‡ annual report 2006 ‡ commerzbank group / www.commerzbank.com / highlights of Commerzbank group 2006 20051) Income statement Operating profit (€ m) 2,628 1,757 Operating profit per share (€) 4.00 2.91 Pre-tax profit (€ m) 2,375 1,720 Consolidated surplus (€ m) 1,597 1,187 Earnings per share (€) 2.43 1.97 Operating return on equity (%) 21.5 17.2 Cost/income ratio in operating business (%) 59.7 67.2 Return on equity of consolidated surplus (%) 14.1 12.8 31.12.2006 31.12.20051) Balance sheet Balance-sheet total (€ bn) 608.3 444.9 Risk-weighted assets according to BIS (€ bn) 231.5 149.7 Equity (€ bn) as shown in balance sheet 15.3 13.5 Own funds (€ bn) as shown in balance sheet 30.1 21.7 BIS capital ratios Core capital ratio, excluding market-risk position (%) 6.8 8.2 Core capital ratio, including market-risk position (%) 6.7 8.0 Own funds ratio (%) 11.1 12.5 Commerzbank share Number of shares issued (million units) 657.2 656.8 Share price (€, 1.1.–31.12.) high 33.96 27.06 low 24.66 15.17 Book value per share2) (€) 22.34 20.80 Market capitalization (€ bn) 19.0 17.1 Customers 8,920,000 8,175,000 Staff Germany 27,250 25,304 Abroad 8,725 7,752 Total 35,975 33,056 Short/long-term rating Moody’s Investors Service, New York P-1/A2 P-1/A2 Standard & Poor’s, New York A-2/A- 3) A-2/A- Fitch Ratings, London F1/A F2/A- 1) After adjustment due to change in the provision for possible loan losses; 2) excluding cash flow hedges; 3) raised to A-1/A in March 2007. structure of commerzbank group Board of Managing Directors Corporate Divisions Commercial Group Retail Banking and Corporate and Real Estate, Public Services Management Asset Management Investment Banking Finance and Treasury Staff Banking Service departments departments departments Accounting and Taxes German Mittelstand Commercial Real Estate Information Asset Management Technology Credit Risk and Eco- • Corporate Banking Commerz Grundbesitz- nomic Capital Control International gesellschaft mbH Organization Asset Management • Financial Institutions Credit Risk Manage- CommerzLeasing Transaction Banking ment Private and Private Banking • BRE Bank SA und Immobilien AG Business Customers Private and Group Treasury Financial Controlling Business Customers Corporates & Markets Public Finance Global Credit Risk Retail Credit Management Commer- cial Real Estate and comdirect bank AG Public Finance Global Credit Risk Management Corporates & Markets Group Communications Group Compliance Human Resources Internal Auditing Legal Services Risk Strategy/Market Domestic and foreign branch network and Operational Risk Control Strategy and Controlling Cooperation in bancassurance area Subsidiaries and participations in Germany and abroad 2006 Awards for excellence EUROMONEY 2006 Awards for Excellence Germany EUROMONEY 2006 Best Bank Real Estate Awards Best Global Commercial Bank ‡ Ideas ahead ‡ All our efforts go towards doing justice to our customers’ growing demands: every day, the staff at our branches demonstrate their expertise, commitment, ambition and great creativity when dealing with their customers. Our various fields of business have ”ideas laboratories” where we are constantly working on innovative products and services. We believe the results are impressive. This annual report gives you the highlights of the products and services we provided last year. The members of staff who were directly involved in the development and implementation of these new ideas present them to you. They do so on behalf of all those who contributed to Commerzbank’s excellent results in 2006. We are living modern banking: ideas ahead. contents To our shareholders 4 Corporate governance report incl. remuneration report 13 Management report Survey of the Commerzbank Group 6 Remuneration report 17 Information pursuant to Arts. 289 (4) and 315 (4) of the German Commercial Code (HGB) 26 Retail Banking and Asset Management 30 Corporate and Investment Banking 40 Commercial Real Estate, Public Finance and Treasury 50 Staff and welfare report 58 Share price, strategy and outlook 64 Risk report 70 Financial statements of the Commerzbank Group 2006 Overview 102 Income statement 105 Balance sheet 107 Statement of changes in equity 108 Cash flow statement 110 Notes 112 Group auditors’ report 203 Report of the Supervisory Board 206 Boards, seats on other boards, Group managers, managers of branches and Group companies Supervisory Board 211 Central Advisory Board 213 Board of Managing Directors 214 Regional Board Members and Group COO 216 Group managers 217 Managers of domestic main branches 218 Managers of larger corporates centres 218 Managers of foreign branches 219 Board of Trustees of Commerzbank Foundation 219 Managers of domestic Group companies 220 Managers of foreign Group companies 221 Regional Advisory Committees 222 Seats on other boards 234 Tables and charts Glossary 238 Index 243 Business progress 1968-2006 244 Klaus-Peter Müller March 2007 Chairman of the Board of Managing Directors 2006 was the best year in our history. We confirmed our regained profitability by posting a record result, an impressive achieve- ment. As Germany’s number two bank, we are respected and highly regarded both nationally and internationally. Even critical rating analysts and institutional investors have acknowledged our progress. It is also reflected in the encouraging rise in the Commerzbank share price. We not only reached our very demanding earnings targets, we exceeded them. The after-tax return on equity of 11.2% – after adjustments for extraordinary income items and restruc- turing expenses – is well above the 10% target that we set ourselves for 2006. This was achieved despite an unforeseeable special risk provision of nearly €300m. At the same time, the adjusted cost/income ratio improved from 69.8% to a healthy 64.0%. This means that we have come much closer to our medium-term target of no more than 60%. We would like to share our business success with you, our shareholders. We will there- fore propose to the Annual General Meeting that the dividend be raised by 50% to €0.75 per share. This is equivalent to a total payout of €493m – our highest distribution ever, with the exception of 2000, when we paid a special dividend because of the hefty proceeds from the IPO of comdirect bank. Our staff will also receive a larger profit-sharing payment. With the return on equity achieved in 2006 we surpassed the third of the yield levels set within the bank. The Bank will therefore pay out an amount of €73.5m, which will be distributed on an individual performance-related basis. Our profit figures show that we have achieved a great deal in recent years. After several years of making operations leaner and adjusting to changed market conditions, Commerz- bank is back on track and has caught up with the European banking industry. We are confi- dent that the gap between our return on equity and that of comparable foreign competitors will gradually close in the years ahead. So we won’t be resting on our laurels, but have raised the target for this year’s adjusted after-tax return on equity from 11% to over 12%. This is only an interim goal, however. We hope to attain a sustainable 15% by the year 2010. To reach this goal, we must continue to shift our earnings to comparatively stable com- mission income and keep our costs under control. In areas in which we want to grow, we will no doubt be creating new jobs. At the same time, job cuts may be unavoidable if new technology makes certain work processes redundant. We also expect support from the economy, which has finally picked up speed. My im- pression is that Germany is now in an upbeat mood both politically and economically, and this is a very favourable environment for the banking business. We intend to take advan- tage of this opportunity. We have therefore decided on an offensive strategy for the next few years and have established efficiency and growth programmes in all operative depart- ments. The element that we can realistically plan is organic growth, both at home and abroad. We are naturally also interested in the subject of acquisitions, and we are looking at the few opportunities available and analysing them carefully. However, they have to make strategic sense, be economically tenable and create added value for our shareholders. Unless these criteria are fully met, we prefer not to commit ourselves. Let me take this opportunity to say a word about Commerzbank’s corporate respon- sibility, an area in which we also made a great deal of progress in 2006. As promised last year, we have now published a code of ethical conduct. This applies to all staff members of Commerzbank AG – from senior management to trainees. We have also taken the important step of joining the United Nations Global Compact. The companies and organizations that participate in this voluntary network support and advocate human rights, fair labour prac- tices and environmental protection. They also agree to undertake measures to fight corrup- tion. We see our participation in the Global Compact as an incentive as well as an obliga- tion. In Commerzbank’s second sustainability report, to be published in autumn this year, we will report again in depth on our commitment and our progress in this area. We have, incidentally, for the first time calculated our expenses within the framework of Corporate Social Responsibility. Group-wide we expended more than €37m in 2006 on donations, sponsorships and other social activities. This demonstrates how seriously we take our responsibility. We feel that we are well equipped in all areas for the challenges of the future. We owe our healthy condition to our staff and also to the confidence shown by our shareholders, customers and business partners.