protection is an important goals. Our achievements in this area are de- focus of our activities in the area of scribed in the following section on ecological Responsibility as innovation fac- corporate sustainability. We adopt sustainability. tor: sustainable banking products process and product-related mea- In the longer term, responsibility and sus- sures to make a positive contribu- tainability can fulﬁl their purpose only if tion toward protecting the climate Ecological sustainability they are integrated in a company’s core of our planet. These range from and climate protection business. Corporate sustainability there- activities in the area of operational fore involves going beyond individual environmental management to in- We see two aspects to ecological sustain- measures and making sustainable actions formation for employees and prod - ability: operations ecology and product ecol- the guiding principle for corporate man- ucts with which our customers ogy. Operations ecology – the environment- agement. For us, this also means develop- can contribute toward climate pro- related dimension of our operations ing products which meet sustainability cri- tection. The objective is quite clear: processes – focuses on the use of material, teria. Examples are products for portfolio Bank Austria wants to actively con- energy and space which is directly linked to investments and construction loans. tribute toward reducing energy our business activities. Product ecology – the consumption and climate change. environmental impact of the products offered Pioneer Investments offers investors the to our customers – is deﬁned as the indirect opportunity to make investments accord- ecological consequence of our activities. ing to ethical criteria; the investments are economically attractive and worthwhile in These examples show the innovation poten- Sustainable product policy: social- both ecological and social terms. An ex- tial available to a company through responsi- ecological aspects in the discussion ample is the Global Ecology fund, which bility and sustainability. They underline the The above information on sustainable bank- invests in companies offering environmen- close links between economic and ecological ing products shows that sustainability is an tally friendly products and technology. issues, and how the two can be successfully important component of our customer serv-

With the KlimaKredit loan, targeted at private customers, we promote the ﬁnancing of environmentally friendly renovation projects. The KlimaKredit, together with the accompanying UmweltBonus, offers cus- Economic dimension: tomers the opportunity to save costs and creating long-term value contribute to environmental and climate protection. When he takes out a Klima - Kredit loan, the customer receives an UmweltBonus (environmental bonus), whose amount depends on the energy

efﬁciency category of the real estate: the Dimensions better the category, the higher the bonus. of sustainability and responsibility

Social dimension: Ecological dimension: supporting employed using natural persons and strengthening resources sparingly the social environment

82 2008 Annual Report · Bank Austria ices, reflected in the advice given to cus- “Sharing knowledge” Social sustainability and tomers on climate protection. Sustainability is an important innovation area and we will social commitment sharpen our focus on offering new solu- “Sharing knowledge” is the title tions for combining economic activities, of a programme with which we Our economic success and the assumption ecology and social considerations. We are want to make our expertise as of social responsibility largely depend on confident that sustainability is vital both for bank and key economic player our employees. Both areas form a part of taking responsible measures and as a fu- available to learning and educa- our initiatives in the field of social sustain- ture business segment. A structural change tion. The list of activities ranges ability. towards climate protection and sustainabil- from participation in school proj- ity is absolutely essential – an area in ects to regional information meet - Employees which banks will have a key role. ings and cooperation with univer - Human resources and corporate sustain- sities. We share our knowledge ability are linked to one another in two Operations ecology: sustainable with society – and we want to ways: first, the fair treatment of the com- organisation of processes create opportunities for open dis- pany’s employees is a central dimension of It is part of our policy to employ environ- cussion of important topical issues. social sustainability; second, it is clear that mental management measures to keep the Sustainable development is a corporate sustainability can only be prop- negative environmental impact of opera- search by all for better solutions – erly implemented if all employees know tional processes to a minimum. This ap- and we want to contribute to this what responsibility and sustainability really plies to our real estate management activi- search. are, and what individual persons can do for ties, business trips and our procurement these goals to be achieved. Human re- policy. Another segment that calls for eco- sources and corporate sustainability are logical responsibility is that of core infor- therefore intricately linked in questions of mation and communications technology. Our employees play an important role in our strategy, plans and measures related to commitment to environmental and climate responsibility and sustainability (see also Our contribution to climate protection. An internal ideas competition on the section on Human Resources on page protection this topic was a success. We want to step 76f of this report). All these issues address a central question up future efforts to inform Bank Austria em- of our time: climate protection. Man-in- ployees how they can help protect natural Helping disadvantaged persons duced climate change poses an enormous resources. and promoting culture and science challenge for all segments of society – Bank Austria has always been committed from the individual citizen to politics and of In addition to these measures, we promote to helping socially disadvantaged individu- course the economy. We accept this chal- public debate on climate. In 2008, Bank als. An important project currently under- lenge, which is why “climate” plays such Austria sponsored the Austrian Prize for way in this context is the support provided an important role in our product develop- Climate Protection, which is awarded to to “Gemma’s an” (“Let’s start”). This proj- ment and operational processes. persons with the best ideas on climate ect was initiated by the Ombudsoffice for preservation. Children and Youths. “Gemma’s an” supports young people in Vienna facing difficult situations in their lives by providing honorary helpers – many of these are Bank Austria employees. Our activities in the area of social sustainability include cooperating with the UniCredit foundation UNIDEA.

Bank Austria · 2008 Annual Report 83 Human Resources and Corporate Sustainability Responsible Management:

Our Commitment to Sustainability (cONTINUED)

Bank Austria is a major player in the area of We know that we also have to look beyond Besides participating actively in social debate cultural sponsorship. Bank Austria undertook our confines to act responsibly and in a we listen to the critical opinions aired by scien- this commitment and to support disadvan- sustainable manner. We have done this in tists and civil society. This reflects our under- taged persons many years ago – and we the past and we will do it with greater em- standing of responsibility and sustainability: we continue to see these activities as a part of phasis in the future, by participating in see these two objectives as permanent search our social responsibility. In the future it will processes which focus on enhancing and processes which involve a continuous and criti- be important for us that our activities in the specifying sustainability. This includes cal debate with all the dimensions of our ac- area of social responsibility have a closer membership in institutions concerned with tions. In social and business terms, sustainabil- bearing on our core business. We are there- the dissemination of sustainability ideas. ity is not something that is achieved and then fore focusing more on one area in which we Examples are our membership of clung on to – it involves a learning process have been active for many years: learning, “respACT – Austrian Business Council for which results in a new way of doing things. We science and research. Sustainable Development”, our involve- are continually striving to act responsibly and ment in the “Grünes Geld” (“Green economically, and to manage our business The “sharing knowledge” Money”) platform of the Austrian Society ecologically and in a socially sustainable man- programme for Environment and Technology, and our ner. In line with this approach we will continue “Sharing knowledge” is the name of the pro- participation in the “Task Force Central to act as a responsible bank in the future. gramme under which we share some of the and Eastern Europe” of the United Nations resources at our disposal to disseminate Environment Programme Finance Initiative Details of sustainability activities are provided and discuss our knowledge of topics related (UNEP-FI). in the Sustainability Report of UniCredit Group. to economic activity and sustainability. In addition to supporting specific projects we seek to create opportunities for the open discussion of important social problems. This is reflected in our participation in the planning and financing of forums for dis- Ecological products: for example “KlimaKredit” loan cussing issues such as globalisation and sustainability.

Our approach: commitment to sustainable development Bank Austria has implemented many measures to assure the sustainability of its business model and to assume social responsibility. We want to apply our values in our daily lives – and Bank Austria continues to WOHNEN IM EINKLANG develop on this basis. We have already MIT DER NATUR. clearly indicated that committed and satis- UND DER FINANZIERUNG. Der KlimaKredit mit UmweltBonus. ﬁed employees play a key role in this regard.

Holen Sie sich jetzt den KlimaKredit mit bis zu 600,– Euro UmweltBonus: Der KlimaKredit ermöglicht mit ökologischen Bau- und Renovierungsmaßnahmen die Realisierung Ihrer Wohnträume. Bis zum 30. 4. 2009 gibt es außerdem bis zu 600,– Euro UmweltBonus für alle, die grüner wohnen wollen. Auf klimakredit.bankaustria.at können Sie mit dem EnergieRechner jetzt schon Ihre Energieefﬁ zienz berechnen. Mehr Informationen erhalten Sie in Ihrer Bank Austria, unter der 24h ServiceLine 05 05 05-25 und auf klimakredit.bankaustria.at

84 2008 Annual Report · Bank Austria Anthony John Robbins Italy

“In nearly 32 years with the Group I have learned that each day, each hour, each customer, each colleague, each task should be treated like a newborn child: what may seem small and insignificant is full of potential, promise and strength, requiring care, attention to detail, dedication and integrity. Strength achieved through unflagging commitment.”

“In 2008 we succeeded at putting into practice everything that we made up our minds to do – by following our goals day after day, by being open to all feedbacks that came our way, by surmounting any obstacle that we faced, and, at the end of the day, by staying true to our promise: to deliver customer satisfaction!”

Doina Costache Romania Alessio Amadori Italy

“My strength is my commitment. And strength implies flexibility. So my strength is definitely my daily, flexible commitment to face challenging goals, while aiming to meet both professional requirements and the customer’s satisfaction.”

Gabriele Gori Italy

“We strongly believe that a life of integrity is the fundamental basis of personal worth. The commitments we make to ourselves and to our stakeholders and the integrity we bring to those commitments are the essence of our lives and the strongest contributors to our past and future achievements.” Consolidated Financial Statements: Management Report of the Group

Management Report of Bank Austria for 2008 88 The Banking Environment in 2008 88 Bank Austria in 2008 91 Development of Business Segments 101 Balance sheet developments 114 Further information 116 Outlook 117

Bank Austria · 2008 Annual Report 87 Consolidated Financial Statements: Management Report of the Group Management Report of Bank Austria for 2008

The Banking Environment in 2008

The financial market crisis that started in the US affected all Over a period of about twelve months, efforts to deal with the segments of global capital markets in the course of 2008, escalating financial market crisis included the workout of a broad range of struc- into a banking crisis which threatened the financial system in tured capital market products as well as the recapitalisation and bail- September / October 2008. Stabilisation programmes put in place by out of banks and insurance companies. The collapse of Lehman governments helped to cushion the adverse impact. With some time Brothers, one of the systemically important market participants with lag, the crisis spread to the real economy as the year progressed. links throughout the world, on 15 September 2008 marked a turning From the middle of 2008, it became clear that Europe and the Asian point for the global banking sector, leading to an unprecedented loss growth markets would not escape recession. Fears of inflation quickly of confidence in interbank business. Notwithstanding large-volume, turned into fears of deflation and a global economic crisis. As expec- globally coordinated intervention including open-market operations by tations were more or less the same around the world, leading central banks, interbank rates – especially in the US dollar but also in indicators of industrial activity fell dramatically in the autumn, in an the euro – rose sharply, temporarily exceeding the rates on central unprecedented synchronous movement. The particularly strong interbank funds (3-month interest rate swap, OIS) by 4 and 2 percentage national links in the automotive industry were one of the factors trig- points, respectively, and significantly increasing liquidity costs for gering this development. Investors worldwide withdrew from high-risk banks. Moreover, CDS spreads rose sharply from an already high asset classes in response to the financial crisis and the economic level. downturn. Recently, financial flows from private investors to emerging markets – a precondition for global prosperity – all but dried up. The Investors moved faster to exit all high-yield and risk-carrying asset repricing of risks finally affected corporate finance in the last four classes as the year progressed, and this made it more expensive for months of 2008, after years of excess liquidity and declining loan loss emerging markets to raise funds, especially for those countries which provisions. depended on steady capital inflows to build their economies.

➔ The downward trend gradually impacted banking business in our Global investors’ flight to safe havens favoured the US dollar: from a core markets via different paths on the supply and demand sides: low of 1.6038 on 21 July, it appreciated against the euro by 30 % to first, through direct effects on trade and capital markets and in the reach a high on 28 October. Low-interest currencies such as the form of increasingly difficult funding conditions and market expecta- Japanese yen (+ 47 %) and the Swiss franc (15 %), which until then tions of higher capital ratios; had been attractive currencies for debt vehicles, strengthened. second, through customers’ response to the new asset price Sterling, on the other hand, depreciated by 23 % against the euro, restructure, especially that of disconcerted investors and also compa- flecting the difficult situation in the banking sector and the recession nies in commercial business. Demand for banking products and serv- partly caused by these difficulties. ices tended to shift from capital market products and derivatives back to traditional on-balance sheet banking business; The reduction of investment positions, temporarily in panic reactions, and third, via the macroeconomic impact in Austria and, above all, also impacted commodity prices in the summer. After reaching an all- in highly-exposed CEE countries, which became clearly visible in the time high of 147.50 US dollars per barrel on 11 July 2008, crude oil fourth quarter of 2008 and strongly dampened volume growth in prices fell by 75 % to a level of 36.20 US dollars per barrel by De- banking business. cember. Prices for industrial metals and agricultural commodities also declined significantly. Major factors in this context were the gloomy outlook and, later on, the downturn in global economic activity (see shipping futures index).

World stock markets (MSCI World), which had recovered slightly in the spring, lost almost one half of their value from May to the low in November, and fell by 41 % year-on-year. Share prices in emerging markets, both Asia (– 49 % year-on-year, including China) and Europe (– 65 %, of which Russia: – 73 %), were particularly hard hit, after many years in which they saw increases in value.

88 2008 Annual Report · Bank Austria As a result of the sharp rise in commodity prices and fairly resilient Loss of confidence in interbank markets growth in the first six months, inflation (HCPI) in the euro area Interbank/central bank funds reached 4.0 % in June 2008. Prompted by fears of excessive infla- (3-month Libor/3-month OIS) 4.0 tion, the ECB raised key interest rates one last time to 4.25 % at the US dollar beginning of July. When it became clear that the European economy 3.5 3.0 could not uncouple itself from global developments, and the primary 2.5 objective of economic policy was to resolve the banking crisis, the 2.0 ECB lowered key interest rates in four stages to 2.25 % at the end of 1.5 the year (currently 1.5 %). The money market followed suit, although 1.0 credit spreads were exceptionally high. 0.5 Euro 0.0 Flat yields on 10-year benchmark bonds, still 4.66 % in the middle of Higher credit spreads 2008, fell faster than money market rates to 2.93 % at the end of the 800 900 Credit Default Swaps 800 year due to strong demand from risk-averse investors. This resulted in 700 (iTraxx Crossover, 5yr) 600 700 a variety of interest rates that matched the respective bond ratings. 500 600 400 500 Even within the euro area, credit spreads of government bonds of Emerging markets (EMBI+) highly indebted countries reached unprecedented levels. Yields of cor- bond yields; benchmark spread 400 300 porate bonds rose significantly in October: at the end of 2008, yields BBB corporate bond yields; 200 of BBB-rated bonds were about 1.5 percentage points above the level benchmark spread 100 at the beginning of the year. This increase in the credit spread corre- Turnaround in currency markets sponded to more than double the interest rate reduction of benchmark government bonds. Lending rates (over and beyond increased 1.15 JPY per EUR 125 corporate risk) were subsequently accompanied by higher liquidity (inverted scale) 1.25 135 and funding costs of the banking sector, which were partly absorbed 145 by margins. 1.35 155 1.45 Austria felt the full impact of the global economic downturn later USD per EUR 165 1.55 (inverted scale) in the year: in the fourth quarter of 2008, Austria’s economic per- 175 formance shrank for the first time in 30 quarters. As economic trends in Austria follow international developments with some time lag, the Economic downturn and oil price quarter-on-quarter decline of 0.2 % was significantly lower than in the 1,000 Shipping Futures 140 (Baltic Dry Index) euro area. Real GDP in 2008 as a whole still grew by 1.8 %, driven by 800 120 the strong momentum early in the year. However, the Austrian econ- London Brent 100 omy was increasingly impacted by the sharp decline in global 600 Crude Oil USD/bl. demand via the export-oriented industrial sector with its close links as 400 80 a supplier. Towards the end of 2008, exports fell at double-digit rates 200 60 compared with the previous year. Industrial companies strongly 0 40 reduced output, cut investment and started to adjust employment. The year-end 2008 number of unemployed persons exceeded the Spillover to emerging markets (regional MSCI indices) December 2007 level by more than 30,000 or 12 %. Supported by the 100 significant decline in inflation, to a level of 1.3 % in December 2008, World stock index 80 private consumption continued to grow in the fourth quarter, though Emerging Asia at a moderate rate. In 2008, the inflation rate averaged 3.2 % and 60 private consumption rose by 1 %. The savings ratio continued to grow from quarter to quarter – as it usually does in times of uncertainty –, 40 rising to an annual average of over 12.3 %. Emerging Europe 20 Q1 Q2 Q3 Q4 Q1 2008 2009

Bank Austria · 2008 Annual Report 89 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

As the situation in financial markets escalated, the final quarter of The cyclical economic downturn hit the CEE countries’ most vulnera- 2008 saw an even stronger trend towards shifting private financial ble spot, namely external and internal funding flows. Initially, the infla- assets into liquid forms of investments, all the more so as the Aus- tionary pressure from commodity prices multiplied the homemade trian government provided an unlimited guarantee on deposits held by inflation of many countries, which encountered stabilisation problems; private individuals. Bank deposits accounted for two-thirds of the this has limited the scope for monetary measures. Most importantly, increase in holdings of financial assets; deposit growth in 2008 was however, global investors withdrew almost entirely from both high- 7%, matching the figure for 2007. Bond holdings, the second most yield investments and emerging markets in the second half of the important form of investment behind bank deposits, also increased at year. Stock exchange prices and CDS spreads deteriorated gradually a disproportionately high rate. The two asset categories recorded as the year progressed, and this deterioration was particularly dra- combined growth that was stronger than the overall increase in hold- matic after the collapse of Lehman Brothers. The deleveraging of the ings of financial assets, as there was a significant switch mainly out global banking sector took place at the cost of emerging markets. As of mutual funds. In 2008, the mutual fund industry in Austria recorded a result, countries which – over and beyond direct investments – de- outflows of over € 15 bn or more than 9 % of total volume. Added to pended on a steady flow of portfolio investments or short-term loans these outflows were price losses totalling over € 22 bn. As a result, to finance their current account deficit were faced with balance of total fund volume fell by about € 38 bn or almost 23 %. Lending payments problems. Highly-indebted countries moreover found it in- growth reached 7 % year-on-year, exceeding the expansion recorded creasingly difficult to roll over their debt. In addition, countries with a in previous years; the absolute increase of € 20 bn (also adjusted for current account surplus and / or substantial foreign exchange reserves exchange rate effects) was the strongest growth ever seen in the were classified as a sovereign risk from one moment to the next. history of Austrian banking. While the growth momentum in loans to Countries with the highest macro vulnerability were generally those private households weakened in the second half of 2008, corporate which had previously experienced a boom (Baltic countries, Bulgaria, loans continued to grow very strongly until the end of the year. Romania, Russia and Ukraine). The adjustments required of countries whose currency was tied to another currency or standard had a direct In the first half of 2008, the economies of the CEE countries still impact on domestic demand, while nations with a flexible exchange grew at a rate matching that of previous years. The dynamic growth rate system were in danger of becoming trapped in a devaluation continued in the third quarter, but business conditions were now less spiral towards the end of the year. This significantly increased these favourable (reversal in oil prices, risk-averse behaviour of investors) countries’ costs for servicing their private and public foreign currency and some countries in the region were facing specific problems. All debt; in some cases the IMF and the EU had to help out with stabili- countries however felt the full force of the sharp downturn of the sation facilities and loans to support the balance of payments. global economy in the last few months of the year, although the effects varied from country to country. The close production links The funding problems of the CEE countries cannot be compared with maintained with Western Europe in some key European industries, the Asian debt crisis in the second half of the nineties: the ratio of coupled with the worldwide decline in demand for raw materials, led foreign exchange reserves to short-term debt is better, direct invest- to the collapse of the region’s exports, the key driver of economic ments play a much more important role than short-term speculative growth, towards the end of the year. The countries were impacted by capital flows, and convergence with the EU is intact. Capital flows – developments in 2008 to a varying degree in light of different produc- investments in the economic integration of the CEE region and the tion structures, convergence levels and the external funding gap. Real West – should again be based more on fundamental data. The coun- economic growth in the CEE region consequently slowed from almost tries best placed to benefit from a renewed upturn are those which 6.5 % in the last five years to an average 4.3 % in 2008. The sharp previously had relatively steady macroeconomic growth, such as contraction at the turn of the year is reflected in the downward revi- Turkey, and stable domestic funding, such as the Central European sion of the forecast for 2009 to minus 1 %. The difference in the countries with the longest CEE track record (see Outlook, page 117). growth rates between CEE and Western Europe indicates that these developments represent an externally triggered temporary deviation from the long-term upward trend and from the catching-up process which is still underway.

90 2008 Annual Report · Bank Austria Bank Austria in 2008

Overview As the financial market crisis escalated, culminating in the collapse of Lehman Brothers in mid-September, and economic activity Bank Austria*) coped well in absorbing the growing direct and showed a sharp downturn towards year-end 2008, the outlook for indirect impacts from financial markets, the banking sector and global banking business changed dramatically in the course of the year. economic trends on banking business in our core markets in the Moreover, as expectations pointed in the same direction, investors course of 2008. Operating profit rose by € 232 m or 8 % to € 3.3 bn proved to be risk-averse and high-risk exposures in the global finan- in 2008. Even adjusted for positive one-off effects such as the exten- cial sector were reduced (deleveraging), a particularly critical view sion of the consolidation perimeter, the B&C special dividend and the was taken of CEE business. Whether justified in fundamental terms or ASVG effect, operating profit was only 10 % lower than the high figure not, this created new facts which are also strongly reflected in Bank for the previous year. Austria’s development during the year: while operating profit rose as the year progressed, the market’s new assessment of our two core These results have been achieved through a remarkable performance markets – Austria and CEE – required substantial provisions and a of our operations in Austria and CEE, all the more so as they include revaluation of various equity investments (impairment of goodwill) to the direct impact of the financial market crisis, which is reflected in be made in the fourth quarter of 2008. In the fourth quarter alone, the the net trading, hedging and fair value result: the strong reversal in “non-operating” items of the income statement between operating the trading performance from net income of € 141 m in 2007 to a net profit and profit before tax resulted in a charge of € 1.7 bn weighing loss of € 414 m was offset in overall results. on overall results.

It should be noted that the bank was faced with increasingly difficult ➔ Although operating profit reached a record level of € 3.3 bn, funding conditions and an abrupt shift in demand from structured profit before tax for 2008 was only € 1.5 bn – mainly because of products to traditional on-balance sheet business – the indirect con- valuation adjustments made in the area of equity investments in the sequences of the situation in financial markets. As a result, net fees fourth quarter of 2008 – after € 2.7 bn in the previous year. This and commissions were 2 % lower than in the previous year, which is a changed all key performance indicators. noteworthy success, while net interest income rose by 36 %. In 2008, Bank Austria continued to expand its operations in its 2008 saw a good operating performance across all areas also in two core markets. Growth in Austrian customer business was 4 %, regional terms: operating profit generated by the three Austrian and in CEE 27 % in the old perimeter and 45 % including acquisitions customer business divisions held up well (+ 1 %) in a difficult market (measured by risk-weighted assets). At the UniCredit Investors Day environment, while the Central and Eastern Europe (CEE) business held in Vienna at the end of June 2008, we confirmed organic growth segment increased its operating profit by one-quarter (+ 27 %) based in CEE as a strategic focus supported by targeted capital allocation. In on the old perimeter; if profit contributions from the newly added operational terms, we implemented the growth strategy by pursuing banks in Kazakhstan and Ukraine are included, CEE achieved an an ambitious branch network expansion programme. As uncertainty in operating profit that exceeded the previous year’s figure by about one markets increased, we suspended the programme in October until half (+ 53 %). All countries except Bosnia and the Baltic states further notice without cancelling it. recorded double-digit growth. As in previous years, we continued to improve cost efficiency in ➔ The business model of a multi-local, diversified universal bank – Bank Austria’s commercial banking business. The cost / income ratio one of the strategic principles of Bank Austria and UniCredit Group – declined, both in CEE (by 4.2 percentage points to 47.2 %) and in has proved successful in times of crisis by allowing the bank to Austrian customer business (by 3.5 percentage points to 52.8 %). respond flexibly to partly shock-like market trends. The improvement was achieved through short-term cost-saving programmes and, above all, through progress in the production sector and in back-office and administrative functions. The latter are increasingly organised at Group level with a view to unlocking international synergies.

*) In this report, “Bank Austria” refers to the group of consolidated companies. “UniCredit Bank Austria AG” is the name of the group’s parent company.

Bank Austria · 2008 Annual Report 91 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

ter of 2008, in which the financial market crisis first came to a head Development of Bank Austria in 2008 with the bail-out of Bear Stearns. Operating income (without B&C) in Noting quarter-on-quarter developments is particularly important in the fourth quarter was slightly lower than in the third quarter but the reporting year because the middle of September marked a turning higher than the Q4 2007 figure (+ 8 %). Operating profit declined point in financial markets and the last few weeks of 2008 saw a somewhat more strongly, while still exceeding the Q4 2007 level by global economic downturn; these developments have completely 4 %. Excluding the net trading, hedging and fair value result, operat- changed the outlook and determine the assessment of the year as a ing profit continued to rise and in the fourth quarter of 2008 ex- whole in retrospect. (Details of income statement items are given in ceeded the Q4 2007 figure by 17 %. the subsequent section.) It was only in the fourth quarter of 2008 that the risk environment Overall, Bank Austria’s operating performance by quarter was deteriorated abruptly. For the Austrian business segments, especially resilient, right until the end of 2008, in the face of the mixed trends Corporates, this is a cyclical counter-movement following many years that characterised the business environment during the year. Large in which default risks declined. While Bank Austria was even in a losses reflected in the net trading, hedging and fair value result were position to release a provision in the third quarter of 2008, economic more than offset by the increase in net interest income. Net fees and trends then reversed unusually fast. commissions were, however, affected by a decline in securities business noticeable already in early 2008 and by the fact that customers Net writedowns of loans and provisions for guarantees and began to view innovative instruments with scepticism. commitments by quarter CHARGE (€ M) Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Operating performance of Bank Austria by quarter Bank Austria as a whole 128 173 156 155 528 € M Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q4 08*) +/– PREV. Austrian customer business 67 70 59 11 168 YEAR Central and Eastern Europe (CEE) 62 103 96 124 215 Operating income 1,632 1,543 1,700 1,814 2,173 1,758 + 8 % without Ukraine and Kazakhstan 66 54 60 82 127 of which: Markets & Investment Banking – 2 0 0 20 146 net interest income 1,079 1,125 1,183 1,306 1,752 1,337 + 24 % net fees and commissions 550 519 518 522 518 518 – 6 % Improvement in operating profit until year-end despite net trading, hedging impact of net trading, hedging and fair value result, and fair value result – 39 – 143 – 55 – 80 – 136 – 136 but strong increase in provisioning charge and Operating expenses 941 941 951 1,003 1,041 1,041 + 11 % goodwill impairment (€ m) Operating profit 691 603 750 811 1,133 718 + 4 % … excl. net trading, hedging and fair value result: 1,000 Operating income 1,671 1,686 1,755 1,894 2,310 1,895 + 13 % 900 Operating profit 730 745 804 891 1,269 854 + 17 % 800 *) Excluding special dividend from the sale of profit-sharing rights in B&C (€ 415 m), which is reflected in 700 net interest income. 600 Operating income for the fourth quarter of 2008 totalled € 2,173 m; 500 Net writedowns of loans, provisions for risk and charges, restructuring costs, net income from investments: minus € 653 m this includes a special dividend of € 415 m, recognised within net 400 300 interest income (in the sub-item Dividend income) in connection with 200 the sale of profit-sharing rights in the B&C foundation (partly offset by 100 capital losses on this transaction reflected in net income from invest- 0 ments). Adjusted for this one-off effect, net interest income continued –100 to rise from quarter to quarter. Net fees and commissions, which –200 declined at the beginning of the year and then stagnated, were again –300 weaker in the fourth quarter. The net trading, hedging and fair value –400 result deteriorated in the final quarter of 2008 – a period strongly –500 Goodwill impairment: minus € 1,027 m affected by the collapse of Lehman Brothers, the investment bank – –600 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 falling to a loss (– € 136 m) similar to that recorded in the first quar- From financial market crisis to recession Operating profit Profit before tax

92 2008 Annual Report · Bank Austria The same applies to our CEE banking subsidiaries: growth of net Results for the fourth quarter – and for 2008 as a whole – were interest income and business volume was signiﬁcantly stronger than strongly impacted by impairment losses of € 1,027 m on goodwill. the increase in net writedowns of loans and provisions for guarantees With the reassessment of the medium-term outlook for CEE countries and commitments in the past few years; until most recently, the which are highly exposed in macroeconomic terms, the market provisioning charge was below the average for the bank as a whole. required a revision of the business cases that applied when the However, our two most recent acquisitions are operations in young, acquisitions were made, and this entailed material impairment losses high-growth markets whose economies are particularly vulnerable. being recognised for goodwill. Proﬁt before tax consequently turned From the very start, the risk / earnings ratio was considerably higher in negative in the fourth quarter of 2008, to a loss of € 547 m, despite these countries, which are now facing a particularly high risk of a the robust operating performance. withdrawal of international lenders and investors and of higher credit spreads.

Condensed income statement of Bank Austria*) (€ m) CHANGE 2008 2007 € M IN % IN % ADJ. Net interest 4,657 3,653 1,004 + 27.5 + 19.8 Dividend income 587 124 463 >100 + 38.5 Other income from equity investments 123 160 – 37 – 22.9 – 49.0 Net interest income 5,367 3,936 1,431 + 36.3 + 18.2 Net fees and commissions 2,076 2,124 – 47 – 2.2 – 7.5 Net trading, hedging and fair value loss / income – 414 141 – 555 n.m. n.m. Net other expenses / income 201 214 – 12 – 5.8 – 1.5 Net non-interest income 1,864 2,478 – 614 – 24.8 – 33.5 OPERATING INCOME 7,231 6,414 816 + 12.7 – 1.8 Payroll costs – 2,235 – 1,836 – 399 + 21.7 + 4.4 Other administrative expenses – 1,371 – 1,243 – 128 + 10.3 + 4.9 Recovery of expenses 3 4 0 – 10.7 – 33.0 Amortisation, depreciation and impairment losses on tangible and intangible assets – 331 – 275 – 56 + 20.4 + 6.0 OPERATING EXPENSES – 3,935 – 3,351 – 584 + 17.4 + 4.7 OPERATING PROFIT 3,296 3,063 232 + 7.6 – 9.7 Goodwill impairment – 1,027 0 – 1,027 n.m. n.m. Provisions for risks and charges – 87 – 75 – 12 + 15.9 + 16.1 Restructuring costs – 6 – 33 27 – 82.6 – 82.6 Net writedowns of loans and provisions for guarantees and commitments – 1,012 – 483 – 529 >100 + 67.0 Net income from investments 340 268 72 + 27.0 + 83.2 PROFIT BEFORE TAX 1,505 2,740 – 1,236 – 45.1 – 14.2 Income tax – 222 – 380 158 – 41.7 + 0.6 NET PROFIT 1,283 2,360 – 1,077 – 45.6 – 16.5 Minority interests – 139 – 106 – 33 + 31.0 + 30.5 CONSOLIDATED PROFIT 1,144 2,254 – 1,110 – 49.2 – 18.9 n.m. = not meaningful

*) Bank Austria’s income statement as presented in this table is a reclassified format corresponding to the format used for segment reporting. Together with the segment reporting data (see note 56) it is the basis for the comments in the management report of the Group. This also makes it possible to present the contributions from the various business segments to specific balance sheet items. The reconciliation of reclassified accounts to the mandatory reporting schedule of the 2008 consolidated financial statements is given in note 55 to the consolidated financial statements.

Bank Austria · 2008 Annual Report 93 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

Income statement of Bank Austria (referred to as the “B&C effect” in the following comments). Operating expenses in 2007 included a € 164 m one-off release of pension for 2008 provisions which the bank made as a result of the amendment to the Austrian General Social Insurance Act (“ASVG effect”). Bank Austria’s results for 2008 are the net product of an operating profit which held up well in a challenging environment, and of The acquisition of ATF Bank in Kazakhstan (consolidated as from substantial provisions and valuation adjustments reflecting the fast December 2007) and of Ukrsotsbank (consolidated as from the be- deterioration of the market environment in the fourth quarter of 2008. ginning of 2008) has extended the group of consolidated companies Operating profit for 2008 was € 3,296 m, up by 8 % over the previ- in the CEE network to include large banks operating in countries ous year’s level. After deduction of non-operating items, which to- which are at an earlier stage of the convergence process. The Russ- talled – € 1,791 m, profit before tax amounted to € 1,505 m, down ian Aton Group has been consolidated in the Markets & Investment by 45 % from the 2007 figure. Consolidated profit (without minority Banking (MIB) Division since the end of July 2007, while Informations interests) therefore fell by over € 1 bn or 49 %, from € 2,254 m to Technologie Austria GmbH (iT Austria) has been accounted for under € 1,144 m. the proportionate consolidation method since the beginning of 2008 (in the previous year, iT Austria was accounted for using the cost Results for 2008 (€ m) method). In the Corporates business segment, the former BA-CA ADJ.1) ADJ.2) Leasing GmbH was a consolidated company in the first two quarters 2008 2007 +/– +/– % +/– % +/– of 2007; in the middle of 2007 it was transferred to UniCredit Global Operating income 7,231 6,414 + 816 + 13 % + 6 % – 2 % Leasing – now number one in the European leasing market. Since Operating expenses – 3,935 – 3,351 – 584 + 17 % + 12 % + 5 % then, a 32.59 % interest in the results of UniCredit Global Leasing has Operating profit 3,296 3,063 + 232 + 8 % – 3 % – 10 % been accounted for under the equity method, which means that in- Net writedowns of loans – 1,012 – 483 – 529 >100 % + 67 % come and expense items in this business segment are not directly Goodwill impairment – 1,027 0 – 1,027 n.m. + 100 % comparable with the previous year, but the effect on results is less Other items (net income significant. This should be noted when analysing the operating per- from investments, provisions formance of the Corporates Division. As part of the adjustment for the for risks and charges, above companies’ contributions to the income statement at Bank restructuring costs) 248 160 + 88 + 55 % >100 % Austria level, funding costs associated with equity investment man- Total non-operating items to be deducted – 1,791 – 323 – 1,468 >100 % + 26 % agement in the Corporate Center are eliminated. Profit before tax 1,505 2,740 – 1,236 – 45 % –14 % Consolidated profit 1,144 2,254 – 1,110 – 49 % –19 % Maintaining the steady trend in operating activities was one of the n.m. = not meaningful successes achieved by Bank Austria in a turbulent year. Operating in- ADJ.1): adjusted for one-off effects – 2008: special dividend from B&C Holding as part of the sale of come in 2008 increased by € 816 m or 13 % to € 7,231 m, although profit-sharing rights (€ 415 m); 2007: release of pension provision (ASVG equivalent) amounting to € 164 m. the net trading, hedging and fair value result was € 555 m lower than ADJ.2): additionally adjusted for major consolidation effects (ATF and Ukrsotsbank, ATON, iT-Austria in the previous year. Even without the contributions from the newly not taken into account; including funding costs; without leasing business). added banks in Central and Eastern Europe for 2008, the negative performance from trading activities was offset by other items: on an When analysing the income statement, one should note that it reflects adjusted basis, operating income in 2008 was only 2 % below the one-off effects and consolidation effects. These factors should be high level of the previous year. This was due to expansion in the CEE taken into account in assessing the bank’s operating performance. business segment, where operating income rose by € 1,369 m or This relates primarily to the analysis of operating profit and its compo- 41%; based on adjusted figures, the increase was 20 %. The three nents as well as segment reporting. Among the one-off effects, a segments of Austrian customer business also made a significant special dividend of € 415 m included in the sub-item dividend income contribution to revenue stability, with operating income totalling within net interest income is the main factor distorting the picture; the € 2,320 m, down by only 6 % – or 3 %, on an adjusted basis – from special dividend was distributed in connection with the sale of profit- 2007; the overall figure also reflects a sharp decline in net fees and sharing rights in B&C Holding and is partly offset by capital losses on commissions, which was caused by lower demand from customers. this transaction which are reflected in net income from investments

94 2008 Annual Report · Bank Austria Net interest income in 2008 was € 5,367 m, up by € 1,431 m or the bank strongly promoted these financing, investment and risk-man- 36% on the previous year. On an adjusted basis (i.e., not including the agement products in its customer business with a view to keeping capi- B&C effect in particular), net interest income rose by 18 %. Most of the tal requirements down. MIB generated net fees and commissions of increase came from the CEE business segment (in the old perimeter) € 77 m, less than half the comparative figure for the previous year. and Markets & Investment Banking (MIB). Austrian customer business also contributed to this growth. In Central and Eastern Europe, the The net trading, hedging and fair value result for 2008 was a net loss stronger performance was supported by the significant expansion of of € 414 m; the figure for the previous year – which included two quar- the entire banking sector, which continued until most recently; in this ters before the onset of the credit market crisis – was net income of context, our local banking subsidiaries recorded stronger deposit € 141 m. This means that there was a negative swing of € 555 m. The growth and slightly reduced the proportion of loans to deposits. The net loss of € 662 m evidenced in this item in the MIB Division com- three Austrian customer business segments generated a 7 % increase pares with net trading, hedging and fair value income of € 384 m in in net interest income (adjusted for leasing effects). Average volume of CEE (including a contribution of € 90 m from the newly added banks), loans and deposits continued to rise, with strong pressure on margins with our subsidiaries in Romania, Russia and Croatia making the largest resulting from higher funding and liquidity costs and, above all, from contributions to the overall figure. The figure for the Corporate Center intense competition for deposits. The MIB business segment, which (– € 147 m) reflects the negative performance of our investment man- also includes capital market-related business in large-volume agement subsidiary in the Cayman Islands (hedge funds) and, to a corporate banking, such as syndications and structured finance, lesser extent, hedging costs related to expected profits for the year. achieved high net interest income and benefited from the capital Most of the losses recorded in the MIB business segment in 2008 allocation to the business segment, which was transformed into a sep- resulted from mark-to-market adjustments, which were not sufficiently arate legal entity in the middle of 2008. offset by the current other components of the net trading, hedging and fair value result. Substantial mark-to-market adjustments were required Net fees and commissions, the mainstay of revenue growth in the mainly in the Credit Structured Products and Credit Trading sectors al- past few years, were € 2,076 m, slightly lower than in the previous ready in the first quarter of 2008. After the collapse of Lehman Broth- year (– 2 %; on an adjusted basis: – 7 %). CEE still achieved double- ers, the financial market crisis escalated, leading to a situation never digit growth (+ 25 %; adjusted: + 12 %), with the strongest increases experienced before. Market participants were suddenly faced with un- seen in Turkey (+ 22 %, driven by a substantial expansion of fee-based precedented counterparty risks and credit spreads on all asset classes services) and in Russia, where growth reached about 20 %. The struc- widened dramatically. The market values of instruments which became ture of net fees and commissions differed widely in the various coun- illiquid fell sharply or were hardly determinable any longer. In the final tries: some CEE banks recorded large securities turnover in customer months of the year, current trading activities and customer business in business, while other countries generated considerable fee and com- several market segments slumped to very low levels. Applying the rules mission income from commercial services. Yet the growth of net fees in the amendments to IAS 39 issued in October 2008, which permit the and commissions in CEE was relatively weak when compared with the retroactive reclassification of illiquid instruments from financial assets strong increase in total operating income in the region; in absolute held for trading into other categories not requiring measurement at fair terms, net fees and commissions accounted for 26 % of total operating value, we reclassified the ABS portfolio (largely into loans and receiv - income, which is a comparatively low proportion indicating large poten- ables with customers) thereby avoiding further valuation losses of tial for catching up. In the mature Austrian market, net fees and com- € 350 m in the net trading, hedging and fair value result. missions rose to over 40 % of total operating income in 2007, reflecting the strong expansion of fee-based business over the past years. In Keeping costs under control while pursuing business expansion in CEE, 2008, net fees and commissions in Austria declined for the first time and also against the background of the dim outlook for revenues, was (– 18 %; on an adjusted basis: – 16 %), with a sharp decrease of 32 % the objective of long-term projects and ad-hoc cost-saving measures recorded in Private Banking & Asset Management, which is also re- effective in the short term in 2008. Operating expenses rose strongly, sponsible for production in the securities sector; net fees and commis- by 17 %, in 2008; however, some 80 % of the € 584 m increase is re- sions also declined in the Retail and Corporates business segments. lated to changes in the group of consolidated companies. On an ad- Apart from the current restraint in securities business – discernible in justed basis, costs rose by only 5 % compared with 2007. A compari- both sales and capital market issues – the downturn reflects the scep- son with the 13 % growth of operating income excluding the net trad- ticism of customers in all segments towards derivative instruments and ing, hedging and fair value result shows very clearly that cost efficiency the difficult market situation in structured products. In previous years, has made good progress.

Bank Austria · 2008 Annual Report 95 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

Operating expenses The income statement items leading from operating profit to profit € m 2008 2007 +/– % +/– % ADJ. before tax resulted in a combined charge of € 1,791 m on Bank Aus- tria’s results for 2008. Some of these items are related to operating Austrian customer business 1,224 1,392 – 12 % – 7 % activities – such as net writedowns of loans and provisions for guar- Cost / income ratio 52.8 % 56.3 % – 3.5 %p – 2.5 %p antees and commitments, and parts of net income from investments; CEE 2,234 1,729 + 29 % + 13 % other items are provisions for risks and charges, and valuation Cost / income ratio 47.2 % 51.4 % – 4.2 %p – 2.8 %p processes with an impact on the income statement, including the Bank Austria as a whole 3,935 3,351 + 17 % + 5 % substantial impairment losses on goodwill. Cost / income ratio 54.4 % 52.2 % + 2.2 %p + 3.6 %p As a result of the developments in the fourth quarter explained Both adjusted and unadjusted figures for operating expenses indicate above, net writedowns of loans and provisions for guarantees and that costs in the three Austrian customer business segments were commitments rose to over one billion euros in 2008 (€ 1,012 m after reduced in absolute terms (see table). This success underlines the € 483 m). The € 529 m increase for the first time includes a total sustained turnaround in the Retail Division. In the past years we have provisioning charge of € 214 m for operations in Kazakhstan and separated front-office business from back-office activities, and this Ukraine. Adjusted for the factors mentioned above, net writedowns of organisational change has proved very effective. The transfer of set- loans and provisions for guarantees and commitments still rose by a tlement and administrative activities to separate subsidiaries within substantial € 320 m to € 798 m. The risk environment in current the Group on the basis of refined service level agreements has cre- lending business deteriorated in the fourth quarter of 2008, reflecting ated cost transparency and led to specialisation gains, especially in economic trends. Another – unprecedented – factor was the large cooperation with Administration Services (AS). Moreover, our cost- provisioning charge for banks and counterparties (Lehman Brothers saving programmes, which were intensified several times during the and banks in Iceland in particular), which is reflected in the results of second half of 2008, reduced non-staff expenses. On this basis we the Corporates Division with its Financial Institutions sub-segment reduced the cost / income ratio (operating expenses as a percentage and in Markets & Investment Banking. of operating income) in the three Austrian customer business segments by 2.5 percentage points (on an adjusted basis), moving closer Net writedowns of loans and provisions for guarantees to the 50 % mark. and commitments € m 2008 2007 +/– € +/– % +/– % ADJ. Cost growth of 13 % (adjusted for the first-time consolidation of the Austrian customer business 308 272 + 36 + 13 % + 17 % banks in Kazakhstan and Ukraine) in CEE, on the other hand, reflects Risk / earnings ratio 1) 21.3 % 19.5 % + 1.8 %p + 1.9 %p business expansion and our investment in organic growth. The 13 % cost of risk 2) 47 bp 43 bp increase in costs based on the previous perimeter compares with Central and Eastern Europe 537 211 + 327 >100 % + 51 % growth of risk-weighted assets at double the rate (+ 27 % on an ad- Risk / earnings ratio 17.5 % 9.8 % + 7.7 %p + 2.6 %p justed basis) and revenue growth of 20 %; it should be noted that cost of risk 90 bp 51 bp total costs included those associated with the branch network expan- Markets & Inv. Banking 3) 165 – 1 + 166 n.m. sion programme which we pursued in 2008. In the old CEE countries Bank Austria as a whole 1,012 483 + 529 >100 % + 67 % we opened 386 new branches in 2008 and significantly increased Risk / earnings ratio 18.8 % 12.3 % + 6.6 %p + 5.0 %p staff numbers in this context, especially in Turkey, Romania and Hun- cost of risk 80 bp 46 bp gary (see the section on the CEE business segment). Nevertheless, 1) Provisioning charge as a percentage of net interest income. 2) Provisioning charge measured as basis points of average lending volume. the cost / income ratio in CEE (old perimeter) was reduced by 2.8 per- 3) Key indicators are of limited informative value. centage points. The decline in the cost/ income ratio was even n.m. = not meaningful stronger on an unadjusted basis (– 4.2 percentage points) as the newly consolidated subsidiaries in Ukraine and Kazakhstan operate at Net writedowns of loans and provisions for guarantees and commit- cost / income ratios of below 40 %. ments in the three Austrian customer business segments increased by 13 % to a combined € 308 m. In the Retail Division, the figure The cost / income ratio for Bank Austria as a whole does not provide matched the previous year’s level and the risk / earnings ratio (26.9%) meaningful information because income reflects the revenue shortfall improved slightly, while remaining above the average for the bank as in the MIB Division.

96 2008 Annual Report · Bank Austria a whole as did the cost of risk at 101 basis points. These develop- Net income from investments for 2008 was € 340 m, a signifi- ments resulted from improved early identification and management cantly higher net figure than in 2007 (€ 268 m). The largest compo- measures introduced in the past years, and from a sale of loans. The nent within the total figure was the share of profits of the Polish bank- impact of the financial market crisis in the autumn and the dramatic ing subsidiaries, which is defined in the terms and conditions of the economic downturn in key industries marked a turning point for the sale of Bank BPH in November 2006 and amounted to € 237 m Corporates Division. Large provisioning charges for multinational cor- (2007: € 223 m). Moreover, we realised gains on the sale of equity porates and, as mentioned above, for banks led to an increase in net interests which we sold in line with our strategy of concentrating on writedowns of loans and provisions for guarantees and commitments our core business: these included the sale of the equity interest in the to a level of € 100 m. In 2008, the cost of risk rose to 22 basis points Czech bank Hypo Stavebni Bank (gain on sale: € 26 m); the sale of of lending volume, after a multi-year low of 15 basis points in the our shareholding interest in BPH TFI Fund, the asset management previous year and the release of a large provision for a liquidated business of Bank BPH, to GE Money (profit: € 92 m); and the sale of investment in the third quarter of 2008. Portfolio management (in- the equity interest in the Budapest Stock Exchange (profit: € 41 m). cluding the placement of loans in the fourth quarter of 2007) helped The sale of the properties in Am Hof and Vordere Zollamtsstrasse re- to significantly improve credit quality compared with the previous sulted in a profit of € 47 m. Net income from investments reflected an year. impairment loss of € 59 m on an investment vehicle. The sale of our equity interest in Pioneer Investments Austria GmbH to PioneerGlobal Based on the old perimeter of our CEE banking subsidiaries, net Asset Management S. p. A, Milan, on 30 December 2008 resulted in writedowns of loans and provisions for guarantees and commitments a profit of € 66 m. The total package in connection with the sale of rose by over one half to € 324 m, clearly exceeding the rate of the bank’s profit-sharing rights in B&C Holding to B&C Beteiligungs - volume expansion (RWA up by 27 %). The risk / earnings ratio (12.7 %) verwaltungs GmbH (wholly owned by B&C Privatstiftung) had a nega- and the cost of risk remained at disproportionately low levels. tive impact on net income from investments in the form of a realised The strongest increases over 2007 were seen in Russia (+ € 37 m, book loss of € 163 m (which is more than offset by a final dividend of but with a comparatively low risk / earnings ratio of 14.9 %), Romania € 415 m included in net interest income; moreover, an additional (+ € 22 m) and in the Baltics (+ € 12 m), a region which has potential deferred payment amount has been agreed which is condi- experienced a prolonged recession to stabilise the economy; the tional on the future performance of B&C). Most of the residual amount risk / earnings ratio in Romania and in the Baltics is about 50 %. in net income from investments came from current business.

Net writedowns of loans and provisions for guarantees and commit- The net allocation to provisions for risks and charges was € 87 m ments at our banking subsidiaries in Kazakhstan and Ukraine in their (2007: € 75 m). This relates to pending legal risks in line with the es- first full year as consolidated companies were particularly conservative, timated probability of costs arising from litigation. In connection with at € 124 m and € 89 m, respectively, and the risk / earnings ratio was the investments affected by the Madoff case, several customers ad- 50 % and 32 %, respectively. This is related to integration activities dressed enquiries and complaints to Bank Austria, but Bank Austria involving the initial application of Group-wide risk definitions, method - has not been served with any statement of claims in this context. ologies and valuation parameters. Loan portfolios were scrutinised, Investors concerned are said to have brought actions before a which resulted in a decline in volume in both countries. These US court against parties including Bank Austria as shareholder of activities took place against the background of the precarious eco- Bank Medici AG; in this case, too, Bank Austria has not been served nomic situation in which these countries found themselves in 2008 as with any statement of claims. a result of the external financing gap in combination with the withdrawal of international lenders and investors. As mentioned above, we recognised impairment losses of about one billion euros on goodwill in the income statment for 2008. We are At the level of Bank Austria as a whole, net writedowns of loans and still convinced of the market potential and long-term growth opportu- provisions for guarantees and commitments in 2008 were thus more nities available in the region of Central and Eastern Europe (CEE). than double the figure for the previous year (on an unadjusted basis). However, as a result of the dramatic deterioration in global economic The risk / earnings ratio rose by 6.6 percentage points to 18.8 %, the conditions and the financial impact on the CEE region, forecasts of cost of risk deteriorated by 34 basis points to 80 basis points. Overall, medium-term growth for several countries have been lowered; this at the end of 2008, 2.49 % of on-balance sheet lending volume was has led to adjustments in respect of the value stability of recognised classified as non-performing (year-end 2007: 1.80 %), the coverage goodwill. ratio was 49.4 %.

Bank Austria · 2008 Annual Report 97 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

The recognised goodwill relating to every cash-generating unit was Operating profit was € 3,296 m (+ 8 %) and the balance of non- tested for impairment in the fourth quarter. For this purpose the operating items was a net charge of € 1,791 m (2007: – € 323 m). recoverable amount was compared with the respective carrying On this basis, profit before tax for 2008 was € 1,505 m (down by amount, which is determined on the basis of equity allocated to the 45%). On an adjusted basis, profit before tax amounted to € 2,155 m, unit and recognised goodwill relating to the unit. The recoverable a decline of 14 %. amount was determined on the basis of the value in use. The value in use was calculated using a dividend discount model (DDM) adjusted Based on profit before tax, income tax for 2008 was € 222 m, the to the specific characteristics of banking business and regulatory effective tax rate is 14.7 %, slightly higher than in the previous year capital requirements. (13.9 %). Net profit amounted to € 1,283 m. Minority interests in net income were € 139 m, up by 31 % on the previous year, mainly on An impairment loss totalling € 1,027 m was recognised in the fourth account of the strong momentum of profit growth at our unit in Turkey. quarter of 2008 in the income statement of Bank Austria as an impairment loss on goodwill. The carrying amount of Ukrsotsbank, the Consolidated profit for 2008 was € 1,144 m, down by 49 % or bank acquired at the beginning of 2008, declined strongly at the end € 1,110 m from the previous year. Adjusted for the above-mentioned of 2008 as a result of exchange rate movements; moreover, an consolidation effects and one-off effects, consolidated profit declined impairment loss of € 333 m on goodwill was recognised when it by 19 % compared with the previous year. became clear that Ukraine is one of the countries hit hardest by the global economic crisis. At ATF Bank, the bank in Kazakhstan acquired Return on equity (ROE after taxes without minority interests) at in November 2007, an impairment loss of € 417 m on goodwill was Bank Austria was 7.8 %, half the figure of the previous year (17.0 %) recognised as forecasts of medium-term growth had to be lowered. due to non-operating expenses reducing profits. Yet the figure is still Moreover, an impairment loss of € 11 m on goodwill was recognised higher than the long-term yield on government bonds. Earnings per for our unit in Latvia. Among the units combined in UniCredit CAIB in share declined from € 11.69 to € 5.66 in 2008, based on the annual the MIB business segment, an impairment loss of € 125 m on good- average number of shares outstanding. will was recognised for CAIB Polska and an impairment loss of € 140 m on goodwill was recognised for the ATON Group. It is planned to Proposal for the appropriation of profit: The profit available for distri- transfer this business segment to HypoVereinsbank in 2009. bution is determined on the basis of the separate financial statements of the group’s parent company, UniCredit Bank Austria AG. The profit for the financial year beginning on 1 January 2008 and ending on 31 December 2008 (after release of the fund for general banking risks in the amount of € 1,518.3 m) was € 100 thsd. The profit Income statement for 2008 compared with 2007 brought forward from the previous year was € 1.9 m. Thus the profit Change in € m available for distribution was € 2.0 m. The Management Board proposes to the Annual General Meeting that no dividend be paid on the

Net interest income +36% share capital of € 1,468,770,749.80 and that the total profit of € 2.0 m Net non-interest income –25% available for distribution be carried forward to new account. Operating income +13% Operating expenses +17% Operating profit +8% Goodwill impairment Net writedowns of loans … Other items*) Profit before tax –45% Consolidated profit –49% –1,200–800 –400 0 400 800 1,200

*) Provisions for risks and charges (– € 12 m), restructuring costs (+€ 27 m) and net income from investments (+€ 72 m).

98 2008 Annual Report · Bank Austria Profitability, value creation We increased the capital allocated to our banking subsidiaries in CEE by an additional 34 % to safeguard our growth prospects in the region and resources in line with our strategy. The capital is intended for the acquisitions mentioned above, and for supporting organic growth. Risk-weighted The key indicators and performance data for 2008 reflect the unusual assets (average RWA) of the CEE business segment rose by 45 % in situation in the MIB business segment, which leads to high percent- 2008, indicating that capital employment improved. The two newly age shares for the commercial banking business segments and our added banking subsidiaries in Kazakhstan and Ukraine made positive two core markets in a long-term comparison. Moreover, when com- contributions to mEVA already in the first year of their integration, paring the three Austrian customer business segments with the CEE despite the particularly difficult local environment. RARORAC, risk-ad- business segment, one should note that the weaker trend became justed return on risk-adjusted capital, was 12.5 % in CEE, lower than increasingly discernible in Austria from quarter to quarter, while the in the very good year 2007 (14.7 %) but still significantly higher than CEE countries started to be strongly affected by the deterioration in the 2006 level (pro-forma figure: 10.2 %). the market environment only towards the end of the reporting period. Equity capital employed in Austrian customer business rose by 5 % If these factors are taken into account, the most recent key indicators and risk-weighted assets (RWA) increased by 4 %. RARORAC was confirm that Bank Austria, as an Austrian bank and the sub-holding 10.7 %, also significantly better than in 2006, also as a result of the company for CEE operations, is continuing its performance along its turnaround in the Retail Division since then. While the RARORAC strategic lines under the current exceptional circumstances: in figures for Austrian customer business and CEE do not differ by a Austria, the bank is maintaining its leading market position and wide margin, there is a significant gap in absolute terms of marginal profitability levels while employing its resources sparingly; in Central Economic Value Added. and Eastern Europe, Bank Austria is taking advantage of the region’s continued, disproportionately strong growth. Resources and profitability 2008 AUSTRIAN CENTRAL AND In Austria (three customer business segments), business volume ex- CUSTOMER BUSINESS*) EASTERN EUROPE (CEE) panded at a moderate pace typically seen in a mature market (RWA: Relative size + 4 %), while revenues contracted as a result of the tighter margins Share of average risk-weighted assets 38 % 52 % referred to above and of the currently discernible shift to business re- Share of operating income 32 % 65 % flected in the balance sheet. In CEE, revenue growth fell only slightly short of the strong external and internal volume growth of 45 %. Mar- Growth ginal Economic Value Added (mEVA) measures value creation beyond Average risk-weighted assets, % over previous year + 4 % + 45 % the cost of capital (net operating profit after tax less minimum return Operating income, % over previous year – 6 % + 41 % required by the market on equity capital employed, excluding goodwill impairment). In 2008, Bank Austria generated an mEVA of € 1,091 m, Value creation a figure which was only 14 % lower than in the previous year. The marginal EVA, € m 316 783 contribution from the Markets & Investment Banking Division was RARORAC 10.7 % 12.5 % negative, at – € 345 m; this business segment recorded a negative Capital allocation performance while the capitalisation of UniCredit CAIB increased the Share of equity 24 % 62 % equity capital employed in the segment. The CEE business segment’s Equity, % over previous year + 5 % + 34 % contribution to mEVA rose by 35 % to € 783 m in 2008. In the three *) Retail, PB&AM and Corporates Divisions business segments of Austrian customer business (Retail, PB&AM and Corporates), value creation beyond the cost of capital was a combined € 316 m, down by 12 % from the previous year.

Bank Austria · 2008 Annual Report 99 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

At the end of 2008, Bank Austria maintained 3,166 offices, of which Exchange rate effects 2,824 (89 %) were in the CEE business segment. In line with the strategic objective of expanding retail banking activities especially in The currencies of several countries within our perimeter of operations fast-growing CEE countries with a large population, we strongly en- depreciated strongly towards the end of 2008. The income state- larged the CEE branch network while also adjusting it through several ments of our subsidiaries, which are not prepared in euro, are trans- branch closures. On balance, 847 branches were added to the net- lated at annual average exchange rates for consolidation purposes. work of the CEE business segment (+ 43 %). The increase was due to consolidation effects (Ukrsotsbank contributed 508 branches at the Based on annual averages, a comparison with the previous year beginning of 2008) and to our branch opening programme (+ 443 shows that exchange rate movements were relatively small in 2008 new branches) net of closures. In Austria, the number of branches de- because the partly strong changes in exchange rates took place in clined as a result of various branches being combined in the Vienna the last few weeks of the year. Moreover, appreciation and deprecia- area; three new branches were opened in other Austrian regions. tion of CEE currencies largely offset one another. Currency translation of the contributions to income statement items from our CEE sub- Offices*) sidiaries had a net exchange rate effect of only € 20 m or 1.5 % of 31 DEC. 2008 31 DEC. 2007 CHANGE the contribution to profit before tax. The impact of exchange rate Total 3,166 2,343 + 823 + 35 % movements on the translation of balance sheet figures at year-end CEE business segment 2,824 1,977 + 847 + 43 % 2008 was much stronger as year-end exchange rates are used for Other business segments 342 366 – 24 – 7 % this purpose. The resulting foreign currency translation differences Austria (regional) 331 348 – 17 – 5 % are shown as a separate component of equity. *) Companies accounted for under the proportionate consolidation method are included at 100 %. From 2008 without representative offices.

The bank’s growth profile in 2008 was also reflected in changes in Major exchange rate movements in 2008 staff numbers. Almost all of the increase of 12,616 to a total of Appreciation and depreciation against the euro 2008/2007 67,002 FTEs came from the CEE business segment. Three-quarters 15% of the change related to the first-time inclusion of Ukrsotsbank’s CZK SKK 9,670 employees; adjusted for this consolidation effect, staff num- 10% PLN bers in 2008 rose by 2,757 FTEs or 6 %. Among the other business USD segments, staffing levels in the three Austrian customer business 5% segments and in Markets & Investment Banking declined by a com- HUF RUB ROM bined 250. This compares with an increase in Corporate Center staff, 0% due to the change in the method used in accounting for iT Austria –5% (previously at cost, now at equity). Without this effect, employment in the other business segments (Bank Austria without CEE) and in Aus- –10% tria (regional definition) would have been down by 4 %.

–15% Employees (FTEs*)

31 DEC. 2008 31 DEC. 2007 CHANGE US dollar Polish zloty Czech crown Slovak crown Romanian leu

Total 67,002 54,387 12,616 23 % Russian rouble Hungarian forint CEE business segment 56,058 43,648 12,410 28 % based on a comparison of annual average ﬁgures Other business segments 10,944 10,739 206 2 % based on a comparison of year-end ﬁgures Austria (regional) 10,175 9,953 222 2 % *) Companies accounted for under the proportionate consolidation method are included at 100 %.

100 2008 Annual Report · Bank Austria Development of Business Segments

Retail Division the bank as a whole. Net writedowns of loans and provisions for guarantees and commitments are also above average but were kept (€ m) under control. The Retail Division operates proﬁtably and its deposit 2008 2007 CHANGE base supports the bank’s universal banking activities.

Net interest income 774 748 + 26 + 3 % Operating income was € 1,235 m, almost matching the previous Net non-interest income 461 517 – 57 – 11 % year’s level. Interest-earning and fee-based business showed highly Operating income 1,235 1,266 – 31 – 2 % divergent trends. Operating expenses – 851 – 935 + 84 – 9 % Operating profit 383 330 + 53 + 16 % Net interest income amounted to € 774 m, up by 3 % on the previous Net writedowns of loans – 208 – 208 0 0 % year. Contributions to the increase came from the deposit side and Net income from investments 6 14 – 8 – 55 % from lending business. The annual average volume of time deposits Profit before tax 172 135 + 37 + 27 % including our particularly successful capital savings accounts grew by Risk-weighted assets (avg.) 15,751 16,171 – 420 – 3 % almost one-quarter compared with 2007, with interest margins Average equity 992 1,019 – 27 – 3 % narrowing only slightly. Savings deposits, which are more than three Cost / income ratio 69.0 % 73.9 % times the volume of time deposits, were maintained at the average Risk / earnings ratio 26.9 % 27.8 % level of € 17.2 bn recorded in the previous year. Sight deposits and ROE before tax 17.4 % 13.3 % the bank’s own issues declined. Overall volume rose slightly to € 31 bn 1) Average risk-weighted assets for credit and market risk under Basel I. (without safe-custody accounts). In lending business, medium-term 2) Equity allocated as defined in note 55, IFRS capital for subsidiaries. This information applies to all business segment tables. and long-term loans increased by 4 % year-on-year. There was strong demand especially for housing loans (mainly in the Affluent Bank Austria’s Retail Division serves a customer base comprising Customers sub-segment) throughout the year while short-term loans, three sub-segments: Mass Market customers, Affluent Customers overdrafts in particular, declined; consumer loans (instalment credit) and Small Businesses in Austria. The Division also felt the repercus- also decreased, though to a lesser extent. On balance, lending volume sions of the financial market crisis in the course of 2008. It was indi- rose only slightly by 1 %; net interest income grew at a lower rate. In- rect rather than direct impacts that led to divergent developments and terest rates increased until mid-summer 2008, then key interest pronounced structural changes in savings and investment behaviour. rates were reduced several times. The resulting adjustment delays in- Investors started to exit high-risk asset classes already in the first half fluenced margins. Generally, high funding and liquidity costs in the of 2008, and performance ultimately proved them right. In the second banking sector had an impact on short-maturity business in 2008 – half of September, bank failures in other countries temporarily caused both short-term deposits and short-term loans such as overdrafts and uncertainty among private customers, but in October doubts were consumer loans; these costs and intense competition for deposits di- dispelled. After many years, 2008 again saw great demand for on minished interest margins. The decline in volume (of short-term loans balance-sheet products, with a shift away from securities including in particular) is also to be seen in the context of our efforts to put cus- mutual funds. Despite changing sentiment in the market and fears of tomer loans on a medium to long-term basis. inflation and deflation, our guarantee products met customers’ respective preferences and proved very attractive. Net fees and commissions moved in the opposite direction, accounting for 38.6 % of operating income in 2008, compared with 43 % in The flexible range of products helped to maintain revenues at a stable the previous year. The decline in net fees and commissions was level, and cost efficiency was further enhanced. Profit before tax nevertheless limited to 13 %. In absolute terms, the decrease of € 72 m improved by 27 % to € 172 m after € 135 m in 2007 and a loss is partly offset by the fact that for accounting reasons, part of the before tax of € 119 m in 2006. The Retail Division has thereby shown income from securities business was included in net trading, hedging that the turnaround achieved in the previous year is sustainable. The and fair value income (+ € 12 m). The main reason for the decrease Division generates a positive contribution to value creation beyond the in net fees and commissions was lower turnover in securities and cost of capital, and this contribution can be further improved. At safe-custody business and a sharp decline in derivatives business. 7.84% of risk-weighted assets (slightly exceeding the previous year’s Fees and commissions from account services and payment trans- level), revenues as a percentage of RWA are above the average for actions were maintained at a stable level.

Bank Austria · 2008 Annual Report 101 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

Cost trends had a strong positive influence on results for 2008. Staff Private Banking & Asset Management expenses remained unchanged while non-staff expenses were reduced by 14 %. As a result, operating expenses (€ 851 m) were (€ m) down by 9 % or € 84 m from 2007. The cost / income ratio fell by 2008 2007 CHANGE almost 5 percentage points to below the 70 % mark (69.0 %). The im- Net interest income 22 19 + 3 + 15 % provement in cost efficiency was again due to successful cooperation Net non-interest income 133 183 – 50 – 27 % with Administration Services, Bank Austria’s back-office service Operating income 155 202 – 47 – 23 % provider. UniCredit-wide ad-hoc cost-cutting measures also Operating expenses – 102 – 104 + 3 – 2 % contributed to the improvement. Operating profit 54 98 – 44 – 45 % Net writedowns of loans 0 1 – 1 n.m. Net writedowns of loans and provisions for guarantees and Net income from investments 9 3 + 7 n.m. commitments in 2008, at € 208 m, matched the previous year’s Profit before tax 62 99 – 38 – 38 % level although adverse economic trends were reflected in rising Risk-weighted assets (avg.) 423 452 – 29 – 6 % numbers of insolvencies as the year progressed. Extensive changes in Average equity 182 203 – 21 – 10 % methodology in 2006 and ongoing measures to reduce risk had a Cost / income ratio 65.4 % 51.5 % strong influence on developments in this area. The sale of a package ROE before tax 33.9 % 48.9 % of non-performing loans (impaired assets) at the end of 2007 improved the risk position on a sustained basis. The risk / earnings ratio was 26.9 %, above the average for the bank as a whole – as is The Private Banking & Asset Management (PB&AM) business usually the case in the retail banking sector – but slightly lower than segment, in the structure effective until the end of 2008, combined in the previous year (27.8 %). Measured by average lending volume, responsibility for serving the top segment of private customers the cost of risk in the Retail business segment in 2008 remained through Bank Privat and Schoellerbank, two private banking units unchanged at 101 basis points. operating under their own brand names, with important product competence and production functions for Bank Austria. These functions Profit before tax amounted to € 172 m, up by 27 % on the previous included those of AMG, a company responsible for discretionary and year. In line with the development of risk-weighted assets, the alloca- standardised asset management as well as securities-related serv- tion of average equity slightly declined (– 3 %). Return on equity (ROE ices (including brokerage), and Pioneer Investments Austria (PIA), the before tax) improved from 13.3 % to 17.4 % mainly on account of the former Capital Invest. On 30 December 2008, we sold PIA to Pioneer higher profit. Marginal Economic Value Added (EVA) reached € 25 m Global Asset Management with a view to intensifying the links with after € 11 m, RARORAC was 3.5 %.*) one of the world’s largest providers of mutual funds. PIA will continue to serve the Austrian market, based on the strength, expertise and complete range of products of a global investment house.

Among the commercial banking business segments active in customer business, PB&AM was particularly affected by developments in credit and financial markets and the subsequent banking crisis in 2008. Losses in value in almost all segments of the global financial market – except cash, precious metals and top-quality government bonds – had a direct impact on the valuation of asset portfolios and mutual funds. Moreover, on balance, investors withdrew from medium / high-risk instruments in all areas. The Private Banking sub-segment took advantage of the shift by investors from investments with high and medium risk to top-rated alternatives, and further strengthened its market position among customers with a view *) In this report, EVA and RARORAC always refer to marginal EVA and marginal RARORAC, i.e. the definition excludes goodwill impairment. to benefiting from a future improvement in the investment climate.

102 2008 Annual Report · Bank Austria After an excellent final quarter of 2007, operating income in the proportion of fee-based business and advisory services – which PB&AM business segment declined at the beginning of 2008, when keeps capital allocation at a low level – in this business segment, the hopes that the credit market crisis could be overcome were dashed. return beyond the cost of capital (marginal RARORAC) is far above The situation improved in the second quarter in line with stock market average, at 23.4 %. developments and the upward trend in markets for commodities and precious metals, coupled with a – still good – performance of invest- Private Banking, one of the two sub-segments of the PB&AM ments in emerging markets: operating income remained stable and Division, performed relatively well by offering integrated investment profit before tax improved. However, in the third quarter the remaining advisory services and promoting defensive products in 2008, one of asset classes which were still turning in a positive performance were the worst years for investments ever. Bank Privat generated net also adversely affected by the crisis. Responding to the slump in inflows of € 252 m, notwithstanding a 12 % decline in total volume market prices, investors increasingly shifted their funds to liquid bank (€ 5.9 bn) following the slide in financial markets. In the second half deposits. In the wake of the uncertainty triggered by the collapse of of the year, demand focused on government debt instruments across Lehman Brothers, investors spread their deposits across a number of all maturities. Bank Privat placed customised, highly-rated interest- banks. Finally, in the fourth quarter, the economic downturn dashed rate products especially for this risk-averse environment. Schoeller- all hopes for a trend reversal. Most investors still prefer risk avoidance bank recorded net inflows of € 476 m, with new customers account- to long-term asset accumulation; they are looking for “absolute re- ing for most of this amount. Despite the sharp fall in stock markets, turn”, currently giving preference to fixed deposits or guarantee prod- volume declined by only about 4 % to € 6.4 bn. Both private banking ucts. Even satisfactory relative performance (compared with the un- units are taking advantage of the current market situation to draw derlying benchmark indices) lost its attractiveness as the financial cri- their clients’ attention to the long-term benefits of diversifying away sis progressed. from the current preference for liquid assets in favour of bonds and anti-cyclical investments, thereby preparing for times when the Performance of asset classes market is in better condition. AMG was faced with the return of some % CHANGE OVER YEAR-END 2007 JUNE 2008 DEC. 2008 2 MARCH 2009 asset management products, but it recorded a rise in turnover from brokerage activities towards year-end 2008, even if this increase was MSCI World Stock Index – 14.0 % – 40.9 % – 49.7 % often at the expense of direct investment. Structured products, … Emerging Europe – 11.5 % – 64.7 % – 69.4 % primarily guarantee products, were the only category for which there … BRIC – 16.3 % – 55.0 % – 57.7 % was still a favourable level of demand in 2008. AMG launched 14 Austrian shares (ATX) – 12.6 % – 61.2 % – 68.2 % structured bonds (six for the Retail segment, eight for Bank Privat) Emerging markets bonds 1) – 0.3 % – 12.1 % – 11.9 % with a total volume of € 365 m (+ 12 % over the previous year). At the Commodities (Rodgers, €) + 30.2 % – 44.9 % – 46.1 % Gold price (US$ / oz) + 10.9 % + 5.4 % + 14.7 % Money market, euro 2) + 2.6 % + 5.9 % + 6.8 % Total financial assets in Private Banking in 2008: Austrian government bonds (7 – 10yr) 3) – 1.3 % + 10.0 % + 8.3 % € 13,767 m

1) JP Morgan EMBIG; 2) 6-month money, cumulative (JP Morgan Eurocash Index); € m 3) Austrian government bonds, 7 –10 years, SSB WGBIndex, total return (coupon + price). Institutions Asset mix

254 Assets under advisory In 2008 the PB&AM Division generated a profit before tax of € 62 m. (discretionary management) AMG 1,889 This represents a decline of 38 % from the previous year, which 3,264 Assets under custody included two quarters before the onset of the sub-prime crisis. Oper- (safe-custody accounts) ating income was down by 23 %, with net fees and commissions – Bank Privat 5,918 mainly reflecting sales and turnover in securities business – 5,128 Assets under management contracting by 32 %. Net interest income (not so significant in this business segment) rose by 15 %. The cost-cutting programme was stepped up, which lowered operating expenses by 2 %. Net income 6,414 Schoellerbank 5,107 from investments (+ € 9.2 m after + € 2.5 m) included realised gains Direct deposits on investments. PB&AM’s profit before tax of € 62 m gives a return 14 on equity (ROE before tax) of 33.9 % (2007: 48.9 %). Given the high Double counting – 454 Double counting/rest

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end of December, total financial assets in Private Banking were Corporates € 13.8 bn, down by 11 % from the year-end 2007 figure. The decline in volume was significantly lower than market performance. (€ m) 2008 2007 CHANGE WITHOUT Pioneer Investments Austria (PIA) held its own in the challenging LEASING*) environment prevailing in 2008. The mutual fund market saw a sharp Net interest income 655 630 + 25 + 4 % + 11 % decline in volume caused by negative price developments in securities Net non-interest income 275 375 – 101 – 27 % – 14 % markets and by outflows of funds. Operating income 930 1,005 – 75 – 8 % + 2 % Operating expenses – 271 – 353 + 81 – 23 % – 2 % While fund volume in the market as a whole fell by 23 % in 2008, PIA Operating profit 658 652 + 6 + 1 % + 4 % recorded a decline of 18 %, thus losing much less ground and achiev- Net writedowns of loans – 100 – 66 – 35 + 53 % ing by far the best performance among the top 3 fund management Net income from investments – 57 – 12 – 45 – >100 % companies in the Austrian market. PIA is the only major Austrian fund Profit before tax 492 570 – 78 – 14 % management company that gained market share in 2008, from 15.2 % Risk-weighted assets (avg.) 33,158 31,009 + 2,149 + 7 % at the end of 2007 to 16.2 % at year-end 2008. The increase was due Average equity 2,477 2,260 + 216 + 10 % to various factors, including the successful placement of guarantee Cost / income ratio 29.2 % 35.1 % funds with private investors over the past years. This product category Risk / earnings ratio 15.3 % 10.4 % was affected by price declines only to a limited extent, which also led ROE before tax 19.9 % 25.2 % to lower outflows of funds. Funds for large investors, accounting for *) Leasing business not included because of different accounting methods used in 2007 and 2008. about 57 % of total volume at Pioneer Investments Austria at the end of 2008, also showed significantly better trends than the market as a Although current business in the Corporates Division – like that of its whole. In this area, PIA maintained its 2nd place ranking in the customers – came under growing pressure from different sides as Austrian market and was the only major fund management company the year progressed, the Division achieved a good operating perform- in Austria to expand its market share. The increase from 15.9 % to ance in 2008: operating profit was € 658 m, exceeding the very high 17.3 % was even more pronounced than in the area of retail funds. level of the previous year (+ 1 % as reported, + 4 % adjusted for consolidation effects in the leasing business). Numerous awards which are based on annual and / or multi-year performance as at year-end 2008 and were received at the German Fund Given the different methods used in accounting for leasing business Awards 2009, the Lipper Fund Awards Austria 2009 or the Morn- (consolidation of BA-CA Leasing until and including the first half of ingstar Fund Awards 2009 show that the high quality of Pioneer In- 2007, since then shareholding interest in UniCredit Global Leasing vestments products is recognised even in difficult times. S.p.A. accounted for under the equity method, see note on page 142), a comparison of specific income and expense items with the Pioneer Investments Austria previous year does not provide meaningful information. For this rea- Assets under management in 2008: € 20,470 m son the following comments also include performance figures adjusted for this structural effect. in %

… by target groups … by asset categories

5 Equity funds 3 Money-market funds

32 Mixed funds Institutional funds 57

61 Bond funds Retail funds 43

104 2008 Annual Report · Bank Austria The progressive financial market crisis, the sharp decline in global Net fees and commissions fell by 15 % in 2008 (on an adjusted stock markets, the rising credit spreads demanded by the market basis). This exceptional decline was due, in about equal measure, to and, finally, the dramatic downturn in economic activity in the last few securities business and to fees and commissions from derivatives, months of the year led to pronounced changes in demand and which were down by 40 % and 30 %, respectively. The figure for customer preferences also in this business segment. Thanks to its derivatives includes, however, the significantly higher hedging costs leading market position and wide range of products and services, the relating to the securitisation of the bank’s own portfolio. In commer- Corporates Division responded to the changed environment in a cial business, our customers again increasingly used derivatives for flexible manner. Based on our systems-supported analysis tools risk management purposes in the final part of the year, mainly in the (FinanzierungsCheck and WorkingCapitalCheck), we assisted our cor- Financial Institutions sub-segment. A slight increase in fees and porate customers in optimising their financing structure and liquidity commissions from domestic payments was offset by a decline in fee position. Corporates thereby precisely met the current needs of its and commission income from international payment transactions. customers while also further improving the efficient use of our Trade Finance generated very strong net fees and commissions from product range. services including Cash Management, an area in which the bank is among the European specialists. Despite the unfavourable environment, operating income in the Corporates business segment totalled € 881 m (without leasing busi- Costs in the Corporates Division declined significantly over the past ness), matching the high level of the previous year (+ 2 %). The total quarters. Operating expenses in 2008 were reduced from the previous figure reflects divergent trends in the various product groups and in year’s level (– 2 % on an adjusted basis; down by 23 % if leasing is the components of the income statement. While interest-based busi- included). The cost / income ratio therefore improved to 30.8 % after ness volume rose strongly throughout the year, fee-earning business 32.0 % in the previous year. Staff expenses rose by 8 %, reflecting the was affected by customers’ restraint in securities transactions and regional business initiatives in Western Austria. Non-staff expenses commercial derivatives – the very products which the bank as market fell strongly (– 8 %) in connection with further progress in efficiency leader and innovator promoted strongly in recent years. However, achieved through cooperation with GBS service providers which are without leasing business, the absolute increase in net interest income separate entities within the Group, and as a result of cost-reduction more than offset the decline in net fees and commissions. measures adopted in autumn 2008.

Despite the effect of deteriorating funding conditions and rising liquidity costs, net interest income in 2008 increased by 11 % on an adjusted basis although this item includes income from companies Corporate bonds with higher credit spreads (% p.a.) accounted for under the equity method which declined in the reporting year. Most of the increase resulted from lending business, with 7.00 Corporate bonds average volume up by 8 % and interest rate spreads remaining more with rating or less unchanged. Medium / long-term loans, accounting for almost 6.00 two-thirds of total volume, made the largest contribution to growth. BBB credit Short-term loans expanded at a disproportionately high rate, but re- 5.00 presented a much smaller proportion of lending volume. Trade ﬁnance rose by a strong 40 %, though pressure on margins increased. In this 4.00 Capital market rate, area the bank further expanded its leading market position supported 5 years (interest rate swaps) by positive network effects in the Group. On the liabilities side, deposit 3.00 volume grew by almost 20 %, mainly in time deposits, which were up 3-month money rate by more than 40 %; however, a decline in interest rate spreads offset (interbank market) a signiﬁcant part of the growth effect. These business developments 2.00 show very clearly that customers currently prefer bank deposits to securities investments. 1.00

0.00 Q1 Q2 Q3 Q4 Q1 2008 2009

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As in the other Divisions, the good operating performance of the Markets & Investment Banking (MIB) Corporates Division was affected by the economic downturn in the fourth quarter and by the impact of the crisis in the banking sector. (€ m) (Figures in the following comments are unadjusted ﬁgures.) 2008 2007 CHANGE

Net interest income 731 330 + 400 >100 % Net writedowns of loans and provisions for guarantees and Net non-interest income – 589 140 – 729 n.m. commitments rose to € 100 m, compared with € 66 m in the previous Operating income 142 470 – 329 – 70 % year. In the first six months of the year, the provisioning charge de- Operating expenses – 206 – 233 + 27 – 12 % clined to a multi-year low, with a risk / earnings ratio of 7.3 %, thanks Operating profit – 64 238 – 301 n.m. to improvements in portfolio quality and the then still favourable eco- Net writedowns of loans – 165 1 – 166 n.m. nomic trend; the third quarter saw the release of a large provision. Net income from investments – 24 1 – 25 n.m. The abrupt reversal of the trend in the fourth quarter was partly a Profit before tax – 253 237 – 490 n.m. direct result of the financial market crisis, which required substantial Risk-weighted assets (avg.) 7,711 5,352 + 2,359 + 44 % provisions in the Financial Institutions profit centre for banks in Iceland Average equity 5,112 1,960 + 3,153 >100 % and other banks. In addition, the downturn in industrial activity led to an increased provisioning requirement in the International Corporates The data for the key performance indicators are not meaningful. sector. The risk / earnings ratio for the year as a whole thus rose by almost 5 percentage points to 15.3 %. On an annual average, the cost In 2008, the MIB business segment was faced with unprecedented of risk was 22 basis points of average lending volume (2007: 15 bp), market turmoil. As mentioned in several sections of this report, the a figure which is still considerably lower than the average for the bank financial market crisis came in several waves in the past one and a as a whole (80 bp). half years, affecting almost all market segments and coming to a head in the final quarter of 2008. Originating from the US sub-prime Net income / loss from investments for 2008 was a net loss of segment, the crisis spread to the entire credit market via structured € 57 m, compared with a net loss of € 12 m in the previous year. The securitisations, spilling over into the corporate sector and emerging figure reflects the impairment loss on an investment vehicle in the markets as the year progressed. The collapse of the US investment third quarter of 2008 which included structured investments that had bank Lehman Brothers on 15 September 2008 marked a decisive to be liquidated in view of the sharp fall in market prices. point for the industry: in addition to continued falls in market prices for troubled assets, the rise in spreads and the sharp downturn in Profit before tax reached € 492 m in 2008, down by 14 % from the stock markets, counterparty risk became an essential argument – previous year. Given the growth of about 7 % in risk-weighted assets suddenly and without precedent – which brought trading and, above (average RWA), average equity also increased (+ 10 %) and ROE all, the primary market to a virtual standstill. Many market participants, before tax declined to 19.9 % after 25.2 % in the previous year. Based including prominent names, were faced with a downward spiral of fair on the market position, supported by the cross-regional network of value adjustments, reduction of risk-weighted assets (deleveraging) UniCredit Group, and the level of cost efficiency, the Corporates as well as funding and liquidity problems. Several prominent US Division made a substantial contribution to value creation in Austria, investment banks which were exclusively active in proprietary trading even if the less favourable risk position and higher equity capital and funded their operations via the market lost their independence. In employed weighed on performance. Marginal EVA amounted to a Europe, banks with significant exposures also experienced difficulties strong € 263 m, a decrease of 9 % compared with € 289 m in the and had to be supported through stabilisation programmes put in previous year. Marginal RARORAC (risk-adjusted return on risk-ad- place by governments. justed capital) was 12.3 % after 14.5 %. As a result of these developments, universal banks also need to cope with risks which were previously of lesser significance: the risk of default of counterparties in trading activities (counterparty risk), especially in the context of repos, derivatives transactions and structurings. Moreover, in the last few months of 2008, the crisis spilled over from the financial sector to the real economy. The sharp downturn in economic activity led to a further significant decline in

106 2008 Annual Report · Bank Austria stock market prices – previously hardly thought possible – and the Operating income in the MIB Division amounted to € 142 m in 2008, combination of global recession and withdrawal from remaining expo- down by 70 % on the previous year due to a net loss of € 662 m in the sures triggered macroeconomic risks. The markets experienced a net trading, hedging and fair value result and lower net fees and com- panic attack with regard to CEE countries, regardless of their funda- missions (€ 77 m after € 172 m); results for 2007 included two quar- mentals and long-term outlook. This led to balance-of-payments diffi- ters before the onset of the sub-prime crisis. Net interest income was culties and currency depreciation, phenomena seen especially in the € 731 m, double the figure for the previous year (€ 327 m). 1970s and 1980s. An analysis of performance by market segment provides more ➔ These developments had a direct impact resulting from a sharp meaningful information in economic terms than the analysis of items fall in market prices and higher credit spreads. They also changed the in the income statement. This shows that apart from the losses in level and structure of demand from our customers as well as market value, there were areas in current business which performed turnover: entire market segments dried up, especially the primary well on account of their proximity to customers in 2008. market; on the other hand, the related need for advisory services and risk management also offered opportunities. Those were the factors In the Markets area, classic trading operations comprising FIC (Fixed that characterised the MIB Division’s operating environment. Income, Currencies) made the strongest contribution. This shows that interest rate management, foreign exchange trading and the Emerg- The quarter-by-quarter analysis of revenues generated by MIB ing Markets team as well as Custody are the mainstay of the Markets (see chart) shows this dramatic development. Revenues reflect the area; these units are particularly close to customers and are capable volatility of the net trading, hedging and fair value result, which of delivering a sustained contribution to value creation even in such reached a low (net loss of € 196 m) in the first quarter of 2008 due to volatile periods as the second half of 2008. Within the Equity sector, significant mark-to-market adjustments, mainly on the portfolio of Sales helped to offset the very low level of market activity in private asset-backed securities (ABS). The valuation result also had an im- equity transactions and capital market measures. Our Brokerage unit pact on the subsequent quarters, though to a lesser extent, while the benefited from turnover which was also related to the reduction of performance from trading in credit market instruments deteriorated positions and won new market participants as customers. The above- as the year progressed. At the beginning of the second half of 2008, mentioned significant losses recorded in credit-near trading were we applied the rules in the amendment to IAS 39 and reclassified the largely offset by current customer-related operating activities. Invest- ABS portfolio out of financial assets held for trading into loans and ment Banking, the other MIB area, generated a profit for 2008 but receivables with customers. For the year as a whole, we thereby fell short of expectations. While many M&A projects were postponed avoided book losses of € 350 m in the net trading, hedging and fair until further notice, Corporate Solutions / Austria achieved very good value result. In the fourth quarter, the net trading, hedging and fair results in the Financing sector, benefiting from its excellent customer value result fell further, to a net loss of € 283 m. This was due to relationships. Corporate Finance Emerging Europe also made a good sluggishness in current business and to the fact that the previously contribution to revenues. Principal Investments, which manages stable link between spot markets (e.g. yield on corporate bonds) and alternative investments of the Group, was affected by the liquidation derivatives (related CDS spreads) no longer applied. This “basis risk” of numerous hedge funds and recorded losses. caused problems in hedging and made trading activities more difficult, leading to losses especially in credit-related areas. Moreover, The MIB Division intensified its cost-cutting programme in view of volatility in stock markets rose strongly in the fourth quarter. Given the the difficult revenue situation and outlook. Operating expenses of the unusually strong correlation between global stock markets, even good Division were down by 12 % to € 206 m. Contributions to this im- diversification had little effect. However, the negative net trading, provement came, above all, from lower provisions for performance- hedging and fair value result was almost fully offset in the fourth related remuneration components, which were substantially reduced. quarter of 2008 by a record level of net interest income, which A hiring freeze, fluctuation among traders and the implementation of resulted from accrued interest, successful interest rate management the restructuring project from the fourth quarter onwards have also and advantage being taken of the steeper yield curve. produced tangible effects. The number of employees declined by 16 % to 770 FTE. Non-staff expenses were more or less unchanged. Never- theless, in view of the renewed escalation of the crisis, revenues were too weak to absorb the lower costs. MIB recorded an operating loss of € 64 m for 2008 (after an operating profit of € 238 m in the previous year).

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For the first time in many years, the MIB Division had to make Capital markets activities will benefit from improved competitiveness significant loan loss provisions for credit risk in the amount of € 165 m also in Bank Austria’s core markets. In the second half of 2008 as a result of developments since September 2008. The provisions UniCredit Group’s MIB Division started to implement a restructuring relate mainly to transactions with banks which have collapsed programme which aims at a strict reorientation towards customer- (Lehman Brothers, banks in Iceland), irrecoverable equity repo trans- driven business while reducing proprietary trading. Moreover, the actions with Russian counterparties and financing transactions with Group has taken organisational measures to establish close coopera- customers in the commodities sector. Provisions also had to be made, tion with local units of the Large Corporates sub-segment of the though to a lesser extent, for individual assets from the ABS portfolio Corporates Division. This will ensure continuity in serving customers reclassified out of financial assets held for trading into loans and in Austria and CEE with a higher level of effectiveness. receivables with customers in the middle of 2008. MIB recorded a net loss from investments of € 24 m (2007: net income from investments just over zero).

➔ The negative net trading, hedging and fair value result, the revenue shortfall in net fees and commissions and, additionally, the provisioning charge were the main reasons for the swing from a proﬁt before tax of € 237 m in 2007 to a loss before tax of € 253 m in 2008.

Following the transfer of the trading activities of UniCredit Bank Austria AG to UniCredit CAIB AG, the transfer of the required systems and processes and the consolidation of IT systems, trading and capital markets business has been performed by UniCredit CAIB AG as legal successor to UniCredit Bank Austria AG since 1October 2008. Pursuant to a resolution adopted by the Management Board, it is planned to transfer UniCredit CAIB to HVB. The increased equity MIB: operating income by quarter (€ m) capital employed in the MIB business segment in 2008 reflects the 250 capitalisation of UniCredit CAIB. As explained in the comments on the Other components of operating income balance sheet on page 114 of this report, UniCredit CAIB is classified 200 as held for sale in the consolidated balance sheet at 31 December 2008 and is included in the items Non-current assets and disposal 150 groups classified as held for sale and Liabilities included in disposal 100 groups classified as held for sale. 50 The transfer of Bank Austria’s trading and capital markets activities to Total 0 operating a specialised unit of UniCredit Group is in line with the Restated Bank income –50 of the Regions Agreement (REBORA) made after the business combination to form the new UniCredit Group in 2005. In light of the current –100 market situation, this move is of major operational significance: the –150 organisational and legal combination of all Markets & Investment Banking units of the entire UniCredit Group to form a unit operating –200 on a multi-local basis enables it to use economies of scale and Net trading, hedging and fair value result MIB –250 network effects, improve diversification and enhance efficiency. –300 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08

108 2008 Annual Report · Bank Austria Central Eastern Europe (CEE) ➔ Overall, 2008 was another very successful year for the CEE business segment. Business volume on a local currency basis (€ m) continued to expand, even without consolidation effects, and provided 2008 2007 CHANGE ADJ.*) the basis for revenue growth. Costs remained under control, despite our investment in the branch network and the integration of the two Net interest income 3,068 2,151 + 916 + 43 % + 20 % new banks. Net writedowns of loans and provisions for guarantees Net non-interest income 1,668 1,216 + 452 + 37 % + 20 % and commitments developed in line with expectations, remaining Operating income 4,736 3,367 + 1,369 + 41 % + 20 % below the risk / earnings levels in the mature West European Operating expenses – 2,234 – 1,729 – 504 + 29 % + 13 % economies. A major asset is the balanced diversification of our pres- Operating profit 2,502 1,638 + 864 + 53 % + 27 % ence, covering countries with different economic structures. The Net writedowns of loans – 537 – 211 – 327 >100 % + 51 % banking subsidiaries in all countries – with only two exceptions, Net income from investments 123 20 + 103 >100 % >100 % namely the Baltics (as a result of a prolonged recession) and Bosnia Profit before tax 2,019 1,342 + 677 + 50 % + 35 % (on account of special effects in 2007) – achieved double-digit profit Risk-weighted assets (avg.) 67,682 46,593 + 21,089 + 45 % + 27 % growth, thus contributing to the bank’s overall profits. Average equity 9,483 7,099 + 2,384 + 34 % … Cost / income ratio 47.2 % 51.4 % 48.7 % Operating income in 2008 amounted to € 4.7 bn, up by 41 % Risk / earnings ratio 17.5 % 9.8 % 12.7 % on 2007, and accounted for two-thirds of the total figure for ROE before tax 21.3 % 18.9 % … Bank Austria. Even adjusted for consolidation effects, operating income *) without ATF and Ukrsotsbank. grew by 20 %. Several unfavourable factors combined to produce an increasingly critical economic environment for the countries in Central and Eastern Europe (CEE) in the course of 2008, though there were significant regional differences. After a strong increase in world market prices for commodities and primary products in the first half of the year, price levels fell dramatically in the summer, hitting Russia, Ukraine and CEE business segment expanding throughout the year, Kazakhstan. International investors’ risk aversion was initially reflected but provisioning charge increases (€ m) in sharp increases in credit spreads; towards the end of 2008, inflows of international capital dried up, leading to balance-of-payments 700 problems and currency depreciation in countries with an external financing gap. Most recently, the sharp downturn in industrial activity spilled over into EU member states and candidates for EU member- 600 ship in Central and Eastern Europe. Operating profit Net writedowns of loans In this challenging environment, our CEE banking subsidiaries and provisions for guarantees 500 and commitments, net continued to expand their business and generated higher operating income from investments, other non-operating items income and profits from quarter to quarter throughout the year (see chart). ATF Bank, Kazakhstan, and Ukrsotsbank, Ukraine, have been 400 included in the group of consolidated companies since December 2007 and the beginning of 2008, respectively. These banks also Profit before tax achieved growth in revenues and profits from quarter to quarter in 300 2008: the combined operating profit of the two banks in Q4 was double the Q2 figure. In the fourth quarter, the CEE banks as a whole – and the two newly added banks in particular, given the country 200 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 profiles – felt the impact of the deteriorating outlook and had to set 2007 2008 up substantial loan loss provisions. Despite this development, profit before tax in the fourth quarter reached € 485 m, a significant increase over the first-quarter figure (€ 420 m).

Bank Austria · 2008 Annual Report 109 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

Operating income in 2008 by country group on both definitions: from 51.4 % to 48.7 % (old) and from 51.4 % to € m 2008 SHARE +/– € m +/– % 47.2 % (new). The cost / income ratio in the CEE business segment was significantly lower than the average for the bank as a whole CEE business segment 1) 4,736 100 % + 1,369 + 41 % (54.4 %). Central Europe 2) 879 19 % + 117 + 15 % 3) South-East Europe (SEE) 1,392 29 % + 186 + 15 % Operating expenses in 2008 by country group “Broader Europe” 4) 1,715 36 % + 384 + 29 % € m 2008 +/– € m +/– % C / I % 08 Recent acquisitions 5) 737 16 % + 707 5) 1) Difference in total: CEE headquarters in Vienna. 2) Slovakia, Czech Republic, Hungary, Slovenia. CEE business segment 2,234 + 504 + 29 % 47.2 % 3) Romania, Bulgaria, Croatia, Serbia and Baltics. 4) Russia and Turkey (proportionate share). 5) ATF Bank, Central Europe 407 + 35 + 9 % 46.3 % Kazakhstan, consolidated since 1 December 2007; Ukrsotsbank, Ukraine, consolidated since 1 January 2008 SEE 713 + 90 + 15 % 51.2 % “Broader Europe” 719 + 90 + 14 % 41.9 % A breakdown by revenue components indicates a steady trend: while Acquisitions 294 + 283 39.9 % the profile shows similar developments to those in the Group’s mature core markets (strong net interest income, weak net fees and commissions), growth is driven by the general expansion of the This is to be seen against the background of our ongoing branch net- banking system: risk-weighted assets (average RWA) in the old work expansion programme, investments aimed at unlocking further perimeter increased by 27 % (if the recently acquired banks are cross-regional synergies, and the rebranding process. In our Three- included, average RWA rose by 45 %). Year Plan presented in the middle of 2008, we announced the opening of about 1,200 new branches, depending on future economic Revenue components for 2008 compared with 2007 developments. In September 2008 we put the plan on hold for 2009 € m 0LD PERIMETER ACQUISITIONS until further notice. In 2008, we opened 433 new branches, bringing 2008 +/– € +/– % 2008 the total number in our network to 2,824. The programme focuses on Net interest income 2,544 + 416 + 20 % 524 growth markets: we opened 176 new branches in Turkey, where a Net fees and commissions 1,037 + 110 + 12 % 127 new branch reaches the break-even point in less than one year, on Net trading, hedging and average. Romania is in second place in the old perimeter, with 101 fair value result 298 + 125 + 72 % 86 new branches opened in 2008, followed by Hungary (34), Russia (20), Serbia (22) and Bulgaria (10) as well as the new markets Ukraine (24) The strong increase in net interest income (old perimeter: + 20 %) and Kazakhstan (23). was driven by volume expansion with satisfactory trends in margins; this applies to all country groups and all countries. Net fees and The deterioration in economic conditions in 2008 is mainly commissions grew by 12 %, a disproportionately low rate. The largest reflected in the “non-operating” items between operating profit and contribution to growth in this component came from Turkey (+ € 58 m / profit before tax. Net writedowns of loans and provisions for + 11 %) and especially Russia (+ € 162 m/+ 45 %). In 2008, the CEE guarantees and commitments were € 324 m in the old perimeter in Division also generated significantly higher net trading, hedging and 2008, up by one half on 2007; the reported figure was € 537 m fair value income: including the new banks, it reached € 384 m (2007: € 211 m). (without the new banks, € 298 m) after € 177 m in the previous year. This is an indicator of the commercial background of trading activi- Net writedowns of loans and provisions for guarantees and ties, reflecting the significance of instruments used for interest-rate commitments in 2008 by country group and exchange-rate management in countries with large corporate € m 2008 +/– € m +/– % R / E % 08 banking operations. The best performance in this context (€ 171 m) CEE business segment 537 + 327 >100 % 17.5 % and the strongest growth was achieved in Romania, followed by Central Europe 67 + 16 + 30 % 11.7 % Russia (€ 74 m), Ukraine (€ 54 m) and Kazakhstan (€ 36 m). SEE 89 + 41 + 84 % 10.9 % “Broader Europe” 168 + 55 + 48 % 15.2 % Costs in 2008 grew at a significantly lower rate than revenues in the Acquisitions 214 + 218 40.9 % previous year, both in the new consolidation perimeter (+ 29 %) and in the old perimeter (+ 13 %). As a result, the cost / income ratio improved

110 2008 Annual Report · Bank Austria Two-thirds of the increase in the provisioning charge resulted from Risk-weighted assets including the two new banks grew by 45 %. the consolidation in 2008 of ATF / Kazakhstan (€ 124 m) and RWA productivity – i.e. the ratio of revenues to risk-weighted assets USB / Ukraine (€ 89 m). The consolidation effect should not obscure – declined only slightly compared with the previous year (7.00 % as the fact that the risk position in these countries is precarious. The against 7.23 %). Profits (+ 50 %) rose more strongly than risk- risk/ earnings ratio of these two banking subsidiaries is 50 % and weighted assets (+ 45 %). Volume expansion went hand in hand with 32 %, respectively, the cost of risk is close to 240 basis points in both improved capital efficiency: allocated equity increased by 34 %, from cases. In the Kazakh banking sector, work on adjusting the loan port- € 7.1 bn to € 9.5 bn (annual averages). Value creation beyond the folio has been underway for some time, recently in a more challeng- cost of capital (marginal Economic Value Added) in the CEE business ing environment. In Ukraine, economic trends are the main reason for segment amounted to € 783 m, up by 35 % on the previous year. the deterioration. Added to country-specific factors is the strict appli- RARORAC was 12.5 %. cation of UniCredit risk management methodologies with a view to putting the loan portfolio on a healthy basis. At the editorial close of this report, the capital market is taking a critical view of banking business in CEE in connection with the pre- Based on the old consolidation perimeter, net writedowns of loans and dominantly macroeconomic risks involved. This scepticism is reflected provisions for guarantees and commitments were also substantially in further increases in credit spreads on debt instruments of CEE higher, at € 324 m, than in the previous year (€ 215 m). Of the € 109 m countries and in continued depreciation of several currencies. In view increase, € 37 m was accounted for by Russia, in connection with of the balance-of-payments problems experienced by some countries, credit risk resulting from large trading operations. Romania (+ € 22 m) coordinated action by public and international institutions is important and the Baltics (+ € 12 m) also recorded strong increases. In the to maintain capital flows into the region. Nevertheless, regardless of other countries, the rising provisioning charge is currently well in line the current difficult conditions, Bank Austria is convinced of the with general business expansion and the focus on retail banking and medium-term and long-term potential of the CEE region. The eco- business with medium-sized companies. Benefiting from diversifica- nomic convergence process as growth driver remains intact and the tion, the risk / earnings ratio is still comparatively low, at 17.5 %, also deepening of financial markets is an additional structural factor in the extended consolidation perimeter. The cost of risk, i.e. the ratio supporting the outlook for banking business on a sustained basis. of provisioning charge to average lending volume, was 90 basis (More details are given in the Outlook section.) We will continue to points in the CEE business segment (new) in 2008, compared with pursue the integration of our network – while maintaining local 51 basis points in the previous year. responsibility for customer business – by implementing our divisional business model and bundling production and back-office functions. Net income from investments was significantly larger in 2008 (€ 123 m) than in the previous year (€ 20 m). Most of the increase was due to gains on the sale of Hypo Stavebni, our building society in the Czech Republic, and of the equity interest in the Budapest Stock Exchange.

➔ Operating profit was € 2,502 m, up by € 864 m or 53 % on the previous year. In 2008, the CEE Division generated a profit before tax of over two billion euros (€ 2,019 m), an increase of 50 % over the previous year; without the banks in Kazakhstan and Ukraine, which were included for the first full year, the increase in profit before tax was 35 %. Return on equity (ROE before tax) rose from 18.9 % to 21.3 %.

Bank Austria · 2008 Annual Report 111 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (CONTINUED)

Income statement of the consolidated banking subsidiaries in CEE

(€ m) CZECH REPUBLIC SLOvAKia hungary slovenia bulgaria romania BALTICS 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 %

Net interest income 267.5 207.5 29% 105.7 84.9 25% 156.1 153.8 1% 45.2 35.8 26% 237.2 194.4 22% 74.1 118.9 –38% 22.8 14.6 56% Net fee and commission income 112.9 111.4 1% 30.6 23.5 31% 92.0 82.8 11% 20.1 17.8 13% 79.8 73.4 9% 59.8 63.1 –5% 1.0 0.3 >100% Net trading, hedging and fair value income 1.9 4.7 –61% 28.5 24.5 17% 18.4 10.9 70% –2.4 3.0 n.m. –12.1 –2.6 >100% 171.2 78.4 >100% –2.3 –1.0 >100% Net other income/expenses –1.3 0.6 n.m. 3.5 2.4 47% 0.6 –1.5 n.m. 0.1 0.2 –60% 2.1 2.7 –25% 1.4 –2.0 n.m. 1.2 0.1 >100% Net non-interest income 113.5 116.7 –3% 62.6 50.3 25% 111.0 92.2 20% 17.9 21.1 –15% 69.7 73.5 –5% 232.3 139.5 67% –0.1 –0.6 –84% operating income 380.9 324.2 18% 168.3 135.1 25% 267.1 246.0 9% 63.0 56.9 11% 306.8 267.9 15% 306.5 258.4 19% 22.7 14.0 63% Operating expenses –155.7 –156.5 0% –79.8 –66.0 21% –136.1 –119.8 14% –35.1 –30.6 15% –129.0 –116.6 11% –153.6 –138.9 11% –13.9 –10.6 32% Operating profit 225.2 167.7 34% 88.5 69.1 28% 131.0 126.1 4% 27.9 26.3 6% 177.9 151.3 18% 152.8 119.5 28% 8.8 3.4 >100% Provisions for risks and charges 0.9 0.5 67% 1.3 –0.3 n.m. –1.5 –1.2 21% 0.0 0.0 –81% 1.9 –1.3 n.m. –2.7 –3.2 –15% 0.0 0.0 – Net writedowns on loans –29.4 –17.7 66% –4.8 –7.0 –31% –26.4 –22.6 17% –6.5 –4.3 51% –25.6 –26.8 –4% –38.0 –16.4 >100% –11.2 0.7 n.m. Net income from investments 33.1 –5.0 n.m. 1.0 –1.8 n.m. 42.9 12.6 >100% 3.7 –0.6 n.m. 5.9 8.5 –31% 3.2 –0.3 n.m. 0.0 0.2 –100% Integration costs –4.7 – 9.7 –52% 0.0 –0.3 n.m. –1.5 –4.9 –70% –1.5 –1.6 –7% 6.4 –2.0 n.m. 0.0 –5.5 n.m. 0.0 0.0 – Profit before tax 225.0 135.8 66% 85.9 59.7 44% 144.6 110.0 31% 23.5 19.7 19% 166.5 129.8 28% 115.3 94.0 23% –2.4 4.3 n.m.

Cost/income ratio 40.9% 48.3% 47.4% 48.9% 50.9% 48.7% 55.8% 53.7% 42.0% 43.5% 50.1% 53.7% 61.2% 75.6% Risk/earnings ratio 11.0% 8.5% 4.6% 8.2% 16.9% 14.7% 14.4% 12.0% 10.8% 13.8% 51.3% 13.8% 48.9% –4.5%

Exchange rate 24.946 27.766 31.262 33.775 251.512 251.352 1.000 1.000 1.956 1.956 3.683 3.335 0.703 0.700 Appreciation/depreciation against the euro +11.3% +8.0% –0.1% 0.0% +0.0% – 9.4% –0.4%

(€ m) cROATIa bosnia serbia TURKEY1) russia KAZAKHSTAN2) UKRAINE3) CEE banks total 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 2008 2008 2007 %

Net interest income 355.8 287.1 24% 74.8 76.1 –2% 50.7 36.2 40% 587.0 528.8 11% 517.8 355.4 46% 246.5 23.5 276.4 3,017.6 2,116.9 43% Net fee and commission income 134.3 125.6 7% 30.2 30.9 –2% 21.0 16.9 25% 322.8 265.5 22% 137.0 114.5 20% 45.8 2.9 80.9 1,168.3 928.6 26% Net trading, hedging and fair value income 29.8 25.4 17% 6.2 5.2 18% 6.5 5.9 11% 12.1 24.8 –51% 73.5 –5.0 n.m. 35.9 3.8 53.7 420.8 177.9 >100% Net other income/expenses 44.9 57.1 –21% 2.7 –0.5 n.m. –0.8 –0.3 >100% 58.0 46.3 25% 7.6 0.8 >100% –3.0 –1.0 2.3 119.2 104.9 14% Net non-interest income 209.0 208.1 0% 39.1 35.6 10% 26.8 22.5 19% 393.0 336.6 17% 218.1 110.2 98% 78.7 5.8 136.9 1,708.3 1,211.4 41% operating income 564.8 495.2 14% 113.8 111.8 2% 77.5 58.7 32% 980.0 865.4 13% 735.9 465.6 58% 325.2 29.3 413.3 4,726.0 3,328.3 42% Operating expenses –304.7 –256.4 19% –80.9 –73.2 11% –32.8 –29.2 12% –463.8 –448.3 3% –254.7 –179.9 42% –122.7 –10.5 –162.4 –2,125.3 –1,636.5 30% Operating profit 260.1 238.7 9% 32.9 38.6 –15% 44.6 29.5 52% 516.1 417.1 24% 481.2 285.7 68% 202.5 18.8 250.9 2,600.6 1,691.9 54% Provisions for risks and charges –0.5 –1.6 –68% –0.7 –2.4 –70% –0.1 0.0 n.m. –63.6 –68.3 –7% 0.0 0.0 – 0.0 –0.3 –0.2 –65.3 –78.1 –16% Net writedowns on loans 0.8 –0.9 n.m. –8.9 –1.3 >100% –6.0 –3.6 69% – 91.1 –73.2 24% –77.3 –40.7 90% –124.3 4.0 –89.4 –538.3 –209.9 >100% Net income from investments 12.0 –0.6 n.m. 3.5 0.4 >100% 0.0 0.2 n.m. 14.2 6.8 >100% 2.6 2.9 –13% 3.0 –0.5 0.3 125.3 22.7 >100% Integration costs –0.1 –0.1 22% –2.0 –2.9 –31% 0.0 0.0 – 0.0 0.0 – 0.0 0.0 – 0.0 0.0 0.0 –3.4 –27.1 –88% Profit before tax 272.3 235.5 16% 24.8 32.3 –23% 38.5 26.0 48% 375.6 282.5 33% 406.4 247.9 64% 81.2 22.0 161.7 2,118.9 1,399.5 51%

Cost/income ratio 53.9% 51.8% 71.1% 65.4% 42.4% 49.8% 47.3% 51.8% 34.6% 38.6% 37.7% 35.9% 39.3% 45.0% 49.3% Risk/earnings ratio –0.2% 0.3% 11.9% 1.8% 11.9% 9.9% 15.5% 13.8% 14.9% 11.5% 50.4% –17.0% 32.3% 17.8% 9.9% 768.7% Exchange rate 7.224 7.338 1.956 1.956 81.433 79.986 1.906 1.786 36.421 35.018 176.963 167.871 – – – Appreciation/depreciation against the euro +1.6% +0.0% –1.8% –6.3% –3.9% 0.0%

1) Pro quota. 2) Included in the group of consolidated companies as from 1 December 2007 3) Fully consolidated as from 1 January 2008.

112 2008 Annual Report · Bank Austria (€ m) CZECH REPUBLIC SLOvAKia hungary slovenia bulgaria romania BALTICS 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 %

Exchange rate 24.946 27.766 31.262 33.775 251.512 251.352 1.000 1.000 1.956 1.956 3.683 3.335 0.703 0.700 Appreciation/depreciation against the euro +11.3% +8.0% –0.1% 0.0% +0.0% – 9.4% –0.4%

(€ m) cROATIa bosnia serbia TURKEY1) russia KAZAKHSTAN2) UKRAINE3) CEE banks total 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 % 2008 2007 2008 2008 2007 %

Bank Austria · 2008 Annual Report 113 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

Balance sheet developments

Bank Austria’s total assets at 31 December 2008 were € 222.2 bn, The balance sheet at 31 December 2008 reflects the intended up by € 13.0 bn or 6.2 % on year-end 2007. During the year, total sale of equity interests in companies which have so far been consoli- assets rose by 9.8 % from year-end 2007 to the end of September, dated companies. In accordance with IFRS 5, the balance sheet in- with the consolidation of Ukrsotsbank (for the first time in the balance cludes disposal groups classified as held for sale (written down to the sheet at the end of March) accounting for 2.6 percentage points of lower of carrying amount and fair value less costs to sell) which are the increase. ATF Bank was already included in the consolidated shown in the items Non-current assets and disposal groups classi- financial statements for 2007. From September 2008 to the end of fied as held for sale and Liabilities included in disposal groups 2008, total assets declined by 3.3 %; as a result, the year-on-year classified as held for sale. One of the companies is the investment change was 6.2 % (see chart). Balance sheet developments reflect bank UniCredit CAIB AG including its subsidiaries in Poland, Russia the direct and indirect impacts of the financial market crisis: interbank and the United Kingdom. The Management Board has decided to sell business fell sharply in the fourth quarter. Exchange rate effects were these companies on an intra-Group basis so that all investment bank- a very significant factor as almost all CEE currencies depreciated ing units of UniCredit Group can be combined. Also included is card strongly towards year-end 2008, and there was also an indirect effect complete Service Bank AG. With a view to streamlining its interests in resulting from differences in exchange rates used for translating the Austrian card business, Bank Austria together with the other income statement items (at annual average rates) and balance sheet shareholders set up a selling process for card complete Service Bank items (at year-end rates). Finally, goodwill impairment as explained AG. Completion is scheduled for 2009. above also contributed to the decrease in total assets from the third quarter to the fourth quarter. Major changes in balance sheet items ASSETS 31 DEC. 08 31 DEC. 07 +/– € M +/– %

Financial assets held for trading 4,489 19,092 – 14,603 – 76.5 % Loans and receivables with banks 20,023 38,007 – 17,983 – 47.3 % Loans and receivables with customers 131,973 115,216 + 16,756 + 14.5 % Non-current assets and disposal groups classified as held for sale 34,068 1,727 + 32,342 TOTAL ASSETS 222,152 209,186 + 12,966 + 6.2 %

Total assets (€ bn) LIABILITIES AND EQUITY 31 DEC. 08 31 DEC. 07 +/– € M +/– %

+6.2% Deposits from banks 35,511 52,445 – 16,934 – 32.3 % +9.8% Deposits from customers 95,164 93,203 + 1,961 + 2.1 % 228.6 229.8 220.8 222.2 Debt securities in issue 32,597 26,496 + 6,101 + 23.0 % 209.2 Liabilities included in disposal groups classified as held for sale 33,137 1,247 + 31,890 195.6 Equity 14,237 15,332 – 1,095 – 7.1 %

As the above-mentioned companies are presented in a separate asset item and liabilities item in the consolidated balance sheet at 31 December 2008, the amounts of some of the other balance sheet items declined significantly, reflecting the size of the companies classified as held for sale. It is mainly for this reason that a year-on- year comparison shows decreases of double-digit billion euro 30 Sept. 31 Dec. 31 March 30 June 30 Sept. 31 Dec. amounts especially in financial assets / liabilities held for trading and 2007 2007 2008 2008 2008 2008 in loans and receivables with banks as well as deposits from banks; these changes reflect the main business activities of an investment USB/Ukraine ATF/Kazakhstan bank.

114 2008 Annual Report · Bank Austria The intended sale of the above-mentioned companies has a lesser The liabilities side shows a largely similar picture: customer de- impact on loans and receivables with customers and on primary posits and debt securities in issue at the end of 2008 were 2.4 % and funds, i.e. deposits from customers and debt securities in issue; 23.0 %, respectively, higher than at year-end 2007. Primary funds – these items therefore increased strongly from year-end 2007 to the sum total of the above two items, representing funding from com- 31 December 2008. mercial banking business sources – reached € 128.1 bn, exceeding the year-end 2007 ﬁgure by € 8.4 bn or 7 %. Deposits from banks The amounts of major balance sheet items shown in the table rose only slightly (+ 1.9 %). Financial liabilities held for trading doubled below include the respective amounts accounted for by the Group to € 15.5 bn, driven by increased trading activities in the fourth companies classiﬁed as held for sale. This presentation makes it quarter of 2008. possible to analyse balance sheet developments during 2008 in economic terms. Equity amounted to € 14.2 bn, 6.4 % of the balance sheet total. The decline of € 1.1 bn or 7.1 % resulted mainly from the dividend paid Changes in major balance sheet items – analytical presentation1) for 2007 (€ 832 m) and from the balance of income and expenses

ASSETS 31 DEC. 08 1) 31 DEC. 07 +/– € M +/– % recognised in equity (– € 241 m): the net profit of € 1,283 m (unexpectedly low as a result of impairment losses of € 1,027 m on Financial assets held for trading 22,285 19,092 + 3,193 + 16.7 % goodwill) was included in retained earnings; this effect is more than Loans and receivables with banks 31,424 38,007 – 6,582 – 17.3 % offset by exchange differences from foreign currency translation Loans and receivables with (– € 1,185 m) and by changes in reserves in accordance with IAS 39 customers 134,806 115,216 + 19,589 + 17.0 % (– € 381 m). … in % of total assets 60.7 % 55.1 % TOTAL ASSETS 222,152 209,186 + 12,966 + 6.2 % ➔ Commercial banking business with customers accounts for a LIABILITIES AND EQUITY 31 DEC. 08 1) 31 DEC. 07 +/– € M +/– % growing proportion of the balance sheet total: at the end of 2008, loans and receivables with customers were 60.4 % of total assets Deposits from banks 53,420 52,445 + 975 + 1.9 % (year-end 2007: 55.1 %). The proportion of primary funds also rose Deposits from customers 95,470 93,203 + 2,267 + 2.4 % slightly (57.6 % after 57.2 %), mainly on account of the bank’s Debt securities in issue 32,597 26,496 + 6,101 + 23.0 % increased efforts in the area of medium-term funding. Although the 2) … Primary funds 128,067 119,699 + 8,368 + 7.0 % young banking markets which are still catching up in terms of … in % of total assets 57.6 % 57.2 % financial intermediation are of major significance, 95 % of loans and 3) Equity 14,237 15,332 – 1,095 – 7.1 % receivables with customers are funded out of primary funds. Equity … in % of total assets 6.4 % 7.3 % represents a healthy 6.4 % of the balance sheet total. 1) Assets / liabilities classified as held for sale added back to the relevant balance sheet items. 2) Sum total of deposits from customers and debt securities in issue. 3) Equity not affected by classification as held for sale. Capital resources The above presentation shows that the € 13.0 bn increase in total On 1 January 2008, the calculations required under regulatory assets was supported by the expansion of customer business while standards pursuant to the Austrian Banking Act were converted to the the significance of interbank business declined. Financial assets held Basel II rules. The main changes in respect of (net) capital resources for trading and financial liabilities held for trading increased in 2008. result from differences in taking account of deductions and from the lower net Tier 3 capital (to meet – lower – capital requirements for On the assets side, loans and receivables with customers rose by market risks in the trading book). In addition to the changed rules for € 19.6 bn or 17.0 % over the previous year (without Ukrsotsbank by determining the assessment basis for credit risk, the provisions in 13.6%.) Loans and receivables with banks declined by € 6.6 bn or Section 22 of the Austrian Banking Act concerning the minimum capi- 17.3%. Financial assets held for trading increased by € 3.2 bn or tal requirements now comprise the calculation of capital requirements 16.7% although illiquid financial assets held for trading in the amount for operational risk and changes in the rules for capital to be held of € 2.4 bn for which there was no active market were reclassified against parts of the trading book (in particular, Tier 3 capital can no into loans and receivables with customers as permitted under the longer be used to meet the capital requirements for counterparty amendments to IAS 39. default risk).

Bank Austria · 2008 Annual Report 115 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

Further information

Since 31 March 2008, UniCredit Bank Austria AG has applied the The following detailed information is included in the notes to the advanced internal ratings-based approach for credit risk. The consolidated financial statements: subsidiaries are taken into account by applying the standardised details of events of particular significance after the end of the approach for credit risk. As at 31 December 2008, operational risk is financial year in note 4, “Events after the balance sheet date”; determined in UniCredit Bank Austria AG and in Zagrebačka banka details on the use of financial instruments in note 3, “Significant d.d. using the advanced approach, while the other subsidiaries use accounting policies”; the standardised or basic-indicator approach. information on existing risks of changes in prices, credit risk, liquidity risk and cash flow risk in the risk report in notes 66 to 69; The comparison of 31 December 2008 (new presentation pursuant to information pursuant to Section 243a of the Austrian Commercial Basel II) with the calculation as at the end of 2007 (old method pur- Code (concerning rights linked to shares) in note 50, “Equity”. suant to Basel I) shows a decline of 6.9 % in net capital resources to € 12.3 bn, most of which is due to the new supervisory rules. On the other hand, risk-weighted assets rose by 12.9 % to € 133.2 bn as a result of the regulatory changes and the bank’s underlying business development. The largest contribution to this development came from expansion in the CEE business segment. The capital requirement for credit risk increased by 6.9 % to € 9.4 bn, and together with the other risk types it rose by 12.9 % to € 10.7 bn.

At the end of 2008, the Tier 1 capital ratio – based on credit risk pursuant to Basel II – was 7.70 %, comfortably above the minimum level required by law. Further details are given in the table below:

Capital ratios: year-end 2008 (Basel II) and year-end 2007 (Basel I) Based on credit risk 2008 2007

Tier 1 capital ratio 7.70 % 8.76 % Total capital ratio 9.35 % 11.37 %

Based on all risks 2008 2007

Tier 1 capital ratio 6.82 % 8.20 % Total capital ratio 9.19 % 11.16 %

116 2008 Annual Report · Bank Austria Outlook

Economic environment For the banking sector this means that the trends recorded in credit demand and savings deposits in the last few months of 2008 will in- The global economy is in deep recession. After growth of 5 % in tensify in 2009. Credit demand will lose momentum and there will be 2007 and over 3 % in 2008, world GDP (at purchasing power parities) a shift from medium-term and long-term loans for investment proj- will stagnate for the first time in the post-war period. Economic ects to short-term loans. We assume that lending volume will decline growth in China and in the Asian emerging markets is expected to due to lower demand. Bank deposits will grow at a slightly lower rate reach 5.5 % and 5 %, respectively, which is a serious setback for than in 2008, with the inflow of deposits from the business sector these countries. The US economy has shown a downward trend since slowing down. As incomes grow more slowly and public awareness of the end of 2007; recent indicators confirm that it continues to shrink, the recession rises, the already high savings ratio will increase further, despite unprecedented rescue and support programmes. Economic from 12.3 % to 13.1 % in 2009. Given the uncertain market outlook, performance in the euro area will decline by 2.3 % in 2009, a holdings of financial assets will continue to focus on short-term bank development which also reflects the repercussions of the oil-price deposits and especially top-quality bond issues, entailing further hike and the euro’s strength until summer 2008. At the beginning of structural adjustments in the area of mutual funds. 2009, the synchronous global downturn in manufacturing seen in the final quarter of 2008 is spilling over from key industries to all sectors For 2009 we forecast a 0.8 % contraction of GDP for the entire of the economy, via demand for capital goods, employment, incomes CEE region, with major countries falling into recession. This develop- and demand for consumer goods. It is not yet possible to say how far ment in Central European countries like Poland, the Czech Republic, this development has progressed and at what point we are now. And Slovakia and Slovenia, which have been characterised by a relatively it is not clear for how long we will have to expect further adverse sound macroeconomic environment, will be driven mainly by a slow- impacts and valuation losses in financial markets. One of the few down in external demand. South-East European countries, the Baltics positive factors in this scenario is the pragmatic approach taken by and Hungary will have to cope with domestic weaknesses in addition economic policymakers and their readiness to intervene. to the global slowdown – i.e. high current account deficits and external indebtedness – which in the current environment further The Austrian economy felt the full impact of the global economic bleakens their short-term prospects as external financing is difficult downturn around the turn of the year, with some time lag. The rate of to obtain and rather expensive. Kazakhstan, Russia and Ukraine growth in Q4 2008 compared with the preceding quarter was nega- will be affected by a lack of external funding, as well as by a fall in tive, at – 0.2 %, for the first time since the beginning of 2001. For the commodities prices due to the first two economies’ dependence on first quarter of 2009 we expect GDP to shrink by at least 1%. The vol- energy production and on Ukraine’s reliance on steel. ume of orders from abroad has fallen, which means that the first few months of 2009 may see a double-digit drop in exports compared In the current environment the key consideration is continuity in the with the previous year. Investment activity is also being reduced in financing cycle. In past years, consumption and investment growth view of the unfavourable international environment. We assume that were mainly financed through local bank loans to households and the Austria’s economic performance in 2009 will decline by 1.6 %, after corporate sector. Apart from macroeconomic factors, the local bank- GDP growth of 1.8 % in 2008. While there are currently no signs of a ing sectors differ in their external financing needs and the respective turnaround, we expect that economic activity will recover slightly to- level of foreign exchange lending. Several measures have already wards the end of 2009. Next year may see moderate growth of 0.7 %. been implemented by local governments and national banks, as well This scenario is based on hopes that the ECB, which has already as by international institutions, in order to restore external and internal eased its monetary policy, will continue to pursue this course with all confidence in banks (e.g. by introducing deposit guarantee schemes), instruments currently available or yet to be created, and that the Aus- inject liquidity into the banking system and support economic growth. trian government’s economic stimulus package will start to have tan- This is especially the case in Russia and Kazakhstan, where major gible effects as the year progresses. The risk of an even sharper initiatives have been taken by the local governments to support the downturn is still higher than any risk of inflation. banking sector, and in Ukraine, Hungary and Latvia, where the IMF’s intervention has also been required.

Bank Austria · 2008 Annual Report 117 Consolidated Financial Statements: Management Report of the Group

Management Report 2008 (cONTINUED)

We expect all these measures to have an effect in the medium to long Outlook for Bank Austria’s performance term, and the CEE region to start recovering in 2010, with GDP increasing by 2.7 %. Turkey and the Czech Republic are in a relatively in 2009 stronger position as their banking systems are less leveraged and have a lower share of foreign-currency loans to the private sector. The economic environment described above suggests that 2009 will These countries could benefit from a significant easing of monetary continue to be very difficult. Uncertainty about the economic outlook policy aimed at stimulating domestic demand, and they could record has increased until recently, and the volatility of recent financial some recovery of economic growth already in the second half of market indicators does not provide a sound foundation on which to 2009. Even if we had to again slightly reduce our forecasts, two base expectations. It is not possible to say when the downturn will positive factors remain: first, during both the upswing and cyclical touch bottom and how strong its impact on credit demand, default downturn, the CEE region is performing better than West European risk and propensity to invest will be. The strain on the financial sector countries. Second, the regional diversification of our subsidiaries is a has not yet eased, and unpleasant surprises are possible at any time. major asset: we have a stronger presence in those countries where Credit spreads demanded by the market – in respect of countries, the economic downturn will be least pronounced. companies and especially banks – rose again in the last few weeks of the reporting season, after having eased somewhat around the turn of Growth and inflation in our core markets the year. On the basis of available data, we cannot provide a sound 2007 2008 2009 2010 forecast of results for 2009.

Economic growth (real GDP, % change over previous year) Bank Austria – and the entire UniCredit Group – conﬁrmed its long- CEE region 6.7 % 4.3 % – 0.8 % 2.7 % term strategy on several occasions during the past year while CEE region, weighted*) 6.3 % 3.8 % – 0.4 % 2.6 % adjusting its implementation to the new conditions. In view of the Mature markets (I, G, A) 2.2 % 0.5 % – 2.4 % 0.7 % lower demand expected in Austria, and as economic performance and Austria 3.1 % 1.8 % – 1.6 % 0.7 % revenue growth in CEE lose momentum, implementing the cross- Inflation (annual average, % change over previous year) regional business model is essential. CEE region 7.4 % 11.3 % 6.9 % 6.5 % CEE region, weighted*) 5.5 % 8.5 % 4.9 % 4.5 % Using a customer-focused, multi-local sales approach, we aim to Mature markets (I, G, A) 2.1 % 2.9 % 0.9 % 1.9 % enhance our competitiveness by bundling product know-how in inter- Austria 2.2 % 3.2 % 0.9 % 1.6 % national business. The planned transfer of UniCredit CAIB to HVB is to *) Average for CEE countries weighted by shares of our UniCredit banking subsidiaries. UniCredit Group be seen in this light, a move which will create a strong provider of forecasts as at February 2009. 17 CEE countries including Poland. customer-oriented investment banking services of European stature. We are generally concentrating on classic banking business with simple and easy-to-understand products, and on advisory services for customers.

We are also intensifying our efforts to create a cross-regional infrastructure for production within Global Banking Services, ranging from back-ofﬁce and administrative activities all the way to information and communication technology. This will help us unlock cost and revenue synergies from 2009 onwards.

118 2008 Annual Report · Bank Austria We will fully maintain our long-term commitment to CEE and gradually implement our divisional structure there. The slowdown in 2009 is a cyclical phenomenon while convergence of Eastern and Western Europe, European integration, is a structural process offering large potential for value creation in the medium term.

9 March 2009, the Management Board

Erich Hampel (Chairman)

Helmut Bernkopf Federico Ghizzoni

Ralph Müller Carlo Vivaldi

Stephan Winkelmeier Robert Zadrazil

Bank Austria · 2008 Annual Report 119

Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRSs)

Income statement for the year ended 31 December 2008 122

Balance sheet at 31 December 2008 123

Statement of changes in equity 124 Statement of recognised income and expenses 124

Cash flow statement 125

Bank Austria · 2008 Annual Report 121 Consolidated Financial Statements in accordance with IFRSs Consolidated Income Statement of the Bank Austria Group for the year ended 31 December 2008

(€ m) (Notes) 2008 2007

Interest income and similar revenues (5) 12,837 10,282 Interest expense and similar charges (5) –8,180 –6,629 Net interest margin 4,657 3,653 Fee and commission income (6) 2,706 2,575 Fee and commission expense (6) –629 –451 Net fees and commissions 2,076 2,124 Dividend income and similar revenue (7) 592 128 Gains and losses on financial assets and liabilities held for trading (8) –375 119 Fair value adjustments in hedge accounting (9) – – Gains and losses on disposal of: (10) 133 255 a) loans 1 1 b) available-for-sale financial assets 132 252 c) held-to-maturity investments –1 – d) financial liabilities 1 2 Gains and losses on financial assets/liabilities at fair value through profit or loss (11) –48 15 Operating income 7,035 6,294 Impairment losses on: (12) –1,096 –502 a) loans –1,019 –507 b) available-for-sale financial assets –25 –3 c) held-to-maturity investments –59 –14 d) other financial assets 8 23 Net income from financial activities 5,939 5,792 Premiums earned (net) (13) 112 115 Other income (net) from insurance activities (14) –86 –82 Net income from financial and insurance activities 5,964 5,825 Administrative costs: –3,621 –3,113 a) staff expense (15) –2,235 –1,840 b) other administrative expense (16) –1,386 –1,273 Provisions for risks and charges (17) –78 –74 Impairment/write-backs on property, plant and equipment (18) –213 –197 Impairment/write-backs on intangible assets (19) –119 –80 Other net operating income (20) 178 184 Operating costs –3,854 –3,280 Profit (loss) of associates (21) 412 181 Gains and losses on tangible and intangible assets measured at fair value – – Impairment of goodwill –1,027 – Gains and losses on disposal of investments (22) 9 14 Total profit or loss before tax from continuing operations 1,505 2,740 Tax expense (income) related to profit or loss from continuing operations (23) –222 –380 Net profit or loss for the year 1,283 2,360 Minorities –139 –106 NET PROFIT OR LOSS ATTRIBUTABLE TO THE PARENT COMPANY 1,144 2,254 Earnings per share (in €, basic and diluted) 5.66 11.69

122 2008 Annual Report · Bank Austria Consolidated Balance Sheet of the Bank Austria Group at 31 December 2008

Assets (€ m)

(Notes) 31 Dec. 2008 31 Dec. 2007

Cash and cash balances (26) 3,908 2,967 Financial assets held for trading (27) 4,489 19,092 Financial assets at fair value through profit or loss (28) 567 935 Available-for-sale financial assets (29) 10,034 10,864 Held-to-maturity investments (30) 5,754 7,623 Loans and receivables with banks (31) 20,023 38,007 Loans and receivables with customers (32) 131,973 115,216 Hedging derivatives (33) 85 1,147 Changes in fair value of portfolio hedged items (+/–) – – Investments in associates and joint ventures (34) 2,277 2,281 Insurance reserves attributable to reinsurers – – Property, plant and equipment (35) 2,346 2,003 Intangible assets (36) 4,170 4,400 of which goodwill 3,595 3,837 Tax assets (37) 1,088 1,007 a) current tax assets 253 151 b) deferred tax assets 835 856 Non-current assets and disposal groups classified as held for sale (38) 34,068 1,727 Other assets (39) 1,369 1,918 Total assets 222,152 209,186

Liabilities and equity (€ m)

(Notes) 31 Dec. 2008 31 Dec. 2007

Deposits from banks (40) 35,511 52,445 Deposits from customers (41) 95,164 93,203 Debt securities in issue (42) 32,597 26,496 Financial liabilities held for trading (43) 2,155 7,442 Financial liabilities at fair value through profit or loss (44) 2,000 2,386 Hedging derivatives (45) 123 1,638 Changes in fair value of portfolio hedged items (+/–) – – Tax liabilities (46) 541 634 a) current tax liabilities 138 125 b) deferred tax liabilities 403 510 Liabilities included in disposal groups classified as held for sale (47) 33,137 1,247 Other liabilities (48) 2,515 3,574 Provisions for risks and charges (49) 4,015 4,611 a) post-retirement benefit obligations 3,537 4,088 b) other provisions 477 523 Insurance reserves 156 178 Equity (50) 14,237 15,332 of which Minorities (+/–) 733 660 Total liabilities and equity 222,152 209,186

Bank Austria · 2008 Annual Report 123 Consolidated Financial Statements in accordance with IFRSs Statement of changes in equity of the Bank Austria Group

(€ m) actuarial SUB- FOREIGN RESERVES IN losses in share- SCRIBED CAPITAL RETAINED CURRENCY ACCORDANCE accordance holders’ minority CAPITAL RESERVES EARNINGS TRANSLATION WITH IAS 39*) with ias 19 equity interests equity

As at 1 January 2007 1,069 2,859 6,482 –73 347 –757 9,927 213 10,140 Capital increase 400 2,463 2,863 365 3,228 Changes in the group of consolidated companies – – Shares in controlling companies 1 1 1 Recognised income and expenses 2,258 43 49 157 2,507 86 2,593 Dividend paid –588 –588 –6 –594 Other changes –34 –34 –34 As at 31 December 2007 1,469 5,323 8,118 –31 397 –600 14,676 658 15,334

*) Reserves in accordance with IAS 39 1 Jan. 2007 31 Dec. 2007 Cash flow hedge reserve –175 –119 Available-for-sale reserve 522 516 Total 347 397 actuarial SUB- FOREIGN RESERVES IN losses in share- SCRIBED CAPITAL RETAINED CURRENCY ACCORDANCE accordance holders’ minority CAPITAL RESERVES EARNINGS TRANSLATION WITH IAS 39*) with ias 19 equity interests equity

As at 1 January 2008 1,469 5,323 8,118 –31 397 –600 14,676 658 15,334 Purchase price allocation –4 –4 2 –2 As at 1 January 2008 restated 1,469 5,323 8,114 –31 397 –600 14,672 660 15,332 Changes in the group of consolidated companies – –1 –1 Shares in controlling companies – – Recognised income and expenses 1,144 –1,145 –381 42 –339 98 –241 Dividend paid –808 –808 –24 –832 Other changes 4 –25 –21 –21 As at 31 December 2008 1,469 5,327 8,425 –1,175 16 –558 13,505 733 14,237

*) Reserves in accordance with IAS 39 1 Jan. 2008 31 Dec. 2008 Cash flow hedge reserve –119 29 Available-for-sale reserve 516 –13 Total 397 16 of which reserves of companies classified as held for sale –138

Statement of recognised income and expenses (€ m) 31 dec. 2008 31 dec. 2007

Gains/losses on assets held for sale (available-for-sale reserve) –600 –1 Gains/losses on cash flow hedges (cash flow hedge reserve) 149 75 Changes at companies accounted for under the equity method –45 – Foreign currency translation – exchange differences –1,166 30 Foreign currency translation relating to assets held for sale –19 – Actuarial gains/losses on defined-benefit plans 56 210 Taxes on items directly recognised in equity 99 –85 Recognised directly in equity –1,524 229 Net profit 1,283 2,364 Total of income and expenses recognised in the reporting year –241 2,593 Shareholders’ equity –339 2,507 Minority interests 98 86

124 2008 Annual Report · Bank Austria Cash flow statement of the Bank Austria Group

(€ m) 2008 2007

NET PROFIT 1,283 2,360 Non-cash items included in net profit, and adjustments to reconcile net profit to cash flows from operating activities Depreciation, amortisation, net writedowns of loans, and changes in fair values 1,861 819 Increase in staff-related provisions and other provisions 114 137 Increase/decrease in other non-cash items –250 280 Gains/losses on disposal of intangible assets, property, plant and equipment, and investments –141 –299 SUB-TOTAL 2,867 3,297 Increase/decrease in operating assets and liabilities after adjustment for non-cash components Financial assets held for trading –6,043 –386 Loans and receivables with banks and customers – 9,980 – 9,230 Other asset items 1,425 –1,890 Financial liabilities held for trading 7,676 2,603 Deposits from banks and customers 2,466 11,710 Debt securities in issue 5,362 –6,241 Other liabilities items –2,243 2,109 CASH FLOWS FROM OPERATING ACTIVITIES 1,530 1,972

Proceeds from disposal of investments 8,810 17,947 property, plant and equipment 97 51 Payments for purchases of investments –6,812 –16,029 property, plant and equipment –756 –655 Proceeds from sales (less cash disposed of) of subsidiaries 205 – Payments for acquisition (less cash acquired) of subsidiaries –1,583 –1,223 Other changes 275 –148 CASH FLOWS FROM INVESTING ACTIVITIES 236 –57

Proceeds from capital increase – – Dividends paid –808 –588 Subordinated liabilities and other financial activities (net) 146 66 CASH FLOWS FROM FINANCING ACTIVITIES –662 –522

CASH AND CASH EQUIVALENTS AT END OF PREVIOUS PERIOD 2,967 1,584 Cash flows from operating activities 1,530 1,972 Cash flows from investing activities 236 –57 Cash flows from financing activities –662 –522 Effects of exchange rate changes –142 –10 CASH AND CASH EQUIVALENTS AT END OF PERIOD 3,929 2,967

PAYMENTS FOR TAXES, INTEREST AND DIVIDENDS Income taxes paid –89 –68 Interest received 12,837 10,282 Interest paid –8,180 –6,448 Dividends received 612 153

Bank Austria · 2008 Annual Report 125

Notes to the Consolidated Financial Statements of Bank Austria

(1) Legal basis of the consolidated financial statements 128 ( 46) Deferred tax liabilities 169 ( 2a) Structural changes 128 ( 47) Liabilities included in disposal groups classified ( 2b) Impairment test 133 as held for sale 169 (3) Significant accounting policies 134 ( 48) Other liabilities 170 (4) Events after the balance sheet date 142 ( 49) Provisions for risks and charges 170 ( 50) Equity 171 Notes to the income statement 143 (5) Interest income/Interest expense 143 Additional IFRS disclosures 172 (6) Fee and commission income/Fee and commission ( 51) Time breakdown by contractual residual maturity expense 144 of financial assets and liabilities 172 (7) Dividend income and similar revenue 145 ( 52) Geographical distribution 172 (8) Gains and losses on financial assets and ( 53) Related party disclosures 173 liabilities held for trading 145 ( 54) Share-based payments 174 (9) Fair value adjustments in hedge accounting 146 ( 55) Reconciliation of reclassified accounts to ( 10) Gains and losses on disposals/repurchases 146 mandatory reporting schedule 176 ( 11) Net change in financial assets and liabilities ( 56) Segment reporting 178 at fair value through profit or loss 147 ( 57) Assets pledged as security 182 ( 12) Impairment losses 147 ( 58) Subordinated assets 182 ( 13) Premium earned (net) – breakdown 149 ( 59) Assets and liabilities in foreign currency 182 ( 14) Other income (net) from insurance business 149 ( 60) Trust assets and trust liabilities 183 ( 15) Payroll: breakdown 150 ( 61) Repurchase agreements 183 ( 16) Other administrative expenses 150 ( 62) Guarantees given and commitments 183 ( 17) Net provisions for risks and charges 150 ( 63) List of selected subsidiaries and other equity interests 184 ( 18) Impairment on property, plant and equipment 151 (63a) Consolidated companies 184 ( 19) Impairment on intangible assets 151 (63b) Investments in companies accounted for under ( 20) Other net operating income 151 the proportionate consolidation method 186 ( 21) Profit (Loss) of associates 152 (63c) Investments in associated companies accounted for under the equity method 186 ( 22) Gains and losses on disposal of investments 152 (63d) Investments in associated companies not accounted ( 23) Income tax from continuing operations 153 for under the equity method 186 ( 24) Earnings per share 153 ( 64) Employees 187 ( 25) Dividends 153 ( 65) Supervisory Board and Management Board 187

Notes to the balance sheet 154 Risk report 188 ( 26) Cash and cash balances 154 ( 66) Overall risk management 188 ( 27) Financial assets held for trading 154 (66a) Market risk 191 ( 28) Financial assets at fair value through profit or loss 155 (66b) Liquidity risk 198 ( 29) Available-for-sale financial assets 156 (66c) Counterparty risk 199 (66d) Credit risk 199 ( 30) Held-to-maturity investments 156 (66e) Operational risk 205 ( 31) Loans and receivables with banks 157 (66f) Business risk 206 ( 32) Loans and receivables with customers 158 (66g) Risks arising from the bank’s shareholdings ( 33) Hedging derivatives 159 and equity interests 206 ( 34) Equity investments 159 ( 67) Legal risks 206 ( 35) Property, plant and equipment 160 ( 68) Information on the squeeze-out 206 ( 36) Intangible assets 162 ( 69) Financial derivatives 206 ( 37) Tax assets 163 ( 38) Non-current assets and disposal groups Information required under Austrian law 210 classified as held for sale 164 ( 70) Consolidated capital resources and regulatory capital ( 39) Other assets 165 requirements 210 ( 40) Deposits from banks 165 ( 41) Deposits from customers 166 Concluding Remarks of the Management Board ( 42) Debt securities in issue 166 of UniCredit Bank Austria AG 211 ( 43) Financial liabilities held for trading 167 ( 44) Financial liabilities at fair value through profit or loss 168 Report of the Auditors 212 ( 45) Hedging derivatives 168 Report of the Supervisory Board for 2008 214

Note In this report, “Bank Austria” and “the Bank Austria Group” refer to the Group. To the extent that information relates to the parent company’s separate financial statements, “UniCredit Bank Austria AG” is used. In adding up rounded figures and calculating the percentage rates of changes, slight differences may result compared with totals and rates arrived at by adding up component figures which have not been rounded off.

Bank Austria · 2008 Annual Report 127 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

(1) Legal basis of the (2a) Structural changes consolidated financial statements

UniCredit Bank Austria AG, Schottengasse 6–8, A-1010 Vienna, Acquisition of Ukrsotsbank, Ukraine Austria, is a universal bank conducting banking business within On 25 June 2007, the Management Board of BA-CA AG (“Bank Aus- the meaning of Section 1 (1) of the Austrian Banking Act. It is tria”) approved the acquisition of Joint Stock Commercial Bank for registered under no. FN 150714p in the Austrian Register of Social Development Ukrsotsbank, Kiev, Ukraine, (Ukrsotsbank). On Firms at the Commercial Court of Vienna. On 27 September 21 January 2008, the bank acquired a 94.20% shareholding interest 2008, the name of Bank Austria Creditanstalt AG was changed to for € 1,526.9 m including additional costs. A shareholding interest of UniCredit Bank Austria AG. The bank continues to operate in the 8.05% with a book value of € 131.7 m was acquired directly by market under the “Bank Austria” brand name. The geographical Bank Austria, and 86.15% was acquired indirectly through Private focus of the bank’s operations is on Austria and CEE. Joint Stock Company “Ferrotrade International” (a wholly-owned subsidiary of Bank Austria), which has its headquarters in Kiev.

On the basis of this purchase price, and after net asset value adjustments, goodwill amounts to UAH 8,948 m or € 1,203.7 m.

The net asset value adjustments relate to the intangible assets brand name and retail customer base which were acquired as part of the acquisition of Ukrsotsbank, and to related deferred taxes.

The value of the brand name was determined at UAH 293 m or € 39.5 m, on the assumption of an indefinite useful life from a current perspective. The retail customer base was valued at UAH 147 m or € 19.8 m and is amortised on a straight-line basis over the useful period of 3 years.

In July 2008, the bank acquired a further 4.3% shareholding interest in Ukrsotsbank by way of a capital increase. As at 31 December 2008, Bank Austria’s total shareholding interest in Ukrsotsbank was 94.47%, the purchase price including additional costs amounted to € 1,694 m.

The two companies have been included in the group of consolidated companies of the Bank Austria Group as from 1 January 2008.

Furthermore, the following subsidiaries were included in the group of consolidated companies of the Bank Austria Group as from 1 January 2008:  FactorBank Aktiengesellschaft, Vienna  HYPERION Immobilienvermietungsgesellschaft m.b.H., Vienna  Teledata Consulting und Systemmanagement Ges.m.b.H., Vienna  Treuconsult Beteiligungsgesellschaft m.b.H., Vienna  Informations Technologie Austria GmbH, Vienna (accounted for under the proportionate consolidation method)

Two of UniCredit Bank Austria AG’s Bosnian banking subsidiaries – HVB Central Profit Banka d.d., Sarajevo, and UniCredit Zagrebačka banka d.d., Mostar – were integrated to form the new UniCredit Bank d.d., Mostar, on 1 March 2008.

128 2008 Annual Report · Bank Austria In March 2008, our equity interest in the Czech banking subsidiary At the beginning of October 2008, Informations Technologie Austria Hypo Stavebni Sporitelna was sold for CZK 1.2 bn. GmbH (IT-Austria) transferred data processing systems to Bank Aus- tria Global Information Services GmbH (BAGIS) as part of restructur- In the course of the new corporate branding process, the subsidiary ing activities. In return, IT-Austria acquired a 20% equity interest in International Moscow Bank (IMB) was renamed UniCredit Bank in BAGIS from UniCredit Bank Austria AG. BAGIS has been included in the first quarter of 2008; it is now operating under the name of the group of consolidated companies of the Bank Austria Group since ZAO UniCredit Bank. 1 December 2008.

The following subsidiaries were included in the group of consolidated Purchases of shares from minority shareholders in the period from companies as from 1 April 2008: June to December 2008 increased UniCredit Bank Austria AG’s  “Artist” Marketing Entertainment GmbH, Vienna shareholding interest in UniCredit Bulbank AD, Sofia, Bulgaria, from  MY Beteiligungs GmbH, Vienna 90.30% to 92.08%.  MC Marketing GmbH, Vienna  MC Retail GmbH, Vienna Since 1 December 2008, the Cypriot investment management company Lowes Limited, a subsidiary of UniCredit Aton International The banking subsidiary Nova banjalučka banka a.d. in Bosnia and Limited, has been consolidated in the Bank Austria Group. Herzegovina was renamed UniCredit Bank a.d. Banjaluka in June 2008. UniCredit Bank Austria AG transferred the consolidated company caibon.com Internet Service GmbH to BA-CA Infrastructure Finance OJSC Sohibkorbank, ATF Bank’s banking subsidiary in Tajikistan, was Advisory GmbH on 11 December 2008. The equity interest in that sold for US$ 3.6 m in July 2008. company is wholly owned via ZETA Fünf Handels GmbH.

On 4 September 2008, UniCredit Bank Austria AG sold a sharehold- On 30 December 2008, UniCredit Bank Austria AG sold its equity ing interest of 4.65% in UniCredit Tiriac Bank S.A., Bucharest, for interest in Pioneer Investments Austria GmbH to Pioneer Global Asset € 45 m, thereby reducing its shareholding interest in UniCredit Tiriac Management S.p.A, Milan, for € 117 m. The resulting profit in the Bank S.A. from 55.21% to 50.56%. This measure was a contractual Bank Austria Group was € 66 m. part of the agreement on the merger of HVB Tiriac Bank S.A. with UniCredit Romania S.A. from the year 2007. “JOHA” Gebäude-, Errichtungs- und Vermietungsges.m.b.H. was included in the group of consolidated companies of Bank Austria as In the third quarter of 2008 the hive-down of UniCredit Bank Austria from the end of 2008. AG’s trading activities to UniCredit CAIB AG, Vienna, was approved by the supervisory authorities and entered in the Austrian Register of UniCredit Menkul Degerler AS, a brokerage firm, commenced opera- Firms. This means that with effect from 1 October 2008 trading in tions in Turkey in the fourth quarter of 2008. As part of the Yapı Kredi the fixed income, currency, credit and equity markets is performed by Group, the brokerage firm is accounted for in the Bank Austria Group UniCredit CAIB AG. under the proportionate consolidation method.

Bank Austria · 2008 Annual Report 129 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

(2a) Structural changes (CONTINUED)

Effects of changes in the group of consolidated companies

Assets (€ m) ADDITIONS AT Other the beginning additions DISPOSAL 31 Dec. 2007 of 2008 in 2008 in 2008

Cash and cash balances 2,967 155 – –1 Financial assets held for trading 19,092 – – – Financial assets at fair value through profit or loss 935 106 – – Available-for-sale financial assets 10,864 30 631 –582 Held-to-maturity investments 7,623 – – –416 Loans and receivables with banks 38,007 421 7 –175 Loans and receivables with customers 115,216 3,604 3 –100 Hedging derivatives 1,147 – – – Changes in fair value of portfolio hedged items (+/–) – – – – Investments in associates and joint ventures 2,281 132 629 – Insurance reserves attributable to reinsurers – – – – Property, plant and equipment 2,003 379 56 –5 Intangible assets 4,400 20 – –5 of which goodwill 3,837 – – – Tax assets 1,007 5 6 –7 a) current tax assets 151 – – – b) deferred tax assets 856 5 6 –7 Non-current assets and disposal groups classified as held for sale 1,727 – – – Other assets 1,918 38 1 –45 Total assets 209,186 4,890 1,333 –1,335

Liabilities and equity (€ m) ADDITIONS AT Other the beginning additions DISPOSAL 31 Dec. 2007 of 2008 in 2008 in 2008

Deposits from banks 52,445 1,055 54 –19 Deposits from customers 93,203 2,490 7 –1,145 Debt securities in issue 26,496 646 – – Financial liabilities held for trading 7,442 – 3 – Financial liabilities at fair value through profit or loss 2,386 – – – Hedging derivatives 1,638 – – – Changes in fair value of portfolio hedged items (+/–) – – – – Tax liabilities 634 29 – –1 a) current tax liabilities 125 3 – – b) deferred tax liabilities 510 26 – – Liabilities included in disposal groups classified as held for sale 1,247 – – – Other liabilities 3,574 59 2 –84 Provisions for risks and charges 4,611 8 1 –5 a) post-retirement benefit obligations 4,088 8 – –2 b) other provisions 523 1 1 –3 Insurance reserves 178 – – – Equity 15,332 603 1,265 –82 of which Minorities (+/–) 660 – – – Total liabilities and equity 209,186 4,890 1,333 –1,335

130 2008 Annual Report · Bank Austria The value of the corporate customer base was determined at Changes resulting from net asset value 13,832 m tenge or € 77.6 m, and is amortised on a straight-line adjustments of subsidiaries acquired basis over the useful period of 12 years. The value of the SME customer base was determined at 6,665 m tenge or € 37.4 m and is in the previous year amortised on a straight-line basis over the useful period of 18 years.

Net asset value adjustments were carried out in respect of the subsid- After further purchases of shares in 2008, UniCredit Bank Austria iaries ATF Bank, Kazakhstan, and Aton International Limited, Nicosia, AG’s shareholding interest in ATF Bank as at 31 December 2008 acquired in the previous year. The values published for 2007 were was 99.6%, the total purchase price including additional costs is adjusted and the adjusted figures are used as comparative figures in € 1,898.3 m, goodwill amounts to 232,991 m tenge or € 1,299.2 m. the 2008 Annual Report. Aton International ATF Bank The purchase transaction concerning Aton International Limited, In November 2007, UniCredit Bank Austria AG acquired 92.88% Nicosia, and Aton Broker, Moscow, companies acquired in the of the share capital of ATF Bank, Kazakhstan, with subsidiaries in previous year, was completed in the third quarter of 2008. The total Kyrgyzstan, Tajikistan and the Omsk region in southern Siberia, purchase price including additional costs amounts to € 315.8 m. at a purchase price including additional costs of € 1,592 m. After net asset value adjustments, goodwill for Aton International is After net asset value adjustments, goodwill was 209,700 m tenge US$ 236.9 m (€ 172.8 m). The net asset value adjustments in the or € 1,176.8 m. amount of € 21.1 m relate to the intangible assets customer base, software and favourable rental agreements, which are amortised on The net asset value adjustments related to loans and receivables a straight-line basis over the useful period, and to related deferred with customers, the intangible assets brand name and customer taxes. Goodwill for Aton Broker, Moscow, remained unchanged at base which were acquired as part of the acquisition of ATF Bank, € 43.7 m. and related deferred taxes.

The value of the brand name was determined at 9,596 m tenge or € 53.9 m, on the assumption of an indefinite useful life from a current perspective.

Bank Austria · 2008 Annual Report 131 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

(2a) Structural changes (CONTINUED)

Assets (€ m) ppa 31 dec. 2007 31 dec. 2007 adjustments* published

Cash and cash balances 2,967 2,967 Financial assets held for trading 19,092 19,092 Financial assets at fair value through profit or loss 935 935 Available-for-sale financial assets 10,864 10,864 Held-to-maturity investments 7,623 7,623 Loans and receivables with banks 38,007 38,007 Loans and receivables with customers 115,216 –124 115,341 Hedging derivatives 1,147 1,147 Changes in fair value of portfolio hedged items (+/–) – – Investments in associates and joint ventures 2,281 2,281 Property, plant and equipment 2,003 2,003 Intangible assets 4,400 141 4,258 of which goodwill 3,837 –49 3,886 Tax assets 1,007 1,007 a) current tax assets 151 151 b) deferred tax assets 856 856 Non-current assets and disposal groups classified as held for sale 1,727 1,727 Other assets 1,918 –1 1,918 Total assets 209,186 16 209,170

Liabilities and equity (€ m) ppa 31 dec. 2007 31 dec. 2007 adjustments* published Deposits from banks 52,445 52,445 Deposits from customers 93,203 93,203 Debt securities in issue 26,496 26,496 Financial liabilities held for trading 7,442 7,442 Financial liabilities at fair value through profit or loss 2,386 2,386 Hedging derivatives 1,638 1,638 Changes in fair value of portfolio hedged items (+/–) – – Tax liabilities 634 18 616 a) current tax liabilities 125 125 b) deferred tax liabilities 510 18 492 Liabilities included in disposal groups classified as held for sale 1,247 1,247 Other liabilities 3,574 3,574 Provisions for risks and charges 4,611 4,611 a) post-retirement benefit obligations 4,088 4,088 b) other provisions 523 523 Insurance reserves 178 178 Equity 15,332 –2 15,334 of which Minorities (+/–) 660 2 658 Total liabilities and equity 209,186 16 209,170

132 2008 Annual Report · Bank Austria (2b) Impairment test

The recognised goodwill relating to every cash-generating unit was growth in volume and profits. According to these projections, profit tested for impairment in the fourth quarter of 2008 in accordance with growth in Ukraine in 2011 is expected to reach 44.8%, thereafter de- IFRS 3 in conjunction with IAS 36 and IAS 38. For this purpose the re- clining slightly to 38.3% in 2013. In Kazakhstan, profit growth in 2011 coverable amount was compared with the respective carrying amount. is forecast to be 37.2%, with a subsequent slowdown to 29.2% in 2013. In subsequent years, the growth rates are gradually adjusted to In Bank Austria, business segments defined for segment reporting long-term growth opportunities in the EU area (2% – Phase 3, basis purposes are defined as cash-generating units. Within a business for perpetual annuity). segment, separate legal entities and all entities in a specific country are shown as a cash-generating unit. For model plausibility purposes, an external valuation of our banking subsidiaries in Ukraine and Kazakhstan was carried out in conformity The carrying amount of a cash-generating unit is determined on the with IAS 36, which arrived at the same company value in Ukraine and basis of equity allocated to the unit and recognised goodwill relating at a higher company value (+4.5%) in Kazakhstan. the unit. The Bank Austria Group is still convinced of the market potential and The recoverable amount is determined on the basis of the value in long-term growth opportunities available in the region of Central and use. Value in use is calculated using a discounted cash flow model, Eastern Europe (CEE). more specifically a dividend discount model (DDM) adjusted to the specific characteristics of banking business and regulatory capital However, as a result of the dramatic deterioration in global economic requirements. conditions and the financial impact on the region of Central and Eastern Europe, forecasts of medium-term growth have been lowered The DDM model used in the entire UniCredit Group takes account of in several countries; this required adjustments in respect of future 3 phases: profit expectations, which led to impairment losses being recognised  Phase 1 (2009–2011) is based on the current budget for 2009 on goodwill relating to specific companies. and the projection figures in the 3-Year Plan, which were originally adopted by management in June 2008 and revised in response to the An impairment loss totalling € 1,027 m was recognised in the fourth financial crisis. quarter of 2008 in the income statement of the Bank Austria Group as  Phase 2 (2011/12–2017): Proceeding from strong business an impairment loss on goodwill. growth which may be achieved depending on the respective market potential, an adjustment of growth potential to EU averages is made The carrying amount of Ukrsotsbank, the bank in Ukraine acquired towards the end of phase 2. at the beginning of 2008, declined strongly at the end of 2008 as  Phase 3: Calculation of the present value of a perpetual annuity on a result of exchange rate movements; moreover, an impairment loss the assumption of a long-term growth rate which takes sustained of € 333 m on goodwill was recognised when it became clear that long-term economic growth and the inflation rate into account. Ukraine is one of the countries hit hardest by the global economic crisis. The expected cash flows are discounted at the country-specific rate of cost of capital, which is determined on the basis of the long-term risk- At ATF Bank, a bank in Kazakhstan acquired in November 2007, an free interest rate of the local currency, the UniCredit Group debt risk impairment loss of € 417 m on goodwill was recognised as forecasts premium and UniCredit equity risk premium, and the specific country of medium-term growth had to be lowered. risk premium. Moreover, an impairment loss of € 11 m on goodwill was recognised The country-specific rate of cost of capital in Phase 1 is between for our unit in Latvia. 9.1% in the euro area (Slovenia, Slovakia) and 25.9% for Ukraine. The rate of cost of capital for Kazakhstan is 21%. From Phase 2, the Among the units combined in the Investment Banking (CAIB) segment, rates are gradually adjusted to the 11.5% rate of cost of capital used an impairment loss of € 125 m on goodwill was recognised for CAIB as a standard rate in Phase 3. Polska, an impairment loss of € 112 m on goodwill was recognised for UniCredit ATON International Limited, and an impairment loss of € 28 m After 2008, the economic environment will remain difficult in 2009. on goodwill was recognised for ZAO UniCredit Aton. It is planned to The projections for 2010 to 2013 are based on expectations of strong transfer this business segment to HypoVereinsbank in 2009.

Bank Austria · 2008 Annual Report 133 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

(3) Significant accounting policies

Pursuant to Section 59a of the Austrian Banking Act and Section In January 2008, the IASB published a revised IFRS 3, “Business 245a of the Austrian Commercial Code, and in conformity with Regu- Combinations” (“IFRS 3 R”), and an amended IAS 27, “Consolidated lation (EC) No 1606/2002 of the European Parliament and of the and Separate Financial Statements” (“IAS 27 R”). IFRS 3 R and IAS Council of 19 July 2002, the 2008 consolidated financial statements 27 R will become effective for business combinations in business of Bank Austria have been prepared in accordance with International years beginning on or after 1 July 2009. They may be applied for Financial Reporting Standards (IFRSs) published by the International earlier periods if both Standards are applied simultaneously. The Accounting Standards Board (IASB) and in accordance with the Bank Austria Group is examining the possible application from 2009. interpretations of the International Financial Reporting Interpretations Committee (IFRIC/SIC) applicable at the balance sheet date. All International Financial Reporting Standards required to be applied to Changes in accounting principles financial statements for 2008, and adopted by the EU, have been for the 2008 financial statements applied. In addition, the disclosure rules which are specified in the Accounting Manual of UniCredit, the ultimate parent company, and IFRS 7, Financial Instruments: Disclosures, requires more detailed are required to be applied throughout the Group, were used as a disclosures of the risk position of banks, especially regarding credit basis for the preparation of the consolidated financial statements. risk, to give the user a better insight into the bank’s overall risk posi- The comparative figures for the previous year are also based on tion. In order to fulfil this requirement Bank Austria has included in these standards. Unless indicated otherwise, all figures are in millions the notes (see note 66d) some of the information which was not part of euros (€). of the notes in previous years.

The income statement in the consolidated financial statements for Published IFRSs which have 2008 is presented in a more extensive format than in the 2007 Annual Report of Bank Austria. The comparative figures for 2007 not yet become operative and have been adjusted to this format. have not yet been applied Reclassifications pursuant to the amendments to IAS 39 IFRS 8, which was adopted by the European Union at year-end 2007 Results for 2008 were significantly influenced by the reclassification and is to be applied to annual financial statements for periods begin- of financial instruments into other valuation categories pursuant to ning on or after 1 January 2009, contains new rules for the basis of the amendments to IAS 39 Financial Instruments: Recognition and segment reporting. Under these rules, segment reporting is to be Measurement and IFRS 7 Financial Instruments: Disclosures, which based on data other than IFRS data if management decisions rely were approved by the IASB and adopted by the European Union in on such other data. In such a case, a reconciliation to IFRS data in October 2008. the other elements of financial reporting is required. As UniCredit Bank Austria AG’s internal reporting system is based on IFRS data, The amendments to IAS 39 and IFRS 7 permit specific financial there will be no changes in this respect. Furthermore, the new rules instruments to be reclassified in particular circumstances out of the require segment reporting figures to reflect inter-segment items and held-for-trading category into another category. Bank Austria used transactions, i.e. gross figures are to be stated. This may result in this possibility and with effect from 1 July 2008 reclassified financial various changes in individual lines within segment reporting, without instruments held in the trading portfolio at the fair value determined having an impact on the bank’s overall results or on the segment on that date. As the current financial crisis is a situation character- result. ised by particular circumstances, use of this possibility was justified.

134 2008 Annual Report · Bank Austria The following table shows the effects related to the reclassifications: Shares in all other companies are classified as investments available for sale and recognised at their fair values, to the extent that fair Reclassifications in accordance with IAS 39 value is reliably measurable. (€ m) The method of inclusion in the consolidated financial statements is 1 July 2008 31 Dec. 2008 shown in the list of selected subsidiaries and other equity interests in note 63. Financial assets held for trading –2,433 –1,993 Held-to-maturity investments 1 1 Loans and receivables with customers 2,556 2,374 Consolidation procedures Deferred tax liabilities –31 –32 Intragroup receivables, liabilities, expenses and income are eliminated unless they are immaterial. Intragroup profits are also elimi- Effects on the income statement (€ m) nated. 30 Sept. 2008 31 Dec. 2008 Interest income 5 31 Business combinations Gains and losses on financial assets and liabilities held for trading 120 350 In accordance with IFRS 3, paragraph 3 (b), IFRS 3 was not applied Income tax expense 31 32 to business combinations involving entities under common control.

The effect in the income statement shows the improvement in gains When a subsidiary is acquired, the fair values of its identifiable and losses on financial assets and liabilities held for trading which assets, including identifiable intangible assets, and liabilities are results from the reclassifications. offset against the cost of acquisition. The difference between the cost of acquisition and the fair value of net assets is recognised in Loans and receivables with customers include assets amounting to the balance sheet as goodwill if such difference cannot be attributed € 11 m on which writedowns have been made. to intangible assets, e.g. a customer base. Pursuant to IFRS 3 and IAS 36, goodwill is not amortised. Goodwill arising on business com- Consolidation methods binations after 1 April 2004 is stated in the currency of the acquired company and translated at the closing rate. Goodwill is tested for All companies that are material and are directly or indirectly con- impairment at least once a year. trolled by UniCredit Bank Austria AG have been consolidated in the consolidated financial statements. The consolidated financial state- As at the date of acquisition, equity of foreign subsidiaries which pre- ments of Bank Austria in accordance with IFRSs are based on the pare their financial statements in foreign currency is translated into separate financial statements of all consolidated companies prepared euros. Gains and losses arising on the foreign currency translation of on a uniform basis. equity of foreign subsidiaries are recorded directly in equity as at the subsequent balance sheet dates. Investments in jointly controlled companies are accounted for under the proportionate consolidation method if they are material for the Goodwill arising on acquisitions of subsidiaries and other equity Bank Austria Group. interests before 1 January 1995 has been offset against retained earnings. Material investments in associated companies, i.e., companies which are neither indirectly nor directly controlled by UniCredit Bank Austria When a subsidiary is acquired, the calculation of minority interests is AG but in which it can exercise a significant influence, are accounted based on the fair values of assets and liabilities. for using the equity method.

Bank Austria · 2008 Annual Report 135 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

(3) Significant accounting policies (CONTINUED)

Foreign currency translation Financial assets held for trading include securities held for trading and positive market values of derivative financial instruments, recog- Foreign currency transactions are translated into the functional nised at their fair values. To determine fair values, market prices and currency on initial recognition by applying the exchange rate at the quotes via Bloomberg, Reuters, Telerate and other price indications date of the transaction. Foreign currency translation is performed in from the interbank market etc. are used. Where such prices or accordance with IAS 21. Monetary assets and liabilities denomi- quotes are not available, values based on present values or option nated in currencies other than the euro are translated into euros pricing models are applied. at market exchange rates prevailing at the balance sheet date. Forward foreign exchange transactions not yet settled are trans- The item Financial liabilities held for trading shows negative market lated at the forward rate prevailing at the balance sheet date. values of derivative financial instruments and short positions held in the trading portfolio. To determine fair values, market prices and For the purpose of foreign currency translation of the financial quotes via Bloomberg, Reuters, Telerate and other price indications statements of foreign subsidiaries, which are prepared in a cur- from the interbank market etc. are used. Where such prices or rency other than the euro, the middle exchange rate prevailing at quotes are not available, values based on present value calculations the balance sheet date has been applied to balance sheet items or option pricing models are applied. and the annual average exchange rate has been applied to income statement items. Fair value option When financial assets and financial liabilities are recognised initially, Cash and cash equivalents they may be classified as financial assets and financial liabilities at fair value through profit or loss (aFVtPL) if certain requirements are The amount of cash and cash equivalents stated in the cash flow met (either reduction of valuation inconsistencies between economi- statement includes the cash holdings (cash and demand deposits cally related assets and liabilities, or inclusion in a group of financial with central banks). In addition to the cash and cash equivalents instruments managed at their fair values on the basis of an invest- shown in the balance sheet item Cash and cash balances, cash ment and risk strategy). In Bank Austria’s balance sheet, financial and cash equivalents also include those in the item Non-current assets/liabilities at fair value through profit or loss include only those assets and disposal groups classified as held for sale. financial instruments which were designated as at fair value through profit or loss upon initial recognition. Financial instruments Available-for-sale financial assets (AfS) Cash purchases and cash sales of financial instruments are re- Available-for-sale financial instruments are a separate category of corded at the trade date. financial instruments. To determine their fair values, market prices are used. Where such prices are not available, generally recognised valu- Netting of trading positions is performed only to the extent that ation methods are used for determining fair values. Changes in fair there is an enforceable right to set-off and that this reflects the values resulting from remeasurement are recognised in a component expected future cash flows from the transaction. of equity (available-for-sale reserve) with no effect on income until the disposal of the financial asset. Impairment losses are recognised Financial assets and financial liabilities held for trading (HfT) in income. Reversals of impairment losses on equity instruments are When an HfT financial instrument is recognised initially, it is recognised in the available-for-sale reserve within equity; reversals of measured at its fair value excluding transaction costs that are impairment losses on debt instruments are recognised in income. directly recognised in profit or loss. After initial recognition, an entity shall measure these financial instruments at their fair value Shares in companies which are neither consolidated nor accounted through profit or loss. A gain or loss arising from sale or redemp- for under the equity method are classified as available for sale. tion or a change in the fair value of an HfT financial instrument is recognised in the income statement item Gains and losses on financial assets and liabilities held for trading.

136 2008 Annual Report · Bank Austria Held-to-maturity investments (HtM) visions are made on the basis of estimates of future loan losses and Held-to-maturity investments are non-derivative financial assets interest rebates. Loans and receivables are shown net of loan loss with fixed or determinable payments and fixed maturity for which provisions. there is the positive intention and ability to hold to maturity. Derivatives These investments are recognised at amortised cost. Cost is am- Derivatives are financial instruments whose value changes in ortised to the repayable amount until maturity. A held-to-maturity response to changes in the underlying instrument, which require no investment is impaired within the meaning of IAS 39.63 if its car- initial net investment or only a small initial net investment, and are rying amount is greater than the present value of estimated future settled at a future date. Derivatives may be interest rate contracts, cash flows. Such an impairment is recognised in the item Impair- foreign exchange contracts, equity-related and other instruments. ment losses on held-to-maturity investments. Credit derivatives are used for active credit portfolio management to optimise writedowns of loans. Derivative transactions may be con- Loans and receivables with banks, cluded over the counter (OTC), i.e. directly with the counterparty, or loans and receivables with customers via exchanges. The exposure is reduced by a margin which must be Loans and receivables are carried in the balance sheet at amor- deposited for exchange-traded contracts (futures and options) to tised cost after deduction of loan loss provisions and including ac- absorb current price fluctuations. crued interest. Amounts of premiums and discounts are accounted for at amortised cost. Derivatives are stated at their fair values. Changes in fair values are recognised in the income statement, except for effective cash flow Fair values hedges in accordance with IAS 39. Credit derivatives meeting the The fair values of loans and receivables with banks as well as definition of financial guarantees are shown like financial guarantees. loans and receivables with customers are stated net of loan loss To determine fair values as at the transaction date, market prices and provisions. The fair values indicated in the table are the amounts official quotes (Bloomberg, Telerate) are used. Where such prices or for which the financial instruments could have been exchanged quotes are not available, recognised and tested models are used for between knowledgeable, willing parties in an arm’s length trans- determining current prices. action at the balance sheet date. To the extent that market prices were available from exchanges or other efficient markets, these Hedging derivatives/hedge accounting were stated as fair values. For the other financial instruments, in- In hedge accounting, Bank Austria distinguishes between fair value ternal valuation models were used, in particular the present value hedges and cash flow hedges. To qualify for hedge accounting in method (discounting future cash flows on the basis of current accordance with IAS 39, hedges must be highly effective. yield curves). For fixed-rate loans to, and deposits from, banks and customers with a remaining maturity of, or regular interest A fair value hedge provides protection against changes in the fair rate adjustment within a period of, less than one year, amortised value of an asset or a liability. The hedging instrument is stated at its cost was stated as fair value. Investments in listed companies are fair value, and any gains or losses on the hedging instrument are included in the fair value of investments at their market values as recognised in income. Gains or losses on the hedged item which are at the balance sheet date. For investments in unlisted companies, attributable to the hedged risk adjust the carrying amount of the the carrying amount was stated as fair value. hedged item and are recognised in income. The effectiveness of fair value hedges is measured on an ongoing basis. Loan loss provisions Loan loss provisions comprise specific writedowns (including flat- Cash flow hedges are used by Bank Austria for protecting future rate specific writedowns, i.e., writedowns on small loans evalu- variable cash flows against changes in market rates. They hedge the ated according to customer-specific criteria) and portfolio-based exposure to variability in cash flows which result from assets or liabil- writedowns (for losses “incurred but not reported”). Loan loss pro- ities or from planned transactions and have an effect on income.

Bank Austria · 2008 Annual Report 137 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

(3) Significant accounting policies (CONTINUED)

Changes in the fair values of derivatives designated as hedging Disposal groups classified instruments are divided into a portion that is determined to be an effective hedge, and into an ineffective portion. The effective portion as held for sale of any gain or loss on the hedging instrument is included in the cash flow hedge reserve and recognised in income in the same period in Pursuant to IFRS 5 such disposal groups are to be carried at the which the change in the value of the hedged item is recognised in lower of carrying amount and fair value less costs to sell. Assets income. This neutralises the effect on income. The effectiveness of and liabilities of the disposal group are stated separately in the cash flow hedges is measured on a regular basis. consolidated financial statements. The result from this transaction will be recognised in the Corporate Center business segment. Property, plant and equipment; Deferred taxes intangible assets Taxes on income are recognised and calculated in accordance with Property, plant and equipment as well as intangible assets are car- IAS 12 under the balance sheet liability method. At any taxable ried at cost less depreciation and/or amortisation in accordance with entity, the calculation is based on the tax rates that are expected IAS 16. to apply to the period in which the deferred tax asset or liability will reverse. Assets are depreciated and amortised on a straight-line basis over their estimated useful lives. At Bank Austria, depreciation and amorti- Deferred tax assets and liabilities are calculated on the basis of the sation is calculated on the basis of the following average useful lives: difference between the carrying amount of an asset or a liability  buildings used for banking operations: 25–50 years recognised in the balance sheet and its respective tax base. This  office furniture and equipment: 4–15 years difference is expected to increase or decrease the income tax  software: 4–6 years charge in the future (temporary differences). Deferred tax assets  other intangible assets: 4–20 years are recognised for tax losses carried forward if it is probable that  customer base: 3–20 years future taxable profits will be available at the same taxable entity. Deferred tax assets and liabilities are not discounted. Any impairments are recognised in income. When the circumstances that led to such an impairment cease to exist, a reversal of the im- The tax expense related to profit before tax is recognised in the pairment loss is made. Since 1 January 2005, goodwill arising on relevant item in the consolidated income statement. Taxes other business combinations has not been amortised but tested for impair- than those on income are included in the item Other administrative ment at least once a year. Impairment losses on goodwill are recogn- expenses. ised in the income statement item Impairment of goodwill. No writebacks are allowed in respect of goodwill. Pursuant to the group taxation rules introduced in Austria in 2005, Bank Austria has formed a group of companies. Profit and loss Investment property transfer agreements have been concluded with 29 group members, and tax compensation agreements have been reached with Land and buildings held as investment property to earn rental income the other companies. and/or for capital appreciation are included in property, plant and equipment and recognised at amortised cost. From 2006, rental Other assets income from such investments is included in Other net operating income. The components of this item are accounts receivable from deliveries of goods and the performance of services, tax claims and deferred tax assets.

138 2008 Annual Report · Bank Austria Deposits from banks/customers, The present value of pension obligations and severance-payment obligations as well as anniversary bonuses is determined with due debt securities in issue regard to internal service regulations, on the basis of the following actuarial assumptions: These items are carried at amortised cost.  discount rate/Austria: 5.75% p.a. (2007: 5.25% p.a.)  increases under collective bargaining agreements: 2.80% p.a. In the case of debt securities in issue, any difference between the (2007: 2.45% p.a.); assumption of increases for employees and issue price and the amount repayable is amortised over the period to pensioners maturity.  career trends including regular salary increases under the current collective bargaining agreement for employees of Austrian banks and the effects of the transitional rules under the 2005 reform of Bank Long-term employee benefits Austria’s service regulations. The rate applied in calculating non-reg- and termination benefits ular salary increases was 0.25% p.a. (2007: 0.25% p.a.); assumption of increases for employees Provisions for post-employment benefits are recognised using the  no discount for staff turnover projected unit credit method in accordance with IAS 19. Pursuant to  retirement age: as a basis for calculation in respect of employees IAS 19.93A, actuarial gains and losses are not recognised in income enjoying “permanent tenure” status in accordance with the internal but directly in equity. Such gains and losses are stated in the table agreement dated 30 December 1999 (as amended on 1 May 2007) “Statement of recognised income and expenses”. on the payment of a Bank Austria ASVG pension equivalent, the age of 60 for men and 55 for women, with a transition to the retirement Under a commitment to provide defined benefits, Bank Austria con- age of 65, has been taken into account. For all other employees, the tinues to recognise a pension provision for the entitlements of em- new retirement age of 65 for men and women has been taken into ployees who retired before the pension reform as at 31 December account in accordance with the applicable rules (2003 pension re- 1999 became effective, and – as a special feature of UniCredit Bank form including transitional rules). If the corridor pension rule results Austria AG’s staff regulations – for the future benefits, equivalent to in a lower retirement age, the lower age was used as retirement age. those under mandatory insurance, earned by active employees and  2008-P statistical tables of Aktuarverein Österreich (most recent pensioners for whom UniCredit Bank Austria AG has assumed the life-expectancy tables for salaried staff) obligations of the mandatory pension insurance scheme pursuant to Section 5 of the Austrian General Social Insurance Act (ASVG). The No provisions are made for defined-contribution plans. Payments following are also covered by the provision: agreed to be made to a pension fund for defined-contribution plans  disability risk and rights to future benefits based on early retire- are recognised as an expense. ment and pension entitlements of surviving dependants, less reim- bursement from the pension funds, Insurance reserves  rights to future benefits under commitments to provide direct benefits in individual service agreements, Pursuant to IFRS 4, insurance contracts are contracts under which  rights to future benefits relating to additional pension payments one party (the insurer) accepts significant insurance risk – i.e. risk, for employees performing manual work. other than financial risk, to which the policy-holder is exposed on the basis of an uncertain event under contracts held by the policy-holder – from the policy-holder. These reserves represent the obligations, calculated using actuarial methods, arising from insurance contracts within the meaning of IFRS 4.

Bank Austria · 2008 Annual Report 139 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

(3) Significant accounting policies (CONTINUED)

Equity rata time basis. Fees included in amortised cost used to calculate effective interest rates are not included under fees and commissions; Equity is composed of paid-in capital, i.e., capital made available they are part of interest expense. to the company by shareholders (subscribed capital plus capital reserves), and earned capital (retained earnings, foreign currency Dividend income translation reserves, IAS 39 reserves, actuarial gains/losses, profit carried forward from the previous year, and net profit). The IAS 39 Dividends are recognised in the income statement in the financial reserves include gains and losses on available-for-sale financial year in which their payment was approved. assets (available-for-sale reserve), which are not recognised in income, and those components of hedge accounting in accordance with IAS 39 which are not included in income (cash flow hedge re- Gains and losses on financial assets serve), after adjustment for deferred taxes. Since 1 January 2005, and liabilities held for trading minority interests have been included in equity. This item shows the realised and unrealised results from measuring Treasury shares held are deducted from equity. The difference all financial instruments of the trading portfolio at fair value through between the price on a later sale of treasury shares and the profit or loss using the mark-to-market method. Income and related post-tax repurchase cost is recognised directly in equity. expenses from derivatives relating to the trading portfolio are not included. Such income and expenses are partly included in the net Net interest margin interest margin and partly in the net change in financial assets and liabilities at fair value through profit or loss. Interest income and interest expense is accrued and recognised as long as such interest is expected to be recoverable. Income mainly received as payment for the use of capital (usually Gains and losses on disposals of calculated, like interest, on the basis of a specific term or on the financial instruments amount receivable) is included in income similar to interest. This item also includes income and expenses from the trading portfolio This item shows the results from disposals of loans and receivables, arising from interest, accrued interest on debt instruments and available-for-sale financial assets, held-to-maturity investments and funding costs relating to the trading portfolio. The net interest financial liabilities. Gains and losses on disposal of financial assets margin also includes interest income and interest expense from held for trading and on financial instruments at fair value through hedging activities and from derivatives. profit or loss are not included.

Net fees and commissions Gains and losses on financial assets/ Net fees and commissions comprise income from services provided on a fee and commission basis, including trading-induced liabilities at fair value through profit commission components, as well as expenses incurred for ser- or loss vices provided by third parties and related to fee-earning business. This item includes gains and losses on financial assets and financial Fees and commissions are recognised on an accrual basis. Secu- liabilities as well as the results from the measurement of these items rities trading commission is recognised at the time the service is at their fair values. rendered. Investment portfolio management fees, advisory fees and investment fund management fees are recognised on a pro-

140 2008 Annual Report · Bank Austria Impairment losses on loans/ Gains and losses on disposal Impairment losses on other of investments financial transactions This item includes gains/losses on the disposal of investments in property and other assets. These items include writedowns of loans, write-offs and additions to provisions for guarantees and commitments, and income from write- Repo transactions backs as well as recoveries of loans previously written off. Securities received in a transaction that entails a contractual obligation to sell them at a later date or delivered under a contractual Impairment/write-backs on property, obligation to repurchase are neither recognised nor derecognised. In respect of securities purchased under an agreement to resell, the plant and equipment and on consideration is recognised as a loan to customers or banks, or as intangible assets an asset held for trading. In respect of securities held under a repurchase agreement, the liability is recognised as due to banks or cus- Writedowns on assets held under finance leases are part of this item. tomers, or as an HfT financial liability. Profit (Loss) of associates Revenue from these loans, being the coupons accrued on the securities and the difference between the sale/purchase and resale/repur- Dividends received from associates are included in the item Dividend chase prices, is recognised in profit or loss through interest income income. and expenses on an accrual basis. These transactions can only be offset if, and only if, they are carried out with the same counterparty Impairment of goodwill and provided that such offset is provided for in the underlying contracts. Impairment losses on goodwill reflect the results of the impairment test performed on an annual basis.

Bank Austria · 2008 Annual Report 141 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

(4) Events after the balance sheet date

In December 2008, UniCredit Bank Cayman Islands Ltd. returned On 13 February 2009, the Supervisory Board its banking licence and filed an application to change its name.  authorised UniCredit Bank Austria AG, upon demand of the On 21 January 2009, the change of its name to Alpine Cayman National Bank of Ukraine (NBU), to increase Ukrsotsbank’s capital re- Islands Ltd. was entered in the local register of companies. sources by way of a capital increase and issues eligible for inclusion in Tier 2 capital totalling up to € 100 m. These capital measures are With effect from 1 January 2009, UniCredit Bank Austria AG trans- to be implemented in the first half of 2009; ferred its equity interests in two wholly-owned companies – BA-CA  authorised UniCredit Bank Austria AG, upon demand of the Administration Services GmbH, Vienna, and Banking Transaction Agency of the Republic of Kazakhstan on the Regulation and Super Services s.r.o., Prague, Czech Republic – to UniCredit Processes & vision of the Financial Market and Financial Organisations (AFN), to Administration S.p.A., Cologno Monzese, Italy, a company wholly increase the capital resources of JSC ATF Bank by way of a capital owned by UniCredit S.p.A, Rome, Italy, with a view to bundling increase of up to € 150 m. This capital measure is to be imple- back-office activities, and received a 28.81% shareholding interest mented in the first half of 2009; in UniCredit Processes & Administration S.p.A.  authorised Bank Austria to acquire the remaining minority interests in UniCredit Bank Serbia JSC of 0.08%. When completed, this With effect from 1 January 2009, UniCredit Global Leasing S.p.A., measure will bring UniCredit Bank Austria AG’s shareholding interest Milan, Italy, in which UniCredit Bank Austria AG held a 32.59% to 100%. interest and UniCredit S.p.A held a 67.41% interest, merged with Locat S.p.A, Bologna, Italy, the UniCredit Group’s Italian leasing company. At the same time, the absorbing company Locat S.p.A. was renamed UniCredit Leasing S.p.A. UniCredit Bank Austria AG now has a 31.01% shareholding interest in that company.

142 2008 Annual Report · Bank Austria Notes to the income statement

(5) Interest income/Interest expense

Interest income and similar revenues (€ m) 2008 2007

Unimpaired financial assets Impaired Debt securities Loans financial assets Other assets Total Total

Financial assets held for trading 447 2 6 28 483 556 Financial assets at fair value through profit or loss 40 1 – – 41 19 Available-for-sale financial assets 451 – 1 48 500 424 Held-to-maturity investments 513 – 2 – 515 664 Loans and receivables with banks – 1,800 6 – 1,806 1,912 Loans and receivables with customers 113 8,846 351 39 9,348 6,375 Hedging derivatives X X X 137 137 312 Financial assets sold but not derecognised – – – – – – Other assets X X X 7 7 20 Total 1,564 10,649 365 259 12,837 10,282

Interest expense and similar charges (€ m) 2008 2007 Deposits Securities Other liabilities Total Total

Deposits from banks –2,546 X – –2,546 –2,422 Deposits from customers –3,970 X – –3,970 –2,946 Debt securities in issue X –1,515 – –1,515 –1,114 Financial liabilities held for trading –21 –1 –50 –72 –76 Financial liabilities at fair value through profit or loss – –38 – –38 –41 Financial liabilities relating to assets sold but not derecognised – – –5 –5 – Other liabilities X X –26 –26 –24 Hedging derivatives X X –8 –8 –4 Total –6,537 –1,553 – 90 –8,180 –6,629

Bank Austria · 2008 Annual Report 143 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the income statement (CONTINUED)

(6) Fee and commission income/Fee and commission expense

Fee and commission income (€ m) 2008 2007

Guarantees given 174 154 Credit derivatives 10 17 Management, brokerage and consultancy services: 1,064 866 securities trading 37 50 currency trading 299 262 segregated accounts 376 147 custody and administration of securities 148 136 custodian bank 42 46 placement of securities 58 102 client instructions 25 22 advisory 15 18 distribution of third party services 64 84 Collection and payment services 972 871 Securitisation servicing – – Factoring 40 31 Tax collection services – – Other services 445 636 Total 2,706 2,575

Fee and commission expense (€ m) 2008 2007

Guarantees received –7 –5 Credit derivatives –30 –16 Management, brokerage and consultancy services: –293 –123 securities trading –17 –18 currency trading –5 –5 segregated accounts – 91 –47 custody and administration of securities –61 –46 placement of securities –120 –6 off-site distribution of securities, products and services – – Collection and payment services –201 –191 Other services – 98 –117 Total –629 –451

144 2008 Annual Report · Bank Austria (7) Dividend income and similar revenue

(€ m) 2008 2007 Income from units in Income from units in Dividends investment funds Dividends investment funds

Financial assets held for trading 5 – 4 – Available-for-sale financial assets 546 2 84 3 Financial assets at fair value through profit or loss – 8 – 6 Investments 30 X 30 – Total 581 10 118 9

(8) Gains and losses on financial assets and liabilities held for trading

(€ m)

2008 2007 Trading Capital Trading Capital gains profit losses Losses Net Profit net profit

Financial assets held for trading 1,087 1,664 –1,764 –1,696 –709 –203 Debt securities 156 340 – 948 –255 –707 –305 Equity instruments 873 1,129 –805 –1,097 100 51 Units in investment funds – 1 –11 –133 –143 32 Loans – 7 – – 7 6 Other 59 188 – –211 36 14 Financial liabilities held for trading – 4 –6 –17 –19 –9 Debt securities – – – – – – Deposits – – –1 –1 –1 1 Other – 4 –6 –16 –17 –10 Other financial assets and liabilities: exchange differences X X X X 398 230 Derivatives 813 1,292 –542 –1,204 –46 101 Financial derivatives 813 1,098 –542 –1,147 –183 67 on debt securities and interest rates 755 971 –489 –787 450 23 on equity securities and share indices 26 88 –24 –335 –246 62 on currency and gold X X X X –405 –31 other 32 39 –29 –25 17 13 Credit derivatives – 194 – –57 137 34 Total 1,901 2,961 –2,313 –2,917 –375 119

Bank Austria · 2008 Annual Report 145 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the income statement (CONTINUED)

(9) Fair value adjustments in hedge accounting

(€ m) 2008 2007

Gains on: Fair value hedging instruments 5 26 Hedged asset items (fair value) 7 – Hedged liability items (fair value) 1 3 Cash flow hedges – – Assets and liabilities denominated in currency – – Total gains on hedging activities 13 29 Losses on: Fair value hedging instruments –13 –22 Hedged asset items (fair value) – –7 Hedged liability items (fair value) – – Cash flow hedges – – Assets and liabilities denominated in currency – – Total losses on hedging activities –13 –29 Net hedging result 0 –0

(10) Gains and losses on disposals/repurchases

(€ m) 2008 2007 Gains Losses Net profit Gains Losses Net profit

Financial assets Loans and receivables with banks – – – – – – Loans and receivables with customers 1 – – 2 – 1 Available-for-sale financial assets 473 –341 132 380 –127 252 Debt securities 37 –36 – 52 –57 –5 Equity instruments 419 –286 133 318 –70 248 Units in investment funds 18 –19 –1 8 –1 8 Loans – – – 1 – 1 Held-to-maturity investments –1 – –1 – – – Total assets 473 –341 132 381 –127 254 Financial liabilities Deposits with banks – – – – – – Deposits with customers – – – – – – Debt securities in issue 1 – 1 2 – 2 Total liabilities 1 – 1 2 – 2 total 474 –341 133 383 –127 255

146 2008 Annual Report · Bank Austria (11) Net change in financial assets and liabilities at fair value through profit or loss

(€ m) 2008 2007 Gains on Capital Losses on Capital gains traNsfer losses transfer Net profit net profit

Financial assets 20 9 –58 –16 –46 22 Debt securities 12 5 –9 –7 1 –4 Equity securities – – –1 – – – Units in investment funds 7 3 –49 –9 –47 25 Loans 1 – – – 1 – Financial liabilities 234 7 –49 –8 184 37 Debt securities 234 7 –48 –8 185 37 Deposits from banks – – –1 – –1 – Deposits from customers – – – – – – Financial assets and liabilities in foreign currency: exchange differences X X X X 5 –5 Financial derivatives 42 8 –234 –7 –191 –39 Derivatives 42 8 –234 –7 –191 –39 Credit derivatives – – – – – – Total 295 24 –341 –32 –48 15

(12) Impairment losses

Impairment losses on loans (€ m) 2008 2007 Write-downs Write-back Specific Specific Portfolio Write-offs Other Portfolio Interest Other Interest Other total total

Loans and receivables with banks – –80 – – – – – –80 7 Loans and receivables with customers –83 –1,279 –204 – 521 – 105 – 940 –514 Total –83 –1,358 –204 – 521 – 105 –1,019 –507

Bank Austria · 2008 Annual Report 147 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the income statement (CONTINUED)

Impairment losses on available-for-sale financial assets (€ m) 2008 2007 Write-downs Write-back Specific Specific Write-offs Other Interest Other Total Total

Debt securities –13 – – – –13 –1 Equity instruments –3 –9 x x –12 –2 Units in investment funds – – x – –1 – Loans to banks – – – – – – Loans to customers – – – – – – Total –16 –9 – – –25 –3

Impairment losses on held-to-maturity investments (€ m) 2008 2007 Write-downs Write-back Specific Specific Portfolio Write-offs Other Portfolio Interest Other Interest Other Total Total

Debt securities –59 – – – – – – –59 –14 Loans to banks – – – – – – – – – Loans to customers – – – – – – – – – Total –59 – – – – – – –59 –14

Impairment losses on other financial transactions (€ m) 2008 2007 Write-downs Write-back Specific Specific Portfolio Write-offs Other Portfolio Interest Other Interest Other Total Total

Guarantees given – –32 –12 – 50 – 1 7 20 Credit derivatives – – – – – – – – – Commitments to disburse funds – –4 –1 – 4 – 2 1 1 Other transactions – – –1 – – – – –1 2 Total – –36 –13 – 54 – 3 8 23

148 2008 Annual Report · Bank Austria (13) Premium earned (net) – breakdown

(€ m) 2008 2007 Indirect Direct business business Total Total

Life business Gross premiums written (+) 22 – 22 21 Reinsurance premiums paid (–) –2 –2 –1 Total 21 – 21 20 Non-life business Gross premiums written (+) 127 – 127 136 Reinsurance premiums paid (–) –33 –33 –36 Change in gross value of premium reserve (+/–) –6 – –6 –8 Change in provision for unearned premiums ceded to reinsurers (–/+) 3 – 3 2 Total 91 – 91 95 Total net premiums 112 – 112 115

(14) Other income (net) from insurance business

(€ m) 2008 2007

Net change in insurance provisions –15 9 Claims paid pertaining to the year – 93 – 90 Other income and expense (net) from insurance business 22 –1 Total –86 –82

Bank Austria · 2008 Annual Report 149 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the income statement (CONTINUED)

(15) Payroll: breakdown

(€ m) 2008 2007

Employees –2,178 –1,800 Wages and salaries –1,511 –1,368 Social charges –306 –248 Severance pay –12 –20 Social security costs –58 –61 Allocation to employee severance pay provision –30 –32 Provision for retirement payments and similar provisions*) –195 –22 Payments to external pension funds –31 –26 Costs related to share-based payments –5 –2 Other employee benefits –62 –57 Recovery of compensation 32 37 Other –57 –40 Total –2,235 –1,840 *) less ASVG equivalent of € 164 m in 2007

(16) Other administrative expenses

(€ m) 2008 2007

Indirect taxes and duties –45 –21 Miscellaneous costs and expenses –1,341 –1,252 Advertising, marketing and communication –185 –202 Expenses related to credit risk –15 –23 Expenses related to personnel –82 –75 Information and communication technology expenses –334 –338 Consulting and professional services –68 –77 Real estate expenses –340 –269 Other functioning costs –317 –268 Total –1,386 –1,273

(17) Net provisions for risks and charges

(€ m) 2008 2007 Reallocation Provisions surplus Total Total

Other provisions Legal disputes –33 10 –24 –11 Staff costs – – – 1 Other –89 35 –54 –64 Total –122 44 –78 –74

150 2008 Annual Report · Bank Austria (18) Impairment on property, plant and equipment

(€ m) 2008 2007 Impairment Depreciation losses Write-backs Net profit

Property, plant and equipment Owned –209 –6 6 –209 –197 used in the business –207 –6 6 –207 –172 held for investment –2 – – –2 –25 Finance lease –4 – – –4 –1 used in the business –4 – – –4 –1 held for investment – – – – – Total –213 –6 6 –213 –197

(19) Impairment on intangible assets

(€ m) 2008 2007 Impairment Amortisation losses Write-backs Net profit

Intangible assets Owned –115 –4 1 –119 –80 generated internally by the company –34 – – –34 –23 other –82 –4 1 –85 –57 Finance leases –1 – – –1 – Total –116 –4 1 –119 –80

(20) Other net operating income

Other operating expenses (€ m) 2008 2007

Cost for operating leases – – Reclassification of gains/losses associated with cash flow hedges of non financial assets or liabilities from equity to profit or loss (IAS 39, paragraph 98a) – – Non-deductible tax and other fiscal charges –2 –2 Writedowns on improvements of goods owned by third parties – – Costs related to the specific service of financial leasing – – Other –74 –57 Total other operating expenses –76 –60

Bank Austria · 2008 Annual Report 151 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the income statement (CONTINUED)

Other operating income (€ m) 2008 2007

Recovery of costs 3 4 Other income 251 240 Revenue from administrative services 35 39 Reclassification of valuation reserve relating to cash-flow hedging of non-financial assets/liabilities – – Revenues from rentals of real estate investments (net of operating costs) 13 48 Revenues from operating leases 1 2 Recovery of miscellaneous costs paid in previous years 5 6 Revenues from finance lease activities – – Other 198 145 other operating income 254 244

Other net operating income 178 184

(21) Profit (Loss) of associates

(€ m) 2008 2007

Income 458 190 Revaluations 123 160 Gains on disposal 321 30 Writebacks 14 1 Other positive changes – – Expense –46 –9 Writedowns 22 – Impairment losses –42 –8 Losses on disposal –26 –1 Other negative changes – – Total 412 181

(22) Gains and losses on disposal of investments

(€ m) 2008 2007

Property Gains on disposal 18 89 Losses on disposal –3 –74 Other assets Gains on disposal 9 11 Losses on disposal –15 –11 Total 9 14

152 2008 Annual Report · Bank Austria (23) Income tax from continuing operations

(€ m) 2008 2007

Current tax (–) –396 –310 Adjustment to current tax of prior years (+/–) 25 9 Reduction of current tax for the year (+) – 1 Changes to deferred tax assets (+/–) 79 –104 Changes to deferred tax liabilities (+/–) 69 25 Tax expense for the year (–) –222 –380

Reconciliation of theoretical tax charge to actual tax charge (€ m) 2008 2007

Profit before tax 1,505 2,740 Applicable tax rate 25% 25% Theoretical tax –376 –685 Different tax rates 77 68 Non-taxable income 405 553 Non-deductible expenses –60 –399 Prior years and changes in tax rates 22 19 a) effects on current tax 12 22 losses carried forward – 1 other previous year effects 12 22 b) effects on deferred tax 9 –4 changes in tax rates –1 1 new tax imposed (–), previous tax revoked (+) 11 –5 Valuation adjustments and non-recognition of deferred taxes –78 77 writedowns of deferred tax assets –28 –33 recognition of deferred tax assets 53 85 non-recognition of deferred tax assets –104 –4 non-recognition of deferred tax assets/liabilities under IAS 12.39 and 12.44 –52 29 other 53 – Amortisation of goodwill –225 – Non-taxable foreign income 2 9 Other differences 12 –21 Income Tax –222 –380 Effective tax rate 14.8% 13.9% (24) Earnings per share (25) Dividends During the reporting period, no financial instruments with a dilutive After release of the fund for general banking risks in the amount of effect on the bearer shares were outstanding. Therefore basic earn- € 1,518.3 m, the profit of UniCredit Bank Austria AG for the financial ings per share in accordance with IAS 33 equal diluted earnings per year beginning on 1 January 2008 and ending on 31 December 2008 share in accordance with IAS 33. Earnings per share are calculated was € 100 thsd. The profit brought forward from the previous year on the basis of the average number of shares outstanding (2008: was € 1.9 m. Thus the profit available for distribution was € 2.0 m. 202.0 million shares; 2007: 192.9 million shares). The Management Board proposes to the Annual General Meeting that no dividend be paid on the share capital of € 1,468,770,749.80 and that the total profit of € 2.0 m available for distribution be carried forward to new account.

Bank Austria · 2008 Annual Report 153 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the balance sheet

(26) Cash and cash balances

(€ m) 31 dec. 2008 31 Dec. 2007

Cash 1,242 1,013 Demand deposits with central banks 2,666 1,954 Total 3,908 2,967

(27) Financial assets held for trading

(€ m) 31 Dec. 2008 31 Dec. 2007 Listed Unlisted Total Total

Financial assets (non-derivatives) 1,568 255 1,823 11,491 Debt securities 1,554 15 1,569 10,416 Structured securities 51 9 60 216 Other debt securities 1,503 6 1,509 10,201 Equity instruments 5 240 246 808 Units in investment funds 8 – 8 42 Loans – – – 214 Repos – – – – Other – – – 214 Impaired assets – – – 10 Assets sold but not derecognised – – – – Derivative instruments 10 2,656 2,666 7,601 Financial derivatives 10 2,656 2,666 7,489 trading 10 2,652 2,662 7,482 fair value hedges – – – 1 other – 4 4 6 Credit derivatives – – – 112 trading – – – 112 fair value hedges – – – – other – – – – Total 1,577 2,911 4,489 19,092

154 2008 Annual Report · Bank Austria (28) Financial assets at fair value through profit or loss

(€ m) 31 Dec. 2008 31 Dec. 2007 Listed Unlisted Total Total

Debt securities 354 26 381 577 Structured securities – – – – Other debt securities 354 26 381 577 Equity instruments 3 18 21 31 Units in investment funds – 149 149 306 Loans – 17 17 20 Structured – – – – Other – 17 17 20 Impaired assets – – – – Assets sold but not derecognised – – – – Total 358 209 567 935

This item shows assets in respect of which Bank Austria used the assets and liabilities which are connected with each other. Most of option to designate financial instruments as at fair value through these assets are complex structures with embedded derivatives. profit or loss in order to avoid inconsistencies in the valuation of

Financial assets at fair value through profit or loss (other than assets sold and not derecognised or impaired assets): annual changes (€ m) 2008 Units in Equity investment Debt securities instruments funds Loans Total

Opening balance 577 31 306 20 935 Increases 1,043 2 327 2 1,375 Purchases 1,011 – 307 – 1,318 Positive changes in fair value 8 2 7 1 18 Other increases 24 – 13 2 39 Decreases –1,239 –13 –485 –6 –1,743 Sales –785 –3 –337 – –1,124 Redemptions –421 –4 – –4 –430 Negative changes in fair value –15 –6 –53 – –74 Other decreases –19 – – 95 –1 –115 Closing balance 381 21 149 17 567

Bank Austria · 2008 Annual Report 155 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the balance sheet (CONTINUED)

(29) Available-for-sale financial assets

(€ m) 31 Dec. 2008 31 Dec. 2007 Listed Unlisted Listed Unlisted

Debt securities 6,585 2,660 4,894 2,615 Structured securities 5 453 1 59 Other 6,580 2,207 4,893 2,557 Equity instruments 34 656 129 2,056 Measured at fair value 34 647 129 2,045 Carried at cost – 8 – 11 Units in investment funds – 97 26 1,132 Loans – – – – Impaired assets 1 3 4 7 Assets sold but not derecognised – – – – Total 6,620 3,414 5,053 5,811

(30) Held-to-maturity investments

(€ m) 31 Dec. 2008 31 Dec. 2007 Carrying Carrying amount Fair value amount Fair value

Debt securities 5,754 5,760 7,623 8,118 Structured securities – 21 70 69 Other securities 5,754 5,739 7,553 8,049 Loans – – – – Impaired assets – – – – Asset sold but not derecognised – – – – Total 5,754 5,760 7,623 8,118

156 2008 Annual Report · Bank Austria Held-to-maturity investments (other than assets sold but not derecognised or impaired assets): annual changes (€ m) 2008 Debt securities Loans Total Opening balance 7,623 – 7,623 Increases 1,718 – 1,718 Purchases 1,328 – 1,328 Write-backs – – – Transfers from other portfolios 74 – 74 Other changes 317 – 317 Decreases –3,587 – –3,587 Sales –1,077 – –1,077 Redemptions –1,701 – –1,701 Write-downs –6 – –6 Transfers to other portfolios – 97 – – 97 Other changes –705 – –705 Closing balance 5,754 – 5,754

(31) Loans and receivables with banks

(€ m) 31 Dec. 2008 31 Dec. 2007

Loans to central banks 6,397 5,365 Time deposits 250 289 Compulsory reserves 4,337 3,573 Repos 1,765 1,120 Other 46 382 Loans to banks 13,626 32,641 Current accounts and demand deposits 1,548 7,527 Time deposits 3,412 11,689 Other loans 8,628 13,397 Repos 1,486 4,820 Finance leases – – Other 7,141 8,577 Debt securities – – Structured – – Other – – Impaired assets 38 28 Assets sold not derecognised – – Total (carrying amount) 20,023 38,007 Total (Fair value) 20,137 38,463 Loan loss provisions deducted from loans and receivables 62 33

Bank Austria · 2008 Annual Report 157 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the balance sheet (CONTINUED)

(32) Loans and receivables with customers

(€ m) 31 Dec. 2008 31 Dec. 2007

Current accounts 15,232 15,824 Repos 141 880 Mortgages 20,070 15,506 Credit cards and personal loans, incl. loans guaranteed by salary 9,814 8,559 Finance leases 748 740 Factoring 507 404 Other transactions 81,963 71,155 Debt securities 219 202 Structured securities – – Other debt securities 219 202 Impaired assets 3,280 1,947 Assets sold but not derecognised – – Total (carrying amount) 131,973 115,216 Total (Fair value) 133,308 116,812 Loan loss provisions deducted from loans and receivables 3,876 3,695

Finance leases: customers (€ m) 31 dec. 2008 Present value of minimum Minimum lease payments lease payments

Amounts receivable under finance leases: Up to 12 months 321 290 From 1 to 5 years 473 430 Over 5 years 31 29 Total gross/net investment value 825 748 of which: Unguaranteed residual values of assets leased under finance leases – – Less: Unearned finance income (by remaining maturity) –77 X Present value of minimum lease payments receivable (net investment in the lease) 748 748

158 2008 Annual Report · Bank Austria (33) Hedging derivatives

(€ m) 31 Dec. 2008 Currency Equity Interest rates and gold instruments Loans Other Total

Listed – – – – – – Financial derivatives – – – – – – Credit derivatives – – – – – –

Unlisted 85 – – – – 85 Financial derivatives 85 – – – – 85 with underlying asset exchange 32 – – – – 32 purchased options – – – – – – other derivatives 32 – – – – 32 with no underlying asset exchange 53 – – – – 53 purchased options – – – – – – other derivatives 52 – – – – 52 Credit derivatives – – – – – – with underlying asset exchange – – – – – – with no underlying asset exchange – – – – – – Total 85 – – – – 85 Total 31 Dec. 2007 992 140 15 – – 1,147

(34) Equity investments

(€ m) INVESTMENTS OF WHICH ASSOCIATED OTHER VALUED AT EQUITY GOODWILL COMPANIES INVESTMENTS 31 dec. 2008 31 dec. 2007

Opening balance 1,921 126 54 305 2,281 1,890 Increases 193 – 13 102 308 1,109 Purchases 70 – 13 51 133 876 Writebacks – – – – – 12 Revaluation 123 – – – 124 – Other changes – – – 51 51 221 Decreases –129 –14 –16 –166 –312 –718 Sales – – –16 –68 –84 –687 Writedowns –28 – – –17 –45 –8 Other changes –102 –14 – –81 –183 –22 Closing balance 1,985 113 51 241 2,277 2,281

Bank Austria · 2008 Annual Report 159 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the balance sheet (CONTINUED)

(35) Property, plant and equipment

(€ m) 31 Dec. 2008 31 Dec. 2007

Assets for operational use 2,036 1,751 Owned 1,979 1,698 Land 205 185 Buildings 1,296 1,088 Office furniture and fittings 164 152 Electronic systems 178 131 Others 135 142 Leased 56 53 Lands – – Buildings 50 53 Office furniture and fittings – – Electronic systems 6 – Others – – Leasehold improvements and upgrade expenditure capitalised (group properties excluded) – – Held-for-investment assets 310 252 Owned 310 252 Land 255 197 Buildings 55 55 Other – – Leased – – Land – – Buildings – – other – – Total 2,346 2,003

160 2008 Annual Report · Bank Austria Property, plant and equipment used in the business (€ m) Changes in 2008 Office Furniture And Electronic Land Buildings Fittings Systems Other Total

Gross opening balance 185 1,835 490 490 358 3,358 Total net reduction in value – –694 –338 –359 –216 –1,607 Net opening balance 185 1,140 152 132 142 1,751 Increases 31 439 57 170 84 780 Purchases 27 391 52 153 62 685 Capitalised expenditure on improvements – 19 – 2 1 21 Write-backs – 6 – – – 6 Increase in fair value – – – – – – in equity – – – – – – through profit or loss – – – – – – Positive exchange differences 1 8 1 2 1 13 Transfer from properties held for investment – – – – – – Other changes 3 15 4 15 20 55 Reductions –11 –233 –44 –118 – 90 –496 Disposals –1 –32 –1 –3 –13 –50 Depreciation – –66 –37 –75 –33 –211 Impairment losses – –2 – – –4 –6 in equity – – – – – – through profit or loss – –2 – – –4 –6 Reductions of fair value – – – – – – in equity – – – – – – through profit or loss – – – – – – Negative exchange differences –9 –129 –5 –21 –5 –169 Transfers – –2 – –14 – –16 property, plant and equipment held for investment – –1 – – – –1 assets held for sale – –1 – –14 – –16 Other changes –1 –3 –2 –5 –34 –44 Net final balance 205 1,346 165 184 136 2,036

Bank Austria · 2008 Annual Report 161 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the balance sheet (CONTINUED)

Property, plant and equipment held for investment: annual changes (€ m) 2008 Land Buildings Total

Opening balances 197 55 252 Increases 59 4 63 Purchases 59 2 61 Capitalised expenditure on improvements – – – Increases in fair value – – – Writebacks – – – Positive exchange differences – – – Transfer from properties used in the business – 1 1 Other changes – 1 2 Reductions –1 –3 –4 Disposals –1 – –1 Depreciation – –2 –2 Reductions in fair value – – – Impairment losses – – – Negative exchange differences – –1 –1 Transfers – – – property, plant and equipment held for investment – – – assets held for sale – – – Other changes – – – Closing balances 255 55 310 Measured at fair value 255 58 313

(36) Intangible assets

(€ m) 31 Dec. 2008 31 Dec. 2007

Goodwill 3,595 3,837 Attributable to the Group 3,595 3,837 Attributable to minorities – – Other intangible assets 575 563 Intangible assets generated internally 164 153 Other assets 411 410 Assets valued at fair value: – – Intangible assets generated internally – – Other assets – – Intangible assets – leased – – Total 4,170 4,400

162 2008 Annual Report · Bank Austria Intangible assets – annual changes (€ m) 2008 Other intangible assets Generated Goodwill Internally Other Total

Gross opening balance 4,246 295 789 5,330 Net reductions –410 –142 –379 – 932 Net opening balance 3,837 153 410 4,400 Increases 1,585 56 169 1,811 Purchases 1,437 47 88 1,572 Increases in intangible assets generated internally X 7 – 7 Writebacks X – 1 1 Increase in fair value X – – – in equity X – – – through profit or loss X – – – Positive exchange differences 148 – 15 164 Other changes – 3 65 68 Reductions –1,827 –46 –167 –2,040 Disposals –38 –4 –6 –48 Writedowns –1,027 –34 –85 –1,145 Depreciation X –34 –81 –115 write-downs –1,027 – –4 –1,031 in equity X – – – through profit or loss –1,027 – –4 –1,031 Reduction in fair value – – – in equity X – – – through profit or loss X – – – Transfers to non-current assets held for sale –115 – –17 –132 Negative exchange differences –626 –2 –44 –671 Other changes –21 –6 –16 –44 Net closing balance 3,595 164 411 4,170

(37) Tax assets

(€ m) 31 Dec. 2008 31 Dec. 2007

Deferred tax assets related to: Assets/liabilities held for trading 8 13 Other financial instruments 37 42 Property, plant and equipment/Intangible assets 19 31 Provisions 308 387 Other assets/liabilities 33 65 Loans and receivables with banks and customers 64 70 Tax losses carried forward 354 244 Other 13 3 Total 835 856

Bank Austria · 2008 Annual Report 163 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the balance sheet (CONTINUED)

In 2008, deferred taxes were also recognised directly in equity. € 166 m The assets include deferred tax assets arising from the carryforward (2007: € 16 m) was credited to the available-for-sale reserve and of unused tax losses in the amount of € 380 m (2007: € 245 m), of € 43 m (2007: € 18 m) was debited to the cash flow hedge reserve. which € 26.2 m held for sale. Most of the tax losses carried forward can be used without time restriction. In addition, as actuarial gains and losses on pension and severance- payment obligations were not recognised in income in the reporting In respect of tax losses carried forward in the amount of € 367 m year, deferred tax assets of € 14 m (2007: € 53 m) were offset (2007: € 126 m), no deferred tax assets were recognised because, against equity in UniCredit Bank Austria AG. from a current perspective, a tax benefit is unlikely to be realised within a reasonable period. As a result of the first-time consolidation of the subsidiaries and sub-groups referred to in note 2, and of foreign currency translation of deferred taxes and direct offsetting against reserves, part of the change in deferred taxes was not reflected in the expense in 2008.

(38) Non-current assets and disposal groups classified as held for sale

(€ m) 31 Dec. 2008 31 Dec. 2007

Individual assets Equity investments – 59 Property, plant and equipment 1 55 Intangible assets – – Other non-current assets – 421 Total 2 535

Asset groups classified as held for sale Financial assets held for trading 17,796 – Financial assets at fair value through profit or loss 77 – Available-for-sale financial assets 982 557 Held-to-maturity investments 16 407 Loans and receivables with banks 11,401 65 Loans and receivables with customers 2,833 95 Equity investments 1 – Property, plant and equipment 16 3 Intangible assets 132 3 Other assets 811 62 Total 34,066 1,192

ASSETS 34,068 1,727

This item includes the investment bank UniCredit CAIB AG and its Also included is card complete Service Bank AG. With a view to subsidiaries in Poland, Russia and the United Kingdom. In autumn streamlining its interests in the Austrian card business, UniCredit 2008, in connection with the intended concentration of Markets & Bank Austria AG together with the other shareholders set up a selling Investment Banking activities of UniCredit Group, the sale process for process for card complete Service Bank AG. Completion is scheduled the sale of UniCredit CAIB AG to Bayerische Hypo- und Vereinsbank for 2009. AG, Munich, was initiated. Appropriate measures aimed at a reorientation of the subsidiaries have also been taken.

164 2008 Annual Report · Bank Austria (39) Other assets

(€ m) 31 Dec. 2008 31 Dec. 2007

Margin with derivatives clearers (non-interest bearing) 22 7 Gold, silver and precious metals 36 45 Positive value of “servicing contracts” for financial assets sold and derecognised – – Accrued income other than capitalised income 54 43 Cash and other valuables held by cashier 8 11 Interest and charges to be debited to 56 81 Customers 51 61 Banks 5 20 Items in transit between branches not yet allocated to destination accounts – – Items in processing 288 522 Items deemed definitive but not attributable to other items 148 494 Securities and coupons to be settled – 298 Other transactions 148 196 Adjustments for unpaid bills and notes 27 4 Tax items other than those included in item 140 42 32 Other items 689 679 Total 1,369 1,918

(40) Deposits from banks

(€ m) 31 Dec. 2008 31 Dec. 2007

Deposits from central banks 9,777 5,448 Deposits from banks 25,733 46,997 Current accounts for services rendered – – Current accounts and demand deposits 965 6,933 Time deposits 6,002 21,473 Loans 17,525 16,543 Finance leases – – Other 17,525 16,543 Liabilities in respect of commitments to repurchase treasury shares – – Liabilities relating to assets sold but not derecognised – – Reverse repos – – Other – – Other liabilities 1,242 2,049 Total 35,511 52,445 Fair value 35,608 52,324

Bank Austria · 2008 Annual Report 165 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the balance sheet (CONTINUED)

(41) Deposits from customers

(€ m) 31 Dec. 2008 31 Dec. 2007

Current accounts and demand deposits 39,266 34,439 Time deposits 51,515 35,319 Deposits received in administration – – Loans 952 976 Finance leases 2 2 Other 951 975 Liabilities in respect of commitments to repurchase treasury shares – – Liabilities relating to assets sold but not derecognised – – Reverse repos – – Other – – Other liabilities 3,431 22,469 Total 95,164 93,203 Fair value 95,560 94,399

(42) Debt securities in issue

(€ m) 31 Dec. 2008 31 Dec. 2007 Carrying Amount Fair Value Carrying Amount Fair Value

Listed securities 13,178 12,955 12,329 12,180 Bonds 12,769 12,546 11,923 11,891 structured – – – – other 12,769 12,546 11,923 11,891 Other securities 409 409 406 289 structured 5 5 5 5 other 404 404 401 284 Unlisted securities 19,419 19,386 14,167 14,243 Bonds 18,253 18,213 11,663 11,738 structured 159 159 120 120 other 18,094 18,054 11,543 11,618 Other securities 1,166 1,173 2,504 2,504 structured 447 447 462 462 other 719 726 2,042 2,042 Total 32,597 32,341 26,496 26,422

166 2008 Annual Report · Bank Austria (43) Financial liabilities held for trading

(€ m) 31 Dec. 2008 31 Dec. 2007 Listed Unlisted Total Total

Financial liabilities 15 3 19 1,248 Deposits from banks – – – 1,109 Reverse repos – – – – Others – – – 1,109 structured – – – – other – – – 1,109 short position – – – – Deposits from customers 15 – 15 114 Reverse repos – – – – Others 15 – 15 114 structured – – – – other – – – 59 short position 15 – 15 55 Debt securities – 3 3 25 Bonds – 3 3 3 Structured – – – – Other – 3 3 3 Other securities – – – 22 Structured – – – – Other – – – 22 Derivative instruments 8 2,128 2,136 6,194 Financial derivatives 8 2,128 2,136 6,120 Trading 8 2,127 2,135 6,120 Relating to Fair Value option – – – – Other – 1 1 – Credit derivatives – – – 74 Trading – – – 74 Relating to Fair Value option – – – – Other – – – – Total 23 2,132 2,155 7,442

Bank Austria · 2008 Annual Report 167 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the balance sheet (CONTINUED)

(44) Financial liabilities at fair value through profit or loss

(€ m) 31 Dec. 2008 31 Dec. 2007 Listed Unlisted Listed Unlisted

Deposits from banks – 12 – 12 Structured – – – – Other – 12 – 12 Deposits from customers – – – – Structured – – – – Other – – – – Debt securities 174 1,814 183 2,191 Structured – – – – Other 174 1,814 183 2,191 Total 174 1,826 183 2,203

This item shows liabilities in respect of which Bank Austria used the these liabilities are debt securities and complex structures with option to designate financial instruments as at fair value through embedded derivatives. In 2008, changes in fair values resulting from profit or loss in order to avoid inconsistencies in the valuation of changes in our own credit rating were + € 71 m (31 December assets and liabilities which are connected with each other. Most of 2007: + € 30.6 m).

(45) Hedging derivatives

(€ m) 31 Dec. 2008 Currency Equity Interest rates and gold Instruments Loans Other Total

Listed – – – – – –

Unlisted 122 1 – – – 123 Financial derivatives 122 1 – – – 123 with underlying asset exchange – – – – – – issued options – – – – – – other derivatives – – – – – – with no underlying asset exchange 122 1 – – – 123 issued options – – – – – – other derivatives 122 1 – – – 123 Credit derivatives – – – – – – with underlying asset exchange – – – – – – with no underlying asset exchange – – – – – – Total 122 1 – – – 123 Total 31 Dec. 2007 1,097 541 – – – 1,638

168 2008 Annual Report · Bank Austria (46) Deferred tax liabilities

(€ m) 31 Dec. 2008 31 Dec. 2007

Deferred tax liabilities related to: Loans and receivables with banks and customers 16 1 Assets/liabilities held for trading 18 6 Other financial instruments 181 382 Property, plant and equipment/intangible assets 136 85 Other assets/liabilities 23 12 Deposits from banks and customers 1 1 Other 28 24 Total 403 510

Pursuant to IAS 12.39, no deferred tax liabilities were recognised for temporary differences in connection with investments in domestic subsidiaries because from a current perspective, they are not intended to be sold.

(47) Liabilities included in disposal groups classified as held for sale

(€ m) 31 Dec. 2008 31 Dec. 2007

Liabilities associated with assets classified as held for sale Deposits – – Securities – – Other liabilities – 103 Total – 103

Liabilities included in disposal groups classified as held for sale Deposits from banks 17,909 – Deposits from customers 306 1,143 Debt securities in issue – – Financial liabilities held for trading 13,315 – Financial liabilities at fair value through profit or loss 37 – Provisions 16 – Other liabilities 1,555 1 Total 33,137 1,144

LIABILITIES 33,137 1,247

Bank Austria · 2008 Annual Report 169 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Notes to the balance sheet (CONTINUED)

(48) Other liabilities

(€ m) 31 Dec. 2008 31 Dec. 2007

Liabilities in respect of financial guarantees issued – 1 Impairment: of financial guarantees issued, of credit derivatives, of irrevocable commitments to distribute funds 165 164 Accrued expenses other than those to be capitalized for the financial liabilities concerned 86 74 Share-based payment classified as liabilities under IFRS 2 – – Other liabilities due to employees 412 430 Other liabilities due to other staff 8 11 Other liabilities due to directors and statutory auditors 1 – Interest and amounts to be credited 89 107 Items in transit between branches and not yet allocated to destination accounts 4 5 Available amounts to be paid to others 5 12 Items in processing 547 1,331 Entries related to securities transactions 1 36 Items deemed definitive but not attributable to other lines 302 311 Liabilities for miscellaneous entries related to tax collection service 8 10 Adjustments for unpaid portfolio entries – 1 Tax items different from those included in tax liabilities 55 55 Other entries 833 1,027 Total Other Liabilities 2,515 3,574

(49) Provisions for risks and charges

(€ m) 31 Dec. 2008 31 Dec. 2007

Pensions and other post-retirement benefit obligations 3,537 4,088 Other provisions for risks and charges 477 523 Legal disputes 136 145 Staff expenses 10 36 Other 331 341 Total 4,015 4,611

170 2008 Annual Report · Bank Austria Provisions for risks and charges: annual changes (€ m) 2008 Pensions and post retirement benefit obligations Other provisions Total

Opening balance 4,088 523 4,611 Increases 326 107 433 Provisions for the year 234 83 317 Changes due to the passage of time – – – Differences due to discount-rate changes – – – Other increases 92 24 116 Decreases –877 –153 –1,029 Use during the year –280 –140 –420 Differences due to discount-rate changes – – – Other decreases*) –597 –12 –609 Closing balance 3,537 477 4,015 *) incl. € 522 m changes in pension provisions at Koç Finansal Hizmetler A.S.

Insurance provisions: breakdown (€ m) 31 dec. 2008 31 dec. 2007 Direct Indirect Direct Indirect business business Total business business Total

Non-life business 57 – 57 66 – 66 Provision for unearned premiums 43 – 43 50 – 50 Provision for outstanding claims 14 – 14 16 – 16 Other provisions – – – – – – Life business 100 – 100 112 – 112 Mathematical provisions 97 – 97 110 – 110 Provisions for amounts payable 1 – 1 1 – 1 Other insurance provisions 1 – 1 1 – 1 Insurance provisions when investment risk is borne by the insured party – – – – – – Provision for policies where the performance is connected to investment funds and market indices – – – – – – Provision for pension funds – – – – – – Total insurance provisions 156 – 156 178 – 178

(50) Equity From 1 January 2008 to 31 December 2008, the number of shares Council of employees of UniCredit Bank Austria AG in the Vienna was 202,031,740, of which 10,100 were registered shares. The reg- area) carry special rights: for resolutions concerning spin-offs and istered shares (10,000 registered shares are held by “Privatstiftung specific mergers or specific changes in the bank’s Articles of Associ- zur Verwaltung von Anteilsrechten”, a private foundation under Aus- ation to be adopted at a general meeting of shareholders, the regis- trian law; 100 registered shares are held by “Betriebsratsfonds des tered shareholders have to be present when the resolutions are Betriebsrats der Angestellten der UniCredit Bank Austria AG adopted. The relevant resolutions are specified in Article 20 (13) and Großraum Wien”, the Employees’ Council Fund of the Employees’ (14) of UniCredit Bank Austria AG’s Articles of Association.

Bank Austria · 2008 Annual Report 171 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Additional IFRS disclosures

(51) Time breakdown by contractual residual maturity of financial assets and liabilities

(€ m) 31 Dec. 2008 1 to 7 7 to 15 15 days to 1 to 3 3 to 6 6 months 1 to 5 Over 5 On demand days days 1 month months months to 1 year years years

Balance sheet assets 22,132 3,922 2,108 7,047 8,885 6,699 13,814 41,314 57,150 Government securities 2 47 2 159 354 542 545 1,930 2,529 Debt securities 4 54 112 647 626 174 404 1,977 2,874 Other equity securities 234 – – – – 4 – 26 5 Units in investment funds 106 – – – – – – – 98 Loans 21,786 3,820 1,993 6,241 7,904 5,979 12,865 37,380 51,643 Banks 3,694 2,454 1,143 2,539 1,893 730 1,451 4,373 1,138 Customers 18,091 1,366 850 3,703 6,011 5,249 11,414 33,008 50,506

Balance sheet liabilities 37,776 6,795 2,950 14,875 13,073 14,589 12,504 27,385 24,911 Deposits 37,573 5,006 2,401 6,863 8,440 8,519 9,163 7,032 2,713 Banks 801 709 325 656 1,615 332 424 1,162 2,035 Customers 36,772 4,297 2,076 6,207 6,825 8,187 8,739 5,869 677 Debt securities in issue 14 168 165 93 1,029 1,202 2,357 13,196 15,957 Other liabilities 189 1,621 384 7,919 3,604 4,868 984 7,158 6,242

Off balance sheet transactions Financial derivatives with exchange of principal long positions 99 942 2,029 1,486 2,039 1,307 869 1,032 27 short positions 99 955 2,032 1,487 2,040 1,296 871 1,025 27 Deposits and loans receivable/to be made long positions 295 – – – – – – – – short positions – – – – – – – – – Irrevocable commitments to disburse funds long positions 1,051 42 32 302 454 1,521 1,336 2,851 726 short positions 2,031 42 35 191 454 574 1,338 2,175 719

(52) Geographical distribution

Geographical distribution of total assets and operating income (€ m) 31 Dec. 2008 Total assets Operating income

Austria 131,304 1,825 Total European countries 83,296 4,945 Western Europe 669 –8 Central and Eastern Europe 82,627 4,953 America 608 –152 Asia 6,944 417 Rest of the world – – Total 222,152 7,035

The geographic breakdown is based on the location of the subsidiary in which the transaction is recorded.

172 2008 Annual Report · Bank Austria (53) Related party disclosures

Related party disclosures as at 31 December 2008 (€ m) Parent company and unconsolidated Key Management Other related subsidiaries Associates Personnel parties

Loans and advances 12,673 680 5 79 Equity instruments 13 7 0 1 Other receivables 165 0 0 0 Total assets 12,851 687 5 81

Deposits 4,371 13,509 11 424 Other financial liabilities 9,405 0 0 0 Other liabilities 79 0 0 0 Total liabilities 13,855 13,509 11 424 a) Information on members of the Management Board, The emoluments of the Supervisory Board members active in the the Supervisory Board and the Employees’ Council of 2008 business year totalled € 342 thsd (2007: € 324 thsd) for UniCredit Bank Austria AG UniCredit Bank Austria AG, and € 3 thsd (2007: € 7 thsd) for the two Emoluments of members of the Management Board and the credit associations. Supervisory Board The emoluments paid by UniCredit Bank Austria AG to Management Loans to members of the Management Board and of the Board members in the 2008 financial year (excluding payments into Supervisory Board pension funds) totalled € 3.98 m (comparable emoluments in 2007 Loans to members of the Management Board amounted to € 408 thsd totalled € 7.62 m). Of this total, € 2.73 m (2007: € 1.88 m) related (2007: € 266 thsd), overdrafts granted to them were € 29 thsd to fixed salary components, and € 1.25 m (2007: € 5.74 m) related (2007: € 64 thsd). to variable salary components. Several members of the Management Board receive their emoluments from companies which are not in- Loans to members of the Supervisory Board amounted to € 2.81 m cluded in the group of consolidated companies of Bank Austria; (2007: € 0.72 m). Credit lines and overdrafts granted to Supervisory these emoluments granted to Management Board members in such Board members totalled € 0.31 m (2007: € 0.52 m). Repayments companies in the 2008 financial year amounted to € 5.79 m (2007: during the business year totalled € 127 thsd (2007: € 32 thsd). € 5.06 m). These Management Board members also received emoluments for activities which are not connected with the Bank Austria Loans to the Supervisory Board include those made to members of Group but are in the interest of UniCredit Group. the Employees’ Council who are members of the Supervisory Board. The maturities of the loans range from five to fifteen years. The rate Payments to former members of the Management Board and their of interest payable on these loans is the rate charged to employees surviving dependants (excluding payments into pension funds) to- of UniCredit Bank Austria AG. talled € 21.68 m (2007: € 9.64 m), mostly as one-off payments. Of this total, € 4.71 m (2007: € 4.76 m) was paid to former Man- Names of members of the Management Board and the agement Board members of Creditanstalt AG, which merged with Supervisory Board Bank Austria in 2002, and their surviving dependants; € 1.98 m Note 65 contains a list of the members of the Management Board (2007: € 1.92 m) was paid to former Management Board members and the Supervisory Board. of Österreichische Länderbank AG, which merged with Zentral- sparkasse in 1991, and their surviving dependants. Emoluments paid to this group of persons for activities in subsidiaries amounted to € 0.53 m (2007: € 0.53 m).

Bank Austria · 2008 Annual Report 173 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Additional IFRS disclosures (CONTINUED) b) Relationships with unconsolidated subsidiaries and c) Other information on related party relationships other companies in which an equity interest is held Under Section 92 (9) of the Austrian Banking Act, “Privatstiftung zur All related-party banking transactions were effected on market terms. Verwaltung von Anteilsrechten” (“AV-Z Stiftung”) serves as deficiency guarantor for all liabilities of UniCredit Bank Austria AG in the Transactions with companies which are related parties are explained event of the company’s insolvency. The board of trustees of the in note 2. Private Foundation has 14 members. These included four members of the Supervisory Board of UniCredit Bank Austria AG. There is a syndicate agreement – the “Restated Bank of the Regions Agreement” – between UniCredit, “Privatstiftung zur Verwaltung von After the change in the legal form of Anteilsverwaltung-Zentral- Anteilsrechten” (“AV-Z Stiftung”) and “Betriebsratsfonds des Betriebs sparkasse into a private foundation (“AV-Z Stiftung”) in 2001, the rats der Angestellten der UniCredit Bank Austria AG Großraum Wien”. Municipality of Vienna serves as deficiency guarantor for all outstanding liabilities, and obligations to pay future benefits, of UniCredit Bank In the Restated Bank of the Regions Agreement, the contracting par- Austria AG (then Bank Austria Aktiengesellschaft) which were entered ties “AV-Z Stiftung” and “Betriebsratsfonds des Betriebsrats der An into prior to and including 31 December 2001. gestellten der UniCredit Bank Austria AG Großraum Wien” have given an undertaking to UniCredit to the effect that if they want to sell The board of trustees of Immobilien Privatstiftung has three UniCredit Bank Austria shares, they will first offer such shares held members. One of them is a member of the Management Board of by them to UniCredit. If UniCredit does not accept the offer, the rele- UniCredit Bank Austria AG. vant contracting party could sell the UniCredit Bank Austria shares to a third party. In this case UniCredit has a right of preemption. (54) Share-based payments For the duration of this agreement (10 years), “AV-Z Stiftung” has a DESCRIPTION OF SHARE-BASED PAYMENTS right to nominate two members of the Supervisory Board of UniCredit Bank Austria AG, and thereafter one member of the Supervisory OUTSTANDING INSTRUMENTS Board for the duration of the guarantee issued by the Municipality of Group Medium & Long Term Incentive Plans for selected employees Vienna and “AV-Z Stiftung”. refers to Equity-Settled Share Based Payments based on the shares of the parent company UniCredit S.p.A. As at 31 December 2008, UniCredit held a direct interest of 99.995% in UniCredit Bank Austria AG. This category includes the following:  Stock Options allocated to a selected group of Top & Senior As at 31 December 2008, one Management Board member of HVB Managers and Key Talents; was a member of the Supervisory Board of UniCredit Bank Austria AG  Performance Shares allocated to a selected group of Top & (the same member was a member of UniCredit’s Management Com- Senior Managers and Key Talents and represented by free UniCredit mittee). ordinary shares that the parent company undertakes to grant, condi- tional upon achieving performance targets set at Group and Division As at 31 December 2008, there were the following interlocking level in the Strategic Plan and any amendments thereto approved by relationships with UniCredit S.p.A.: the parent company’s Board of Directors;  The Chairman of the Supervisory Board of UniCredit Bank Austria  Restricted Shares allocated to a selected group of Middle AG was a member of the Board of Directors and a member of the Managers. Management Committee of UniCredit.  A further six members of the Supervisory Board of UniCredit Bank Austria AG were members of the Management Committee of UniCredit (one of them was also a member of the Management Board of HVB).  Two members of the Management Board of UniCredit Bank Aus- tria AG were members of the Management Committee of UniCredit.

174 2008 Annual Report · Bank Austria MEASUREMENT MODEL  exercise price: arithmetic mean of the official market price of Stock Options UniCredit ordinary shares during the month preceding the resolution The Hull and White Evaluation Model has been adopted to measure adopted by UniCredit’s Board of Directors; the economic value of stock options.  UniCredit share market price: set equal to the exercise price, in consideration of the “at the money” allocation of Stock Options at the This model is based on a trinomial tree price distribution using the date of the grant. Boyle’s algorithm and estimates the early exercise probability on the basis of a deterministic model connected to: Other equity instruments (Performance Shares)  reaching a market share value equal to an exercise price- The economic value of Performance Shares is measured considering multiple (M); the share market price at the grant date less the present value of the  the probability of beneficiaries’ early exit (E) after the end of the future dividends during the performance period. Parameters are esti- vesting period. mated by applying the same model used for Stock Options measurement. The following table shows the measurements and parameters used in relation to the Stock Options granted in 2008. The following table shows the measurements and parameters used in relation to the Performance Shares granted in 2008. Measurement of Stock Options in 2008 Stock Options 2008 Measurement of Stock Options in 2008 Performance Exercise price (€) 4.185 Shares 2008 UniCredit share market price (€) 4.185 Date of UniCredit Board’s granting resolution Date of UniCredit Board’s granting resolution (grant date) 25 June 2008 (grant date) 25 June 2008 Vesting period start-date 1 January 2011 Vesting period start-date 9 July 2008 Vesting period end-date 31 December 2011 Vesting period end-date 9 July 2012 UniCredit share market price (€) 4.185 Expiry date 9 July 2018 Economic value of vesting conditions (€) –0.705 Exercise price-multiple (M) 1.5 Performance Shares’ fair falue per unit at grant date (€) 3.480 Exit rate post vesting (E) 3.73% Dividend yield* 4.8459% Volatility 20.564% Other equity instruments (Restricted Shares) Risk-free rate 4.649% The economic value of Restricted Shares is measured considering Stock Options’ fair value per unit at grant date (€) 0.6552 the share market price at grant date. The parent company has not *) Ratio between the average of the dividends paid by UniCredit S.p.A. from 2005 to 2008 and the stock’s market value at grant date. granted any new Restricted Shares Plans during 2008.

Payroll costs in 2008 included share-based payments of € 4.7 m. Parameters are calculated as follows: The (cumulative) accrual totalled € 7.9 m.  Exit rate: annual percentage of Stock Options forfeited due to termination;  dividend yield: average dividend yield of the last four years, according to the duration of the vesting period;  volatility: historical daily average volatility for a period equal to the duration of the vesting period;

Bank Austria · 2008 Annual Report 175 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Additional IFRS disclosures (CONTINUED)

(55) Reconciliation of reclassified accounts to mandatory reporting schedule

(€ m) (Notes) 2008 2007 Net interest 4,657 3,653 Dividends and other income from equity investments 710 284 Dividend income and similar revenue 592 128 minus: dividend income and similar revenue from financial assets held for trading (7) –5 –4 Profit (loss) of associates – of which: income from revaluation (21) 123 160 Net interest margin 5,367 3,936 Net fees and commissions 2,076 2,124 Net trading, hedging and fair value income –414 141 Gains (losses) on financial assets and liabilities held for trading –375 119 plus: dividend income and similar revenue from financial assets held for trading (7) 5 4 Fair value adjustments in hedge accounting – – Gains (losses) on disposal and repurchase of available-for-sale financial assets – private equity 4 1 Gains (losses) on disposal or repurchase of financial liabilities 1 2 Gains (losses) on financial assets and liabilities designated at fair value through profit and loss –48 15 Net other expenses/income 201 214 Gains (losses) on disposals/repurchases of loans and receivables – not impaired 1 – Premiums earned (net) 112 115 Other income (net) from insurance activities –86 –82 Other net operating income 178 184 minus: other operating income – of which: recovery of expenses (20) –3 –4 Gains (losses) on disposals of investments – assets leasing operation – – Net non-interest income 1,864 2,478 OPERATING INCOME 7,231 6,414 Payroll costs –2,235 –1,836 Administrative costs – staff expenses –2,235 –1,840 minus: integration costs – 3 Other administrative expenses –1,371 –1,243 Administrative costs – other administrative expenses –1,386 –1,273 minus: integration costs 15 30 Recovery of expenses 3 4 Amortisation, depreciation and impairment losses on intangible and tangible assets –331 –275 Impairment/Write-backs on property, plant and equipment –213 –197 minus: impairment losses/write backs on property owned for investment 1 1 minus: integration costs – – Impairment/Write-backs on intangible assets –119 –80 minus: integration costs – – Operating costs –3,935 –3,351 OPERATING PROFIT 3,296 3,063

176 2008 Annual Report · Bank Austria (Notes) 2008 2007

Impairment of goodwill –1,027 – Provisions for risks and charges –87 –75 Provisions for risks and charges –78 –74 Surplus on release of integration provision –9 –1 Integration costs –6 –33 Net impairment losses on loans and provisions for guarantees and commitments –1,012 –483 Gains (losses) on disposal and repurchase of loans 1 1 minus: gains (losses) on disposals/repurchases of loans and receivables – not impaired position –1 – Impairment losses on loans –1,019 –507 Impairment losses on other financial assets 8 23 Net income from investments 340 268 Gains (losses) on disposal and repurchase of available-for-sale financial assets 132 252 minus: gains (losses) on disposal and repurchase of available-for-sale financial assets – private equity –4 –1 Gains (losses) on disposal and repurchase of held-to-maturity investments –1 – Impairment losses on: available-for-sale financial assets –25 –3 Impairment losses on: held-to-maturity investments –59 –14 Impairment losses/write-backs on property owned for investment –1 –1 Profit (loss) of associates 412 181 minus: income from revaluation (21) –123 –160 Gains (losses) on disposal of investments 9 14 minus: gains (losses) on disposals of investments – assets leasing operation – – PROFIT BEFORE TAX 1,505 2,740 Income tax for the period –222 –380 NET PROFIT 1,283 2,360 Minorities –139 –106 NET PROFIT ATTRIBUTABLE TO THE GROUP 1,144 2,254

Bank Austria · 2008 Annual Report 177 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Additional IFRS disclosures (CONTINUED)

(56) Segment reporting interests in Aton International Limited and Aton Broker were included in the group of consolidated companies and allocated to the MIB As in previous periods, the primary segment reporting format is Division as from August 2007. based on the internal reporting structure of business segments, which reflects management responsibilities in the Bank Austria Group Corporate Center in 2008. The business segments are presented as independent units “Corporate Center” covers all equity interests that are not assigned to with their own capital resources and are responsible for their own other segments. Also included are inter-segment eliminations and results. This also meets the requirements of IFRS 8. other items which cannot be assigned to other business segments.

The definition of business segments is primarily based on organisa- Methods tional responsibility for customers. Net interest income is split up according to the market interest rate method. Costs are allocated to the individual business segments from Retail which they arise. Responsibility for the Retail Division covers Bank Austria’s business with private customers and small businesses and the credit card The result of each business segment is measured by the profit business. before tax and the net profit after tax earned by the respective segment. In addition to the cost/income ratio, the return on equity Private Banking & Asset Management is one of the key ratios used for controlling the business segments. The Private Banking & Asset Management Division comprises the The segment reporting data also show the net profit after tax. subsidiaries Bank Privat, Schoellerbank AG, Asset Management Gesellschaft AMG and Pioneer Investments Austria. The interest rate applied to investment of equity allocated to the business segments corresponds to the 3-month EURIBOR plus a Corporates margin of the average 5-year UniCredit credit spread. The rate The Corporates Division covers the sub-segment Large Corporates applied to the business segments for investment of equity is deter- (multinational corporates, financial institutions, public sector) and mined for one year as part of the budgeting process. A uniform rate Real Estate, business with medium-sized companies and customers of 3.8% is applied to loans on which interest is not accrued and to using specific products (e.g derivatives) as well as the activities of writedowns. BA-CA Wohnbaubank AG and BA-CA Real Invest Group. The leasing business of the Bank Austria Creditanstalt Leasing Group was trans- Overhead costs are allocated proportionately to direct and indirect ferred to UniCredit Global Leasing with effect from July 2007. In ex- costs of the business segments. change, Bank Austria received a 32.59% shareholding interest in that company, which is accounted for under the equity method. Capital allocated to the business segments in Bank Austria is based on the Core Tier 1 capital ratio on the basis of planned risk-weighted CEE assets. The bank uses differentiated percentage rates according to The CEE business segment includes the commercial banking units of the individual business segments: the Bank Austria Group in the region of Central and Eastern Europe. Retail 6.00% From 2007, the CEE business segment also includes the units in Private Banking & Asset Management 5.90% Central and Eastern Europe and in Turkey which were transferred Corporates 6.45% from UniCredit and HVB to the Bank Austria Group. Corporate finance CEE 6.45% business for CEE customers was transferred to the Markets & Invest- Markets & Investment Banking 6.45% ment Banking Division. JSC ATF Bank has been included in this seg- Corporate Center 6.80% ment since December 2007 and Ukrsotsbank has been included since January 2008. Capital allocation to subsidiaries reflects actual IFRS capital. In the CEE Division and in the MIB Division, the IFRS capital of subsidiaries Markets & Investment Banking exceeds the capital calculated on the basis of risk-weighted assets. The Markets & Investment Banking Division essentially comprises the This effect is reflected in the Corporate Center, leading to a negative treasury activities of the Bank Austria Group; the trading activities amount being shown as average equity for the Corporate Center. were hived down by Bank Austria to UniCredit CAIB AG. The equity

178 2008 Annual Report · Bank Austria Segment reporting 1–12 2008/1–12 2007 (€ m) PRIVATE banking CENTRAL MARKETS & & ASSET EASTERN INVESTMENT Bank RETAIL MANAGEMENT CORPORATES EUROPE BANKING CORPORATE austria DIVISION DIVISION DIVISION DIVISION DIVISION CENTER GROUP

Net interest income 1–12 2008 774 22 655 3,068 731 117 5,367 1–12 2007 748 19 630 2,151 330 58 3,936 Net fees and commissions 1–12 2008 476 98 277 1,163 77 –15 2,076 1–12 2007 548 143 342 929 172 –11 2,124 Net trading, hedging and 1–12 2008 12 1 – 384 –662 –147 –414 fair value loss/income 1–12 2007 – 1 – 177 –42 6 141 Net other expenses/income 1–12 2008 –28 35 –2 121 –4 78 201 1–12 2007 –31 39 33 110 11 52 214 Net non-interest income 1–12 2008 461 133 275 1,668 –589 –84 1,864 1–12 2007 517 183 375 1,216 140 46 2,478 OPERATING INCOME 1–12 2008 1,235 155 930 4,736 142 33 7,231 1–12 2007 1,266 202 1,005 3,367 470 104 6,414 OPERATING EXPENSES 1–12 2008 –851 –102 –271 –2,234 –206 –271 –3,935 1–12 2007 – 935 –104 –353 –1,729 –233 3 –3,351 OPERATING PROFIT 1–12 2008 383 54 658 2,502 –64 –238 3,296 1–12 2007 330 98 652 1,638 238 107 3,063 Goodwill impairment 1–12 2008 – – – – – –1,027 –1,027 1–12 2007 – – – – – – – Provisions for risks and charges 1–12 2008 –9 –1 –8 –65 1 –4 –87 1–12 2007 –1 –1 –5 –79 – 11 –75 Restructuring costs 1–12 2008 – – – –3 – –2 –6 1–12 2007 – –1 – –27 –2 –3 –33 Net writedowns of loans and provisions 1–12 2008 –208 – –100 –537 –165 – –1,012 for guarantees and commitments 1–12 2007 –208 1 –66 –211 1 – –483 Net income from investments 1–12 2008 6 9 –57 123 –24 284 340 1–12 2007 14 3 –12 20 1 243 268 PROFIT BEFORE TAX 1–12 2008 172 62 492 2,019 –253 – 987 1,505 1–12 2007 135 99 570 1,342 237 357 2,740 Income tax 1–12 2008 –41 –13 – 97 –417 43 303 –222 1–12 2007 –26 –25 –120 –250 –51 91 –380 NET PROFIT 1–12 2008 131 49 396 1,601 –209 –684 1,283 1–12 2007 109 75 450 1,092 186 448 2,360 RWA credit and market risk (avg.) 1–12 2008 15,751 423 33,158 67,682 7,711 4,551 129,276 1–12 2007 16,171 452 31,009 46,593 5,352 4,927 104,504 Equity 1) 1–12 2008 992 182 2,477 9,483 5,112 –2,835 15,412 1–12 2007 1,019 203 2,260 7,099 1,960 1,391 13,933 ROE before tax in % 1–12 2008 17.4 33.9 19.9 21.3 –4.9 n.m.2) 9.8 1–12 2007 13.3 48.9 25.2 18.9 12.1 n.m. 19.7 ROE after tax in % 1–12 2008 13.2 26.7 16.0 16.9 –4.1 n.m. 8.3 1–12 2007 10.7 36.8 19.9 15.4 9.5 n.m. 16.9 Cost/income ratio in % 1–12 2008 69.0 65.4 29.2 47.2 145.1 n.m. 54.4 1–12 2007 73.9 51.5 35.1 51.4 49.5 n.m. 52.2 Risk/earnings ratio in % 1–12 2008 26.9 n.m. 15.3 17.5 n.m. n.m. 18.8 1–12 2007 27.8 n.m. 10.4 9.8 n.m. n.m. 12.3 1) Total of IFRS capital for the subsidiaries allocated to the respective Division and standardised capital for the rest of the respective Division / 2) Not meaningful

Bank Austria · 2008 Annual Report 179 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Additional IFRS disclosures (CONTINUED)

Segment reporting Q1–Q4 2008 (€ m) PRIVATE BANKING CENTRAL MARKETS & & ASSET EASTERN INVESTMENT bank RETAIL MANAGEMENT CORPORATEs EUROPE BANKING CORPORATE austria DIVISION DIVISION DIVISION DIVISION DIVISION CENTER GROUP

Net interest income Q4/2008 233 7 175 819 254 265 1,752 Q3/2008 184 6 163 814 176 –37 1,306 Q2/2008 184 5 166 731 173 –76 1,183 Q1/2008 173 5 151 704 127 –34 1,125 Net fees and commissions Q4/2008 116 22 58 306 21 –5 518 Q3/2008 113 24 64 315 11 –4 522 Q2/2008 119 26 74 282 23 –4 518 Q1/2008 129 27 81 261 23 –2 519 Net trading, hedging and Q4/2008 15 – – 177 –283 –45 –136 fair value loss/income Q3/2008 –1 – – 98 – 98 –79 –80 Q2/2008 –2 – – 78 –86 –46 –55 Q1/2008 – – – 31 –196 22 –143 Net other expenses/income Q4/2008 –5 9 – 22 –2 16 40 Q3/2008 –8 8 – 40 – 25 65 Q2/2008 –8 9 –1 34 –2 21 54 Q1/2008 –7 8 – 24 – 16 42 Net non-interest income Q4/2008 125 31 58 505 –264 –34 421 Q3/2008 104 32 63 452 –87 –58 507 Q2/2008 109 35 73 394 –65 –29 517 Q1/2008 123 36 80 316 –172 36 418 OPERATING INCOME Q4/2008 358 38 233 1,324 –10 231 2,173 Q3/2008 288 38 227 1,267 89 – 95 1,814 Q2/2008 293 40 239 1,125 108 –105 1,700 Q1/2008 296 40 231 1,020 –45 2 1,543 OPERATING EXPENSES Q4/2008 –206 –29 –77 –613 –57 –58 –1,041 Q3/2008 –214 –23 –64 –564 –48 – 91 –1,003 Q2/2008 –217 –24 –67 –544 –50 –49 – 951 Q1/2008 –215 –26 –63 –513 –50 –73 – 941 OPERATING PROFIT Q4/2008 153 8 155 711 –67 173 1,133 Q3/2008 74 15 163 703 42 –186 811 Q2/2008 76 15 172 582 57 –153 750 Q1/2008 81 15 168 506 – 96 –72 603 Goodwill impairment Q4/2008 – – – – – –1,027 –1,027 Q3/2008 – – – – – – – Q2/2008 – – – – – – – Q1/2008 – – – – – – – Provisions for risks and charges Q4/2008 –10 –1 –8 –21 1 –9 –49 Q3/2008 –3 – –2 –22 – – –27 Q2/2008 4 – 1 –15 – 5 –5 Q1/2008 – – 1 –7 – – –7 Restructuring costs Q4/2008 – – – –4 – –1 –5 Q3/2008 – – – –2 – –1 –2 Q2/2008 – – – 7 – – 6 Q1/2008 – – – –4 – –1 –5

180 2008 Annual Report · Bank Austria PRIVATE banking CENTRAL MARKETS & & ASSET EASTERN INVESTMENT bank RETAIL MANAGEMENT CORPORATEs EUROPE BANKING CORPORATE austria DIVISION DIVISION DIVISION DIVISION DIVISION CENTER GROUP Net writedowns of loans and provisions Q4/2008 –49 – –119 –215 –146 – –528 for guarantees and commitments Q3/2008 –53 – 42 –124 –20 – –155 Q2/2008 –51 – –9 – 96 – – –156 Q1/2008 –56 – –15 –103 – – –173 Net income from investments Q4/2008 5 1 13 14 –25 –79 –71 Q3/2008 – 2 –61 52 – 128 121 Q2/2008 – 4 –9 29 1 164 190 Q1/2008 1 2 – 28 – 70 101 PROFIT BEFORE TAX Q4/2008 100 8 42 485 –238 – 944 –547 Q3/2008 17 17 141 608 22 –58 748 Q2/2008 29 20 155 506 58 16 785 Q1/2008 26 17 154 420 – 96 –2 520 Income tax Q4/2008 –25 – –2 –112 38 190 90 Q3/2008 –4 –4 –29 –121 –6 39 –125 Q2/2008 –6 –5 –34 – 90 –14 48 –101 Q1/2008 –6 –4 –33 – 94 26 26 –86 NET PROFIT Q4/2008 75 8 40 373 –200 –753 –457 Q3/2008 14 13 112 486 16 –19 622 Q2/2008 23 15 122 416 44 64 684 Q1/2008 20 13 122 326 –70 24 434 RWA credit and market risk (avg.) Q4/2008 15,923 349 31,929 69,571 10,659 3,550 131,981 Q3/2008 15,397 395 34,199 73,648 5,944 5,155 134,737 Q2/2008 15,966 465 34,370 67,731 7,850 5,494 131,876 Q1/2008 15,719 481 32,135 59,776 6,392 4,004 118,507 Equity 1) Q4/2008 1,037 162 2,506 9,743 5,726 –3,932 15,242 Q3/2008 968 189 2,526 10,580 6,043 –4,207 16,100 Q2/2008 989 178 2,540 9,510 4,267 –2,081 15,403 Q1/2008 975 199 2,335 8,100 4,415 –1,120 14,903 ROE before tax in % Q4/2008 38.5 19.2 6.6 19.9 –16.6 n.m.2) –14.4 Q3/2008 7.2 36.9 22.3 23.0 1.5 n.m. 18.6 Q2/2008 11.8 44.5 24.5 21.3 5.5 n.m. 20.4 Q1/2008 10.6 33.7 26.5 20.8 –8.7 n.m. 13.9 ROE after tax in % Q4/2008 28.9 20.0 6.4 15.3 –14.0 n.m. –12.0 Q3/2008 5.6 28.2 17.8 18.4 1.1 n.m. 15.5 Q2/2008 9.4 32.6 19.1 17.5 4.2 n.m. 17.8 Q1/2008 8.0 25.4 20.9 16.1 –6.3 n.m. 11.6 Cost/income ratio in % Q4/2008 57.4 78.0 33.2 46.3 –549.1 n.m. 47.9 Q3/2008 74.4 59.6 28.2 44.5 53.4 n.m. 55.3 Q2/2008 74.0 61.0 28.1 48.3 46.8 n.m. 55.9 Q1/2008 72.7 63.6 27.1 50.3 –111.5 n.m. 60.9 Risk/earnings ratio in % Q4/2008 20.8 n.m. 68.1 26.2 n.m. n.m. 30.1 Q3/2008 28.9 n.m. 25.7 15.2 n.m. n.m. 11.8 Q2/2008 27.6 n.m. 5.2 13.2 n.m. n.m. 13.2 Q1/2008 32.2 n.m. 9.7 14.6 n.m. n.m. 15.4 1) Total of IFRS capital for the subsidiaries allocated to the respective Division and standardised capital for the rest of the respective Division / 2) Not meaningful

Bank Austria · 2008 Annual Report 181 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Additional IFRS disclosures (CONTINUED)

(57) Assets pledged as security As at 31 December 2008, assets pledged by UniCredit Bank Austria AG and UniCredit CAIB AG totalled € 33,126 m (2007: € 17,835 m).

(58) Subordinated assets

(€ m) 31 Dec. 2008 31 Dec. 2007

Financial assets held for trading – 646 Available-for-sale financial assets 272 432 Held-to-maturity investments 100 119 Loans and receivables with banks 836 822 Loans and receivables with customers 490 381

Deposits from banks 168 130 Deposits from customers 90 71 Debt securities in issue 5,572 5,484

(59) Assets and liabilities in foreign currency

(€ m) 31 Dec. 2008 31 Dec. 2007 Assets Liabilities Assets Liabilities

USD 30,938 22,362 20,182 24,566 JPY 1,652 2,638 953 1,545 CHF 16,444 9,393 14,375 2,839 Other 55,119 49,833 56,485 49,367 TOTAL 104,153 84,226 91,995 78,316

182 2008 Annual Report · Bank Austria (60) Trust assets and trust liabilities

Trust assets and liabilities (€ m) 31 Dec. 2008 31 Dec. 2007

Loans and receivables with banks 14 17 Loans and receivables with customers 704 692 Equity securities and other variable-yield securities 7,342 9,783 Debt securities 6,931 11,118 Other assets 130 202 Trust assets 15,121 21,811

Deposits from banks 283 338 Deposits from customers 13,733 21,229 Debt securities in issue – – Other liabilities 1,105 243 Trust liabilities 15,121 21,811

(61) Repurchase agreements Under repurchase agreements, financial assets were sold to third (2007: € 6,820 m). In those cases where Bank Austria is the transferor, parties with a commitment to repurchase the financial instruments at the relevant assets continue to be recognised in its balance sheet at a price specified when the assets were sold. At the balance sheet their fair values. In those cases where Bank Austria is the transferee, date, the total amount of repurchase agreements was € 1,492 m the bank does not recognise the assets in its balance sheet.

(62) Guarantees given and commitments

(€ m) 31 Dec. 2008 31 Dec. 2007

Financial guarantees given to: 9,449 8,228 Banks 546 1,697 Customers 8,903 6,531 Commercial guarantees given to: 12,996 12,768 Banks 2,632 2,825 Customers 10,364 9,943 Other irrevocable commitments to disburse funds 14,880 14,224 Banks: 465 143 Usage certain 7 18 Usage uncertain 458 125 Customers: 14,415 14,081 Usage certain 8,889 10,613 Usage uncertain 5,526 3,468 Underlying obligations for credit derivatives: sales of protection 954 969 Other commitments 5,426 5,731 Total 43,705 41,919 The amount of contingent claims in Bank Austria is equal to the amount of contingent liabilities.

Bank Austria · 2008 Annual Report 183 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Additional IFRS disclosures (CONTINUED)

(63) List of selected subsidiaries and other equity interests The list of unconsolidated subsidiaries required under the Austrian 31 December 2008. The notes have been lodged with the Austrian Commercial Code/Austrian Banking Act is included in the notes Register of Firms, a public register at the Commercial Court of Vienna to the financial statements of UniCredit Bank Austria AG as at (Handelsgericht Wien).

(63a) Consolidated companies

domicile interest in % DIREcT INDIREcT COMPANY city country ownership ownership total

AI Beteiligungs GmbH Vienna Austria 0.00 100.00 100.00 Artist Marketing Entertainment GmbH Vienna Austria 0.00 100.00 100.00 Asset Management GmbH Vienna Austria 100.00 0.00 100.00 ATF Bank Kyrgyzstan OJSC Bishkek Kyrgyzstan 0.00 95.46 95.46 ATF Capital B.V. Rotterdam Netherlands 0.00 99.60 99.60 AWT International Trade AG Vienna Austria 100.00 0.00 100.00 BA-CA Administration Services GmbH Vienna Austria 100.00 0.00 100.00 BA-CA Infrastructure Finance Advisory GmbH Vienna Austria 0.00 100.00 100.00 BA-CA Markets & Investment Beteiligung Ges.m.b.H. Vienna Austria 100.00 0.00 100.00 Bank Austria Creditanstalt Wohnbaubank AG Vienna Austria 100.00 0.00 100.00 Bank Austria Global Information Services GmbH Vienna Austria 80.00 10.01 90.01 Bank Austria Real Invest GmbH Vienna Austria 94.95 0.00 94.95 Bank Austria Trade Services Gesellschaft m.b.H. Vienna Austria 100.00 0.00 100.00 Banking Transaction Services S.R.O. Prague Czech Republic 100.00 0.00 100.00 BankPrivat AG Vienna Austria 100.00 0.00 100.00 CA IB Securities (Ukraine) AT Kiev Ukraine 0.00 100.00 100.00 CABET-Holding-Aktiengesellschaft Vienna Austria 100.00 0.00 100.00 CAIB D.D. Securities Zagreb Croatia 0.00 84.21 84.21 Card Complete Service Bank AG Vienna Austria 50.10 0.00 50.10 Centar Kaptol doo Zagreb Croatia 0.00 84.21 84.21 CJSC Bank Sibir Omsk City Russian Federation 0.00 99.60 99.60 Domus Bistro GmbH Vienna Austria 100.00 0.00 100.00 Domus Clean Reinigungs GmbH Vienna Austria 100.00 0.00 100.00 Domus Facility Management GmbH Vienna Austria 100.00 0.00 100.00 Eurolease RAMSES Immobilien Leasing Gesellschaft m.b.H. & Co OG Vienna Austria 99.30 0.20 99.50 FactorBank Aktiengesellschaft Vienna Austria 100.00 0.00 100.00 HYPERION Immobilienvermietungsgesellschaft m.b.H. Vienna Austria 99.00 0.00 99.00 HypoVereins Immobilien EOOD Sofia Bulgaria 0.00 92.07 92.07 Istra Golf DOO Umag Croatia 0.00 60.46 60.46 Istraturist Umag, Hotelijerstvo i Turizam DD Umag Croatia 0.00 60.46 60.46 JOHA Gebäude- Errichtungs- und Vermietungsgesellschaft m.b.H. Vienna Austria 0.00 94.03 94.03 Joint Stock Commercial Bank for Social Development Ukrsotsbank Kiev Ukraine 12.34 82.12 94.46 JSC ATF BANK Almaty Kazakhstan 99.60 0.00 99.60 Lassallestraße Bau-, Planungs-, Errichtungs- und Verwertungsgesellschaft m.b.H. Vienna Austria 99.00 0.00 99.00 Limited Liability Company B.A. Real Estate Moscow Russian Federation 0.00 100.00 100.00 Lowes Limited Nicosia Cyprus 0.00 100.00 100.00 Marketing Zagrebacke Banka doo Zagreb Croatia 0.00 84.21 84.21 MC Marketing GmbH Vienna Austria 100.00 0.00 100.00 MC Retail GmbH Vienna Austria 0.00 100.00 100.00

184 2008 Annual Report · Bank Austria domicile interest in % DIREcT INDIREcT COMPANY city country ownership ownership total MY Beteiligungs GmbH Vienna Austria 100.00 0.00 100.00 OOO IMB Leasing Company Moscow Russian Federation 0.00 100.00 100.00 Open saving pension fund Otan JSC Almaty Kazakhstan 0.00 82.74 82.74 Pominvest DD Split Croatia 0.00 74.66 74.66 Private Joint Stock Company Ferrotrade International Kiev Ukraine 100.00 0.00 100.00 PRVA Stambena Stedionica DD Zagreb Zagreb Croatia 0.00 84.21 84.21 Schoellerbank Aktiengesellschaft Vienna Austria 100.00 0.00 100.00 Teledata Consulting und Systemmanagement Gesellschaft m.b.H. Vienna Austria 0.00 94.95 94.95 Treuconsult Beteiligungsgesellschaft m.b.H. Vienna Austria 0.00 94.95 94.95 UniCredit Aton International Limited Nicosia Cyprus 0.00 100.00 100.00 UniCredit Bank a.d. Banja Luka Banja Luka Bosnia and Herzegovina 90.92 0.00 90.92 UniCredit Bank Cayman Islands Ltd. Georgetown Cayman Islands 100.00 0.00 100.00 UniCredit Bank Czech Republic A.S. Prague Czech Republic 100.00 0.00 100.00 UniCredit Bank d.d. Mostar Bosnia and Herzegovina 24.40 55.23 79.63 UniCredit Bank Hungary ZRT. Budapest Hungary 100.00 0.00 100.00 UniCredit Bank Latvia AS Riga Latvia 100.00 0.00 100.00 UniCredit Bank Serbia a.d. Belgrade Serbia 99.92 0.00 99.92 UniCredit Bank Slovakia A.S. Bratislava Slovakia 99.03 0.00 99.03 UniCredit Banka Slovenija D.D. Ljubljana Slovenia 99.99 0.00 99.99 UniCredit Bulbank AD Sofia Bulgaria 92.07 0.00 92.07 UniCredit CAIB AG Vienna Austria 0.00 100.00 100.00 UniCredit CAIB Czech Republic AS Prague Czech Republic 0.00 100.00 100.00 UniCredit CAIB Hungary Ltd. Budapest Hungary 0.00 100.00 100.00 UniCredit CAIB Poland S.A. Warsaw Poland 0.00 100.00 100.00 UniCredit CAIB Romania SRL Bucharest Romania 0.00 100.00 100.00 UniCredit CAIB Securities UK Ltd. London United Kingdom 0.00 100.00 100.00 UniCredit CAIB Serbia Ltd. Belgrade Serbia 0.00 100.00 100.00 UniCredit CAIB Slovakia A.S. Bratislava Slovakia 0.00 100.00 100.00 UniCredit CAIB Slovenija, d.o.o. Ljubljana Slovenia 0.00 100.00 100.00 UniCredit CAIB UK Ltd. London United Kingdom 0.00 100.00 100.00 UniCredit Factoring EAD Sofia Bulgaria 0.00 92.07 92.07 UniCredit Jelzalogbank ZRT. Budapest Hungary 0.00 100.00 100.00 UniCredit Tiriac Bank S.A. Bucharest Romania 50.56 0.03 50.59 Universale International Realitäten GmbH Vienna Austria 100.00 0.00 100.00 UPI Poslovni Sistem doo Sarajevo Bosnia and Herzegovina 0.00 56.23 56.23 WAVE Solutions Information Technology GmbH Vienna Austria 100.00 0.00 100.00 Z Leasing POLLUX Immobilien Leasing Gesellschaft m.b.H. Vienna Austria 99.80 0.00 99.80 Z Leasing RIGEL Immobilien Leasing Gesellschaft m.b.H. Vienna Austria 99.80 0.00 99.80 Z Leasing SIRIUS Immobilien Leasing Gesellschaft m.b.H. Vienna Austria 99.80 0.00 99.80 Zaba Turizam DOO Zagreb Croatia 0.00 84.21 84.21 Zagreb Nekretnine DOO Zagreb Croatia 0.00 84.21 84.21 Zagrebacka Banka d.d. Zagreb Croatia 84.21 0.00 84.21 Zane BH DOO Sarajevo Bosnia and Herzegovina 0.00 84.21 84.21 ZAO IMB-Leasing Moscow Russian Federation 0.00 100.00 100.00 ZAO UniCredit Aton Moscow Russian Federation 0.00 100.00 100.00 ZAO UniCredit Bank Moscow Russian Federation 100.00 0.00 100.00 ZB Invest DOO Zagreb Croatia 0.00 84.21 84.21 ZETA Fünf Handels GmbH Vienna Austria 100.00 0.00 100.00

Bank Austria · 2008 Annual Report 185 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Additional IFRS disclosures (CONTINUED)

(63b) Investments in companies accounted for under the proportionate consolidation method

domicile OPERATING TOTAL ASSETS INCOME EQUITY CAPITAL COMPANY city country ADD-% IN € THSD IN € THSD IN € THSD

Informations-Technologie Austria GmbH Vienna Austria 50.05 113,445 –2,377 17,739 Koc Finansal Hizmetler AS Istanbul Turkey 50.00 2,055,681 3,903 2,013,674 Stiching Custody Services KBN Amsterdam Netherlands 40.90 125 – 125 UniCredit Menkul Degerler AS Istanbul Turkey 50.00 3,311 79 1,290 Yapi Kredi Azerbaijan Baku Azerbaijan 40.90 92,982 8,788 34,186 Yapi Kredi Bank Nederland NV Amsterdam Netherlands 40.90 1,605,417 25,307 156,269 Yapi Kredi Bankasi AS Istanbul Turkey 40.90 29,377,300 2,042,677 3,451,393 Yapi Kredi Emeklilik AS Istanbul Turkey 38.42 338,777 30,856 56,001 Yapi Kredi Faktoring AS Istanbul Turkey 40.88 507,295 18,131 40,452 Yapi Kredi Finansal Kiralama AO Istanbul Turkey 40.43 1,310,350 96,795 287,672 Yapi Kredi Holding BV Amsterdam Netherlands 40.90 45,507 58 45,480 Russian Yapi Kredi Moscow Moscow Federation 40.90 143,190 14,989 32,207 Yapi Kredi Portföy Yönetimi AS Istanbul Turkey 40.88 37,365 38,164 32,917 Yapi Kredi Sigorta AS Istanbul Turkey 38.42 337,138 16,311 138,132 Yapi Kredi Yatirim Menkul Degerler AS Istanbul Turkey 40.89 138,095 47,311 101,933 Yapi Kredi Yatirim Ortakligi AS Istanbul Turkey 22.93 25,458 –1,679 25,077

(63c) Investments in associated companies accounted for under the equity method

domicile OPERATING INVESTMENTS VALUED AT EQUITY TOTAL ASSETS INCOME EQUITY CAPITAL NAME OF COMPANY city country ADD-% IN € THSD IN € THSD IN € THSD

Allianz ZB D.O.O. Drustvo za Upravljanje Dobrovoljnim Zagreb Croatia 41.26 2,214 875 1,227 Allianz ZB D.O.O. Drustvo za Upravljanjie Obveznim Zagreb Croatia 41.26 19,784 11,321 18,830 Bank fur Tirol und Vorarlberg Aktiengesellschaft Innsbruck Austria 47.38 8,499,200 196,000 538,747 Banque de Commerce et de Placements SA Geneva Switzerland 12.54 1,148,275 54,848 60,504 BKS Bank AG Klagenfurt Austria 36.03 6,129,100 169,591 442,623 CA Immobilien Anlagen Aktiengesellschaft Vienna Austria 11.17 4,627,688 103,048 1,844,190 Österreichische Clearingbank AG Vienna Austria 20.75 1,493,617 882 179,496 Notartreuhandbank AG Vienna Austria 25.00 970,999 16,307 21,337 Oberbank AG Linz Austria 33.34 15,200,000 387,410 898,447 Oesterreichische Kontrollbank Aktiengesellschaft Vienna Austria 49.15 39,400,000 158,000 451,009 Österreichische Hotel- und Tourismusbank Ges.m.b.h. Vienna Austria 50.00 958,008 4,727 24,626 UniCredit Global Leasing SPA Milan Italy 32.59 32,888,244 470,555 1,787,683 Yapi Kredi Koray Gayrimenkul Yatirim Ortakligi AS Istanbul Turkey 12.45 70,130 –5,195 48,154

(63d) Investments in associated companies not counted for under the equity method were € 460.5 m. Aggregate accounted for under the equity method equity capital of these companies amounted to € 89.9 m. The com- In the 2007 financial year, aggregate total assets of associated combined net profit of these companies was € 16.2 m. panies in which Bank Austria held investments which were not ac-

186 2008 Annual Report · Bank Austria (64) Employees In 2008 and 2007, the Bank Austria Group employed the following average numbers of staff (full-time equivalents1):

Employees 2008 2007

Salaried staff 67,069 49,604 Other employees 90 98 TOTAL2) 67,159 49,702 of which: in Austria 10,441 10,237 of which: abroad 56,718 39,465

1) Average full-time equivalents of staff employed in the Bank Austria Group (consolidated companies), excluding apprentices and employees on unpaid sabbatical or maternity/paternity leave 2) The average numbers of staff for 2007 include Ukrsotsbank and IT Austria from December 2007.

(65) Supervisory Board and Management Board In the reporting year, the following persons In the reporting year, the following persons were members of the Management Board of were members of the Supervisory Board of UniCredit Bank Austria AG: UniCredit Bank Austria AG: Chairman and Chief Executive Officer: Erich HAMPEL Chairman: Alessandro PROFUMO Members: Helmut BERNKOPF (from 16 September 2008), Deputy Chairman: Franz RAUCH Federico GHIZZONI, Thomas GROSS (until 31 October 2008), Members: Vincenzo CALANDRA BUONAURA (until 31 July 2008), Wilhelm HEMETSBERGER (until 31 May 2008), Werner KRETSCHMER Claudio CONSOLO (from 31 July 2008), Sergio ERMOTTI, Paolo (until 31 December 2008), Ralph MÜLLER, Regina PREHOFER FIORENTINO, Dario FRIGERIO, Roberto NICASTRO, Vittorio OGLIENGO, (until 15 September 2008), Carlo VIVALDI, Stephan WINKELMEIER Karl SAMSTAG, Gerhard SCHARITZER, Wolfgang SPRISSLER, (from 7 November 2008), Robert ZADRAZIL Wolfgang HEINZL, Adolf LEHNER, Emmerich PERL, Martina ICHA (until 27 May 2008), Karin WISAK-GRADINGER (from 28 May 2008), Heribert KRUSCHIK (until 3 November 2008), Riccardo HOFER (from 4 November 2008), Josef REICHL

Bank Austria · 2008 Annual Report 187 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Risk report

(66) Overall risk management (MACO), which meets once a week. MACO deals with short-term business management issues relating to the presentation and dis- Bank Austria identifies, measures, monitors and manages all risks of cussion of the risk/earnings position of Markets & Investment Bank- the Bank Austria Group. In performing these tasks, Bank Austria ing and with limit adjustments, product approvals and positioning works closely with the risk control and risk management units of decisions. MACO also deals with methodological issues concerning UniCredit. In this context, Bank Austria supports UniCredit’s ongoing the determination of counterparty risk. In addition, the general projects which are aimed at establishing uniform group-wide risk framework and limits for banking subsidiaries are defined by MACO. controlling procedures. Credit risk is assessed by the credit committee. The newly established Operational Risk Committee (OpRiCo) meets on a quarterly Bank Austria divides the monitoring and controlling processes asso- basis to deal with operational risk issues. ciated with risk management into the following categories:  Market risk (66a) The Management Board of Bank Austria sets risk limits for market  Liquidity risk (66b) risk activities of the entire Bank Austria Group at least once a year.  Counterparty risk (66c) MACO, which holds a meeting every week, makes limit decisions at  Credit risk (including real estate risk; 66d) the operational level and analyses the risk and earnings positions  Operational risk (66e) of the bank’s Markets & Investment Banking units. ALCO performs  Business risk (66f) analyses and makes decisions with regard to business activities  Risks arising from the bank’s shareholdings and closely connected with customer business (in particular, balance equity interests (66g) sheet structure, liquidity, and risk management issues arising between sales units and overall bank management). The decisions and The Management Board determines the risk policy and approves results of these committees are reported directly to the bank’s full the principles of risk management, the establishment of limits for all Management Board. Risk Management, which is separate from the relevant risks, and the risk control procedures. business divisions up to Management Board level, is in charge of preparing analyses and monitoring compliance with limits. The final In performing these tasks, the Management Board is supported by stage of work on modelling counterparty risk calculations was com- specific committees and independent risk management units. All pleted in the course of 2008. In the third quarter of 2008, the model risk management activities of Bank Austria are combined within a – developed by Bank Austria itself – was examined by an external management function at Management Board level directed by the expert pursuant to the Austrian Banking Act. The expert opinion con- Chief Risk Officer (CRO); after completion of adjustments of the CRO firms compliance with the Basel II standards, which have also been organisation to the UniCredit Group’s divisional structure, secondary incorporated in local law. Following coordination activities with lending decisions for corporate customers are made in the Corpo- UniCredit Group, the process of approval by the supervisory authori- rate Risk and MIB & Market Risk departments and in the Local In- ties will start in the first quarter of 2009. dustry Teams, and for retail customers in the Retail Risk department. The Special Accounts Management department deals with problem The Bank Austria Group applies the principle of value-based man- loans. These organisational units are supported by the Strategic Risk agement. In line with this principle, for pricing purposes in business Management & Control department. Credit risk control of the CEE and customer relations (micro control), capital employed (comprising business units is performed by the CEE Risk Control department and both the Tier 1 capital required pursuant to the Austrian Banking Act by the CEE Risk Monitoring and CEE Policies & Guidelines units. The and economic capital) is expected to yield a specific return. unit for active credit portfolio management (Credit Treasury) reports directly to the Chief Financial Officer (CFO). Beyond compliance with the regulatory capital rules pursuant to the Austrian Banking Act, economic capital is intended to reflect the The Asset/Liability Committee (ALCO) is responsible for the man- bank’s specific risk profile in a comprehensive and more consistent agement of balance-sheet structure positions, it controls liquidity way. For micro-control purposes, economic capital for credit risk is risk and deals with cross-divisional risk management issues arising calculated using value-at-risk methodologies. These unexpected between sales units and overall bank management while also ad- losses over a period of one year are calculated with a confidence dressing the results of the credit portfolio model. Control of market level of 99.95%. risk of the trading books is ensured by the Market Risk Committee

188 2008 Annual Report · Bank Austria Additionally, value-at-risk methodologies are used in the Bank Austria As mentioned above, Basel II implementation has been established Group for calculating or planning economic capital for all specified as a Group-wide programme. Since the acquisition of HVB Group types of risk (market risk, credit risk, risks arising from shareholdings by UniCredit Group in 2005, UniCredit has been responsible for and equity interests, real estate risk, operational risk, business risk). Group-wide decisions and Group guidelines also in the Basel II environment, as well as for the development of Group-wide rating sys- The Bank Austria Group is included in the risk monitoring and risk tems. For example, Group-wide homogeneous portfolios have been management system of the entire UniCredit Group. This ensures defined for which uniform rating models are used across the Group, overall risk management across the Group. Examples in this context such as those for countries, banks and multinational companies, or are global MIB risk reporting and the global MIB limits in the area of are planned to be used for other portfolios. The Group has also market risk. selected and (further) developed specific system components as Group-wide solutions for the calculation of loss parameters and risk- Current status of BASEL II implementation weighted assets. in the Bank Austria Group In spring 2003, Bank Austria set up a group-wide programme to Close cooperation ensures Group-wide consistency in the implemen- create the conditions for compliance with the new rules, effective tation of Basel II. Group standards have already been prepared and since 2007, for holding adequate capital against risk-weighted assets. adopted by the UniCredit Group holding company in cooperation with the major legal entities, and are used as an instrument for uniform UniCredit Bank Austria AG decided, based on the discretion for credit Group-wide implementation, taking into consideration the local legal institutions defined in the EU Directive and in line with the approach requirements and safeguarding Group interests. Such Group stan- taken by the Group, to use the option to start employing Basel II at dards will also continue to be gradually extended and complemented. the beginning of 2008. Integrating these Group standards in the processes and organisational set-up of all business divisions and Group units was one of Since the beginning of 2003, the focus of the programme has been Bank Austria’s major tasks in the past year and remains an important on refining credit risk systems to meet the standards of the Advanced item on the bank’s agenda, especially because local features and IRB approach, setting up a group-wide data base for the purposes of legal requirements must be taken into account in ensuring Basel II regulatory reporting and on creating the basis for ongoing implemen- compliance. These Group standards will also be rolled out step by tation activities. Operational risk activities also commenced in this step in the relevant CEE subsidiaries. period. The Basel II project comprises UniCredit Bank Austria AG and all Austrian and foreign subsidiaries belonging to the group of con- With the transfer of ownership of HVB Group to the Italian banking solidated companies, all risk categories (credit risk, operational risk group, the Italian banking supervisory authority – Banca d’Italia (the and market risk) and all three pillars of Basel II. Bank of Italy) – became the new home supervisor of UniCredit Group. Since then the Bank of Italy has been responsible for all approvals at From the different approaches that may be chosen in the area of Group level, while local supervisory authorities are responsible for credit risk under Basel II, the Bank Austria Group – in line with the local topics in the legal entities and for local on-site examinations. All decision taken by UniCredit Group – has opted for the advanced in- regulatory issues are being dealt with in close cooperation between ternal ratings-based (A-IRB) approach. Within the sub-group, the home and host regulators. switch to the advanced approach will take place in stages – defined in the IRB roll-out plan. The roll-out plan was submitted to all compe- The supervisory assessment of the A-IRB for the local models in tent regulators and found to be appropriate by them. In the first UniCredit Bank Austria AG took place in 2007 and was completed phase, the focus was on UniCredit Bank Austria AG, which has main- with very satisfactory results. This was followed at the beginning of tained the major part of its portfolio in the A-IRB since 31 March 2008 by an assessment of the local implementation and use of the 2008. The prerequisite for doing so was the approval by the compe- Group-wide rating models already developed for banks and coun- tent supervisory authorities, which was given in time before the first tries/sovereigns. Again, the review produced good results, with IRB Basel II report as at 31 March 2008 (for the first two months of UniCredit Bank Austria AG thus meeting the requirements for the 2008, Bank Austria computed RWAs for regulatory purposes using Bank of Italy’s approval (consequently granted) of the use of the in- the standardised approach). ternal ratings-based approach in calculating UniCredit Bank Austria AG’s assessment basis for regulatory capital from 31 March 2008.

Bank Austria · 2008 Annual Report 189 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Risk report (CONTINUED)

Since 30 September 2008, in line with the roll-out plan, the A-IRB In the area of operational risk, the AMA at UniCredit Bank Czech approach has also been used in respect of another portion of the Republic was approved and on-site assessments took place in portfolio, namely multinational corporates, for which a Group-wide UniCredit Bank Slovakia, UniCredit Bank Hungary and UniCredit model was developed. In this context the supervisory approval pro- Banka Slovenija. UniCredit Bank Czech Republic will use the AMA as cess took place in summer 2008. from the beginning of 2009; approval for UniCredit Bank Slovakia, UniCredit Bank Hungary and UniCredit Banka Slovenija is planned The bank is planning to introduce various other Group-wide rating to be obtained in the course of 2009. models in the next few years while also further refining and developing local models. Following an implementation phase which lasted about five years, UniCredit Bank Austria AG has successfully completed work on The Group has also chosen the most elaborate approach, the ad- meeting the legal requirements under the EU’s Capital Require- vanced measurement approach (AMA), in respect of operational risk ments Directive in connection with Basel II. In the next few years, in – UniCredit Bank Austria AG has used the AMA since the beginning addition to ongoing compliance-related activities in UniCredit Bank of 2008. Austria AG, the bank will roll out the quality standards for risk management instruments, reporting and compliance in the sub-group Austrian subsidiaries with a view to ensuring uniform Group-wide implementation and All Austrian subsidiaries in the new Group structure started to use Group-wide consistency. the standardised approach in 2008. From a current perspective, for reasons of materiality, it is not planned to switch to one of the IRB Implementation of disclosure requirements pursuant to approaches. Sections 26 and 26a of the Austrian Banking Act (regular disclosure of information on the organisational structure, risk In the area of operational risk, Schoellerbank has chosen the ad- management and risk capital position pursuant to Sections 2 vanced measurement approach (AMA). It is planned to obtain ap- to 15 of the Austrian Disclosure Regulation) proval for this approach in the course of 2009. Within UniCredit Group, a comprehensive disclosure is carried out by the parent company UniCredit on its website, based on the con- CEE subsidiaries solidated financial position in its function as EEA parent bank of The CEE subsidiaries have used the Basel II standardised approach Bank Austria. Bank Austria is a significant subsidiary pursuant to since the beginning of 2008. Given the Group’s decision to use the Section 26 (4) of the Austrian Banking Act and therefore discloses IRB approach, there are of course plans to switch to the advanced its supervisory capital structure and its capital adequacy require- IRB approach at most of the CEE subsidiaries; as an intermediate ment; furthermore, the bank discloses information regarding the step, all subsidiaries will start with the Foundation IRB approach use of own estimates for volatility adjustments (comprehensive (F-IRB) between 2010 and 2012. A detailed roll-out plan for the method) for credit risk mitigation techniques pursuant to Section 17 gradual switch to the IRB approaches was drawn up with all CEE of the Austrian Disclosure Regulation and in accordance with the subsidiaries at the beginning of 2008 and communicated to the approval by the Financial Market Supervision Authority (FMA). supervisory authorities involved. 2009 will see supervisory IRB assessments at those subsidiaries which are planning to start using The above information is available at http://www.bankaustria.at/ the F-IRB in 2010. en/open.html?opencf=/en/7638.html, in the menu item Investor Relations/Basel II Disclosure Pillar 3. Measures have been initiated together with the two new subsidiaries in Kazakhstan and Ukraine to ensure step-by-step compliance with the standardised approach.

190 2008 Annual Report · Bank Austria (66a) Market risk report and thus covers the same (stress) sensitivities in addition to Market risk management encompasses all activities in connection VaR figures. Regular and specific stress scenario calculations com- with our Markets & Investment Banking operations and management plement the information provided to MACO/ALCO and the Manage- of the balance sheet structure in Vienna and at Bank Austria’s sub- ment Board. Macro scenarios show the potential adverse impacts of sidiaries. Risk positions are aggregated at least daily, analysed by global developments with specific effects on the respective risk cat- the independent risk management unit and compared with the risk egories, while stress sensitivities of individual risk factors or groups limits set by the Management Board and the committees (including of risk factors show the potential adverse impacts on partial market MACO) designated by the Management Board. At Bank Austria, mar- segments. Stress scenarios are based on assumptions of extreme ket risk management includes ongoing reporting on the risk position, movements in individual market risk parameters. The bank analyses limit utilisation, and the daily presentation of results of Markets & the effect of such fluctuations and a liquidity disruption in specific Investment Banking operations. products and risk factors on the bank’s results. These assumptions of extreme movements are dependent on currency, region, liquidity Bank Austria uses uniform risk management procedures throughout and the credit rating, and are set by MIB & Market Risk on a discre- the Group. These procedures provide aggregate data and make tionary basis after consultation with experts in other areas of the available the major risk parameters for the various trading opera- bank (e.g. research, trading). tions once a day. Besides Value at Risk, other factors of equal importance are stress-oriented sensitivity and position limits. Additional In addition to the risk model results, income data from market risk elements of the limit system are loss-warning level limits and op- activities are also determined and communicated on a daily basis. tions-related limits applied to trading and positioning in non-linear These data are presented over time and compared with current products. budget figures. Reporting covers the components reflected in IFRS- based profit and the marking to market of all investment positions Bank Austria’s risk model (“NoRISK”) was developed by the bank regardless of their recognition in the IFRS-based financial state- and has been used for many years. The model is applied and further ments (“total return”). The results are available to Bank Austria’s refined by MIB & Market Risk. Ongoing refinement work includes trading and risk management units via the access-protected Intranet reviewing the model as part of backtesting procedures, integrating application “ERCONIS”, broken down by portfolio, income statement new products, implementing requirements specified by the Manage- item and currency. The regulatory approach to prudent valuation in ment Board and by MACO, and adjusting the system to general the trading book is also implemented primarily by MIB & Market Risk market developments. A major factor to be noted in this context is and further developed on an ongoing basis through cooperation the market risk stress considerations against the background of the within UniCredit Group. current financial market situation. A product introduction process has been established in which risk managers play a decisive role in In Vienna, Bank Austria uses the “MARCONIS” system developed approving a new product. The “NoRISK” risk model, approved by the by the bank itself to completely and systematically review the supervisory authorities since 1998, is used for computing capital re- market conformity of its trading transactions. This tool is also used quirements; in contrast to the internal risk management process, the by almost all CEE banking subsidiaries with market risk activities. computation of capital requirements takes into account the statutory parameters (confidence interval of 99%, 10-day holding period) and Value-at-risk movements (1 day, confidence interval of 99%) in additionally the multiplier determined as part of the model review is 2008 reflected the banking crisis, which led to an exceptionally applied. The model, which has so far been used for UniCredit Bank strong increase in volatility in the wake of the Lehman Brothers Austria AG and the Bank Austria Group, also received regulatory ap- insolvency. In the fourth quarter of 2008, VaR rose significantly proval for use for CAIB in 2008. The risk model covers all major risk although Bank Austria’s risk positions were more or less left categories: interest rate risk and equity position risk (both general unchanged or reduced. In the trading book, VaR doubled to about and specific risk), exchange rate risk and commodities position risk. € 40 m in the fourth quarter as compared with the first half of 2008. Overall VaR, including banking book positions, temporarily The structure of the standard risk report presented at MACO’s even quadrupled (€ 160 m) in the fourth quarter. The higher VaR weekly meetings corresponds to the weekly UniCredit-wide MIB risk levels were mainly caused by an increase in interest-rate and

Bank Austria · 2008 Annual Report 191 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Risk report (CONTINUED) spread volatility. In the interest rate sector, most of the increase was The strong increase in overall VaR in credit spreads was also mainly due to the positions of our CEE/SEE subsidiaries, which hold long- due to the banking book positions of the subsidiaries (e.g. Turkish term interest rate positions from customer business and partly also in sovereign bonds in the held-to-maturity portfolio). In the peak area of sovereign bonds in the banking book. The fact that there are no com- the VaR curve, the credit-spread trading VaR of the subsidiaries is parable trading positions in these currencies in the Group explains lower than one-tenth of the comparative amount if the banking book the wide difference between VaR of the trading book and overall VaR. position of the subsidiaries is included in the calculation.

VaR of the Bank Austria Group in 2006–2008 (€ m)

160 140 120 100 80 avg. 65.1 60 40 avg. 35.2 avg. 19.8 avg. 21.2 20 avg. 12.3 0 avg. 10.3 July 06 July 07 July 08 Oct. 06 Oct. 07 Oct. 08 May 06 May 07 May 08 Jan. 06 Jan. 07 Jan. 08 Feb. 06 Feb. 07 Feb. 08 Nov. 06 Nov. 07 Nov. 08 April 06 April 07 April 08 Dec. 06 Dec. 07 Dec. 08 Aug. 06 Aug. 07 Aug. 08 June 06 June 07 June 08 Sept. 06 Sept. 07 Sept. 08 March 06 March 07 March 08

160 140 120 100 80 60 Total Return VaR 40 VaR in the trading book 20 5 Nov. 5 Dec. 21 Oct. 26 Oct. 31 Oct. 10 Nov. 15 Nov. 20 Nov. 25 Nov. 30 Nov. 20 Dec. 25 Dec. 30 Dec. 10 Dec. 15 Dec.

The results of the internal model based on VaR (1 day, confidence in- years, the risk report includes the non-trading driven equity positions terval of 99%) in 2008 moved between € 36.6 m and € 167.4 m for of the bank’s investment books and the hedge-fund positions. Credit the Bank Austria Group. The average Total Return VaR was € 65.1 m, spread risk and interest rate risk account for most of the total risk of significantly higher than the comparative figure for the previous year the Bank Austria Group. Since January 2007, commodity risk has (€ 35.2 m) although the positions were reduced in terms of sensitiv- only been assumed in the Bank Austria Group on a back-to-back ity. The average VaR in the trading book in 2008 only rose to a level basis. of € 21.2 m (from € 12.3 m in the previous year). As in previous

192 2008 Annual Report · Bank Austria VaR of the Bank Austria Group by risk category (€ m) Risk category Minimum Average Maximum Year-end

Interest rate risk 24.9 47.4 108.7 67.0 Credit spread 24.8 45.0 118.2 93.6 Exchange rate risk 0.6 2.6 10.2 3.9 Equity risk/trading 1.3 3.0 5.5 1.3 Emerging markets/high yield 2.2 3.0 5.0 2.9 Hedge funds 3.9 5.4 11.7 6.6 Equity risk/investment 4.2 10.9 22.3 14.1 Vega risk 0.7 2.6 6.8 4.9 Total 2008 36.6 65.1 167.4 98.1 Total 2007 16.7 35.2 58.7 49.9

In addition to VaR, risk positions of the Bank Austria Group are limited tial simulation runs are recorded daily in the risk database. Partial through volume limits. As part of daily risk reporting, detailed “Trader simulation runs simulate specific risk classes while keeping others Reports” are prepared for a large number of portfolios, with updated constant. The combination of portfolios and partial simulation runs and historical information made available to all risk-takers and the enables the bank to analyse all major risk components on a daily responsible senior management via the Intranet. The comprehensive basis and over time. statistical data on VaR made available in addition to limit-relevant 99% quantile figures include the average of scenario results beyond As at 31 December 2008, the entire interest rate position of the the 99% quantile mark, providing an indication of the magnitude of Bank Austria Group (trading and investment) for major currencies events for which the probability of occurrence is very low. In addition was composed as follows (the table below shows basis point values to limit-relevant overall simulation runs, the results of about 30 par- over € 500):

Bank Austria · 2008 Annual Report 193 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Risk report (CONTINUED)

Basis point values of the Bank Austria Group (in €) As at 31 December 2008 Annual average, minimum/maximum Up to 1 month to 3 months 1 year to over absolute 1 month 3 months to 1 year 5 years 5 years total maximum minimum average

Western EUR –156,665 – 9,510 –46,065 –287,734 –179,417 –679,390 –141,509 –1,708,170 915,415 Europe CHF 22,240 122,611 –100,554 –5,574 –42,196 –3,473 51,461 –301,553 120,293 DKK 86 –100 –75 – – –89 4,631 –734 201 GBP 1,904 –17,341 –378 12,830 –25,931 –28,915 11,023 – 92,882 36,182 NOK 290 –1,885 –1 1 – –1,596 4,682 –4,102 1,905 SEK 342 671 –773 – – 239 1,288 –2,316 619 New EU countries CZK –3,992 5,519 –10,978 –76,633 85,735 –348 110,603 –103,519 39,819 HUF –4,117 13,402 –5,683 –31,434 –23,974 –51,806 8,320 –148,066 53,875 PLN –3,472 1,303 27,290 –38,570 23,642 10,193 82,078 –188,478 39,622 SKK –1,151 –7,587 –6,014 31,145 339,727 356,120 356,120 37,151 136,868 Central and BAM –470 422 236 –885 –3,034 –3,731 –841 –3,731 1,850 Eastern Europe BGN 828 –550 4,102 –20,706 –11,155 –27,480 –8,839 –74,233 25,816 incl. Turkey HRK –3,246 –6,399 –7,674 – 91,212 –40,085 –148,616 –130,811 –240,727 187,599 KGS 81 –15 –234 –1,200 –731 –2,099 343 –3,427 1,229 KZT 6,369 1,671 2,647 –74,250 –60,312 –123,875 –118,212 –340,853 209,788 LVL –114 –824 –707 985 –139 –800 3,487 –5,191 2,575 RON 3,785 489 –12,531 –6,498 –13,432 –28,186 3,383 –56,111 25,050 RSD –157 1 –327 –55 – –538 4,899 –3,723 1,624 RUB 2,070 –1,767 –25,261 29,133 –24,795 –20,620 111,729 –345,766 116,563 TRY –3,008 –18,104 –30,258 –66,824 –35,541 –153,735 –141,562 –301,313 199,444 UAH –124 –124 –26,264 8,683 –12,314 –30,143 –4,538 –100,949 37,508 Overseas – highly AUD –115 –434 113 192 – –243 727 –33,375 10,719 developed countries CAD 571 –600 –3,895 423 –5 –3,507 14,442 –18,017 5,417 JPY 3,494 –2,186 –7,493 3,720 –8,751 –11,217 24,553 –51,745 16,714 NZD 132 55 –523 – – –336 3,209 –16,550 4,885 USD 30,895 –20,350 –52,768 220,566 –1,666,943 –1,488,601 – 998,816 –1,731,349 1,401,709 Other countries AED 202 –18 –1,181 786 – –211 1,089 –1,406 693 EGP –32 –8 – – – –40 –40 –557 256 HKD –39 –27 –72 – – –138 1,308 –166 76 ILS 26 –433 1,775 –5,408 – –4,039 7,244 –7,899 1,655 ISK 2 1 94 –5 – 92 743 16 335 SAR 9 –2 –19 –54 – –66 606 –474 190 XAU 367 317 119 – – 803 5,737 230 2,302 ZAR 880 – 978 –3,126 5,580 106 2,462 24,697 –8,762 6,443 BPV<500 115 –50 96 – 91 –5 64 407 –317 608 total –106,255 61,216 –294,552 –277,323 –1,702,726 –2,319,640 3,605,847

Significant interest rate positions continue to be held in KZT, TRY, Among the other highly developed markets, only the CHF position is HRK and RUB, reflecting the size of our subsidiaries; most of the of major significance. related interest rate sensitivity is in the banking book (not in the trading book). The USD position is also related to the banking book By analogy to the detailed presentation of basis point positions in position of our banking subsidiaries. In 2008, the EUR interest rate the interest rate sector, daily reporting presents details of credit position was held at a low level compared with previous years. spread by curve and maturity band (the bank currently uses more than 550 credit spread curves for its risk calculations).

194 2008 Annual Report · Bank Austria Credit spread basis-point values of the Bank Austria Group (in €) Annual average, minimum/maximum SP-BPVS SEcTOR MAXIMUM MINIMUM Absolute average

Main sectors Financial services –392,830 –1,345,378 752,619 ABS and MBS –753,524 –1,561,947 971,983 Corporates Industrial 362,858 –370,038 266,895 Automobiles 16,197 –59,404 19,796 Consumer goods 184,443 –22,451 138,683 Pharmaceutical –114,919 –223,765 133,096 Telecommunications 76,560 – 94,832 34,228 Energy & utilities 29,943 –236,733 71,439 Other (e.g. merchandising) –286,690 –848,961 505,839 Treasury-near Treasuries – EU –1,560,271 –2,798,704 2,408,379 Treasuries – new EU countries –593,823 –1,160,088 847,355 Treasuries – CEE & emerging markets –1,090,129 –1,628,494 1,404,085 Treasuries – developed countries overseas 51,389 –17,148 26,535 Treasuries – agencies & supranationals –51,981 –89,147 63,125 Municipals & German Jumbo –35,089 –506,627 401,460 Total –6,118,038 – 9,113,559 7,176,069

Measured by the total basis-point value, the Bank Austria Group’s explained by the sharp fall in liquidity, while a fundamental analysis credit spread position in 2008 moved between € 6 m and € 9 m and of expected redemptions of the same assets would lead to signifi- was thus lower than the relevant levels in the previous year. In 2008, cantly higher prices in a normal liquidity environment. Although rating the average credit spread position in corporates, financials and ABSs agencies more stringently revised their original rating assumptions was reduced. Treasury-near instruments now account for the largest and models for a wide range of ABSs in the course of 2008, instru- part of the credit spread positions. ments with an excellent rating continue to predominate in Bank Aus- tria’s portfolio and are decisive for portfolio quality (some 99% are ABS and MBS positions were further reduced in 2008 through re- rated AA or better, and 90% are rated AAA). demptions and partly also through sales. As the remaining periods to maturity shortened, the average credit spread basis-point value The widening of credit spreads had a negative impact on the Bank declined to less than half the previous year’s figure. The dramatic fall Austria Group’s results for 2008. In this context, management initi- in liquidity of these instruments prompted Bank Austria, like many ated a massive reduction of credit spread-related trading activities: other market participants, to use the possibility to reclassify holdings Credit Trading was significantly reduced, activities in some areas in accordance with IFRS rules; the bank now holds almost all of the such as Emerging Markets Trading and the high-yield corporate book portfolio in the banking book (loans and receivables). Measured by almost ceased. The main credit spread position left in the trading redemption behaviour, almost the entire ABS/MBS book continued sector are the hedges relating to the bank’s own trading issues and to be classified as performing in 2008. Following reclassification of a very small book in financials. Crisis tests were adjusted to the new these assets as at mid-2008, mark-to-market losses in the second market environment on a timely basis. In this context, a new financial half of the year are disclosed in compliance with the relevant re crisis scenario was created for the regulatory stress test in the third quirement, but they do not have an adverse impact on IFRS results. quarter; the scenario takes into account developments following the A review of the second half-year shows that this measure was ap- Lehman Brothers insolvency in mid-September 2008 and lower mar- propriate: there is no liquid market for these asset classes and the ket liquidity in financials. few price indications that are available for many assets can only be

Bank Austria · 2008 Annual Report 195 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Risk report (CONTINUED)

Bank Austria has invested in hedge funds through its subsidiary tions were considerably reduced in view of the current crisis. Mea- UniCredit Bank Cayman Islands Ltd., Cayman Islands, since 1999; the sured by the stress test, the risk contribution from these areas is now name of the company was changed to Alpine Cayman Islands Ltd. on of low significance for the Group, even on dramatic stress assump- 21 January 2009. While the focus is on market-neutral and event- tions. A further reduction of these positions is planned for the coming driven strategies and leverage is comparatively low, the financial financial year. crisis had a negative impact on results of the hedge funds in 2008 (part of the negative results is due to the default of Lehman Brothers Capital requirements for market risk and the related counterparty risks). Management initiated a reduction Bank Austria’s risk model is subjected to daily backtesting in accor- of the exposure and a transfer of assets from the Cayman Islands to dance with regulatory requirements. The model results are compared Vienna. This means that in the first quarter of 2009, invested volume with changes in value on the basis of actually observed market fluc- will decline to about one-half of the 2007 exposure level. tuations. As the number of backtesting excesses (negative change in value larger than model result) has been within the range permitted In addition to the hedge fund investments on Cayman Island, Bank by law ever since the model was introduced, the multiplier need not Austria invested in hedge funds as part of CAIB’s equity trading oper- be adjusted. In 2008, there was only one backtesting excess, despite ations. These investments are primarily driven by equity long/short the exceptional market environment. An increase in volatility leads to strategies and are mainly aimed at diversifying the equity trading higher VaR levels in the model in time, appropriately covering the book of CAIB. CAIB’s equity trading position and the hedge fund posi- backtesting fluctuations.

Backtesting results for the regulatory trading book 2006–2008 (€ m) Backtestingergebnisse des Handelsbuches 2005–2007 (Mio €)

50 30 40 25 20 30 15 20 10 10 5 0 0 –10 –5 –10 –20 –15 –30 –20 –40 –25 –50 –30 July 06 July 07 July 08 Oct. 06 Oct. 07 Oct. 08 May 06 May 07 May 08 Jan. 06 Jan. 07 Jan. 08 Feb. 06 Feb. 07 Feb. 08 Nov. 06 Nov. 07 Nov. 08 April 06 April 07 April 08 Dec. 06 Dec. 07 Dec. 08 Aug. 06 Aug. 07 Aug. 08 June 06 June 07 June 08 Sept. 06 Sept. 07 Sept. 08 March 06 March 07 March 08

Model result Bewertungsveränderung Change in value Modellergebnis

196 2008 Annual Report · Bank Austria Market risk management in CEE of the performance of subsidiaries include income generated by the At Bank Austria, market risk management covers the activities in subsidiaries and the valuation results of the banking book. Vienna and the positions at the bank’s subsidiaries, especially in Central and Eastern Europe. These subsidiaries have local risk man- To avoid risk concentrations in the market risk position, especially in agement units with a reporting line to Risk Management in UniCredit tight market conditions, Bank Austria has implemented at its subsid- Bank Austria AG. Uniform processes, methods, rules and limit sys- iaries Value-at-Risk limits and position limits for exchange rate risk, tems ensure consistent group-wide risk management adjusted to interest rate risk and equity risk, which are monitored daily. The local market conditions. monitoring of income trends at subsidiaries by means of stop-loss limits provides an early indication of any accumulation of position The “NoRISK” risk model has been implemented locally at major units losses. (Czech Republic, Slovakia, Hungary, Croatia, Bulgaria, Russia, Turkey), and a daily risk report is made available to the other units. The web The timely and continuous analysis of market risk and income is the application “ERCONIS” records the daily business results of treasury basis for integrated risk-return management of treasury units at sub- activities in CEE. In line with a total-return approach, measurements sidiaries.

Value at Risk of banks in CEE (€ m) Year-end 2008 figures Average Var 2008 Var minimum FX Var IR Var Spread Var

Bulgaria –3.93 –8.21 –0.26 –2.25 –8.28 Baltics –0.28 –0.26 –0.01 –0.26 0.00 Czech Republic –4.31 –7.23 –0.40 –0.92 –7.03 Croatia (incl. Bosnia) –7.08 –13.46 –0.25 –6.43 –11.96 Hungary –3.90 –10.53 –0.13 –1.74 –10.59 Kazakhstan –26.97 –42.32 –0.63 –41.58 –1.86 Romania –1.52 –3.61 –0.37 –3.58 0.00 Russia –5.96 –6.34 –1.55 –4.56 –3.42 Serbia –0.22 –0.16 –0.11 –0.10 0.00 Slovakia –1.00 –1.51 –0.08 –1.31 –0.79 Slovenia –1.23 –2.20 –0.05 –0.14 –2.14 Turkey –29.05 –48.44 –0.09 –19.96 –53.18 Ukraine –13.77 –23.55 –0.59 –23.36 –0.31 CEE –48.96 –82.02 –1.48 –66.57 –61.53

Market risk limit utilisation in CEE was comfortably within the limit in risk positions. Although volatility declined slightly by year-end until September 2008. With risk positions remaining constant or 2008, Value at Risk in the entire CEE region was still about 60% falling, Value at Risk declined slightly as volatility partly receded after above the originally established limits. the initial signs of a crisis had appeared in the second half of 2007. Then the crisis flared up with the collapse of Lehman Brothers. CDS Interest-rate and credit-spread volatility contributes to the current spreads on CEE government debt multiplied, local currencies depre- Value at Risk in CEE in more or less equal measure. The trading book ciated and interest rates rose in almost all non-euro countries in CEE. accounts for a very small part of market risk in CEE; the main part All these factors led to previously unknown peaks in the Value-at- relates to credit and government bond positions held in the banking Risk time series in partly illiquid markets, despite a downward trend books.

Bank Austria · 2008 Annual Report 197 Consolidated Financial Statements in accordance with IFRSs

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As a result, CEE accounted for about 80% of the Bank Austria The Basel II rules require the measurement at Group level of “interest Group’s market risk. rate risk in the banking book” in relation to the bank’s capital by comparing a change in the market value of the banking book after a Management of balance sheet structure 2% interest rate shock with the bank’s net capital resources. In the Credit risk, market risk and liquidity risk as well as contribution event that such an interest rate shock absorbs more than 20% of a margins from customer transactions are attributed to the bank’s bank’s net capital resources, the bank supervisory authority could business divisions in line with the principle of causation through a require the bank to take measures to reduce risk. matched funds transfer pricing system applied throughout the Group. The Asset/Liability Management function ensures that the bank’s A 2% interest rate shock would absorb about 5% of the Group’s net overall liquidity and interest rate gap structure is optimised, with the capital resources; this calculation also includes the current invest- results from interest maturity transformation being reflected in the ment of equity capital as an open risk position. This means that the Markets & Investment Banking Division. Factors taken into account in figure for Bank Austria is far below the outlier level of 20%. this context include the costs of compensation for assuming interest rate risk, liquidity costs and country risk costs associated with foreign (66b) Liquidity risk currency financing at CEE subsidiaries. Liquidity costs and country In line with Group standards, the Bank Austria Group deals with li- risk costs rose strongly in the second half of 2008, based on the quidity risk as a central risk in banking business by introducing and average funding mix in the Group. monitoring short-term and medium-term liquidity requirements (warning level). In this context the liquidity situation for the next few Products for which the material interest-rate and capital maturity is days and months and also for longer periods is analysed against a not defined, such as variable-rate sight and savings deposits, are standard scenario and stress scenarios. Methods and procedures of modelled in respect of investment period and interest rate sensitivity liquidity analysis, analyses of the degree of liquidity of customer posi- by means of analyses of historical time series, and taken into tions, management responsibilities and reporting lines in this area account in the bank’s overall risk position. Interest rate sensitivities have been laid down in the liquidity policy, which is also applicable at are determined and taken into account in hedging activities, which Bank Austria’s CEE units and includes a contingency plan in the results in a positive contribution to profits from customer business. event of a liquidity crisis.

To assess its balance sheet structure, the bank uses the Value-at- In medium-term and long-term liquidity management, liquidity inflows Risk approach, complemented by a scenario analysis covering sub- over 1 year (limit) and over 5 years (warning level) must cover a min- sequent quarters and years. The bank thus also follows the Basel II imum of 90% of expected liquidity outflows during these periods. recommendation concerning the simulation of future net interest in- This limit and warning level must be observed at Group level and for come under different interest rate scenarios (“earnings perspective”). each banking subsidiary. At Bank Austria Group level (incl. CEE), the relevant figures as at year-end 2008 were 0.98 for >1 year and In the earnings perspective analysis, simulations of the future devel- 0.96 for >5 years. opment of net interest income and of the market value of the banking book are generally based on assumptions regarding volume and For the purpose of short-term liquidity management, volume limits margin developments under different interest rate scenarios. Parallel have been implemented in the Bank Austria Group and in all banks interest rate shocks as well as inversions and low-interest-rate sce- for maturities up to three months, which limit all Treasury transac- narios can be analysed to identify their possible impact on the bank’s tions and the securities portfolio of the respective bank. Additionally, net interest income and market value. limits have been established for Bank Austria for open maturities in various currencies to keep down follow-up funding risk in the event The analyses performed as at September 2008 show that a decline that foreign currency markets dry up. in interest rates in all currencies would have the strongest impact on the bank’s net interest income. This is a typical feature of commer- These limits were essentially observed. However, the liquidity strain in cial banks, given the interest rate remanence on the liabilities side of the wake of the Lehman Brothers crisis led to overdrafts in some banks’ balance sheets (sight deposits, equity). areas, which were covered through increased tender operations and Group backing.

198 2008 Annual Report · Bank Austria Funding the CEE subsidiaries is one of the main functions of the bank to calculate the average exposure and the modified average Group’s liquidity management. Long-term funds are made available exposure pursuant to Basel II, as well as the effective maturity of the to the subsidiaries for their business on the basis of a funding plan. exposure to each counterparty. This makes it possible to integrate Bank Austria adhered to its funding plan despite the market turbu- counterparty risk in an internal model compliant with Basel II for the lence. computation of capital requirements.

Liquidity costs are part of the reference rate system. The applicable Bank Austria additionally limits the credit risk arising from its deriva- alternative costs are debited or, on the basis of an opportunity ap- tives business through strict use of master agreements, the definition proach, credited to the various products on the assets side and the and ongoing monitoring of documentation standards by legal experts, liabilities side which have an effect on liquidity. In the current control- and through collateral agreements and break clauses. Management ling process this ensures the proper pricing of our business. takes proper account of default risk, especially in view of the increase in business volume, despite the good average credit rating (66c) Counterparty risk of our business partners in the derivatives business. For the purposes of portfolio management and risk limitation in the derivatives business with banks and customers, and on the basis of (66d) Credit risk the internal market risk model, Bank Austria has set up a Monte Trends in net writedowns of loans and provisions for guarantees and Carlo path simulation to estimate the potential future exposure at commitments varied considerably in the course of 2008. The first portfolio level for each counterparty. The calculations are based on nine months showed very satisfactory developments, especially in the market volatility, correlations between specific risk factors, future Corporates Division with a net release of a double-digit million euro cash flows and stress considerations. Netting agreements and collat- amount. In the fourth quarter, however, the impact of the financial eral agreements are also taken into account for simulation purposes. crisis and its initial direct effects on the real economy became discernible. The simulation calculations are performed for all major types of transactions, e.g. forward foreign exchange transactions, interest Although risk was immediately limited, the collapse of Lehman Broth- rate instruments, equity-related instruments and credit derivatives. ers, the banking crisis, general financial problems in Iceland and the Commodity derivatives, securities lending transactions and repur- deteriorating economic environment had an adverse impact on net chase agreements are currently taken into account with an add-on writedowns of loans and provisions for guarantees and commitments (depending on volatility and maturity); securities lending transactions in the Bank Austria Group. At € 1,012 m, the provisioning charge for and repurchase agreements will be integrated in the Monte Carlo 2008 was some two-thirds higher than the pro-forma figure for 2007 simulation model in 2009. The bank applies a confidence interval of including the new subsidiaries in Kazakhstan and Ukraine. 97.5%. In the Retail Division, net writedowns of loans and provisions for At the end of 2008, derivative transactions of the Bank Austria Group guarantees and commitments were about € 206 m for UniCredit (without intra-group transactions) resulted in the following exposures: Bank Austria AG, a figure that was yet again below budget and slightly better than in the previous year. Risk-reducing measures

Exposures (€ m) taken in this business segment more than offset the insolvency- related impact resulting from the gradually discernible effects of the Banks 4,790 economic downturn. Corporates/Retail 1,881 CEE 1,019 After a very good first nine months, the Corporates Division was hit total 7,690 in the fourth quarter by the financial crisis and its initial impact on the real economy. Provisions required to be made for banks in Ice- Line utilisation for derivatives business is available online in WSS land and other countries, and in the Multinational Corporates sector, (“Wallstreet”), the central treasury system, on a largely group-wide brought the provisioning charge for UniCredit Bank Austria AG to basis. In addition to determining the potential future exposure for the about € 100 m, a level that is above budget and about one-third purpose of internal risk control, the path simulation also enables the higher than the low figure for the previous year.

Bank Austria · 2008 Annual Report 199 Consolidated Financial Statements in accordance with IFRSs

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The Markets and Investment Banking Division had to make signifi- The strongest increase in net writedowns of loans and provisions for cant provisions – for the first time in many years, and especially in guarantees and commitments compared with 2007 was seen in the fourth quarter – of € 130.6 m in AIB and € 34.5 m in UniCredit Russia and Romania, where the provisioning charge rose by € 36 m Bank Austria AG. AIB was required to make provisions for transac- (Russia) and € 22 m (Romania), respectively. Banking operations in tions with banks which collapsed (primarily Lehman Brothers and the Baltic countries also recorded a significant increase of € 11 m. Iceland), for Russian equity repurchase transactions which became irrecoverable as a result of the crisis in financial markets, and for While countries in Central Europe (Czech Republic, Hungary, Slovakia individual assets from the reclassified ABS portfolio; UniCredit Bank and Slovenia) started to feel the impact of the economic and financial Austria AG made provisions for financing transactions with customers crisis (with Hungary hit hardest), net writedowns of loans and provi- in the commodities sector. sions for guarantees and commitments in this region were only € 15 m higher than in the previous year. The provisioning charge in Net writedowns of loans and provisions for guarantees and commit- Croatia, Serbia and Bulgaria was more or less stable. ments at banking subsidiaries in Central and Eastern Europe rose to about € 537 m in 2008. The two subsidiaries Ukrsotsbank (Ukraine) Net writedowns of loans and provisions for guarantees and commit- and ATF (Kazakhstan), where the provisioning charge reached a comments in Turkey and Bosnia rose by € 18 m (Turkey) and € 8 m bined € 214 m, were consolidated for the first time. For this reason, (Bosnia), respectively. In this context it should be noted that a one-off the figure for CEE banking subsidiaries is not directly comparable effect in Bosnia resulted in an atypically low provisioning charge of with the previous year’s level (€ 211 m). € 1 m in 2007.

Breakdown of financial assets by portfolio and credit quality (carrying value) (€ m) Non- performing Doubtful Restructured Portfolio/Quality loans assets exposures Past-due Country risk Other Assets Total

Financial assets held for trading – – – – – 4,489 4,489 Available-for-sale financial assets – 3 – – – 10,031 10,034 Held-to-maturity financial instruments – – – – – 5,754 5,754 Loans and receivables with banks 31 7 – – – 19,985 20,023 Loans and receivables with customers 1,374 1,560 217 128 – 128,693 131,973 Financial assets at fair value through profit or loss – – – – – 567 567 Financial instruments classified as held for sale 26 12 – 14 – 33,054 33,106 Hedging instruments – – – – – 85 85 Total 31 dec. 2008 1,431 1,583 217 142 – 202,657 206,030

200 2008 Annual Report · Bank Austria Breakdown of financial assets by portfolio and credit quality (gross and net values) (€ m) impaired assets other assets Gross Specific Portfolio Net Gross Portfolio Net Total (Net Portfolio/Quality Exposure writedowns adjustments exposure Exposure adjustments exposure Exposure)

Banking group Financial assets held for trading – – – – 4,489 X 4,489 4,489 Available-for-sale financial assets 4 1 – 3 10,035 4 10,031 10,034 Held-to-maturity financial instruments – – – – 5,754 – 5,754 5,754 Loans and receivables with banks 101 62 – 38 19,985 – 19,985 20,023 Loans and receivables with customers 6,483 3,204 – 3,280 129,366 672 128,693 131,973 Financial assets at fair value through profit or loss – – – – 567 X 567 567 Financial instruments classified as held for sale 185 133 – 52 33,059 5 33,054 33,106 Hedging instruments – – – – 85 X 85 85 Total 31 dec. 2008 6,773 3,400 – 3,373 203,339 682 202,657 206,030

On- and off-balance sheet exposure to banks: gross and net values (€ m) amounts as at 31 dec. 2008 Exposure types/Amounts Gross Exposure Specific writedowns Portfolio adjustments Net exposure

Balance sheet exposure Non-performing loans 60 29 – 31 Doubtful loans 41 33 – 8 Restructured exposures – – – – Past due – – – – Country risk 7 X – 7 Other assets 23,863 X 3 23,860 TOTAL 23,972 62 3 23,907

On- and off-balance sheet exposure to customers: gross and net values (€ m) amounts as at 31 dec. 2008 Exposure types/Amounts Gross Exposure Specific writedowns Portfolio adjustments Net exposure

Balance sheet exposure Non-performing loans 3,873 2,499 – 1,374 Doubtful loans 1,986 424 – 1,562 Restructured exposures 470 252 – 217 Past due 157 29 – 128 Country risk – X – – Other assets 143,660 X 674 142,987 TOTAL 150,147 3,204 674 146,269

Bank Austria · 2008 Annual Report 201 Consolidated Financial Statements in accordance with IFRSs

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Credit risk methods and instruments impact of turbulence in international financial markets. In this con- Very important factors in the credit approval process are a detailed text, credit risk stress tests, which are required by bank supervisory assessment of risk associated with each loan exposure, and the cus- authorities and are carried out on a regular basis, are an essential tomer’s credit rating in particular. Every lending decision is based on instrument for assessing future risks in an unfavourable economic a thorough analysis of the loan exposure, including an evaluation of environment. Such tests enable the Management Board to assess all relevant factors. Following the initial loan application, the bank’s the adequacy of regulatory capital and economic capital on the loan exposures are reviewed at least once a year. If the borrower’s basis of different stress scenarios. creditworthiness deteriorates substantially, shorter review intervals are obligatory. With risk-adjusted pricing and a stronger focus on risk management, we aim to constantly improve the diversification and the risk/ For internal credit assessment in Austria and by Bank Austria’s bank- earnings ratio of the portfolio. For real estate customers, the cus- ing subsidiaries in CEE, the bank uses various rating and scoring tomer-related rating is complemented by a transaction rating. models (for calculating the parameters PD, LGD and EAD on the basis of models specifically developed for these purposes)* for the Bank Austria uses a scoring system for retail customers. The auto- customer/business segments to be assessed, in line with the various mated rating tool is used for assessing, monitoring and managing asset classes pursuant to Section 22b of the Austrian Banking Act, the large number of loan exposures to private customers, small the Solvency Regulation and Directive 2006/48/EC of the European businesses, independent professionals and small non-profit organi- Parliament and of the Council of 14 June 2006 relating to the taking sations. Retail scoring comprises an application scoring procedure up and pursuit of the business of credit institutions. There are coun- based on effective and recognised mathematical and statistical try-specific or region-specific models (e.g. for corporate customers, methods, and a behaviour scoring procedure taking into account retail customers) and global models (e.g. for sovereigns, banks, mul- such factors as amounts received in the account and customers’ tinational corporates). The assessment of a loan exposure is based payment practices. The scoring system for retail customers pro- on data from the respective company’s financial statements and on vides information that is updated on a monthly basis. This gives the qualitative factors. bank an efficient tool for lending decisions and early recognition of risk. Automated data processing helps Bank Austria to reduce costs The various rating and scoring models provide the basis for efficient required for credit control while accelerating lending decisions. risk management of the Bank Austria Group and are embedded in all decision-making processes relating to risk management. They are Credit risk-related activities in 2008 included the IRB4CEE project, also a key factor for capital required to be held against risk-weighted through which the CEE subsidiaries were prepared for and sup- assets. Great attention is given to consistency in the presentation for ported in the gradual switch from the standardised approach to the supervisory purposes and the requirements of internal control. IRB approaches. After detailed plans of the required implementation measures and milestones had been made in close cooperation with All internal rating and scoring systems are monitored on an ongoing Strategic Risk Management specialists at Bank Austria, the CEE basis and are subject to regular validation on an annual basis, includ- units started with the implementation and completion of appropriate ing a review to verify if the rating/scoring system provides a correct rating systems and of the required time-series collections. The representation of the risks to be measured. All model assumptions models used are regularly revalidated by Bank Austria’s experts to are based on multi-year statistical averages for historical defaults ensure consistent, group-wide implementation of the rating sys- and losses, with increased attention to be given to the potential tems.

*) PD = Probability of Default; LGD = Loss Given Default; EAD = Exposure at Default

202 2008 Annual Report · Bank Austria Balance-sheet and off-balance sheet exposure by external rating class (book values) (€ m) Amounts as at 31 dec. 2008 External rating classes Lower Impaired AAA/AA– A+/A– BBB+/BBB– BB+/BB– B+/B– than B– assets No rating Total

On-balance-sheet exposures 42,831 21,964 24,062 22,013 5,736 960 3,360 67,598 188,522 Banks 23,227 4,553 1,869 1,260 391 9 63 6,474 37,846 Customers 19,604 17,410 22,193 20,753 5,344 951 3,297 61,124 150,676 Derivative contracts 14,403 8,461 737 324 139 1 13 30,516 54,593 Banks 14,253 8,182 309 67 24 1 – 20,554 43,389 Customers 150 279 428 257 115 – 13 9,963 11,204 Financial derivative contracts 13,907 8,445 506 321 139 1 13 30,278 53,608 Banks 13,772 8,166 78 64 24 1 – 20,315 42,419 Customers 135 279 428 257 115 – 13 9,963 11,189 Credit derivatives 496 16 231 3 – – – 238 985 Banks 482 16 231 3 – – – 238 970 Customers 15 – – – – – – 15 Guarantees given 2,769 2,630 3,390 2,112 548 152 182 10,775 22,557 Banks 2,287 76 274 236 121 5 2 289 3,290 Customers 482 2,554 3,115 1,876 428 147 179 10,485 19,267 Other commitments to disburse funds 405 2,464 2,499 1,679 363 131 58 13,682 21,281 Banks 1 57 1 – – – – 136 195 Customers 404 2,408 2,499 1,678 363 131 58 13,546 21,086 Total 60,407 35,519 30,688 26,128 6,786 1,244 3,612 122,570 286,954

Bank Austria · 2008 Annual Report 203 Consolidated Financial Statements in accordance with IFRSs

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Balance-sheet and off-balance sheet exposure by internal rating class (book values) (€ m) 31 dec. 2008 Internal rating classes A B C D E F

On-balance-sheet exposures 41,481 18,442 16,212 19,200 11,654 10,451 Banks 21,100 5,152 501 945 1,549 175 Customers 20,380 13,289 15,711 18,256 10,106 10,275 Derivative contracts 18,819 5,306 5,440 779 397 840 Banks 18,646 4,985 5,072 158 85 – Customers 172 321 369 622 311 840 Financial derivative contracts 18,322 5,290 5,209 779 397 840 Banks 18,165 4,969 4,840 158 85 – Customers 158 321 369 622 311 840 Credit derivatives 496 16 231 – – – Banks 482 16 231 – – – Customers 15 – – – – – Guarantees given 2,990 2,295 2,714 3,087 941 1,974 Banks 2,277 150 31 143 44 181 Customers 713 2,145 2,683 2,944 897 1,792 Other commitments to disburse funds 624 2,304 2,419 2,814 923 1,859 Banks 117 58 – 9 – – Customers 507 2,246 2,419 2,804 923 1,859 Total 63,913 28,346 26,785 25,880 13,915 15,123

31 dec. 2008 Internal rating classes IMPAIRED NO G H I J ASSETS RATING TOTAL

On-balance-sheet exposures 6,370 7,292 7,251 2,453 3,360 44,356 188,522 Banks 152 375 290 7 63 7,538 37,846 Customers 6,218 6,917 6,961 2,447 3,297 36,818 150,676 Derivative contracts 63 417 272 34 13 22,213 54,593 Banks 3 – 24 – – 14,416 43,389 Customers 60 417 248 34 13 7,797 11,204 Financial derivative contracts 61 417 272 34 13 21,975 53,608 Banks 1 – 24 – – 14,178 42,419 Customers 60 417 248 34 13 7,797 11,189 Credit derivatives 3 – – – – 238 985 Banks 3 – – – – 238 970 Customers – – – – – – 15 Guarantees given 708 927 1,074 410 182 5,258 22,557 Banks 114 46 109 5 2 189 3,290 Customers 594 881 965 405 179 5,069 19,267 Other commitments to disburse funds 656 739 830 282 58 7,774 21,281 Banks – – – – – 10 195 Customers 656 739 830 282 58 7,763 21,086 Total 7,797 9,375 9,427 3,179 3,612 79,601 286,954

204 2008 Annual Report · Bank Austria Credit Treasury In the same way as for other types of risk, in addition to central risk Since the implementation of Credit Treasury (CT; former Active controlling, Bank Austria – like UniCredit – has built up a decentra- Credit Portfolio Management ACPM) a predefined corporate seg- lised risk management network of contacts within departments and ment of customers is actively managed according to capital market at subsidiaries (OpRisk Managers). While the main task of central principles, in addition to the unchanged credit process for credit risk management is to define the methods used and to perform risk risks. By mapping the credit risk from customer business through measurement and analysis, local risk managers are responsible for a reference structure derived from maturity-matched market prices, taking measures to reduce, prevent, or take out insurance against, a risk-adequate pricing of this portfolio segment is secured, accom- risks. panied by efficient capital market control. In Credit Treasury, the risk positions are aggregated and the bank’s credit risk profits are opti- Activities in 2008 focused on meeting requirements that were mised. By actively hedging and re-investing, Credit Treasury is to imposed by the Austrian Financial Market Authority (FMA) after its widen the portfolio’s diversification, and contributes to an improve- on-site supervisory assessment of the advanced approach, and on ment of the risk-return profile. preparing and supporting regulatory reviews at banking subsidiaries.

The quarterly Credit Treasury Committee, analogously to the Market Quite generally, the organisation of operational risk management at Risk Committee (MACO), serves to actually steer business in regard Bank Austria has been established at a high quality level. A network to the risk-return situation in Credit Treasury as well as to adapt of independent functions and teams are involved in managing and limits and to decide on positions. controlling risks, providing the Management Board with sufficient information on the risk situation and enabling the Management In 2008, Credit Treasury again executed two synthetic securitisa- Board to manage risk. Improvements with regard to the extended tions relating to Austrian and international corporate loans. documentation requirements for scenarios, risk indicators and the analysis of the general ledger for operational risk relevance as well (66e) Operational risk as an ongoing expansion and strengthening of the functions of divi- Analogous to Basel II, operational risk is defined as the risk of sional Operational Risk Managers took place in the course of 2008. losses due to human error, flawed management processes, natural and other catastrophes, technological failures and external events. The task of dealing with operational risk issues was transferred For example, in the future, IT system failures, damage to property, from the Asset/Liability Committee (ALCO) to a separate Opera- processing errors or fraud will be subject to more accurate and tional Risk Committee, whose meetings are held on a quarterly consolidated risk measurement and management, on which the basis and are also attended by the divisional Operational Risk calculation of risk capital will be based. Managers and representatives of CEE banking subsidiaries. The introduction of the OpRisk Committee is a major step forward towards Loss data are collected, and processes are optimised, in close coor- integrating operational risk in the bank’s processes; its main tasks dination and cooperation with other departments and units including are to track progress and serve as a body to which unresolved Internal Audit, the Compliance Office, Legal Affairs and the insur- issues are referred. ance sector. Also to be considered is the fact that Bank Austria has always taken numerous measures in the various divisions to man- In 2009, activities with regard to operational risk will focus on age and reduce operational risk. Examples are data security mea-  completing implementation of the requirements under the sures, measures to ensure the confidentiality and integrity of stored regulatory reviews in Italy, Austria and Croatia, data, access authorisation systems, the two-signatures principle,  supporting the units pursuant to the AMA rollout plan in and a large number of monitoring and control processes as well as implementing the regulatory reviews for Basel II implementation staff training programmes. in cooperation with UniCredit Group,  further analysis of the existing insurance coverage of our Group and preparation of a data protection strategy.

Bank Austria · 2008 Annual Report 205 Consolidated Financial Statements in accordance with IFRSs

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(66f) Business risk credit balances held, and disposed of, by the Communist Party of Business risk is defined as unexpected adverse changes in business Austria (KPÖ) at the former banking subsidiary in Zurich. volume and/or margins which cannot be attributed to other types of  Action brought by Valauret S.A. in Paris on the grounds of alleged risk. Adverse changes result mainly from a significant deterioration in involvement of Creditanstalt AG (now UniCredit Bank Austria AG) in market conditions, changes in the competitive position or customer wilful deception in connection with a French joint stock company as behaviour, and from changes in the legal environment. a result of which the plaintiffs incurred losses through a loss in value of shares acquired by it in the joint stock company. Business risk measurement thus measures the influence of external  In connection with the investments affected by the Madoff case, factors on a decline in profits and the effect on the market value. several customers addressed enquiries and complaints to Bank Aus- tria, but Bank Austria has not been served with any statement of As part of general income and cost management, operational man- claims in this context. Investors concerned are said to have brought agement of business risk is the responsibility of the individual busi- actions before a US court against parties including Bank Austria as ness units. shareholder of Bank Medici AG; in this case, too, Bank Austria has not been served with any statement of claims. (66g) Risks arising from the bank’s shareholdings and equity interests (68) Information on the squeeze-out In dealing with this type of risk, Bank Austria takes into account market price fluctuations in its equity holdings in listed and unlisted pursuant to the Austrian Federal Act companies. on the Squeeze-out of Minority Share- Not included are equity interests in consolidated subsidiaries of the holders (Gesellschafterausschluss- Group because risks associated with such companies are determined and recorded under the various other risk types. gesetz) of the holders of bearer shares

The portfolio includes various strategic investments and real estate in UniCredit Bank Austria AG companies; real estate holding companies are taken into account in real estate risk. The company’s Annual General Meeting on 3 May 2007 adopted a resolution concerning the planned squeeze-out. The legal actions for Generally, Value at Risk is determined on the basis of market values rescission and declaration of nullity brought against various resolu- and volatilities of the relevant equity interests. For shares in unlisted tions adopted at the Annual General Meeting on 3 May 2007 were companies the bank uses book values and volatilities of relevant terminated in spring 2008. The squeeze-out was entered in the stock exchange indices and takes account of residual variances. Register of Firms on 21 May 2008. After that date, former minority shareholders initiated proceedings for a review of the cash compen- (67) Legal risks sation offered by UniCredit. Provisions have been made for pending legal risks in line with the (69) Financial derivatives estimated probability of costs arising from litigation. Derivatives shown in the following tables are classified as financial No provisions have been made, inter alia, for the following pending derivatives and credit derivatives, according to the underlying finan- legal proceedings due to the low probability of claims being lodged. cial instrument. In these categories, a distinction is made between An outflow of funds cannot, however, be excluded in these cases, trading book and banking book and between different counterparties. either: UniCredit Bank Austria’s business volume in derivatives focuses on  Action brought by the German Bundesanstalt für vereinigungs interest rate contracts. bedingte Sonderaufgaben (BVS) in Switzerland for repayment of

206 2008 Annual Report · Bank Austria Over-the-counter transactions are individual agreements concerning For the purposes of portfolio and risk management, contracts are volume, maturities and underlying instrument. In large-volume inter- valued at current prices using recognised and tested models. Market bank trading, these agreements reflect international practice, while values show the contract values as at the balance sheet date, posi- in customer business they are usually adjusted to specific needs. tive market values indicate the potential default risk arising from the Exchange-traded contracts are always standardised in respect of relevant activity. For the purposes of credit risk management, deriva- volume and maturity date. tives are taken into account with their respective positive market value and an add-on depending on the product, currency and matu- Derivatives are mainly used for trading purposes. Market participants rity. Add-ons applied in internal credit risk management for the po- include banks, securities houses, mutual funds, pension funds and tential future exposure are based on the current market volatility rela- corporate customers. Customers can use these instruments to hedge tive to the remaining period to maturity of the transactions. Given the risk positions against unfavourable price fluctuations and, depending underlying confidence interval of 97.5%, these add-ons are in most on the strategies pursued by customers, they can benefit from cases clearly above the relevant levels pursuant to the Austrian changes in prices, exchange rates and interest rates. Banking Act.

UniCredit Bank Austria AG is a business partner in plain-vanilla and Line utilisation for derivatives business is available online in WSS structured transactions for international and local banks as well as (“Wallstreet”), the central treasury system, on a largely Group-wide for institutional and corporate customers. basis. For smaller units not connected to the central system, separate lines are allocated and monitored. Group-wide compliance with As at 31 December 2008, the total volume of derivative financial in- lines approved in the credit process is thus ensured at any time. struments (excluding credit derivatives) was € 80 bn in the trading book and € 4 bn in the banking book. Interest rate contracts account UniCredit Bank Austria AG additionally limits the credit risk arising for the largest proportion of total volume. Securities-related trans from its derivatives business through strict use of master agree- actions, credit derivatives and other derivatives account for a comments, through collateral agreements and break clauses. In combina- paratively small proportion of total volume, but the significance of tion with the very good average credit rating of our business partners such derivatives has been growing over the past years. in the derivatives business, management takes proper account of default risk.

Bank Austria · 2008 Annual Report 207 Consolidated Financial Statements in accordance with IFRSs

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Total volume of outstanding financial derivative transactions as at 31 December 2008

Regulatory portfolio – notional amounts (€ m) Trading book Banking book listed unlisted unlisted

Forward rate agreements – 7,665 367 Interest rate swaps – 27,018 3,020 Domestic currency swaps – 3,062 10 Currency interest rate swaps – 1,940 107 Basis swaps – 4,053 – Stock index swaps – – – Commodity index swaps 23 104 – Futures 87 674 – Cap options – 4,357 30 Floor options – 844 – Other options – 13,241 2 Forwards 3 16,790 153 Other derivative contracts – 125 – TOTAL 113 79,874 3,689

OTC financial derivatives: positive and negative fair value (€ m) Positive Negative fair value fair value gross amount gross amount

Regulatory trading book 2,652 2,123 Central governments and banks 93 12 Public bodies 14 2 Banks 1,221 1,386 Financial companies 39 48 Insurance companies 5 17 Non-financial enterprises 1,175 628 Other entities 105 30

Banking Book 89 128 Central governments and banks – – Public bodies 1 – Banks 83 76 Financial companies – – Insurance companies – – Non-financial enterprises 2 50 Other entities 3 2 Total 2,741 2,251

208 2008 Annual Report · Bank Austria Credit derivatives (€ m) Positive Negative Notional amount fair value Notional amount fair value

REGULATORY TRADING BOOK 7 – – – Purchases of protection – counterparty 7 – – – Central governments and central banks – – – – Public bodies – – – – Banks – – – – Financial companies – – – – Insurance companies 7 – – – Non-financial enterprises – – – – Other entities – – – – Sales of protection – counterparty – – – – Central governments and central banks – – – – Public bodies – – – – Banks – – – – Financial companies – – – – Insurance companies – – – – Non-financial enterprises – – – – Other entities – – – – BANKING BOOK – – – – TOTAL 7 – – –

OTC derivatives – residual life: notional amount (€ m) From 1 to 5 Up to 1 year years Over 5 years Total

Financial derivatives Trading book 39,009 26,725 14,080 79,813 Financial derivative contracts on debt securities and interest rates 15,735 20,931 11,807 48,472 Financial derivative contracts on equity securities and share indices 189 185 491 865 Financial derivative contracts on exchange rates and gold 21,806 5,557 1,783 29,146 Financial derivative contracts on other underlying assets 1,279 51 – 1,330 Banking book 1,119 1,096 1,477 3,692 Financial derivative contracts on debt securities and interest rates 954 988 1,477 3,418 Financial derivative contracts on equity securities and share indices – 2 – 2 Financial derivative contracts on exchange rates and gold 166 107 – 272 Financial derivative contracts on other underlying assets – – – –

Credit derivatives Trading book 7 – – 7 Credit derivatives with qualified reference obligation – – – – Credit derivatives with not qualified reference obligation 7 – – 7 Banking book – – – – Credit derivatives with qualified reference obligation – – – – Credit derivatives with not qualified reference obligation – – – – Total 40,135 27,821 15,557 83,513

Bank Austria · 2008 Annual Report 209 Consolidated Financial Statements in accordance with IFRSs

Notes (CONTINUED)

Information required under Austrian law

(70) Consolidated capital resources and regulatory capital requirements The following tables show the capital requirements for the Bank Austria as the various components of Bank Austria’s capital resources as at group of credit institutions pursuant to Section 30 of the Austrian the end of 2008 and 2007: Banking Act as at the balance sheet date of 2008 and 2007, as well

Net capital resources of the Bank Austria group of credit institutions (€ m) 31 dec. 2008 31 dec. 2007 basel II basel I

Paid-in capital (less own shares) 1,469 1,468 Reserves and minority interests 9,032 8,912 Intangible assets –718 –702 Core capital (Tier 1, under Basel I) 9,783 9,678 Deductions from Tier 1 capital (in particular 50% deduction pursuant to Section 23 (13) 3 to 4d of the Austrian Banking Act)3) –702 – Core capital (Tier 1, under Basel II) 9,081 9,678 Net subordinated liabilities 3,439 3,893 Revaluation reserves and undisclosed reserves 128 141 Supplementary capital resources (Tier 2, under Basel I) 3,567 4,034 Deductions from Tier 2 (50% deduction pursuant to Section 23 (13) 3 to 4d)3) –697 – Supplementary capital resources (Tier 2, under Basel II) 2,870 4,034 Deductions from Tier 1 and Tier 2 (under Basel II only deduction pursuant to Section 23 (13) 4a)4) –139 –1,153 Net capital resources (excl. Tier 3) 11,812 12,559 Tier 3 (re-assigned subordinated capital) 439 606 NET CAPITAL RESOURCES (INCL. TIER 3) 12,251 13,165

Capital requirements of the Bank Austria group of credit institutions (€ m) 31 dec. 2008 31 dec. 2007 basel II basel I

Basel I Banking book 8,833 Trading book 606 Basel II a) Credit risk pursuant to standardised approach 7,368 b) Credit risk pursuant to internal ratings-based (IRB) approach 2,072 Credit risk 9,440 Operational risk 773 Position risk – debt instruments, equities, foreign currencies and commodities 439 Settlement risk 7 CAPITAL REQUIREMENT 10,659 9,439 Total RWA 133,239 117,993

Capital ratios 31 dec. 2008 31 dec. 2007 basel II basel I

Tier 1 capital ratio, based on all risks 6.82% 8.20% Total capital ratio, based on all risks1) 9.19% 11.16% Tier 1 capital ratio, based on credit risk 7.70% 8.76% Total capital ratio, based on credit risk2) 9.35% 11.37% 1) Net capital resources (incl. Tier 3) as a percentage of the risk-weighted assessment basis for all risks 2) Total capital resources less requirement for trading book, commodities risk, exchange rate risk and operational risk as a percentage of the risk-weighted assessment basis for credit risk 3) Capital components in non-consolidated companies and “shortfall” 4) Capital components in insurance companies

210 2008 Annual Report · Bank Austria Concluding Remarks of the Management Board of UniCredit Bank Austria AG

The Management Board of UniCredit Bank Austria AG has prepared The consolidated financial statements and the management report of the consolidated financial statements for the financial year beginning the Group contain all required disclosures; in particular, events of on 1 January 2008 and ending on 31 December 2008, in accor- special significance which occurred after the end of the financial year dance with International Financial Reporting Standards (IFRSs) pub- and other major circumstances that are significant for the future lished by the International Accounting Standards Board as adopted development of the Group have been appropriately explained. by the European Union. The management report of the Group was prepared in accordance with the Austrian Commercial Code and is consistent with the consolidated financial statements.

Vienna, 9 March 2009

The Management Board

Erich Hampel (Chairman)

Helmut Bernkopf Federico Ghizzoni Ralph Müller

Carlo Vivaldi Stephan Winkelmeier Robert Zadrazil

Bank Austria · 2008 Annual Report 211 Consolidated Financial Statements in accordance with IFRSs Report of the Auditors

Auditors’ report An audit involves performing audit procedures to obtain evidence about the amounts and disclosures in the consolidated financial We have audited the consolidated financial statements of UniCredit statements. The procedures selected depend on the auditors’ judge- Bank Austria AG, Vienna, for the financial year from 1 January 2008 ment, including the assessment of the risks of material misstatement to 31 December 2008. These consolidated financial statements com- of the consolidated financial statements, whether due to fraud or prise the consolidated balance sheet at 31 December 2008, the con- error. In making those risk assessments, the auditors consider inter- solidated income statement, the cash flow statement of the Group nal control relevant to the preparation and fair presentation of the and the statement of changes in equity of the Group for the financial consolidated financial statements in order to design audit procedures year ended 31 December 2008, and a summary of significant ac- that are appropriate in the circumstances, but not for the purpose of counting policies and other explanatory notes. expressing an opinion on the effectiveness of the Group’s internal control. An audit also includes the assessment of the appropriateness Management’s responsibility for the consolidated of the applied accounting policies used and the reasonableness of financial statements significant accounting estimates made by management, as well as Management is responsible for the preparation and fair presentation evaluating the overall presentation of the consolidated financial state- of these consolidated financial statements in accordance with Inter- ments. national Financial Reporting Standards (IFRSs) as endorsed by the European Union. This responsibility includes: designing, implementing We believe that the audit evidence we have obtained is sufficient and and maintaining internal controls relevant to the preparation and fair appropriate to provide a basis for our opinion. presentation of consolidated financial statements that are free from material misrepresentation, whether due to fraud or error; selecting Opinion and applying appropriate accounting policies; and making estimates Our audit did not give rise to any objections. Based on the results of that are reasonable in the circumstances. the audit, in our opinion, the consolidated financial statements comply with the laws and regulations and present fairly, in all material re- Auditors’ responsibility spect, the financial position of the Group as at 31 December 2008 Our responsibility is to express an opinion on these consolidated fi- and of its financial performance and its cash flows for the financial nancial statements based on our audit. We conducted our audit in year from 1 January 2008 to 31 December 2008 in accordance with accordance with the laws and regulations applicable in Austria and in International Financial Reporting Standards (IFRSs) as adopted by the accordance with International Standards on Auditing (ISAs), issued by European Union. the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misrepresentation.

212 2008 Annual Report · Bank Austria Report on other legal and regulatory requirements Laws and regulations applicable in Austria require us to perform audit procedures to ascertain whether the management report of the Group is consistent with the consolidated financial statements, and whether the other disclosures made in the management report of the Group do not give rise to misconception of the position of the Group.

In our opinion, the management report of the Group is consistent with the consolidated financial statements.1

Vienna, 27 April 2009

Austrian Savings Bank Auditing Association Auditing Board (Bank Auditors)

Erich Kandler Friedrich O. Hief Public Accountant Public Accountant

KPMG Austria GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft

Bernhard Gruber Martin Wagner Public Accountant Public Accountant

In case that the consolidated financial statements are disclosed or handed over to a third party in a version which differs from that (unabbreviated German version) certified by us (e.g. abbreviated version or translation), our prior approval is necessary if our audit opinion is included or our audit is mentioned.

Bank Austria · 2008 Annual Report 213 Consolidated Financial Statements in accordance with IFRSs Report of the Supervisory Board for 2008

The Supervisory Board of UniCredit Bank Austria AG will deal with the “Report of the Supervisory Board for 2008” in its meeting on 11 May 2009 and will publish the report here immediately after the meeting.

214 2008 Annual Report · Bank Austria Bank Austria · 2008 Annual Report 215

Corporate Governance, Statement by Management, Supervisory Board and Management Board

Corporate Governance 218

Consolidated Financial Statements of the Bank Austria Group for 2008 Statement by Management 221

Supervisory Board and Management Board of UniCredit Bank Austria AG 222 Supervisory Board 222 Representatives of the Supervisory Authorities 222 Management Board 223 Committees of the Supervisory Board 223

Bank Austria · 2008 Annual Report 217 Corporate Governance, Statement by Management, Supervisory Board and Management Board Corporate Governance

UniCredit Bank Austria AG has always attached great importance to The internal rules for the Supervisory Board lay down its responsibili- responsible and transparent management meeting the expectations ties and competencies in overseeing the company. Four permanent of international capital markets. committees assist the plenum in carrying out its duties: the audit committee, the credit committee, the strategy and nominations committee, UniCredit Bank Austria AG’s management is wholeheartedly com- and the Management Board affairs committee (compensation commit- mitted to the values of corporate governance. We see the committee). In addition, a separate committee was established in the 2008 ment to the provisions laid down in the Austrian Code of Corporate financial year on the occasion of the sale of the properties in Am Hof Governance in conformity with responsible management for the and Vordere Zollamtsstrasse. creation of sustainable value in all areas in close cooperation with the Supervisory Board. The company applies the Austrian Code of The audit committee is responsible for the audit, and the preparation Corporate Governance as amended and effective from June 2007. of the adoption, of the financial statements and consolidated financial statements, the proposal for the appropriation of profits and the man- Transparency agement report (of the Group) and for matters related to the auditors. Since 2008, the audit committee has performed additional functions, Transparency is an important element of good corporate govern- namely monitoring the financial reporting process, the effectiveness of ance, with communication playing a key role. All stakeholders of the internal control system, the internal audit system and the risk man- the company as well as financial analysts, employees and the agement system of the company as well as monitoring the audit of fi- general public are informed simultaneously and in a timely manner nancial statements and the audit of consolidated financial statements. about major events affecting the company. The Management Board, the Investor Relations team and the Identity & Communica- The strategy and nominations committee prepares basic decisions for tions department performed this communication function in a the Supervisory Board, in cooperation with the Management Board responsible manner in 2008. Press releases and presentations of and, if required, using the services of experts. The strategy and nomi- the company are made available to all interested parties on Uni- nations committee also submits proposals to the Supervisory Board for Credit Bank Austria AG’s website. In this manner it is always possi- appointments to the Management Board when positions become ble to access up-to-date information. vacant and it deals with issues of successor planning.

Transparency also means clear management structures and The Management Board affairs committee (compensation committee) responsibilities in a company. In addition to legal provisions relating is responsible for all matters relating to the relationship between the to management and control of a public limited company (Aktienge- company and Management Board members, especially for matters sellschaft) and additional provisions laid down by the Austrian Code relating to the compensation of Management Board members and for of Corporate Governance, the Articles of Association of UniCredit the contents of employment contracts with Management Board mem- Bank Austria AG published on our website, as well as the internal bers. As in previous years, the remuneration of Management Board rules for the Supervisory Board and the Management Board and members is divided into fixed and performance-linked components in their distribution of responsibilities, lay down clear-cut competen- accordance with Rule 30 of the Austrian Code of Corporate Govern- cies and responsibilities and form the basis for target-oriented, ance. The performance-related component is linked to key perform- responsible management and control in UniCredit Bank Austria AG. ance indicators (e.g. divisional net profit, EVA, cost/income ratio, etc.) which are individually specified in a scorecard on an annual basis Supervisory Board within the framework of UniCredit Group. The financial target range is determined by external benchmarks. The performance-linked compo- The Supervisory Board comprises eleven members elected at the nents paid depend on the degree to which targets are met. This General Meeting as shareholders’ representatives and six employ- system has been used since 2006. For the term of the employment ees’ representatives delegated by the Employees’ Council. Here contract of a Management Board member, payments into a pension there is a deviation from Rule 52 of the Austrian Code of Corporate fund are made on the basis of a defined-contribution plan. In addition, Governance 2007, which stipulates a maximum of ten Supervisory cover is provided against disability risk, also via a pension fund. There Board members in addition to staff representatives. This deviation are severance payment arrangements based on the legal provisions is explained, under the “comply or explain” principle, by reference applicable to the severance payment scheme for employees. In the to an agreement between the shareholders. case of a public takeover offer, there are no arrangements for the Management Board that deviate from the above.

218 2008 Annual Report · Bank Austria The credit committee of the Supervisory Board is responsible for or by proxy. All shareholders – UniCredit S.p.A., “Privatstiftung zur approv ing loans above a specified amount and for overseeing Bank Verwaltung von Anteilsrechten” (a private foundation) and “Betrieb- Austria’s risk position. As part of its responsibility for overseeing risk sratsfonds des Betriebsrates der Angestellten der UniCredit Bank Aus- management, the credit committee discusses the structure of the loan tria AG Großraum Wien” (the Employees’ Council Fund of the Employ- portfolio and principles of risk policy, and reports to the Supervisory Board. ees’ Council of employees of UniCredit Bank Austria AG in the Vienna area) – waived compliance with the provisions governing the invitation Under the general clause contained in Rule 53 of the Austrian Corpo- to the General Meeting. rate Governance Code, a Supervisory Board member is deemed to be independent if that member does not have any business or personal “Privatstiftung zur Verwaltung von Anteilsrechten” and “Betriebsrats- relations with the company or its Management Board that constitute a fonds des Betriebsrates der Angestellten der UniCredit Bank Austria AG material conflict of interest and are therefore suited to influence the be- Großraum Wien” hold a total of 10,100 registered shares. These shares haviour of the member. At its meeting on 3 May 2006, the Supervisory must be represented at a General Meeting for the adoption of resolu- Board, on the basis of this general clause, defined the criteria of inde- tions approving specific restructuring measures and specific changes pendence; these have been published on the company’s website. In the in the Articles of Association (Article 20 of the Articles of Association). Supervisory Board’s view, if two of the elected members of the Supervi- In accordance with Rule 62 of the Austrian Code of Corporate sory Board and of the committees are independent, this is a sufficient Governance 2007, we disclose that there is a syndicate agreement number. Of the 11 elected members of the Supervisory Board, (Restated Bank of the Regions Agreement) between UniCredit, “Privat- Karl Samstag, a former Chairman of the Management Board of stiftung zur Verwaltung von Anteilsrechten” and “Betriebsratsfonds UniCredit Bank Austria AG, does not meet the independence criteria. des Betriebsrates der Angestellten der UniCredit Bank Austria AG At the balance sheet date, seven members of the Supervisory Board Großraum Wien”. held leading positions at the parent company UniCredit. In view of the closed circle of shareholders, no date for an Annual The compensation schedule for Supervisory Board members provides General Meeting has been included in the financial calendar for 2009. that the Chairman of the Supervisory Board receives double, and the Deputy Chairman one and a half times, the compensation received by a Compliance and Code of Conduct Supervisory Board member. Members of the credit committee and members of the audit committee receive additional compensation. In addition to legal provisions, regulations and voluntary commitments which contain rules for corporate governance through owners, A list of the members of the Supervisory Board and of the Supervisory management and control, there are compliance rules and a code of Board committees is given on pages 222f. conduct which is binding for all staff. Moreover, the shared values are laid down in the Integrity Charter, which is binding for all employees of Management Board UniCredit Group. These codes are based on the legal framework and on universal ethical principles, and they provide guidelines for fair The Management Board is responsible for daily business. Respons ibili- business practices and irreproachable behaviour on the part of our ties are laid down explicitly and reflected in the bank’s organisational staff. We pay particular attention to controlling banking transactions structure. by staff in order to avoid, through clear rules, any grey areas of insider trading and market manipulation. Pursuant to Section 48d (4) Shareholders and General Meeting of the Austrian Stock Exchange Act, directors’ dealings are published on the website of the Austrian Financial Market Authority (FMA). At the General Meeting, shareholders pass resolutions, including those on the appropriation of profits, on the approval of the acts of the Evaluation Management Board and the Supervisory Board and on the election of shareholders’ representatives to the Supervisory Board. The evaluation of adherence to the Austrian Code of Corporate Governance by UniCredit Bank Austria AG in the 2008 financial year Pursuant to the Articles of Association, UniCredit Bank Austria AG has was carried out by Univ. Prof. DDr. Waldemar Jud Unternehmens - no shares without voting rights and each shareholder can exercise his forschungs GmbH. The report on the external evaluation is available at voting rights on the principle of “one share one vote”, either in person http://ir.bankaustria.at –> Corporate Governance.

Bank Austria · 2008 Annual Report 219

Consolidated Financial Statements of the Bank Austria Group for 2008 Statement by Management

We state to the best of our knowledge that the consolidated financial position of the Group have been presented in such a way as to pro- statements prepared in accordance with the relevant financial report- vide a true and fair view of the financial position and performance of ing standards provide a true and fair view of the financial position the Group, and that it describes the material risks and uncertainties and performance of the Group, and that in the Management Report to which the Group is exposed. of the Group the business trends including business results and the

Vienna, 9 March 2009

The Management Board

Erich Hampel (Chairman)

Helmut Bernkopf Federico Ghizzoni Ralph Müller

Carlo Vivaldi Stephan Winkelmeier Robert Zadrazil

Bank Austria · 2008 Annual Report 221 Corporate Governance, Statement by Management, Supervisory Board and Management Board Supervisory Board and Management Board of UniCredit Bank Austria AG

Representatives of the Supervisory Board Supervisory Authorities

The term of ofﬁce of elected members will end with the Annual General Meeting in 2013. The employees’ representatives are delegated to the Supervisory Board without a time limit.

Alessandro Profumo Chairman Wolfgang Heinzl Delegated by the Doris Radl Commissioner Chief Executive Ofﬁcer Chairman of the Employees’ Council Employees’ UniCredit Group (from 7 November 2000) Council Josef Kramhöller Deputy ((Member from 25 January 2006, Commissioner Chairman from 13 July 2006) Riccardo Hofer Member of the Employees’ Council Alfred Katterl State Cover Fund Franz Rauch Deputy (from 4 November 2008) Commissioner Managing Director Chairman Franz Rauch GmbH Martina Icha Christian Wenth Deputy (Member from 17 March 2003, Member of the Employees’ Council State Cover Fund Deputy Chairman from 13 July 2006) (from 21 April 2006 until 27 May 2008) Commissioner

Vincenzo Calandra Buonaura Members Heribert Kruschik Martin Mareich Trustee pursuant Ordinario di Diritto Commerciale Member of the Employees’ Council to the Austrian nell’Università di Modena (from 1 January 2006 Mortgage Bank Act (from 3 May 2007 until 31 July 2008) until 3 November 2008) Claudio Consolo Gerhard Reicher Deputy Trustee Ordinario di Diritto processuale civile Adolf Lehner pursuant to the First Deputy Chairman of the nell’Università di Padova Austrian Mortgage Employees’ Council (from 31 July 2008) Bank Act (from 4 December 2000) Sergio Ermotti Deputy Chief Executive Officer Emmerich Perl Head of CIB & PB Area Second Deputy Chairman of the UniCredit Group Employees’ Council (from 25 January 2006) (from 20 April 2005) Paolo Fiorentino Josef Reichl Deputy Chief Executive Officer Member of the Employees’ Council Head of GBS Area (from 25 October 2007) UniCredit Group (from 4 May 2006) Karin Wisak-Gradinger Member of the Employees’ Council Dario Frigerio (from 28 May 2008) Head of Asset Management Division UniCredit Group (from 4 May 2006) Roberto Nicastro Deputy Chief Executive Officer Head of Retail Area UniCredit Group (from 4 May 2006) Vittorio Ogliengo Head of Corporate Banking Division UniCredit Group (from 4 May 2006) Karl Samstag Member of the Board of Trustees Privatstiftung zur Verwaltung von Anteilsrechten (from 4 May 2006) Gerhard Scharitzer Chairman of the Board of Trustees Privatstiftung zur Verwaltung von Anteilsrechten (from 4 May 2006) Wolfgang Sprissler Spokesman of the Management Board (CEO) Bayerische Hypo- und Vereinsbank AG (from 19 March 2002)

222 2008 Annual Report · Bank Austria The Supervisory Board Management Board formed the following committees:

Credit committee Erich Hampel Chairman Vittorio Ogliengo (from 13 July 2006) Chairman Chief Executive Ofﬁcer (from 6 November 2000) Franz Rauch (Member from 25 January 2006, Deputy Chairman Deputy Chairman from 13 July 2006) Helmut Bernkopf Members (from 16 September 2008) Roberto Nicastro (from 13 July 2006) Members Wolfgang Sprissler (from 25 January 2006) Federico Ghizzoni (from 1 July 2007) Wolfgang Heinzl (from 7 November 2000) Delegated by the Adolf Lehner (from 2 May 2006) Employees’ Council Thomas Gross (from 1 October 2006 Audit committee until 31 October 2008) Franz Rauch Chairman (from 13 July 2006 until 31 July 2008) Wilhelm Hemetsberger Karl Samstag (from 31 July 2008) (from 17 February 2001 until 31 May 2008) Wolfgang Sprissler Deputy Chairman (Member from 17 March 2006, Werner Kretschmer Deputy Chairman from 13 July 2006) (from 4 May 2006 until 31 December 2008) Roberto Nicastro (from 13 July 2006) Members

Ralph Müller Wolfgang Heinzl (from 7 November 2000) Delegated by the (from 1 January 2008) Adolf Lehner (from 2 May 2006) Employees’ Council Regina Prehofer Committee for (from 1 April 2003 Management Board affairs until 15 September 2008) Alessandro Profumo (from 13 July 2006) Chairman and Deputy Chairman Carlo Vivaldi Franz Rauch (from 13 July 2006) of the Supervisory Board (from 1 October 2007) Strategy and Stephan Winkelmeier nominations committee (from 7 November 2008) Alessandro Profumo Chairman (Member from 25 January 2006, Robert Zadrazil Chairman from 13 July 2006) (from 26 January 2006) Roberto Nicastro (from 13 July 2006) Members Vittorio Ogliengo (from 13 July 2006) Franz Rauch (from 13 July 2006)

Wolfgang Heinzl (from 7 November 2000) Delegated by the Adolf Lehner (from 2 May 2006) Employees’ Council

Bank Austria · 2008 Annual Report 223

Additional Information

Corporate Governance Report for the 2008 financial year of UniCredit Bank Austria AG 226

Office Network 232 Austria 232 Selected subsidiaries and equity interests of UniCredit Bank Austria AG in Austria 233 Central and Eastern Europe 234

Investor Relations 236

Bank Austria · 2008 Annual Report 225 Additional Information Corporate Governance Report

for the 2008 ﬁnancial year of UniCredit Bank Austria AG

Preface: A. UniCredit Bank Austria AG departed The Austrian Code of Corporate Governance is the standard for good from the following C-rules of the corporate management and corporate control in the Austrian capital market. ACCG (June 2007) in the 2008 business year (Explain): After enactment of the Austrian Statute Amending Business Law (Unternehmensrechtsänderungsgesetz) the Austrian Code of Corporate When appointing the supervisory board, the general meeting shall Governance was given even more importance, as listed joint-stock take due care to ensure a balanced composition of expert know-how companies (Aktiengesellschaften) have been put under a statutory on the supervisory board with respect to the structure and the business obligation to prepare a Corporate Govern ance Report. of the company as well as the adequate personal qualiﬁcation of the supervisory board members. The number of members on the supervi- The Code itself primarily applies to listed Austrian joint-stock com- sory board (without employees’ representatives) shall be ten at most. panies. The Preamble to the Austrian Code of Corporate Governance recommends that also joint-stock companies that are not listed on a Based on an agreement with our majority shareholder and holders of stock exchange follow the rules of this Code to the extent that they our registered shares, the Supervisory Board will continue to consist are applicable to them. of 11 members elected by our shareholders.

UniCredit Bank Austria AG is an Austrian joint-stock company having its registered ofﬁce in Vienna; since 21 May 2008 its shares have not B. Additional information according to been listed on the stock exchange anymore. In line with the recommendation contained in the Preamble to the Austrian Code of Corpo- Section 243b of the Austrian Business rate Governance UniCredit Bank Austria AG will continue to orient it- Code (“UGB”): self by the rules of the Austrian Code of Corporate Governance as amended from time to time, which can be found on the website of the 1. Information regarding the Management Board: Austrian Working Group on Corporate Governance at www.corporate- Supervisory board mandates of Management Board members are governance.at. published on the website of the company.

This Corporate Governance Report of UniCredit Bank Austria AG for Erich Hampel, born 1951: the 2008 financial year was prepared by using the Opinion on Chairman of the Management Board, Chief Executive Officer (CEO) Corporate Governance Reports published by the Austrian Financial First appointment: 6 November 2000 Reporting and Auditing Committee according to Section 243b of the End of the current term of office: 3 April 2010 Austrian Business Code (Unternehmensgesetzbuch/ UGB) and Annex 2 of the Austrian Code of Corporate Governance 2009. The basis of Helmut Bernkopf, born 1967: this Report, however, was the Austrian Code of Corporate Governance Member of the Management Board, Corporate Banking as amended on 1 June 2007, which has to be applied to the financial First appointment: 16 September 2008 year 2008. End of the current term of office: 15 September 2011

Federico Ghizzoni, born 1955: Member of the Management Board, Central and Eastern Europe business First appointment: 1 July 2007 End of the current term of ofﬁce: 30 June 2010

Thomas Gross, born 1965: 1 October 2006 until 31 October 2008 Member of the Management Board

226 2008 Annual Report · Bank Austria Wilhelm Hemetsberger, born 1958: Vinzenco Calandra Buonaura, born 1946: 17 February 2001until 31 May 2008 Member of the Management Board Member of the Supervisory Board from 3 May 2007 until 31July 2008

Werner Kretschmer, born 1964: Claudio Consolo, born 1955: 4 May 2006 until 31 December 2008 Member of the Management Board First appointment: 31 July 2008 End of the current term of office: Annual General Meeting 2013 Ralph Müller, born 1968: Committees: – Member of the Management Board, Retail Banking First appointment: 1 January 2008 Sergio Ermotti, born 1960: End of the current term of office: 31 December 2010 First appointment: 25 January 2006 End of the current term of office: Annual General Meeting 2013 Regina Prehofer, born 1956: Committees: – 1April 2003 until 15 September 2008 Member of the Management Board Paolo Fiorentino, born 1956: Carlo Vivaldi, born 1965: First appointment: 4 May 2006 Member of the Management Board, Chief Financial Officer (CFO) End of the current term of office: Annual General Meeting 2013 First appointment: 1 October 2007 Committees: – End of the current term of office: 30 September 2010 Dario Frigerio, born 1962: Stephan Winkelmeier, born 1967: First appointment: 4 May 2006 Member of the Management Board, Chief Risk Officer (CRO) End of the current term of office: Annual General Meeting 2013 First appointment: 7 November 2008 Committees: – End of the current term of office: 6 November 2011 Roberto Nicastro, born 1964: Robert Zadrazil, born 1970: First appointment: 4 May 2006 Member of the Management Board, Chief Operating Officer (COO) End of the current term of office: Annual General Meeting 2013 First appointment: 26 January 2006 Committees: Credit committee End of the current term of office: 25 January 2011 Audit committee Strategy and nominations committee 2. Information regarding the Supervisory Board: Further supervisory board mandates of Supervisory Board members Vittorio Ogliengo, born 1958: are published on the website of the company. First appointment: 4 May 2006 End of the current term of office: Annual General Meeting 2013 Alessandro Profumo, born 1957: Committees: Credit committee (Chairman) Chairman of the Supervisory Board Strategy and nominations committee First appointment: 25 January 2006 End of the current term of office: Annual General Meeting 2013 Karl Samstag, born 1944: Committees: Management Board affairs committee First appointment: 4 May 2006 Strategy and nominations committee (Chairman) End of the current term of office: Annual General Meeting 2013 Committees: Audit committee (Chairman) from 31 July 2008 Franz Rauch, born 1940: Deputy Chairman of the Supervisory Board Gerhard Scharitzer, born 1939: First appointment: 17 March 2003 First appointment: 4 May 2006 End of the current term of office: Annual General Meeting 2013 End of the current term of office: Annual General Meeting 2013 Committees: Credit committee (Deputy Chairman) Committees: – Audit committee (Chairman) until 31 July 2008 Management Board affairs committee Strategy and nominations committee

Bank Austria · 2008 Annual Report 227 Additional Information

Corporate Governance Report (cONTINUED)

Wolfgang Sprissler, born 1945: Information on criteria for the independence of members of the First appointment: 19 March 2002 Supervisory Board: End of the current term of ofﬁce: Annual General Meeting 2013 The Supervisory Board deﬁned the criteria for the independence of Committees: Credit committee members of the Supervisory Board and disclosed them on the web- Audit committee (Deputy Chairman) site of the company.

Members delegated by the Employees’ Council (the employees’ Of the eleven elected members of the Supervisory Board, Karl Samstag, representatives are delegated without a time limit): a former Chairman of the Management Board of UniCredit Bank Wolfgang Heinzl, born 1953: Austria AG, does not meet the independence criteria. At the balance First appointment: 7 November 2000 sheet date, seven members of the Supervisory Board held leading Committees: Credit committee positions at the parent company UniCredit S.p.A. The Austrian Code Audit committee of Corporate Governance, version January 2009, now stipulates in its Strategy and nominations committee Annex 1 the common view that the holding of positions as members of the bodies of group companies does not affect the independence Riccardo Hofer, born 1964: of members of the Supervisory Board. First appointment: 4 November 2008 Committees: – Information, which members of the Supervisory Board fulfil the criteria in C-rule 54: C-rule 54 is not applicable for lack of free float. Martina Icha, born 1967: from 21 April 2006 until 27 May 2008 3. Information on the operation of the management delegated to the Supervisory Board board and the supervisory board: The Management Board’s distribution of responsibilities: Heribert Kruschik, born 1945: Regarding the distribution of responsibilities within the Management from 7 November 2000 until 16 January 2001 as well as from Board see “Information regarding the Management Board”. 28 March 2002 until 20 April 2005 and from 1 January 2006 until 3 November 2008 delegated to the Supervisory Board Number and kind of the Supervisory Board’s committees: The Supervisory Board establishes the following four committees: Adolf Lehner, born 1961: Credit committee First appointment: 4 December 2000 Audit committee Committees: Credit committee Management Board affairs committee Audit committee Strategy and nominations committee Strategy and nominations committee Additional in the 2008 business year: committee on the occasion of Emmerich Perl, born 1950: the sale of the properties on Am Hof and Vordere Zollamtsstrasse. First appointment: 20 April 2005 Committees: – Number of meetings held by the Supervisory Board, reports on its operation and its activities: Josef Reichl, born 1956: In 2008 the Supervisory Board held five meetings, in which it per- First appointment: 25 October 2007 formed its duties as defined by the law and in the Articles of Association Committees: – with due regard to the Austrian Code of Corporate Governance. In nine cases, resolutions of the Supervisory Board were passed by Karin Wisak-Gradinger, born 1964: written circular votes. First appointment: 28 May 2008 Committees: –

228 2008 Annual Report · Bank Austria The Supervisory Board advises and supervises the bank’s Manage- The audit committee is responsible for the audit, and the preparation ment Board on an ongoing basis. In this context the Management of the adoption, of the financial statements and consolidated financial Board regularly provided information to the Supervisory Board, in statements, the proposal for the appropriation of profits and the man- writing and orally, on all major developments and business trans- agement report (of the Group) and for matters related to the auditors. actions on a timely basis and in a comprehensive manner. The Super- Since 2008 the audit committee has performed additional tasks, visory Board was involved in all competence-relevant issues and namely monitoring the financial reporting process, the effectiveness made its decisions, where required, after thorough deliberation and of the internal control system, the internal audit system and the risk examination. management system of the company as well as monitoring the audit of financial statements and the audit of consolidated financial The activities of the Supervisory Board focused in particular on the statements. The audit committee discussed therefore the financial spin-off of the Markets (Trading/ Sales) operations; the reorganisation statements and the consolidated financial statements, the audit of back-office activities by transferring the subsidiaries Administration reports and the management letter of the auditors, and reported to Services and Banking Transaction Services to UniCredit Processes the Supervisory Board on these topics. The audit committee also and Administration; the squeeze-out pursuant to the squeeze-out discussed the remuneration of the auditors and the engagement procedure under Austrian law; the sale of the properties on Am Hof letter, and prepared the proposal to the Supervisory Board concerning and Vordere Zollamtsstraße; the sale of proft- and liquidation-sharing the election of the auditors of the financial statements and the rights in B&C Holding; the merger of HVB Central Profit Banka and consolidated financial statements for the 2009 financial year. Other UniCredit Zagrebačka banka in Bosnia and Herzegovina; the sale of activities of the audit committee focused on the analysis of the Pioneer Investments Austria GmbH; the equity interest in Österreichi- reports on internal audit, corporate governance, compliance, risk sche Clearingbank AG; and regular reports on equity interests. management and internal control systems and on the “262 Savings Capital measures mainly related to ZAO UniCredit Bank (Russia), Law – Monitoring of the Financial Reporting Process” project. JSCB Ukrsotsbank (Ukraine), UniCredit Banka Slovenija (Slovenia), Banka Pentru Locuinte (Romania), Koç Finansal Hizmetler (Turkey) and The strategy and nominations committee held one meeting and UniCredit Bulbank (Bulgaria). passed two resolutions by written circular votes. The strategy and nominations committee prepares, if required, basic decisions for the Number of meetings held by the Committees of the Supervisory Supervisory Board, in cooperation with the Management Board and, if Board, their decision-making power and report on their activities required, using the services of experts. The strategy and nominations The credit committee of the Supervisory Board held five meetings and committee also submits proposals to the Supervisory Board for passed nine resolutions by written circular votes. The credit commit- appointments to the Management Board when positions become tee of the Supervisory Board is responsible for approving loans above vacant and it deals with issues of successor planning. The activities of a specified amount and for overseeing the company’s risk position. the strategy and nominations committee concentrated in 2008 on As part of its responsibility for overseeing risk management, the credit submitting proposals to the Supervisory Board for the appointment of committee discusses the structure of the loan portfolio and principles Management Board members. of risk policy, and reports to the Supervisory Board. The Management Board affairs committee (compensation committee), The credit committee dealt with large exposures pursuant to Section consisting of the Chairman and the Deputy Chairman of the Super- 27 of the Austrian Banking Act including resolutions concerning credit visory Board, met if required and focused on all matters relating to lines and exposures of relevance in connection with Article 136 of the the relationship between the company and Management Board Italian Banking Act, and especially loans requiring its approval. members, especially on matters relating to the compensation of Sectoral portfolio reports and risk reports were discussed in detail. In Management Board members and on the contents of employment the context of the presentation of the overall risk report, the commit- contracts with Management Board members. tee discussed aspects of credit, market and liquidity risk as well as analysing the structure of the loan portfolio and risk policy principles. A separate committee was established on the occasion of the sale of the properties on Am Hof and Vordere Zollamtsstraße; the committee The audit committee held three meetings and passed one resolution passed one resolution by written circular vote. by written circular vote.

Bank Austria · 2008 Annual Report 229 Additional Information

Corporate Governance Report (cONTINUED)

4. Disclosure of information regarding the remuneration of Management Board and Supervisory Board members (C-rules 30 and 31 ACCG): Remuneration Management Board: As in previous years, the remuneration of Management Board members is divided into fixed and performance-linked components in accordance with Rule 30 of the Austrian Code of Corporate Governance. The performance-related component is linked to key performance indicators (e.g. divisional net profit, EVA, cost/ income ratio, etc.) which are individually specified in a scorecard on an annual basis within the framework of UniCredit Group. The financial target range is determined by external benchmarks. The performance-linked components paid depend on the degree to which targets are met. This system has been used since 2006. For the term of the employment contract of a Management Board member, payments into a pension fund are made on the basis of a defined-contribution plan. In addition, cover is provided against disability risk, also via a pension fund. There are severance payment arrangements based on the legal provisions applicable to the severance payment scheme for employees. In the case of a public takeover offer, there are no arrangements for the Management Board that deviate from the above.

Remuneration Supervisory Board: The compensation schedule for Supervisory Board members provides that the Chairman of the Supervisory Board receives double, and the Deputy Chairman one and a half times, the compensation received by a Supervisory Board member. Members of the credit committee and members of the audit committee receive additional compensation.

Emoluments of Management and Supervisory Board members: Information on emoluments of Management and Supervisory Board members can be found in the Notes to the Consolidated Financial Statements of UniCredit Bank Austria AG.

5. Report on external evaluation: The evaluation of adherence to the Austrian Code of Corporate Govern- ance by UniCredit Bank Austria AG in the 2008 ﬁnancial year was carried out by Univ. Prof. DDr. Waldemar Jud Unternehmensforschungs GmbH. The report on the external evaluation is available at http://ir.bankaustria.at –> Corporate Governance.

230 2008 Annual Report · Bank Austria Bank Austria · 2008 Annual Report 231 Additional Information Ofﬁce Network

Austria

Head Office Retail Regional Offices Lower Austria West 1010 Vienna, Schottengasse 6–8 Vienna – 1st District 3100 St. Pölten, Kremsergasse 39 Tel: (+ 43) (0)5 05 05-0 1010 Vienna, Schottengasse 6–8 Tel: 05 05 05-56166 Fax: (+ 43) (0)5 05 05-56155 Tel: 05 05 05-47212 Lower Austria South Internet: www.bankaustria.at Vienna – 2nd and 20th Districts 2340 Mödling, Enzersdorfer Straße 4 e-mail: [email protected] 1020 Vienna, Taborstraße 13 Tel: 05 05 05-62200 Tel: 05 05 05-56300 Burgenland Branches Vienna – 3rd and 11th Districts 7000 Eisenstadt, Pfarrgasse 28 Amstetten, Angern, Arnoldstein, Bad Sauer- 2320 Schwechat, Wiener Straße 12–14 Tel: 05 05 05-60101 brunn, Baden, Bludenz, Bregenz (2), Bruck / Tel: 05 05 05-31640 Graz/Styria South Mur, Bruckneudorf, Brunn/Gebirge, Deutsch Vienna – 4th, 5th and 6th Districts 8010 Graz, Herrengasse 15 Wagram, Deutschkreutz, Deutschlandsberg, 1050 Vienna, Reinprechtsdorfer Straße 27 Tel: 05 05 05-93800 Dornbirn, Eisenstadt (2), Feistritz/Drau, Tel: 05 05 05-38700 Feldbach, Feldkirch, Fohnsdorf, Fulpmes, Styria North Gänserndorf, Gmünd (2), Gmunden, Gols, Vienna – 7th, 8th and 9th Districts 8700 Leoben, Franz Josef-Straße 2 Graz (15), Groß-Enzersdorf, Groß-Petersdorf, 1090 Vienna, Nußdorfer Straße 2 Tel: 05 05 05-34611 Gumpoldskirchen, Guntramsdorf, Hall / Tirol, Tel: 05 05 05-34888 Carinthia Hallein, Hard, Heidenreichstein, Hinterbrühl, Vienna – 10th District 9500 Villach, Hans-Gasser-Platz 8 Höchst, Hohenems, Hollabrunn, Horn, Imst, 1100 Vienna, Favoritenstraße 210 Tel: 05 05 05-64100 Innsbruck (5), Judenburg, Kapfenberg, Kier- Tel: 05 05 05-34620 ling, Kitzbühel, Klagenfurt (4), Kloster neu - Upper Austria burg, Knittelfeld, Korneuburg, Krems (2), Vienna – 12th and 23rd Districts 4020 Linz, Hauptplatz 27 Kufstein, Leibnitz, Leoben (2), Leopoldsdorf, 1120 Vienna, Schönbrunner Straße 231 Tel: 05 05 05-67101 Lienz, Liezen, Linz (8), Lustenau, Maria Tel: 05 05 05-51100 Salzburg Enzersdorf, Mattersburg, Matzen, Mauerbach, Vienna – 13th and 14th Districts 5020 Salzburg, Rainerstraße 2 Mistelbach, Mödling (2), Neudörfl, Neun - 1140 Vienna, Linzer Straße 28 Tel: 05 05 05-96111 kirchen, Neusiedl/See, Obdach, Oberpullen- Tel: 05 05 05-34830 dorf, Oberwart, Perchtoldsdorf, Pöls, Press- Tyrol/Eastern Tyrol baum, Purkersdorf, Rankweil, Reutte, Ried/ Vienna – 15th, 16th and 17th Districts 6020 Innsbruck, Maria-Theresien-Straße 36 Innkreis, Riezlern, Saalfelden, Salzburg (8), 1150 Vienna, Märzstraße 45 Tel: 05 05 05-65100 Schladming, Schrems, Schwaz, St. Johann/ Tel: 05 05 05-53129 Vorarlberg Pongau, St. Pölten (4), Schwechat (2), Sier- Vienna – 18th and 19th Districts 6900 Bregenz, Kornmarktplatz 2 ning, Spillern, Spittal/Drau, Stegersbach, 1190 Vienna, Sieveringer Straße 3 Tel: 05 05 05-68100 Steyr (4), Stockerau, Strasshof, Straßwalchen, Tel: 05 05 05-31970 Telfs, Ternitz, Traun, Tulln, Velden, Vienna RegionalCentres Corporates (136), Villach (8), Vöcklabruck, Völkermarkt, Vienna – 21st District Vienna City Schottengasse Vösendorf, Waidhofen/Ybbs, Wattens, Weiz, 1210 Vienna, Schwaigergasse 30 1010 Vienna, Schottengasse 6–8 Wels, Wiener Neudorf, Wiener Neustadt (2), Tel: 05 05 05-56400 Tel: 05 05 05-46828 Wolfsberg, Wörgl, Zell/See, Zell/Ziller Vienna – 22nd District Vienna City Kärntner Ring 1210 Vienna, Schwaigergasse 30 1010 Vienna, Kärntner Ring 5–7 Tel: 05 05 05-57514 Tel: 05 05 05-56824 International Community Vienna North 1010 Vienna, Schottengasse 6–8 1020 Vienna, Lassallestraße 5 Tel: 05 05 05-57777 Tel: 05 05 05-54447

232 2008 Annual Report · Bank Austria Selected subsidiaries and equity interests of UniCredit Bank Austria AG in Austria

Vienna Central “AirPlus” Air Travel Card UniCredit CAIB AG 1010 Vienna, Schubertring 14 Vertriebsgesellschaft m.b.H. 1090 Vienna, Julius Tandler-Platz 3 Tel: 05 05 05-56022 (Diners Club) Tel: (+ 43) (0)5 05 05-82004 1041 Vienna, Rainergasse 1 www.ca-ib.com Vienna South Tel: (+ 43 1) 50135-0 1120 Vienna, Schönbrunner Straße 231 DOMUS FACILITY MANAGEMENT GmbH www.airplus.at Tel: 05 05 05-53053 1010 Vienna, Althanstraße 21– 25 www.diners.at Tel: (+ 43 1) 254 00-0 Lower Austria South/Burgenland Asset Management GmbH www.domus-fm.at 2340 Mödling, Enzersdorfer Straße 4 1020 Vienna, Lassallestraße 1 Tel: 05 05 05-50933 FactorBank AG Tel: (+ 43 1) 331 47-0 7000 Eisenstadt, Mattersburger Straße. 32 1041 Vienna, Floragasse 7 Tel: 05 05 05-28500 Bank Austria Finanzservice GmbH Tel: (+ 43 1) 506 78-0 1020 Vienna, Lassallestraße 5 www.factorbank.com Lower Austria West Tel: (+ 43) (0)5 05 05-53000 3100 St. Pölten, Kremsergasse 39 Informations-Technologie Austria GmbH www.baf.at Tel: 05 05 05-62567 1020 Vienna, Lassallestraße 5 3950 Gmünd, Stadtplatz 6 Bank Austria Immobilienberatungs- und Tel: (+ 43 1) 217 17-0 Tel: 05 05 05-37133 Service GmbH www.it-austria.com 1020 Vienna, Taborstraße 1–3 Upper Austria Mezzanin Finanzierungs AG Tel: (+ 43 1) 513 74 77-101 4020 Linz, Johann-Konrad-Vogelstraße 7–9 1010 Vienna, Operngasse 6 www.ba-is.at Tel: 05 05 05-67532 Tel: (+ 43 1) 513 41 97 4600 Wels, Dr.-Salzmann-Straße 9 Immobilien Rating GmbH www.mezz.at Tel: 05 05 05-31980 1020 Vienna, Taborstraße 1–3 Österreichische Hotel- Tel: (+ 43) (0)5 05 05-51880 Tyrol und Tourismusbank GmbH www.irg.at 6020 Innsbruck, Maria-Theresien-Straße 36 1010 Vienna, Parkring 12a Tel: 05 05 05-95390 BA Private Equity GmbH Tel: (+ 43 1) 515 30-0 6330 Kufstein, Georg-Pirmoser-Straße 2 1010 Vienna, Operngasse 6 www.oeht.at Tel: 05 05 05-31860 Tel: (+ 43 1) 513 22 01 Schoellerbank AG www.privateequity.at Styria 1010 Vienna, Renngasse 3 8010 Graz, Herrengasse 15 Bank Austria Real Invest GmbH Tel: (+ 43 1) 534 71-0 Tel: 05 05 05-93105 1030 Vienna, Vordere Zollamtsstraße 13 www.schoellerbank.at Tel: (+ 43 1) 331 71-0 Salzburg UniCredit Leasing (Austria) GmbH www.realinvest.at 5020 Salzburg, Rainerstraße 2 1040 Vienna, Operngasse 21 Tel: 05 05 05-96145 Bank Austria Creditanstalt Tel: (+43 1) 588 08-0 Versicherung AG http://www.unicreditleasing.at Vorarlberg 1010 Vienna, Schottenring 27–29 6900 Bregenz, Rathausstraße 25 card complete Service Bank AG Tel: (+ 43 1) 313 83-0 Tel: 05 05 05-68306 1030 Vienna, Invalidenstraße 2 www.baca-versicherung.at Tel: (+ 43 1) 711 11-0 Carinthia Bank Austria Creditanstalt www.cardcomplete.com 9020 Klagenfurt, Burggasse 4 Wohnbaubank AG Tel: 05 05 05-64514 WAVE Solutions Information 1020 Vienna, Lassallestraße 1 Technology GmbH Tel: (+ 43 1) 331 47-5601 1090 Vienna, Nordbergstraße 13 Bank Privat AG Tel: (+ 43 1) 717 30-0 1010 Vienna, Hohenstaufengasse 6 www.wave-solutions.com Tel: (+ 43 1) 537 40-0 www.bankprivat.com

Bank Austria · 2008 Annual Report 233 Additional Information

Ofﬁce Network (CONTINUED)

Central and Eastern Europe

Baltics Bulgaria Kazakhstan AS “UniCredit Bank” UniCredit Bulbank AD JSC “ATF Bank” Elizabetes 63 7, Sveta Nedelya Sq. st. Furmanov 100 1050 Riga, Latvia 1000 Sofia 050000, Almaty Tel: (+ 37 1) 6 7085 500 Tel: (+ 359 2) 923 2111 The Republic of Kazakhstan Fax: (+ 37 1) 6 7085 507 Fax: (+ 359 2) 988 4636 Tel: (+ 7 7272) 44 14 56 www.unicreditbank.lv www.unicreditbulbank.bg Fax: (+ 7 7272) 50 19 95 BIC: VBRILV2X BIC: UNCRBGSF www.atfbank.kz BIC 190201125 AS UniCredit Bank Estonia Branch Croatia Liivalaia 13/15 Zagrebačka banka dd Macedonia 10118 Tallinn, Estonia Paromlinska 2 Representative Office Skopje Tel: (+ 37 2) 66 88 300 10000 Zagreb Dimitrie Cupovski 4–2/6 Fax: (+ 37 2) 66 88 359 Tel: (+ 385 1) 6104 000 1000 Skopje www.unicreditbank.ee Fax: (+ 385 1) 6110 533 Tel: (+ 389 2) 3215 130 BIC: UNCREE22 www.zaba.hr Fax: (+ 389 2) 3215 140 BIC: ZABAHR2X AS UniCredit Bank Lithuania Branch e-mail: [email protected] Montenegro Vilniaus Str. 35/3 Representative Office Podgorica 01119 Vilnius, Lithuania Czech Republic Hercegovacka 13 Tel: (+ 370 5) 2745 300 UniCredit Bank Czech Republic, a.s. 81 000 Podgorica Fax: (+ 370 5) 2745 307 Na Príkope 20 Tel: (+ 382 0) 20 66 77 40 www.unicreditbank.lt 113 80 Praha 1 Fax: (+ 382 0) 20 66 77 42 BIC: UNCRLT22 Tel: (+ 420) 22111 2111 Fax: (+ 420) 22111 2132 Bosnia and Herzegovina www.unicreditbank.cz UniCredit Bank a.d. Banja Luka BIC: BACXCZPP Marije Bursac 7 78000 Banja Luka Hungary Tel: (+ 387 51) 243 200 UniCredit Bank Hungary Zrt. Fax: (+ 387 51) 212 830 Szabadság tér 5– 6 www.unicreditbank-bl.ba 1054 Budapest BIC: BLBABA22 Tel: (+ 36 1) 301 1271 e-mail: info-bl@unicreditgroup. ba Fax: (+ 36 1) 353 4959 www.unicreditbank.hu UniCredit Bank d.d. BIC: BACXHUHB Kardinala Stepinca b.b 88000 Mostar Tel: (+ 387 36) 312 112 Fax: (+ 387 36) 312 116 www.unicreditbank.ba BIC: UNCRBA22 e-mail: [email protected]

234 2008 Annual Report · Bank Austria Romania Slovenia UniCredit Tiriac Bank S.A. UniCredit Banka Slovenija d.d. 23–25, Ghetarilor Str. Šmartinska cesta 140 014106 Bucureşti 1000 Ljubljana Tel: (+ 40 21) 200 2000 Tel: (+ 386 1) 5876 600 Fax: (+ 40 21) 200 1002 Fax: (+ 386 1) 5876 684 www.unicredit-tiriac.ro www.unicreditbank.si BIC: BACXROBU BIC: BACXSI22

Russia Turkey Closed Joint Stock Company Yapı ve Kredi Bankası A.Ş. “UniCredit Bank” Yapi Kredi Plaza D Blok Prechistenskaya nab., 9 80620 Istanbul 119034 Moscow Tel: (+ 90 212) 339 70 00 Tel: (+ 7 495) 258 7200 Fax: (+ 90 212) 339 60 00 Fax: (+ 7 495) 258 1524 www.yapikredi.com.tr www.unicreditbank.ru BIC: YAPITRIS SWIFT: IMBKRUMM Ukraine JSCB Yapi Kredi Bank Moscow (CJSC) OJSB Ukrsotsbank 2, Goncharnaya Naberezhnaya 29, Kovpak Str. 115172 Moscow 03150 Kyiv Tel: (+7 495) 234 98 89 Tel: (+ 380 44) 230 3299 Fax: (+7 495) 956 19 72 Fax: (+ 380 44) 529 1307 SWIFT: YKBMRUMAXX UniCredit Bank*) Serbia 14-A, Yaroslaviv Val UniCredit Bank Serbia J.S.C., Belgrade 01034 Kyiv Rajićeva 27–29 Tel: (+ 380 44) 230 3300 11000 Beograd Fax: (+ 380 44) 230 3391 Tel: (+ 381 11) 3204 500 www.hvb.com.ua Fax: (+ 381 11) 3342 200 BIC: BACXUAUK www.unicreditbank.co.yu BIC: BACXCSBG

Slovakia UniCredit Bank a.s. Šancova 1/A 813 33 Bratislava Tel: (+ 421 2) 4950 2112 Fax: (+ 421 2) 4950 3406 www.unicreditbank.sk BIC: UNCRSKBX

*) under management responsibility of UniCredit

Bank Austria · 2008 Annual Report 235 Additional Information Investor Relations

Investor Relations of UniCredit Bank Austria AG

Renngasse 2, 1010 Vienna, Austria Tel: (+43) (0) 5 05 05-872 30 Fax: (+43) (0) 5 05 05-876 22 e-mail: [email protected] Internet: http://ir.bankaustria.at Günther Stromenger Tel.: (+ 43) (0) 5 05 05-872 30 Thomas Kirin Tel.: (+ 43) (0) 5 05 05-527 74

Ratings LONG-TERM SUBORDINATED LIABILITIES SHORT-TERM

Moody’s1) A1 A2 P-1 Standard & Poor’s2) A A– A-1

1) Grandfathered debt is rated Aa2, subordinated debt rating is Aa3. 2) Grandfathered debt and subordinated debt rating are rated AA+.

Financial calendar

13 May 2009 Results for the first three months of 2009 5 August 2009 Results for the first six months of 2009 11 November 2009 Results for the first nine months of 2009 All information is available electronically at http://ir.bankaustria.at

236 2008 Annual Report · Bank Austria Published by Notes UniCredit Bank Austria AG This report contains forward-looking statements relating to the future performance A-1010 Vienna, Schottengasse 6 –8 of Bank Austria. These statements reflect estimates which we have made on the Telephone within Austria: 05 05 05-0; from abroad: + 43 5 05 05-0 basis of all information available to us at present. Should the assumptions Fax within Austria: 05 05 05-56155; from abroad: + 43 5 05 05-56155 underlying forward-looking statements prove incorrect, or should risks – such as Internet: www.bankaustria.at those mentioned in the risk report – materialise to an extent not anticipated, actual e-mail: [email protected] results may vary from those expected at present. Market share data are based on BIC: BKAUATWW the most recent information available at the editorial close of this report. Austrian routing code: 12000 Austrian Register of Firms: FN 150714p “Bank Austria” as used in this report refers to the group of consolidated compa- VAT registration number: ATU 51507409 nies. “UniCredit Bank Austria AG” as used in this report refers to the parent company. In adding up rounded figures and calculating the percentage rates of Editor: Identity & Communications, changes, slight differences may result compared with totals and rates arrived at by Michael Trischler adding up component figures which have not been rounded off.

Photographs: cover and sorter pages: Ferruccio Torboli, UniCredit Group; Management Board: Wilke, Vienna. Disclaimer Basic design: Mercurio S.r.L., Milan This edition of our Annual Report is prepared for the convenience of our English- speaking readers. It is based on the German original, which is the authentic version Graphics: www.horvath.co.at and takes precedence in all legal aspects. Contact: Bank Austria Identity & Communications P. O. Box 22.000 A-1011 Vienna, Austria Telephone within Austria: 05 05 05-56148; from abroad: + 43 5 05 05-56148 (telephone answering machine) Fax within Austria: 05 05 05-56945; from abroad: + 43 5 05 05-56945 e-mail: [email protected] Switchboard: within Austria: 05 05 05-0; from abroad + 43 5 05 05-0

Bank Austria · 2008 Annual Report 237