2013 Annual Report 2013 Listen, understand, respond. 2013 Annual Report This report expresses UniCredit’s approach to banking by telling everyday stories about our interactions with Customers, innovations in products and adaptability in services. These brief but meaningful stories come directly from our colleagues. They are examples of the tangible benefits and concrete solutions offered by UniCredit, demonstrating how we make a difference in people’s lives. Our clear goal to improve everyday circumstances is rooted in our complete commitment to outcomes that ensure Customer satisfaction. At UniCredit, listening to our Clients and engaging with them to offer simple, direct results lies at the heart of our commercial banking operations. It is part of our determined effort to contribute to the economic and social well-being of our Customers as well as the communities where we work. We will continue with this commitment to all of you, every day. 2013 Annual Report HVB Group Profile HVB Group is one of the leading financial institutions in Germany. Our core compe­ tencies cover retail banking, corporate banking for small, medium­sized and large, inter­ nationally active corporate customers, private banking and international capital markets. In 2013, we set up three new business segments in order to achieve a greater regional focus and a stronger entrepreneurial orientation: Commercial Banking, Corporate & Invest­ ment Banking, and Asset Gathering. Customer satisfaction is the focal point of all our activities. We are committed to providing our customers with excellent, innovative and fast solutions across all business segments. HVB Group belongs to UniCredit, a pan­European banking group that holds a leading position in the wealthiest regions and fastest­growing markets in Europe, notably also in central and eastern Europe. HVB Group is the corporate centre of competence for all UniCredit capital market operations. Germany plays an important role for UniCredit. We are committed to our regional origins. At the same time, as a fully integrated member of UniCredit and a leading European bank, we want to develop a strong cultural identity. In this context, the company name was changed from Bayerische Hypo­ und Vereinsbank Aktiengesellschaft to UniCredit Bank AG in 2009 to reflect the UniCredit identity and branding. We are also committed to our corporate citizen- ship, promoting the common good in the countries where we operate. We offer our people excellent opportunities to further their careers throughout Europe, thereby strengthening an entrepreneurial spirit. At the same time, we ensure strict com­ pliance with the group­wide Integrity Charter, which encompasses the basic values our staff is expected to observe. We integrate our staff through Integrity Charter workshops and regular staff surveys. We also have a coherent corporate mission statement. Among other things, this Mission Statement includes the self­imposed obligation to create customer benefits and generate lasting value. 2 2013 Annual Report · HypoVereinsbank Financial Highlights Key performance indicators 2013 2012 Net operating income €1,839m €1,807m Cost­income ratio (based on operating income) 63.6% 58.1% Profit before tax €1,458m €2,058m Consolidated profit €1,074m €1,287m Return on equity before tax1 7.1% 9.2% Return on equity after tax1 5.8% 5.8% Earnings per share €1.29 €1.55 Balance sheet figures 31/12/2013 31/12/2012 Total assets €290.0bn €347.3bn Shareholders’ equity €21.0bn €23.3bn Leverage ratio2 7.1% 6.6% Key capital ratios compliant with Basel II 31/12/2013 31/12/2012 Core capital without hybrid capital (core Tier 1 capital) €18.4bn €19.1bn Core capital (Tier 1 capital) €18.5bn €19.5bn Risk­weighted assets (including equivalents for market risk and operational risk) €85.5bn €109.8bn Core capital ratio without hybrid capital (core Tier 1 ratio)3 21.5% 17.4% Core capital ratio (Tier 1 ratio)3 21.6% 17.8% 31/12/2013 31/12/2012 Employees (in FTEs) 19,092 19,247 Branch offices 933 941 1 return on equity calculated on the basis of average shareholders’ equity according to IFRS 2 ratio of shareholders’ equity shown in the balance sheet less intangible assets to total assets less intangible assets 3 calculated on the basis of risk­weighted assets, including equivalents for market risk and operational risk Ratings LONG-TERM SHORT-TERM OUTLOOK FINANCIAL CHANGED/ PFANDBRIEFS CHANGED/ STRENGTH CONFIRMED CONFIRMED PUBLIC MORTGAGE Moody’s A3 P­2 negative C– 15/7/2013 Aaa Aa1 8/6/2012 Standard & Poor’s A– A­2 negative bbb+ 16/10/2013 AAA — 4/3/2013 Fitch Ratings A+ F1+ stable a– 10/2/2014 AAA AAA 22/11/2013/ 15/10/2013 HypoVereinsbank · 2013 Annual Report 3 Choose The best ways to bank. Customers want everything a modern bank can offer, without actually having to go to a branch. To meet this need, we have become the first bank in Germany to integrate the benefits of in-branch and online banking. The online branch offers our Customers a personal relationship manager, long opening hours and the consulting expertise of a classical branch office. Customers may choose from different modes of access: by phone or via online video link. Documents may be presented and processed live on screen while using the highest safety standards in place. The online branch provides personal, competent consultancy irrespective of place and time. HVB Online Branch - HypoVereinsbank - GERMANY Contents Strategy and Results 7 Letter from the Supervisory Board Chairman 8 Letter from the Management Board Spokesman 10 Summary of Results 14 Global Banking Services 16 Financial Statements (1): Management’s Discussion and Analysis 21 Financial Review 22 Corporate structure 22 Economic report 27 Events after 31 December 2013 44 Forecast report/Outlook Risk Report 52 HVB Group as a risk-taking entity 52 Risk types Integrated overall bank management 53 Implementation of overall bank management 56 Risk types in detail 61 ICS – Internal Control System 100 Internal control system with regard to the financial reporting process 100 Financial Statements (2): Consolidated Financial Statements 107 Consolidated Income Statement 110 Earnings per share Consolidated statement of total comprehensive income 111 Consolidated Balance Sheet 112 Statement of Changes in Consolidated Shareholders’ Equity 114 Consolidated Cash Flow Statement 116 Notes to the Consolidated Financial Statements 118 Declaration by the Management Board 248 Independent Auditors’ Report 249 Corporate Governance 251 List of Executives and Outside Directorships 252 Women’s Council 255 Report of the Supervisory Board 256 Corporate Governance and Compensation Report 262 Additional Information 275 Financial Calendar 276 Summary of Quarterly Financial Data 277 Summary of Annual Financial Data 278 Annex: UniCredit Profile 281 Highlights 282 Focus 284 15 years of UniCredit 286 Our Approach 287 HypoVereinsbank · 2013 Annual Report 5 Support Flexibility to meet Customer needs. “As the result of a discussion among different sections of the Risk Division, we realized that it is important to tailor communications according to the needs of each Customer. We worked together as a team, sharing our research and knowledge. This ultimately led to more flexible reports and made us more responsive and proactive, improving the skills and cohesion of all internal departments.” Francesco Ivan Pomarico Group Financial Risk - UniCredit Holding Strategy and Results Letter from the Supervisory Board Chairman 8 Letter from the Management Board Spokesman 10 Summary of Results 14 Global Banking Services 16 HypoVereinsbank · 2013 Annual Report 7 Letter from the Supervisory Board Chairman Ladies and Gentlemen We are now celebrating UniCredit's 15th anniversary. The foundations that we first laid in 1999 were significantly strengthened in 2005, when HVB became an important part of our Group. Together, we have been working to build a strong bank, deeply rooted in the heart of Europe. UniCredit Bank AG (HVB) has maintained extraordinary stability through years of substantial macroeconomic change. In 2013, we experienced yet another economic transition – from subdued growth to a sustained recovery. Most eurozone FEDERICO GHIZZONI countries met with success in their efforts to limit Supervisory Board Chairman the fallout from the sovereign debt crisis, while Germany set the standard for export-driven growth complemented by strong investment activity and private consumption. The banking sector, however, has remained under UniCredit Bank AG (HVB) pressure. A series of cuts to benchmark rates has maintained extraordinary by the European Central Bank were echoed by “ rock-bottom interest rates across the board – stability through years of and correspondingly low interest income for our industry. At the same time, the implementation substantial macroeconomic of Basel III has tightened regulatory requirements throughout the European Union. To add to these change. challenges, financial institutions in Germany continue to face overbanking and structural ” fragmentation. 8 2013 Annual Report · HypoVereinsbank Viewed in this light, HVB’s performance in 2013 Europe, as well as in other emerging markets such has been more than satisfactory. It saw a positive as Turkey. The scale and far-reaching expertise trend in non-interest income and continued its path offered by our Group provides clear benefits to HVB. toward higher efficiency, despite higher regulatory At the same time, HVB competes successfully in the costs. All business segments delivered positive German market due in no small part