annual report 2002 highlights of Commerzbank group 2002 2001 Income statement Pre-tax profit (7 m) –372 43 Net loss/profit (7 m) –298 102 Loss/profit per share (7) –0.56 0.19 Operative return on equity (%) 1.6 3.4 Pre-tax return on equity (%) –3.1 0.3 Cost/income ratio in operating business (%) 77.3 81.1 31.12.2002 31.12.2001 Balance sheet Balance-sheet total (7 m) 422,134 501,312 Risk-weighted assets according to BIS (7 m) 160,190 203,606 Equity (7 m) 8,808 11,760 Own funds (7 m) 19,307 23,628 BIS capital ratios Core capital ratio excluding market-risk position (%) 7.5 6.2 Core capital ratio including market-risk position (%) 7.3 6.0 Own funds ratio (%) 12.3 10.3 Commerzbank share Number of shares outstanding (million units) 542.2 541.8 Share price (7, 1.1.–31.12.) high 21.29 33.60 low 5.04 14.08 Book value per share*) (7) 18.98 22.68 Market capitalization (7 bn) 4.04 9.47 Staff Germany 28,603 31,899 Abroad 7,963 7,582 Total 36,566 39,481 Short/long-term rating Moody’s Investors Service, New York P-1/A2 P-1/A1 Standard & Poor’s, New York A-2/A- A-1/A Fitch IBCA, London F2/A- F1/A+ *) excluding cash flow hedges annual report 2002 commerzbank group commerzbank’s social commitment The society in which we live has certain expectations of companies. We take our respon- sibility towards society seriously, initiate projects of our own and support efforts which we consider to merit sponsorship. In this report, we offer a representative selection of these activities, the emphasis being on issues supported by the Commerzbank Foundation. In addition, we describe our cooperation with German national parks, and report on the assistance we provided for the victims of both September 11 and last summer’s flood catastrophe. We also show pictures of this year’s awards in connection with the initiative to thank people holding honorary functions in sport, which we launched in conjunction with Deutscher Sportbund. Commerzbank Foundation It was set up on the hundredth birthday of Commerzbank AG in Hamburg, the city where the Bank was formed, on February 26, 1970. It was endowed with a capital of DM5m. In the tradition of a civic foundation, its object was quite consciously defined broadly, enabling the Foundation to become active in all areas of public benefit. In the course of the next three decades, its capital was gradually increased in line with its growing functions, reaching DM50m by end-2000. With uncommitted reserves included, it currently stands at almost 730m. The goals of the Foundation have also been adapted and extended several times to reflect developments in society, the topics culture and historical monuments being added in 1984, and protection of the environment and nature in 1992. Unlike more recent institutions with more narrowly defined goals, the Commerzbank Foundation has con- sistently pursued its original objective of being active in all areas that are of public benefit. In the 33 years of its existence, it has devoted itself to providing support in the following areas: the promotion of universities, (non-university) scholarship and research, basic, vocational and further training, churches, charity and healthcare, cultural sponsorship and the protection of historical monuments. In the meantime, it provides support of roughly 71.2m each year. All told, the Commerzbank Foundation has donated 712.8m since it was set up. contents Management report Survey of the Commerzbank Group 6 Corporate governance 11 Sustainability report 16 Retail banking and asset management 24 Corporate and investment banking 34 Staff and welfare report 46 Our share, strategy and outlook 52 Risk report 58 Financial statements of the Commerzbank Group 2002 Overview 84 Income statement 87 Balance sheet 89 Statement of changes in equity 90 Cash flow statement 92 Notes 94 Auditors’ certificate 175 Report of the Supervisory Board 178 Boards, membership of other boards, Group managers, branch managers and managers of Group companies Supervisory Board 183 Central Advisory Board 185 Board of Managing Directors 186 Regional Board Members 188 Group managers 189 Managers of domestic main branches 190 Managers of foreign branches 191 Board of Trustees of Commerzbank Foundation 191 Managers of domestic Group companies 192 Managers of foreign Group companies 193 Regional Advisory Committees 194 Membership of other boards 207 Tables and charts Structure of the Commerzbank Group 21 Commerzbank worldwide 42 Glossary 212 Index 217 Business progress 1968-2002 218 Klaus-Peter Müller April 2003 Chairman of the Board of Managing Directors We know that you cannot be content with the picture presented of Commerzbank. We are not content either, because we find the darker tones of this picture exaggerated and feel that our share price is out of touch with reality. This reality is something we are actively tackling; we are doing all that we can to alter this picture, to brighten it up and to show it in a better light with the aid of convincing facts. Last year, our main activity was to remould the Commerzbank Group into a lean, flexible and modern provider of financial services at the heart of Europe. We have moved quite a long way in that direction, but we have also been obliged to recognize that the path we have chosen is stony, passing through inhospitable territory. In all our measures it was important for us not to overtax or place undue strain upon our relationships with customers – in other words, the very basis of our business – but, on the contrary, to build upon these. More than ever, we are convinced that any promising business model for a bank rests upon long-term relationships with its customers. Put in con- temporary terms, this means that we continue to see the consistent rela- tionship-banking approach as superior to deal-based transaction banking. We present in detail the individual aspects and the progress made with the restructuring of Commerzbank on the following pages of our annual report. Having read it, you will come to the conclusion that we have achieved some things more quickly than originally expected. Other projects have not made such rapid progress, as the hostile economic climate and the weakness of the stock markets have even grown worse rather than improving. In addition, the mistrust of the media, analysts and investors towards Germany and also towards the entire German banking industry has increased, and in mutually reinforcing waves so to speak has hit the indi- vidual institutions. We continue to believe that transparency and frank communication are the only effective antidotes. At the same time, the Federal Financial Supervisory Authority, the Bundesbank and the Association of German Banks have helped to ensure that Finanzplatz Deutschland did not suffer even greater damage. For this, they deserve our special gratitude. In the interest of providing information as soon as possible, we pre- sented our provisional figures for the 2002 financial year to you and to the public at large at the start of February, and thus very early – not least in order to take the wind out of the sails of speculation. It was especially important that, by disclosing our liquidity ratios, we proved that we have ample liquidity reserves over the long term. What is more, we were apparently able to convince the markets of the soundness of our policy as regards risk and to show that we have adhered to a conservative course in forming valuation allowances. While we had to accept further setbacks on the earnings side, we even managed to exceed our ambitious targets as far as costs are concerned. We have also systematically reduced our risk-weighted assets – partly by deconsolidating Rheinhyp, and partly by securitizing risks and loans. This policy has led to an improvement in our core capital ratio from 6.0% at end-2001 to 7.3%, a respectable figure even by international compari- son. It is our express goal to hold this ratio at no less than 7%. It under- lines the Bank’s solidity and financial strength, and for this reason it is closely watched by rating agencies in particular. Given our sound liquidity position and good capital base, we remain committed to the goal of achieving better figures soon and, as a result, of being able to present a more attractive picture of Commerzbank, despite the persistently difficult conditions. I hope that I will be able to report further progress to you at our Annual General Meeting in the Frankfurt Festhalle on May 30, 2003. 6 MANAGEMENT REPORT survey of the commerzbank group World economy: still no upswing World-economic growth was again disappointing in 2002. The US economy cer- tainly moved out of recession more quickly than expected and at 2.4% registered a much stronger rise in real GDP than a year earlier. In Western Europe, however, the revival of economic activity lost momentum, yielding average growth of only 1% in 2002. Mounting tensions in the Middle East increased the risk premium on the oil price; confidence in the sustainability of the US recovery disappeared and equity prices plunged once again, not least due to accounting scandals in the United States. Seen over the year as a whole, the stagnation in Germany which had begun in mid-2000 continued. Economic growth, at 0.2%, again fell short of that in other EU countries. This was largely due to the unique financial burdens imposed by German unification, whose impact can still be felt. Construction investment shrank further last year and was even lower than in 1991.