2015 ANNUAL FINANCIAL STATEMENTS AND MANAGEMENT REPORT OF DZ BANK AG KEY FIGURES DZ BANK AG Dec. 31, Dec. 31, € million 2015 2014 2015 2014 FINANCIAL PERFORMANCE LIQUIDITY ADEQUACY Operating profit before allowances Economic liquidity adequacy for losses on loans and advances 514 573 (€ billion)2 3 4.0 1.9 Allowances for losses on loans and advances 46 -55 CAPITAL ADEQUACY Operating profit 560 518 Economic capital adequacy Net income for the year 224 213 (percent)4 5 173.3 167.3 Cost/income ratio (percent) 67.7 62.2 Total capital ratio (percent)6 26.6 24.9 Tier 1 capital ratio (percent)6 20.2 17.8 Dec. 31, Dec. 31, Common equity Tier 1 capital ratio 2015 2014 (percent)6 19.1 17.8 NET ASSETS Leverage ratio (percent) 4.6 Assets AVERAGE NUMBER OF EMPLOYEES Loans and advances to banks 81,319 80,716 DURING THE YEAR 4,312 4,250 Loans and advances to customers 22,647 22,443 Bonds and other fixed-income LONG-TERM RATING securities 39,375 39,821 Standard & Poor’s AA- AA- Shares and other variable-yield Moody’s Investors Service Aa3 A1 securities 55 66 Fitch Ratings AA- A+ Trading assets 39,192 45,540 Other assets 15,148 15,598 Equity and liabilities Deposits from banks 91,529 85,388 Deposits from customers 17,985 22,855 Debt certificates issued including bonds 38,973 39,016 Trading liabilities 29,167 37,028 Other liabilities 12,074 11,903 Equity 8,008 7,994 Total assets/total equity and liabilities 197,736 204,184 Volume of business1 220,478 226,813 1 Total equity and liabilities including contingent liabilities and other obligations. 2 Stress scenario with the lowest minimum liquidity surplus. 3 Disclosures for DZ BANK (the disclosures in the 2014 annual financial statements and management report were for the DZ BANK Group). 4 Owing to the close ties between the management of economic capital adequacy at DZ BANK and that of the DZ BANK Group, the figure for the group also applies to DZ BANK. 5 The figure as at December 31, 2014 differs from the figure in the 2014 annual financial statements and management report because the overall solvency requirement for the Insurance sector was recalculated as scheduled in the second quarter of 2015. 6 Calculation in accordance with the Capital Requirements Regulation. DZ BANK AG 01 2015 ANNUAL FINANCIAL STATEMENTS AND MANAGEMENT REPORT CONTENTS CONTENTS 02 MANAGEMENT REPORT OF DZ BANK AG 06 DZ BANK AG fundamentals 13 Business report 26 Events after the balance sheet date 27 Human resources report and sustainability 32 Outlook 37 Combined opportunity and risk report 156 ANNUAL FINANCIAL STATEMENTS OF DZ BANK AG 158 Balance sheet as at December 31, 2015 160 Income statement for the period January 1 to December 31, 2015 162 Notes 216 RESPONSIBILITY STATEMENT 217 AUDIT OPINION (TRANSLATION) 218 ADVISORY COUNCILS 228 PRINCIPAL SHAREHOLDINGS 02 DZ BANK AG 2015 ANNUAL FINANCIAL STATEMENTS AND MANAGEMENT REPORT MANAGEMENT REPORT OF DZ BANK AG CONTENTS MANAGEMENT REPORT OF DZ BANK AG 06 DZ BANK AG FUNDAMENTALS 27 HUMAN RESOURCES REPORT AND SUSTAINABILITY 06 Business model 27 Human resources report 06 Strategic focus as a network-oriented central 27 Declaration on corporate governance institution and financial services group 27 Launch of ‘Verbund First’ career development program 07 Corporate Banking 27 DZ BANK Group’s employer branding campaign 08 Retail Banking 27 Professional development 08 Capital Markets 28 Training and development of young talent 08 Transaction Banking 28 Health management 28 Work and family life 09 Management of DZ BANK 29 Employer awards 09 Governance 11 Management units 30 Sustainability 12 Key performance indicators 30 Cooperatives: responsibility as a corporate objective 12 Management process 30 Sustainability-related products and services 30 Group Corporate Responsibility Committee 31 Transparency in sustainability activities 13 BUSINESS REPORT 13 Economic conditions 32 OUTLOOK 14 Efforts to stabilize the financial sector 32 Economic conditions continue in the shadow of geopolitical crises 32 Global economic trends 32 Trends in the USA 16 Financial performance 32 Trends in the eurozone 16 Financial performance at a glance 32 Trends in Germany 17 Financial performance in detail 33 Trends in the financial sector 22 Number of branches 33 Changes in financial position and 23 Net assets financial performance 33 Financial performance 24 Financial position 35 Liquidity 26 EVENTS AFTER THE BALANCE SHEET DATE DZ BANK AG 03 2015 ANNUAL FINANCIAL STATEMENTS AND MANAGEMENT REPORT MANAGEMENT REPORT OF DZ BANK AG CONTENTS 37 COMBINED OPPORTUNITY 74 Capital adequacy AND RISK REPORT 74 Principles 74 Economic capital adequacy 37 Disclosure principles 79 Regulatory capital adequacy 82 Outlook 38 DZ BANK GROUP 83 Bank sector 38 Summary 38 Statements from the Board of Managing Directors 83 Credit risk 38 Opportunity and risk management system 83 Definition and causes 39 Risk factors, risks, and opportunities 84 Risk strategy 84 Organization, responsibility, and risk reporting 40 Fundamental principles of managing 85 Risk management opportunities and risks 93 Lending volume 40 Regulatory framework for risk management 102 Portfolios with increased risk content 41 Risk strategies and risk appetite 105 Non-performing lending volume 45 Opportunity and risk-oriented corporate governance 106 Allowances for losses on loans and advances 50 Risk management tools 109 Risk position 109 Summary and outlook 56 Opportunities 56 Management of opportunities 110 Equity investment risk 57 Potential opportunities 110 Definition and causes 110 Risk strategy and responsibility 58 General risk factors 110 Risk management 58 Market and sector risk factors 111 Risk factors and risk position 64 Overarching bank-related risks 111 Market risk 66 Liquidity adequacy 111 Definition and causes 66 Principles 112 Risk strategy 66 Economic liquidity adequacy 113 Organization, responsibility, and risk reporting 72 Regulatory liquidity adequacy 113 Risk management 73 Outlook 117 Risk factors 118 Risk position 118 Summary and outlook 04 DZ BANK AG 2015 ANNUAL FINANCIAL STATEMENTS AND MANAGEMENT REPORT MANAGEMENT REPORT OF DZ BANK AG CONTENTS 120 Technical risk of a home savings 135 Actuarial risk and loan company 135 Definition and causes 120 Definition and causes 137 Management of life actuarial risk 120 Risk strategy and responsibility 138 Management of health actuarial risk 120 Risk management 139 Management of non-life actuarial risk 120 Risk factors 141 Risk factors 121 Risk position 142 Claims rate trend in non-life insurance 142 Risk position 121 Business risk 143 Summary and outlook 121 Definition and causes 121 Organization and risk management 143 Market risk 121 Risk factors 143 Definition and causes 123 Risk position 144 Risk management 147 Risk factors 123 Reputational risk 148 Lending volume 123 Definition and causes 150 Credit portfolios with increased risk content 123 Risk strategy and responsibility 150 Risk position 123 Risk management 151 Summary and outlook 123 Risk factors 151 Counterparty default risk 124 Operational risk 151 Definition and causes 124 Definition and causes 152 Risk management 124 Risk strategy 152 Risk position 124 Organization, responsibility, and risk reporting 125 Central risk management 152 Operational risk 125 Management of special risks 152 Definition and causes 132 Loss events 153 Risk management 133 Risk position 153 Risk factors 133 Summary and outlook 154 Risk position 134 Insurance sector 155 Entities in other financial sectors 134 Basic principles of risk management in the Insurance sector 134 Risk strategy 135 Organization, responsibility, and risk reporting DZ BANK AG 05 2015 ANNUAL FINANCIAL STATEMENTS AND MANAGEMENT REPORT MANAGEMENT REPORT OF DZ BANK AG CONTENTS NOTE DZ BANK AG Deutsche Zentral-Genossenschafts- bank, Frankfurt am Main, (DZ BANK) implements the transparency requirements as specified in section 289 of the German Commercial Code (HGB) with the publication of this management report. In addition, the report satisfies German accounting standard no. 20 (Group Management Report), which relates to management reports that apply at group level. All figures are rounded to the nearest whole number. This may result in very small discrepancies in the calculation of totals and percentages. 06 DZ BANK AG 2015 ANNUAL FINANCIAL STATEMENTS AND MANAGEMENT REPORT MANAGEMENT REPORT OF DZ BANK AG DZ BANK AG fundamentals I. DZ BANK AG 2. STRATEGIC FOCUS AS A NETWORK- ORIENTED CENTRAL INSTITUTION AND fundamentals FINANCIAL SERVICES GROUP The strategic focus at DZ BANK follows the guiding 1. BUSINESS MODEL principle of fulfilling the role of a network-oriented central institution and financial services group. Its DZ BANK AG Deutsche Zentral-Genossenschafts- objective is to consolidate the positioning of the bank, Frankfurt am Main, (DZ BANK) focuses Volksbanken Raiffeisenbanken cooperative financial closely on the local cooperative banks, which are its network as one of the leading financial services pro- customers and owners. The DZ BANK Group makes viders in Germany on a long-term basis. To achieve a significant contribution to helping the cooperative this aim, DZ BANK is steadfastly pursuing a strategy banks strengthen their market position by providing of network-oriented growth, consistent focus, and them with competitive products and services for incor- closer integration of DZ BANK within the cooperative poration into their end-customer business. The sup- financial network. port is provided on the basis of the subsidiarity princi- ple. In addition, the local cooperative banks benefit In 2015, DZ BANK and WGZ BANK AG West- from substantial financial support in the form of fees, deutsche Genossenschafts-Zentralbank, Düsseldorf, commissions, bonuses, profit distributions, and the (WGZ BANK) announced that they were proceeding transfer of cost benefits. toward a merger, creating one cooperative central insti tution and thereby completing the consolidation The focus on network-based business is always given of the superstructure of the cooperative financial priority, especially in times when resources are in short network.