Landesbank Berlin Holding

Transcription

1 Landesbank Berlin Holding Annual Report 2006

2 Corporate Profile Landesbank Berlin Holding AG is a listed financial holding headquartered in the German capital. It is the parent company of its wholly-owned subsidiary Landesbank Berlin AG. Landesbank Berlin is universal bank in which all the activities are bundled. The historic core of Landesbank Berlin AG is Berliner Sparkasse, founded in From the day of its foundation until the present, Berliner Sparkasse has continuously fulfilled a public-sector mandate in the service of the city. The Bank is the market leader in the Berlin banking centre and stands for client orientation, fairness, security and modernity. Our business model is built on four pillars: Retail Banking and Regional Corporate Banking, in which we hold an excellent position as an innovative, customer-oriented bank; Capital Markets, for which we offer selected activities and Real Estate Financing, which is focused on the requirements of investors and residential development companies throughout Germany. Our Retail Banking clients have the comprehensive network of Berliner Sparkasse branches at their disposal. In addition, this full offering is rounded off by modern sales channels such as online banking, call centres and self-service facilities. Our banking products for pensions, asset accumulation, consumer and real-estate financing as well as payment transactions and liquidity management enable us to provide our clients with an extensive offering. We cater for the investment and finance requirements of high net-worth retail banking clients in our Asset Management Centres. In Regional Corporate Banking, our clients include small and medium-sized enterprises, associations and foundations, public-sector companies and regional and local authorities as well as a large number of other small companies from around the region. Their requirements in respect of finance, investment and service issues require competent and customised support. This is ensured by experienced advisers in the Landesbank Berlin Regional Corporate Banking departments as well as the Berliner Bank Regional Corporate Banking Centres. In addition, our business clients also have a state-of-the-art, efficient sales channel in BusinessLine. The Regional Corporate Banking range of services is rounded off by the Competence Centres for International Banking, Leasing & Factoring, Start-ups and Business Succession as well as Electronic Banking. The central task of our Capital Markets business is to intensify client trading and sales activities. The Bank is also established as a renowned, expert provider of innovative capital market products for private investors as well. In International Banking, we focus on business in Central and Eastern Europe. In the Real Estate Financing business area, we focus on the requirements of experienced private and commercial investors of good credit standing and development companies in selected growth regions in Germany. Streamlined structures and short decision-making paths guarantee flexibility, speed and excellent service for stable and profitable customer relations.

3 Group key figures at a glance ) 2004 Income statement (excerpts) Net interest income s milion Allowance for losses on loans and advances s milion Net commission income s milion Net income from hedge accounting s milion Trading result 2) s milion Net income from financial assets s milion Other operating income s milion Administrative expenses s milion 1,115 1,130 1,140 Operating result before restructuring s milion Restructuring expenditure and income (net) s milion Operating profit / earnings before taxes s milion Income tax expense s milion Earnings after taxes s milion Balance Sheet Total assets s milion 141, , ,302 Shareholders equity s milion 2,620 1,901 1,957 Dormant participations s milion 700 1,100 1,100 Risk items (German Banking Act) s milion 44,901 40,924 41,691 Key ratios Cost-income ratio % Return on equity % Overall capital ratio (German Banking Act) 3) % Tier 1 capital ratio (German Banking Act) 3) % Shares Earnings per share s Market capitalisation s milion 7,851 2,906 1,963 Share price High s Low s Employees (annual average) number 7,976 8,459 9,120 1) The figures for previous year have been adjusted according to IAS 8, see note 3 2) Net income from financial instruments recognised at fair value through profit or loss 3) After approval of the annual financial statements in accordance with German accounting standards

4 Ratings Moody s Fitch dbrs Unguaranteed liabilities Long-term rating A1 A A (high) Short-term rating P-1 F-1 R-1 (middle) Outlook Stable Evolving Stable Financial strength Financial strength D + C / D Guaranteed liabilities Long-term rating Aa1 AAA Short-term rating P-1 F-1+ Outlook Stable Stable Pfandbriefs Public-sector pfandbriefs Aaa AAA Mortgage bonds Aaa Status: May 2007

5 Contents Management 2 Letter to Shareholders 3 Report of the Supervisory Board 6 Corporate Governance Report 13 Executive Bodies of Landesbank Berlin Holding AG and Landesbank Berlin AG 18 About the company 28 Segment Reporting 29 Retail Banking 32 Regional Corporate Banking 34 Capital Markets 40 Real Estate Financing 43 Corporate Investments 46 Other / Consolidation 46 Employees of Landesbank Berlin Holding AG 47 Share Price of Landesbank Berlin Holding AG 48 Group Management Report 49 Overview of the 2006 financial year 50 Development of Business in Final statement on the dependent company report in accordance with Article 312 of the German Stock Corporation Act 73 Risk report 74 Forecast report / outlook 94 Annual Financial Statements for the Group 97 Profit and Loss Account 98 Balance Sheet 99 Equity Capital Statement 100 Cash Flow Statement 101 Notes 103 Auditors report 186 Important Addresses 187

6 Management Letter to Shareholders 3 Report of the Supervisory Board 6 Corporate Governance Report 13 Executive Bodies of Landesbank Berlin Holding AG and Landesbank Berlin AG 18 2

7 Management Letter to Shareholders Dear Shareholders, Landesbank Berlin again looks back at a successful financial year that fully fulfilled our expectations and even exceeded them in some cases. It was a year in which our abilities and strengths in the markets were substantially tested than was the case in previous years. Three trends are particularly striking: improved sales success again in the markets relevant to us, a significant increase in the earnings power and resumption of the dividend payment and establishment of a future-compliant Group structure by combining the business activities of Bankgesellschaft Berlin and Landesbank Berlin. With a consolidated operating result (earnings before taxes) of 780 million, the previous year s profit of 276 million was substantially exceeded in The result was also up significantly on the forecast that was already lifted over the course of the year to around 600 million. This exceptionally good result as in the previous year included positive non-recurring effects, above all the income from sale of Berliner Bank in the amount of 438 million. However, even without taking these effects into account, substantial earnings growth was seen. The excellent earnings performance enabled us to fully settle the existing loss carryforward in the 2006 annual financial statements, thus also completing the reconstruction of the Group which had already ended in the previous year in reporting. Landesbank Berlin Holding AG is now in a position to pay out a dividend for the first time in four years, enabling you, the shareholders, to be part of our Company s economic success. The Board of Management and Supervisory Board are to propose to the Annual General Meeting that a dividend of 0.06 per share be distributed. This is the first annual report under the name Landesbank Berlin Holding AG after Bankgesellschaft Berlin AG s change of name, which you resolved, entered into effect on August 29, The change of name is due to almost all of the former Bankgesellschaft Berlin assets being integrated into Landesbank Berlin AG. The latter now operates all of the Group s banking activities together with its subsidiary Berlin Hyp while Landesbank Berlin Holding AG, as the parent company, is purely a financial holding. This restructuring enabled us to reduce significantly the complex nature of the former Bankgesellschaft Berlin again. 3

8 Letter to Shareholders The successful combination of our business activities at LBB, the sale of Berliner Bank to Deutsche Bank and the transfer of the Real Estate Services companies to the State of Berlin retroactively to January 1, 2006 marked the completion of our Group s extensive restructuring since It now has a transparent and powerful structure suitable for its scope of business. The confidence of clients in the quality of our products and services are ultimately crucial to the sustainability of our business success. We are therefore pleased that we were able to strengthen our position in our core markets again in 2006 and also gain new customers in promising fields. Landesbank Berlin, Berliner Sparkasse and Berlin Hyp are showing their economic strengths on the market more and more assertively. This positive development is first and foremost thanks to the superb performance of all employees. To summarise, this means that: the Group is well positioned for the privatisation process which began in the first half of At the end of this process, the shares held by the State of Berlin in Landesbank Berlin Holding AG are due to be sold this year in line with the conditions of the European Commission. In April, the State chose those from among a group of potential purchasers who were able to obtain in-depth information about the Group in a data room. At the same time, the State continued to hold open the second placement of its shares on the stock exchange as part of a secondary public offering (SPO). 4

9 Management Letter to Shareholders Dear shareholder, our Bank is not the acting party in this process. Nevertheless, we are supporting our current majority shareholder in what is legally possible and makes economic sense to the best of our ability in order to reach a solution that is also forward-looking for our shareholders. All of us employees, managers and the Board of Management have given our best over the past few years to bring Landesbank Berlin to the fore again. We know what our strengths are; there are more than a little: Landesbank Berlin, together with Berliner Sparkasse, is the uncontested market leader in the German capital, we are the savings bank with the most branch-based retail banking clients in Germany, we have issued the most credit cards in Germany, we are one of Germany s largest real estate financers and we enjoy recognised expertise and service quality in expanding markets, such as in certificates or publicly offered funds. Landesbank Berlin Holding AG is ready to open a new chapter in its book. We are certain that it will be an attractive investment that is full of prospects for its shareholders. We will do everything to continue the successful course of past years. The Board of Management Hans-Jörg Vetter Dr. Thomas Veit 5

10 Report of the Supervisory Board In financial year 2006, the Supervisory Board kept itself informed of current events and significant transactions at six plenary sessions and a total of eight committee meetings and by means of written and verbal reports by the Board of Management. The Supervisory Board discussed the economic development of the Bank and the Group, advised the Board of Management and monitored its management. It reviewed the situation and business developments of the Bank regularly, comprehensively and with appropriate urgency, and satisfied itself that business was being managed properly. The Supervisory Board was informed by the Board of Management about the intended business policy and other fundamental issues of corporate planning, including in particular financial, investment and personnel planning, as well as the risk situation. It then advised the Board of Management on these matters and gave recommendations where appropriate. Between these meetings, current issues and pending decisions were discussed on an individual basis in regular discussions between the Chairman of the Board of Management and the Chairman of the Supervisory Board. In view of the often similar topics, the Supervisory Board members of LBB Holding and Landesbank AG regularly met in joint meetings in each case as did their committees. The Supervisory Board was involved in all decisions of material importance for the LBB Holding AG or the Group and, where necessary, granted its approval following intensive consultation and examination. Focus of the work of the Supervisory Board Since the successful conclusion of the restructuring efforts were the focus of consultation in the previous year, the Board of Management kept the Supervisory Board informed on the current status of the Berliner Bank spin-off from the Group and the ongoing sales process in its meetings during the first half of 2006 and together with the Board of Management discussed this issue in detail and consulted on it. As is known, the disposal of the Group subsidiary which up until then was structured and traded as branch of Landesbank Berlin AG was a condition of the European Commission in connection with the approval of the restructuring aid for the former Bankgesellschaft Berlin. At the end of June 2006, the Supervisory Board approved the sale of Berliner Bank AG & Co. KG, which had recently been established for this purpose, to Deutsche Bank in an extraordinary meeting. The sale was scheduled for the end of

11 Management Report of the Supervisory Board In addition, the Supervisory Board kept itself informed on the progress of the One Bank project. As part of this project, almost all of the business activities of the former Bankgesellschaft Berlin AG were transferred to Landesbank Berlin AG in accordance with the resolutions of the Annual General Meetings of both companies from July Bankgesellschaft Berlin was then renamed in line with its new role as a financial holding company as Landesbank Berlin Holding AG. The Supervisory Board also received detailed reports on, and passed the necessary resolutions for, the implementation of the other activities required of the Bank in this context, such as the largely concluded acquisition of the Group s Real Estate Services business by the State of Berlin. In the year under review, the Supervisory Board also discussed, passed appropriate resolutions on, and instigated the necessary measures relating to significant legal disputes for which it is responsible, including liability claims and prospectus liability proceedings, with the aid of third-party legal consultants and using expert opinions on the current status of individual proceedings prepared by law firms commissioned by it and the Board of Management. In line with this, the review of the responsibilities for the losses suffered in the past also with respect to the final report by the parliamentary enquiry committee of the Berlin House of Representatives published at the start of June 2006 can primarily be considered complete. Meetings of the Supervisory Board In the first meeting of the year on March 31, 2006, the priority as part of the accounts meeting following reporting on financial year 2005 was consultation on the annual financial statements and consolidated financial statements for 2005 prepared in accordance with the Handelsgesetzbuch (HGB German Commercial Code). The HGB annual financial statements of Bankgesellschaft Berlin AG as at December 31, 2005 were adopted by the Supervisory Board and the HGB consolidated financial statements were approved. The 2005 annual report of the Audit department and the status report on the One Bank project were also dealt with. Other issues discussed were the Corporate Governance Report including the declaration of conformity as well as the efficiency review of the Supervisory Board s supervisory activities in 2005 when the Supervisory Board met without the Board of Management. The priority at the meeting of May 24, 2006 was consulting on the IFRS consolidated financial statements as at December 31, 2005 which were approved by the Supervisory Board, and on the Group management report. In this meeting, the Supervisory Board also approved the agreement necessary for One Bank, particularly the spin-off agreement. Furthermore, the resolutions presented for the agenda of the 2006 Annual General Meeting were passed and the earnings of the divisions in 2005, the current business performance in the first quarter of 2006 and the operational planning for 2006 in accordance with IFRSs were examined. The 7

12 Report of the Supervisory Board Board of Management also reported to the Supervisory Board on the Berliner Bank sales process. As already mentioned, the status report on the processing of claims and other matters arising from the crisis that threatened the continued existence of Bankgesellschaft Berlin in 2001 was also heard and discussed together with third-party legal consultants. In preparation of a secure transaction structure for settling the sale of Berliner Bank, the Supervisory Board was informed in an extraordinary meeting on June 20, 2006 on the establishment of Berliner Bank AG & Co. KG and the inclusion of the assets managed under the Berliner Bank brand. As also mentioned above, it approved the conclusion of the purchase agreement with Deutsche Bank on the sale of Berliner Bank as part of its Group-wide responsibility. In the meeting of September 8, 2006, the Supervisory Board was informed among other things of the business performance in the first half of 2006, including the earnings of the strategy divisions, the risk strategy and in particular the strategy of the Retail Banking division. Further topics were determining the focus of the Supervisory Board s audit and the auditors fee, examining the amended recommendations of the German Corporate Governance Codex (GCGC) as well as the restructuring of the respective management bodies of LBB Holding and Landesbank AG arising from the formation of One Bank. The subject of another extraordinary Supervisory Board meeting on October 16, 2006 was the mediumterm corporate planning for 2007 to 2011 in accordance with IFRSs, which also served preparation of the privatisation process i.e. the planned sale of 81% of shares in Landesbank Berlin Holding AG. In its last meeting of the year on November 24, 2006, the Supervisory Board received the report of the Board of Management on the business performance of the first nine months. Furthermore, in view of the fact that the Landesbank holding had transferred almost all of its activities to Landesbank AG, it resolved to dissolve the Credit Committee of Landesbank Berlin Holding AG. The Supervisory Board reviewed the efficiency of its supervisory activities for 2006 when the Supervisory Board met without the Board of Management. During their term of office in 2006, all members of the Supervisory Board took part in at least half of the meetings of the Supervisory Board. Outside of the Supervisory Board meetings, resolutions were passed by way of two circulation procedures in

13 Management Report of the Supervisory Board Committees of the Supervisory Board In the past financial year, the work of the Supervisory Board was supported by the following committees formed by the members of the Supervisory Board: The Accounting, Personnel and Strategy Committee met four times in the period under review to prepare resolutions of the plenary session. The Committee primarily dealt with personnel matters relating to the Board of Management. It prepared the content of individual agenda items for the relevant Supervisory Board meeting including the intensive preliminary consultation on and audit of the annual financial statements and intensively examined strategic issues and transactions of particular significance. One resolution was passed by way of circulation. The representatives of the auditors of the annual financial statements also took part in the meetings on the preliminary consultation for the accounts. These meetings discussed the audit as well as the adoption and approval of the annual and the consolidated financial statements as well as the management report and Group management report. In its four meetings, the Credit Committee of the Supervisory Board discussed fundamental issues of business policy from a credit risk and risk management perspective, including in particular counterparty default, market price and liquidity risks as well as operational risks until it was dissolved (see above) by the Supervisory Board on November 24, Loan commitments requiring Credit Committee approval according to the approval rules were submitted to the members of the Credit Committee for review in accordance with the internal rules of procedure. In addition, the Credit Committee discussed all exposures that were larger or loans that entailed increased risk, and granted its approval where appropriate. Three resolutions were passed by way of two circulation procedures. The composition of the loan portfolio was also discussed regularly. As in previous years, the Mediation Committee formed in accordance with Article 27 (3) of the Mitbestimmungsgesetz (MitbestG German Codetermination Act) of 1976 was not required to meet in the past financial year. In the period under review, all members of the Supervisory Board committees took part in at least half of their respective meetings. The Supervisory Board received regular and comprehensive reports on the work of the committees in its plenary sessions. 9

14 Report of the Supervisory Board Corporate Governance The implementation of the provisions of the German Corporate Governance Code was discussed by the Supervisory Board in several meetings. In March 2006, the Board of Management and the Supervisory Board issued a new declaration of conformity on the basis of the GCGC as of June 2005, which was updated on account of the amendments to the GCGC of June 2006 in December Details of this can be found in the Company s Corporate Governance Report, which sets out the Bank s corporate governance principles. As the Supervisory Board of LBB Holding is largely occupied by the same persons as that of Landesbank AG, a joint corporate governance report was issued for the first time in There were no conflicts of interest in the Board of Management or the Supervisory Board in the year under review. The declaration of conformity of LBB Holding has been published on the Company s homepage at The Supervisory Board discussed the efficiency review of its own supervisory activities in several meetings and continued to develop the questionnaire tailored specifically to the circumstances of the Supervisory Board of the Company. Based on the analysis of this checklist, the Supervisory Board discussed suggestions for improvement and passed resolutions accordingly. In cooperation with the Board of Management, the findings of the efficiency review form the basis for the further optimisation of the work of the Supervisory Board. Further information on corporate governance in the Company and a detailed report on the amount and structure of the remuneration of the Supervisory Board and the Board of Management can be found on pages 13 ff. of this Annual Report. Annual financial statements 2006 These annual financial statements and the management report for the financial year 2006, as well as the consolidated financial statements with the Group management report, have been audited by the auditor elected by the Annual General Meeting, PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Frankfurt / Main, Berlin branch, taking into consideration the focus of the audit determined by the Supervisory Board. In conclusion, the audits each led to unqualified audit opinions. The annual financial statements of the AG were prepared in accordance with the provisions of the German Commercial Code, while the consolidated financial statements were prepared in accordance with the International Accounting Standards (IAS) / International Financial Reporting Standards (IFRS). The annual financial statements and the consolidated financial statements together with the management report and the Group management report were presented to the members of the Supervisory Board for inspection and to then be voted on together with the auditor s report following a detailed preliminary audit by the Accounting, Personnel and Strategy Committee. The Chairman of the Supervisory Board was regularly informed of the status of the audit by the auditor. 10

15 Management Report of the Supervisory Board In the financial year 2006, as in previous years, the auditors took part in the meetings of the Credit Committee and the Accounting, Personnel and Strategy Committee in which documents relating to the annual financial statements and the findings of the audit were examined and discussed in detail, as well as the accounts meetings of the Supervisory Board. The auditors reported on the key results of their audit and answered questions from the members of these committees. The Supervisory Board is confident that the auditor has no conflicts of interest in accordance with the GCGC in terms of an independent audit. There were no objections to the audit results. The Supervisory Board approved the annual financial statements of Landesbank Berlin AG and the Group prepared by the Board of Management as at December 31, 2005 in its meetings on March 31, 2006 and May 24, The annual financial statements of Bankgesellschaft Berlin AG are thereby adopted in accordance with Article 172 (1) sentence 1 of the German Stock Corporation Act. The Supervisory Board approved the proposal by the Board of Management to appropriate the Company s unappropriated surplus reported for financial year 2006 of 152,584 thousand as follows: distribution of an amount of 59,960 thousand to pay a dividend of 0.06 per entitled share, the transfer of 90,000 thousand of the remaining 92,624 thousand to other earnings reserves and to carryforward 2,624, The Supervisory Board also examined the Board of Management s report on relations with affiliated companies in accordance with Article 312 AktG for financial year Neither this examination nor the audit performed by the auditors gave rise to any objections. Personnel changes The composition of the Board of Management changed as follows: On August 29, 2006, following a resolution by the Annual General Meeting and entry of this in the Commercial Register, the name of Bankgesellschaft Berlin AG was changed to Landesbank Berlin Holding AG. As previously mentioned, the existing operating banking activities of the Group were spun off from the Holding and transferred to Landesbank Berlin AG in connection with this. Foe this reason, the number of members of the Board of Management of the Holding was reduced, with the result that Martin K. Müller, Uwe Kruschinski and Serge Demolière resigned their offices as members of the Board of Management of LBB Holding effective September 8, Since this date, the Board of Management of the Holding has consisted of Hans-Jörg Vetter (Chairman) and Dr. Thomas Veit. The following personnel changes occurred in the Supervisory Board: As Heiko Reinhard, employee representative on the Supervisory Board, left the Group and thereby the Supervisory Board of Landesbank Berlin Holding AG at the end of October 2006, at the proposal of the Works Council and the Group Works Council of Landesbank Berlin AG and at the request of the Board of Management, the responsible Local Court appointed Andreas Rohde as the new member of the Supervisory Board. Mr. Rohde, a member of the Works Council of Landesbank Berlin AG, has been a member of the Supervisory Board of the Holding since November 30,

16 Report of the Supervisory Board As of the transfer of the spun-off Berliner Bank AG & Co. KG to Deutsche Bank AG at the end of 2006, Claudia Fieber, the former employee representative on the Supervisory Board of Landesbank Berlin Holding AG, left the Supervisory Board of Landesbank Berlin Holding AG. On January 1, 2007, she was replaced by the elected substitute Astrid Maurer, Women s Officer of Landesbank Berlin AG. The Supervisory Board would like to thank the members of the Supervisory Board who have now left for their commitment and the constructive support they provided to the Company in the difficult period of the past few years and for the expertise they contributed and the productive cooperation. The Supervisory Board would also like to thank the members of the Board of Management and all the employees of the Company for their work and their particular personal commitment over the past year. Berlin, May 2007 The Supervisory Board Dr. h. c. Klaus G. Adam Chairman 12

17 Management Report of the Supervisory Board Corporate Governance Report Corporate Governance Report The Board of Management and the Supervisory Board are aware of the importance of reliable and efficient rules for managing and monitoring the Company and its subsidiaries. Both executive bodies continue to attach a high degree of importance to the subject of corporate governance even after the conclusion of the reconstruction process. In so doing, the Supervisory Board and the Board of Management act in the knowledge that sound corporate governance is in the interests of the shareholders and the capital markets and constitutes an important basis for the success of the Bank and ultimately also of the employees. For the Company, compliance with the corporate governance guidelines is an important factor in further strengthening confidence among the general public. The Group companies adhere to the recommendations of the German Corporate Governance Code (GCGC), irrespective of their legal form, to the extent that these principles are applicable to and important for the implementation of an intracompany model. In particular, non-listed Landesbank Berlin AG (LBB AG), whose Supervisory Board is largely occupied by the same persons as that of Landesbank Berlin Holding AG (LBB Holding), has resolved to voluntarily apply the corporate governance principles in the interests of acting in a uniform manner. This is therefore the joint Corporate Governance Report of LBB Holding and LBB AG. Berlin-Hannoversche Hypothekenbank AG describes its principles in its own corporate governance report, including its declaration of conformity. Board of Management The Board of Management of LBB Holding and that of LBB AG are committed to the principles of sound, responsible, efficient corporate management and monitoring based on sustained value-added. They manage the two companies, each under their own responsibility in accordance with statutory provisions, articles of association and internal regulations. Each Board of Management develops the strategic orientation of the company with the approval of the Supervisory Board and ensures that this strategy is implemented. Both Boards of Management each inform their Supervisory Board promptly and comprehensively on the Company s business performance, the planning, risk situation and risk management and where applicable on deviations in business performance from the original planning. Neither the Board of Management of LBB Holding nor that of LBB AG were subject to conflicts of interests while carrying out their duties with the result that there is no information that must be reported. The composition of both Boards of Management and the responsibilities of the individual Board of Management members are presented on pages 51 and

18 Corporate Governance Report Supervisory Board The Supervisory Board of LBB Holding comprises 20 members. In accordance with the provisions of the German Codetermination Act, it is composed of ten shareholder members and ten employee members. Of the shareholder members on the Supervisory Board, eight are elected by the Annual General Meeting and two are appointed to the Supervisory Board by the State of Berlin which is the majority shareholder. The other half of the Supervisory Board is made up of representatives elected by the employees. The Supervisory Board of LBB AG comprises 16 members. In accordance with the provisions of the German Codetermination Act, it is composed of eight shareholder members and eight employee members. The members of both Supervisory Boards are named on pages 18 and 19 of the Annual Report. The Supervisory Boards of LBB Holding and LBB AG advise and monitor the respective Board of Management in its management of the company and cooperate closely with it in an environment of trust. The Supervisory Boards have defined material transactions that the Board of Management may only perform with the approval of the Supervisory Board. Furthermore, they have established rules aimed at preventing conflicts of interest. The Chairman of the Board of Management constantly exchanges information with the Chairman of the Supervisory Board. To support the supervisory function, both Supervisory Boards have committees that were formed from the midst of the Supervisory Board members: along with the Mediation Committee there is the Audit, Personnel and Strategy Committee and the Credit Committee. The latter was formally dissolved at LBB Holding by way of a Supervisory Board resolution at the meeting on November 24, 2006 due to the transfer of almost the entire business to LBB AG and owing to LBB Holding s Credit Committee being rendered functionless in the process. The activity of the Supervisory Boards and their committees is governed in each case by the internal regulations of these bodies. The respective Chairmen inform all Supervisory Board members about the ongoing work of the committees in the following plenary meeting. The responsibilities of the individual committees and the key topics discussed by the committees and the Supervisory Board in financial year 2006 are presented in detail in the Report of the Supervisory Board of LBB Holding or LBB AG respectively. Neither of the two Supervisory Boards were subject to conflicts of interests while carrying out their duties with the result that there is no information that must be reported. 14

19 Management Corporate Governance Report The Supervisory Board of the listed LBB Holding subjected its activities in the past year to an efficiency review, as did the Supervisory Board of its wholly-owned subsidiary LBB AG on a voluntary basis. The review was carried out using a detailed checklist in each case in which all issues relating to the GCGC were dealt with and were subjected to an individual assessment by each Supervisory Board member. In the result of the final survey analysis in the Supervisory Board plenum, both bodies came to the opinion that the efficiency of the Supervisory Board activities had further improved compared with the previous year. The existing proposals for improvement were each conveyed to the Board of Management with a request that these be taken into account when working together with the Supervisory Board in future. A D&O insurance policy (director and officers liability insurance) is in place for members of the Supervisory Board as well as for members of the Board of Management. To emphasise the responsibility of the individual body members to the Bank and the shareholders, an appropriate deductible was agreed in each case. Transparency One member of the Supervisory Board and one member of the Board of Management each made share purchases in 2006 that are reportable in accordance with Article 15a of the Wertpapierhandelsgesetz (WpHG German Securities Trading Act). In line with the provision under 6.6 of the GCGC, these transactions were reported by the executive body members concerned to the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin Federal Financial Supervisory Authority) and immediately published on the website of LBB Hol ding as follows: BOARD OF MANAGEMENT Order date Trade date Name Description of the security ISIN Stock exchange Shares Type of transaction Rate / price Volume Hans-Jörg Vetter Bankgesellschaft Berlin AG (unit quotation) DE Berlin 10,000 Purchase s 4.25 s 42,500 SUPERVISORY BOARD Order date Trade date Name Description of the security ISIN Stock exchange Shares Type of transaction Rate / price Volume Dr. Heinz-Gerd Stein Dr. Heinz-Gerd Stein Dr. Heinz-Gerd Stein Bankgesellschaft Berlin AG (unit quotation) DE Xetra 10,000 Purchase s 4.15 s 41,500 Bankgesellschaft Berlin AG (unit quotation) DE Xetra 27,000 Purchase s 4.20 s 113,400 Bankgesellschaft Berlin AG (unit quotation) DE Xetra 63,000 Purchase s s 263,529 Issuer: Landesbank Berlin Holding AG (formerly Bankgesellschaft Berlin AG), Alexanderplatz 2, Berlin 15

20 Corporate Governance Report Since the Board of Management and Supervisory Board of the non-listed LBB AG have resolved to voluntarily apply the corporate governance principles, as presented above, information relating to directors dealings also refer to the executive body members of LBB AG at the same time. No other shares of the Company or related financial instruments that must also be reported under 6.6. of the GCGC were held by the Board of Management or Supervisory Board members. Accounting The consolidated financial statements for LBB Holding and for LBB AG for financial year 2006 were reported in accordance with International Accounting Standards (IAS) / International Financial Reporting Standards (IFRS). The single-entity financial statements of LBB Holding and LBB AG are prepared according to the provisions of the Handelsgesetzbuch (HGB German Commercial Code). The consolidated and annual financial statements each contain a detailed risk report that provides information on the Company s risk position and risk control. The report for the consolidated financial statements of LBB Holding can be found on pages 74 to 93. Financial disclosure Shareholders and other interested parties are kept informed about the business and earnings performance of LBB Holding on a regular basis in the form of annual and interim reports (financial reports). All company news that could affect the share price is published in ad hoc disclosures. The Internet is widely used in order to ensure that shareholders, shareholder representatives, analysts and the media receive information including key financial dates in a timely manner and, to the greatest possible extent, at the same time. The annual and interim reports as well as important information can be found in the Investor Relations section here. Recommendations of the German Corporate Governance Code In line with the amendments of the German Corporate Governance Code that came into force on June 12, 2006, the Board of Management and the Supervisory Board of LBB Holding have revised the declaration of conformity of LBB Holding. Contrary to the recommendations of the German Corporate Governance Code, the Group was unable to fulfil the requirement to make the consolidated financial statements publicly available within 90 days of the end of the financial year in the past due to the complexity of the transition to IAS / IFRS and is not yet able to fulfil it for financial year 2006 owing to the effects of the One Bank restructuring measure. The requirement to publish IAS / IFRS interim reports within 45 days of the end of the reporting period was not fulfilled in financial year 2006 and cannot be fulfilled for the first quarter of 2007 either in view of the conversions required for this. The Group intends to meet the requirement from the reporting cycle beginning with the second quarter of In the 2006 Annual Report as announced in the last financial year a separate remuneration report on the remuneration system of the Board of Management will be presented for the first time for the purpose of greater transparency and the compensation of the Board of Management members will be broken down individually. 16

21 Management Corporate Governance Report In the interests of acting in a uniform manner, the remuneration of the Supervisory Board member will also be broken down individually for the first time and subdivided by component in the remuneration report. The remuneration report is included in the Group Management Report on page 52 with its presentation of the remuneration system and on page 180 of the Annual Report with details on the compensation of the Board of Management and Supervisory Board by member in the Notes. In view of this, a revised declaration of conformity was issued as of December 2006 and published on the Bank s website. The wording of the declaration of conformity of the Board of Management and the Supervisory Board in accordance with Article 161 of the Aktiengesetz (AktG German Stock Corporation Act), submitted on the basis of the GCGC in the version published on June 12, 2006, is as follows: Article 1 Landesbank Berlin Holding AG complied / complies with all the recommendations of the Government Commission on the German Corporate Governance Code announced by the Federal Ministry of Justice in the official section of the electronic Bundesanzeiger (Federal Gazette) with the exceptions mentioned under Article 2. Article 2 Landesbank Berlin Holding AG deviates from the following recommendations of the Code: (a) The requirement to make the consolidated financial statements publicly accessible within 90 days of the end of the financial year could not be met by the Group in the past due to the complexity of the transition to IAS / IFRS and cannot be met for 2006 due to the effects of the One Bank restructuring measures. The requirement to publish IAS / IFRS interim reports within 45 days of the end of the reporting period was not fulfilled in financial year 2006 and cannot be fulfilled for the first quarter of 2007 either in view of the conversions required for this. The Group intends to meet the requirement from the reporting cycle beginning with the second quarter of 2007 (7.1.2 of the GCGC). (b) The Board of Management remuneration system was not published up to and including financial year 2005 but will be presented beginning with the annual financial statements relating to financial year 2006 (4.2.3 GCGC). (c) Up to and including the 2005 annual financial statements, the remuneration of the members of the Board of Management was reported as an overall total in the notes to the consolidated financial statements. Individualised figures subdivided according to components were not provided. Beginning with the annual financial statements relating to financial year 2006, the remuneration of the Board of Management members will be broken down and subdivided by component (4.2.4 GCGC). (d) Up to and including the 2005 annual financial statements, the remuneration of the members of the Supervisory Board was not reported individually and subdivided according to components. However, an overall total was provided in the notes to the consolidated financial statements. The remuneration of the Supervisory Board members will be published broken down and subdivided by component beginning with the annual financial statements for financial year 2006 (5.4.7 GCGC). The Board of Management and Supervisory Board of Landesbank Berlin Holding AG and Landesbank Berlin AG 17

22 Executive Bodies of Landesbank Berlin Holding AG and Landesbank Berlin AG Board of Management Supervisory Board Hans-Jörg Vetter Chairman Landesbank Berlin Holding AG Landesbank Berlin AG Serge Demolière Landesbank Berlin AG Dr. Johannes Evers Landesbank Berlin AG Uwe Kruschinski Landesbank Berlin AG Hans Jürgen Kulartz Landesbank Berlin AG Martin K. Müller Landesbank Berlin AG Dr. Thomas Veit Landesbank Berlin Holding AG Landesbank Berlin AG Dr. h. c. Klaus G. Adam Landesbank Berlin Holding AG Landesbank Berlin AG Chairman Auditor Bärbel Wulff * Landesbank Berlin Holding AG Landesbank Berlin AG Deputy Chairwoman Chairwoman of the Works Council of Landesbank Berlin AG Dr. h.c. Axel Berger Landesbank Berlin Holding AG Landesbank Berlin AG Vice President of the German Financial Reporting Investment Panel, Auditor, Tax Consultant Dagmar Brose * Landesbank Berlin Holding AG Consultant in the Finance division of Landesbank Berlin AG Thomas Dobkowitz Landesbank Berlin Holding AG Management Consultant Dr. Michael Endres Landesbank Berlin Holding AG Landesbank Berlin AG Former member of the Board of Directors at Deutsche Bank AG, Chairman of the Board of Directors at Gemeinnützige Hertie-Stiftung Christina Förster * Landesbank Berlin Holding AG Landesbank Berlin AG Financial Services Secretary at ver.di Berlin-Brandenburg region 18

23 Management Executive Bodies Dr. Thomas Guth Landesbank Berlin Holding AG Landesbank Berlin AG Chairman of the Management at SALOMON OPPENHEIM GmbH Sascha Händler * Landesbank Berlin Holding AG Landesbank Berlin AG Member of the Works Council at Landesbank Berlin AG Michael Jänichen * Landesbank Berlin Holding AG Landesbank Berlin AG Divisional Manager of Regional Corporate Banking at Landesbank Berlin AG Daniel Kasteel * Landesbank Berlin Holding AG Landesbank Berlin AG Member of the Works Council at Landesbank Berlin AG Astrid Maurer * Landesbank Berlin Holding AG Landesbank Berlin AG Member of the Works Council at Landesbank Berlin AG Women s Representative of Landesbank Berlin AG Dr. Heinz-Gerd Stein Landesbank Berlin Holding AG Landesbank Berlin AG Former member of the Executive Board at ThyssenKrupp AG Joachim Tonndorf * Landesbank Berlin Holding AG Former Financial Services Secretary at ver.di Berlin-Brandenburg region Frank Wolf * Landesbank Berlin Holding AG Landesbank Berlin AG Head of Department, Financial Services at ver.di Berlin-Brandenburg region Senator Harald Wolf Landesbank Berlin Holding AG Landesbank Berlin AG Senator for Economic Affairs, Technology and Women of the State of Berlin Bernd Wrede Landesbank Berlin Holding AG Landesbank Berlin AG Former Chairman of the Executive Board at Hapag-Lloyd AG Dr. Hannes Rehm Landesbank Berlin Holding AG Chairman of the Board of Management at Norddeutsche Landesbank Girozentrale Andreas Rohde * Landesbank Berlin Holding AG Landesbank Berlin AG Member of the Works Council at Landesbank Berlin AG Senator Dr. Thilo Sarrazin Landesbank Berlin Holding AG Landesbank Berlin AG Finance Senator of the State of Berlin * Employee representative Status: May

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25 Close to our customers There are many aspects to customer orientation we intend to cover them all. A bank s proximity to its customers can be expressed in different ways. Spatially, for example. With around 150 locations, Landesbank Berlin and Berliner Sparkasse offer the most comprehensive network of branches and service centres in Germany s capital. We can be reached quickly and comfortably by anyone who appreciates the personal touch. However, customer proximity is also an attitude; the willingness to offer more service and to consistently focus on individual wishes. This way, our customers have time for the things that really matter to them. This concept of consulting quality has made Berliner Sparkasse the undisputed market leader. Today, one of every two people in Berlin is one of our customers.

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27 A reliable partner Anyone who invests in real estate needs a professional financier. In commercial and residential real estate projects an effective and reliable financing partner is the key to success. The Real Estate Financing division is just such a partner for German and international investors, residential development companies and selected project developers. In cooperation with the Berlin Hyp subsidiary, we offer the full range of services of a state-of-the-art real estate financing bank, which ranks among Germany s leading providers in the commercial sector. Our customers profit not just from our established financing expertise, but from a high level of flexibility and short decision-making paths as well. We develop bespoke solutions based on personal consultation.

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29 Recognised expertise In capital market business quality of service is one of the things that matters most. And when it comes to quality of service, we re one of the best there is. In Capital Markets, Landesbank Berlin specialises in selected activities it which it demonstrates particular expertise. We offer our customers a wide range of products and services from a single source. In particular, we enjoy an excellent reputation on the market for certificates and structured products, some of the most significant financial innovations in recent years. It is not without good cause that Landes bank Berlin regularly comes out on top in the relevant public surveys. In Capital Markets the properties that customers especially appreciate are the detailed market knowledge, fairness and creativity. We try to live up to these claims every single day.

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31 Innovation is our trump Credit cards are more than just a means of payment they also offer a wealth of additional benefits. Whether Visa or MasterCard, dual card, credit card or prepaid card: with around 1.5 million cards issues, Landesbank Berlin is by far Germany s largest issuer of credit cards. This leading position is thanks in part to our long-standing strategy of giving our cards attractive additional functions. This is why we have pushed our co-branding programmes with selected partners in recent years. As a result, Landesbank can offer its customers cards with real benefits, such as bonuses, services or discounts whether buying petrol, ordering books online or going on holiday. Even in future, the joy of innovation will continue to be our winning trump in credit card business.