annual report 2004 highlights of Commerzbank group 2004 2003 Income statement Operating profit (€ m) 1,043 559 Operating profit per share (€) 1.76 1.03 Pre-tax profit/loss (€ m) 828 –1,980 Net profit/loss (€ m) 393 –2,320 Net profit/loss per share (€) 0.66 –4.26 Operating return on equity (%) 10.2 4.9 Cost/income ratio in operating business (%) 70.4 73.3 Pre-tax return on equity (%) 8.1 –17.4 31.12.2004 31.12.2003 Balance sheet Balance-sheet total (€ bn) 424.9 381.6 Risk-weighted assets according to BIS (€ bn) 139.7 140.8 Equity as shown in balance sheet (€ bn) 9.8 9.1 Own funds as shown in balance sheet (€ bn) 19.9 19.7 BIS capital ratios Core capital ratio, excluding market-risk position (%) 7.8 7.6 Core capital ratio, including market-risk position (%) 7.5 7.3 Own funds ratio (%) 12.6 13.0 Commerzbank share Number of shares issued (million units) 598.6 597.9 Share price (€, 1.1.–31.12.) high 16.49 17.58 low 12.65 5.33 Book value per share*) (€) 18.53 17.37 Market capitalization (€ bn) 9.1 9.3 Customers 7,880,000 6,840,000 Staff Germany 25,417 25,426 Abroad 7,403 6,951 Total 32,820 32,377 Short/long-term rating Moody’s Investors Service, New York P-1/A2 P-1/A2 Standard & Poor’s, New York A-2/A- A-2/A- Fitch Ratings, London F2/A- F2/A- *) excluding cash flow hedges structure of commerzbank group Board of Managing Directors Corporate Divisions Group Retail Banking and Corporate and Services Management Asset Management Investment Banking Staff Banking Service departments departments departments G Accounting and Taxes G Asset Management Mittelstand bank G IT Applications G Corporate Banking G Compliance and G Credit Operations G Global Credit Operations G IT Production Security Private Customers International G IT Support G Corporate G Private Banking Corporate Banking Communications and G Financial Institutions G Organization Economic Research G Retail Banking Corporates & Markets G Transaction Banking G Financial Controlling G Group Treasury G Human Resources G Internal Auditing G Legal Services G Risk Control Domestic and foreign branch network G Strategy and Controlling Cooperation in bancassurance area Subsidiaries and participations in Germany and abroad ‡ ideas ahead ‡ Bridges connect. The bridge at Mostar is the best illustration of this. In 1993, the Old Bridge (Stari Most), which gave Mostar its name and was one of UNECSCO’s world cultural sites, was destroyed during hostilities. With the aid of the World Bank, UNESCO and several countries, it was rebuilt, stone by stone. For its reconstruction, which cost US$15m, the same quarry was used as that chosen by the Turkish architect Mimar Hajrudin in the 16th century. In the nine years up to the com- pletion of the bridge, contact between the two parts of the town on either side of the Neretva, which are populated by Croats and Muslim Bosnians, virtually ceased. Now the bridge connects them again. MOSTAR Bridge over the Neretva ‡ ideas ahead ‡ BUILDING BRIDGES – OUR CENTRAL TOPIC We would like to improve connections. With our customers worldwide, but also between customers. For a long time, Commerzbank has seen itself as the bank at its customers’ side. We intend to be a long-term partner for all our private and business customers. Reflecting. Thinking ahead. Advising. Working out solutions. / Commerzbank wants to build solid bridges to its customers. That is why we have made this the guiding theme of our annual report this year. / It is symbolized by the images which appear throughout the report. They show Adolphe Bridge in Luxembourg, Manhattan Bridge in New York, Tower Bridge in London, the Chain Bridge over the Danube in Budapest, Coleman Bridge in Singapore and Pont Neuf in Paris. And the cover shows Flösserbrücke in Frankfurt with the city’s skyline in the background. / In these locations – as in other places throughout the world – Commerzbank builds bridges to its customers and for its customers. Our annual report is also a bridge enabling us to reach our share- holders, customers, analysts, journalists and the public as a whole. In this way, we provide transparent and extensive information on 2004 and on our future prospects. contents Management report Survey of the Commerzbank Group 6 Corporate governance at Commerzbank 14 Retail banking and asset management 20 Corporate and investment banking 32 Staff and welfare report 42 Our share, strategy and outlook 48 Risk report 54 Financial statements of the Commerzbank Group 2004 Overview 90 Income statement 93 Balance sheet 95 Statement of changes in equity 96 Cash flow statement 98 Notes 100 Group auditors’ report 183 Report of the Supervisory Board 184 Boards, seats on other boards, Group managers, managers of branches and Group companies Supervisory Board 187 Central Advisory Board 189 Board of Managing Directors 190 Regional Board Members and CIO 192 Group managers 193 Managers of domestic main branches 194 Managers of larger corporates centres 194 Managers of foreign branches 195 Board of Trustees of Commerzbank Foundation 195 Managers of domestic Group companies 196 Managers of foreign Group companies 197 Regional Advisory Committees 198 Seats on other boards 210 Tables and charts Glossary 214 Index 219 Business progress 1968-2004 220 Front inside cover: Structure of the Commerzbank Group Back inside cover : Commerzbank worldwide KLAUS-PETER MÜLLER Frankfurt am Main, Eiserner Steg Klaus-Peter Müller March 2005 Chairman of the Board of Managing Directors An important interim goal has been achieved: Commerzbank is paying a dividend again. Of course, the size of this year’s distribution is un- satisfactory. But after years of reductions culminating in last year’s omission of a payment, the resumption of dividend payments is clear proof that we have made good progress. However, it is even more important that we are now working with structures which indicate further steady improvement in our earnings performance, without us having to rely upon support from stronger economic activity. After a highly promising start last year, we were unfortunately unable to maintain the momentum throughout the year as a whole. There were many different reasons for this; they lie both in ourselves and in our changed business environment. The fear of terrorism, the surge in crude oil prices, the dollar’s persistent weakness, abundant liquidity in the financial markets, reforms and the anxieties they produced, the US elections and unemployment are just some of the topics which indicate the changing mood in the second half of 2004. In the final quarter, we took a close look at our Investment Banking. We have abandoned some business lines or considerably scaled them back, others are being maintained and some expanded; but all of them are being integrated into a strictly customer-oriented unit under the new roof of Corporates & Markets. We are confident that we have now found an organization form in this area as well which will both benefit our customers and bring the Bank lasting success. Strengthening brand and profile Commerzbank is well-known as an adviser in all financial matters and a navigator for market success. This is the basis on which we are building our reputation. And then there is the continuity and experience gained through our 135 years of corporate history. We now have the chance to secure a leading position for ourselves in German banking. And I do not mean cosmetic improvements here but rather fundamental profiling, gaining the recognition and acceptance of society, business and politics. Commerzbank’s ideal – you might call it target profile – of how it would like to be seen: That is the best bank at the heart of Europe. Not the largest, then, the strongest, or the richest. No, simply the best. How do we intend to achieve this? Above all, we need well-trained, experienced and committed staff. We are trying to ensure this by means of broadly-based initial and further training programmes, a convincing corporate culture and a performance-based remuneration system. Then there is technology, which must be modern and reliable. Our benchmark tests have confirmed that we have high standards here. Through our nationwide branch network in Germany and our user- friendly internet portals, we offer customers easy access to the Bank, right around the clock, seven days a week. Our products and services are reasonably priced. This sums up the features which characterize the Commerzbank brand. Well over seven million customers, most of them in Germany, already use our products and services. And in their dealings with the Bank, they experience the efficiency and friendliness of its staff and also the ac- cessibility of its technology. Market surveys underline the high degree of satisfaction among Commerzbank’s customers. For us, this is a wel- come part of our identity. But we want even more. In line with our slogan “Ideas ahead”, we develop ideas and introduce measures that give the Commerzbank brand its unmistakeable profile, signalling efficiency and sympathy, solidity and creativity, not to mention trans- parency, credibility and success. The satisfaction of our customers and a clear profile are the essential basis for you, our shareholders, to support us by investing in Commerz- bank shares. In the final analysis, they also guarantee the success and performance of such a financial investment. All our shareholders are cordially invited to take part in our Annual General Meeting in the Jahrhunderthalle, Frankfurt-Höchst, on May 20, 2005. I look forward to welcoming you there. Eiserner Steg connects the centre of Frankfurt am Main with the famous apple-wine district, Sachsenhausen. From the pedestrian bridge, completed in 1869, there is an especially fine view of the city skyline.