FIH Annual Report 2009

Transcription

1 FIH Annual Report 2009 CVR No

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3 Contents 3 The Annual General Meeting will be held on Tuesday 9 March 2010 at 4:00 p.m. at FIH's head office: Langelinie Allé 43, 2100 Copenhagen Ø Management's review Financial highlights 5 Activity and financial performance 7 Net profit for the year 10 Prospects for FIH's business 19 Corporate Banking 20 Property Finance 22 Structured Finance 24 Capital Markets 26 Corporate Finance 28 Private Equity 29 Other activities 30 Funding 32 Risk management 36 Corporate social responsibility 50 Internal controls 51 Organisation and owners 52 Income statement Balance sheet 31 December Statement of changes in equity Cash flow statement Income statement per quarter 60 Summary of notes 61 Notes 62 Supplementary notes 91 Statement by the Executive Board and the Board of Directors 102 Auditors' report 103 Board of Directors 104 Executive Board 105 Senior officers 106

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5 Financial highlights 5 FIH group (DKK million) * INCOME STATEMENT Net interest and fee income 1,436 1,510 1,385 1, ,147 1,081 1, Market value adjustments Other operating income Profit on net financials 2,055 1,552 1,981 1,695 1,178 1,025 1,013 1,088 1, Staff costs and administrative expenses Depreciation Other operating expenses Writedowns of loans and receivables, etc. 1, Profit/loss on investments in group enterprises and associates Profit before taxation ,276 1, Taxation Net profit for the year , Allocation of net profit: FIH's shareholders Minority interests BALANCE SHEET Loans 64,134 72,615 75,015 67,579 58,988 53,087 55,735 56,859 57,319 51,713 Equity 7,820 7,809 7,777 6,736 5,791 4,991 6,051 5,638 5,166 4,739 Total assets 130, , ,357 95,998 81,285 65,910 66,463 67,306 70,677 65,815 Capital base (liable capital) 12,119 10,836 10,787 8,318 7,487 6,546 7,883 7,696 7,940 7,513 RATIOS Capital base relative to minimum capital adequacy requirement Solvency ratio, per cent Core capital ratio, per cent Return on equity before taxation Return on equity after taxation Income/cost ratio Interest rate risk Foreign exchange position Foreign exchange risk Loans as a percentage of deposits Gearing of loans Growth in loans for the year, per cent Excess cover relative to statutory liquidity requirements Total amount of large exposures Impairment ratio The accounting provisions were amended as from In compliance with the transitional provisions, comparative figures prior to 2005 have not been restated as far as financial assets and liabilities and derived income statement items are concerned. Therefore, financial highlights and ratios for are not fully comparable with the financial highlights and ratios for 2005 onwards. For 5- year financial highlights and key ratios for the parent company, please refer to Supplementary notes (page 91). * Comparative figures have been restated to reflect the merger between FI-Holding A/S and FIH Erhversbank A/S (continuing company).

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7 Activity and financial performance 7 The FIH Group in 2009 The beginning of 2009 was characterised by turmoil in the interest and capital markets. However, thanks to significant liquidity provision and interest rate reductions from the world's central banks as well as record high fiscal relaxations, the world economy stabilised during spring and the summer of In the second half of 2009, the stabilisation process continued. Solid political willingness restored confidence in the markets; caused the volatility of the financial markets to decline considerably during the year; and risk willingness to increase steadily towards the end of the year. Most of the Danish corporate sector has felt the impact of the recession, recording a sharp decline in activity. Also the extent of investment was limited. As a consequence, companies had to focus on cost cuts and a lower investment need, which led to lower demand for new loans. Against this backdrop, FIH recorded a 12 per cent decline in lending activity in The Bank Packages In response to the financial crisis the Danish government launched two Bank Packages in autumn 2008 and at the end of The objective of the Bank Packages is to ensure financial stability in Denmark. This means, among other things, that all depositors and lenders will be covered by a government guarantee, except subordinated debt lenders, until 30 September irrespective of the size of their loan or deposit. To supplement Bank Package I the Individual government guarantee for issues has been launched. Under this supplement, FIH has entered into an agreement with Finansiel Stabilitet A/S (The Financial Stability Company), which, on behalf of the Danish government, makes a framework guarantee available to FIH for issues of up to DKK 50 billion. According to the terms and conditions of the agreement, FIH can apply for a government guarantee for issues with a tenor of up to three years. The objective of Bank Package II is to increase the solvency of credit institutions to put them in a better position to cope with economic trends. At the end of June 2009, FIH received hybrid core capital of DKK 1.9 billion according to the Danish Act on State- Funded Capital Injections. The Bank Packages were necessary for the banks and the economy, and they have worked as intended. However, there is nothing to indicate that the Bank Packages will be costly for the Danish Government - on the contrary because both Bank Packages are financed by the financial sector. The financial sector is not only facing a bill but also a justified ethical backlog after a period of insufficient orderliness and responsibility. The strongest players in the sector must - as in the case of the financing of the Bank Packages - be in the front to restore the sector's reputation by constantly acting properly and responsibly. The financial turbulence has also affected FIH The financial crisis was expected but its speed and strength surprised us. FIH is far from living up to the expectations for the year, largely due to isolated one-off circumstances, including

8 8 Activity and financial performance refocusing costs substantial writedowns, primarily on few customers costs of and provisions for Bank Package I interest rate fluctuations and lack of hedging opportunities. At the beginning of 2009, the organisation was refocused under the heading The Focused Corporate Bank. As a result of this refocusing, the business was adjusted so that FIH can now generate earnings and achieve growth as an independent standalone company. The refocusing initiative resulted in non-recurring costs of DKK 75 million. In 2009, FIH's writedowns amounted to DKK million, not including provisions for the loss guarantee to Bank Package I. The high level of writedowns is attributable to adverse economic developments and particularly impacted FIH in the first half. Overall, writedowns are related to a few customers. The expenses of Bank Package I are paid by the financial sector and maximised to DKK 35 billion. The expenses cover a guarantee commission of DKK 15 billion and a loss guarantee of DKK 20 billion, in respect of which provisions are made on an ongoing basis. At 31 December 2009, the Private Contingency Association calculated the total provisioning need for the financial sector's loan guarantee at a total amount of DKK 5.8 billion, including DKK 4.8 billion in FIH's share of these expenses is 4.3 per cent. In 2009, the costs of participation in Bank Package I totalled DKK million, consisting of a paid guarantee commission of DKK million and a provision for the loss guarantee of DKK million. In 2009, expenses related to the individual government guarantee for issues amounted to DKK 6.3 million, while the raising of hybrid core capital of DKK 1.9 billion under the Danish Act on Capital Injections increased funding costs by approximately DKK 90 million. For a period of time in the first half of 2009, FIH's net interest income was negatively impacted by a timing difference between the interest determination dates for loans and deposits. A large portion of FIH's deposits was established in Q4 2008, before the large drops in interest rates at the end of 2008, while the determination of interest rates for a large portion of the loans took place after the interest rate fall. At the time, it was not possible to hedge the interest rate positions, which resulted in a reduction in net interest income of approximately DKK 200 million in As a result of the above factors, profit before taxation was negatively affected in 2009, being about DKK 1,870 million. However, FIH performed well in other areas in Market value adjustments are DKK million, boosted by extraordinarily large market value gains on bonds due to the sharp drop in interest rates. In addition, capital gains were realised through the buyback of own issued bonds and subordinated debt. Lastly, the holding of shares affected the value adjustments positively.

9 Activity and financial performance 9 Despite a difficult year, FIH as a business is now more focused and stronger than it was at the beginning of FIH maintains its market share and market position as the third largest bank within finance for the Danish corporate sector. Furthermore, the year's examination among FIH s customers shows that 84 per cent are satisfied or very satisfied with FIH as a financial partner. Liquidity the largest challenge for the finance sector Historically, FIH has been highly active in international capital markets when it comes to raising loans. As the financial crisis accelerated, it became more difficult to finance FIH's business through these markets. Participation in the bank packages has contributed strongly to FIH's being able to resume funding of the Bank through the capital markets and thus cover the funding requirements for the coming years. In the second half of 2009, FIH made three government-guaranteed bond issues totalling USD 3.5 billion, equivalent to DKK 18 billion, in the US market. FIH also has credit facilities with major financial players. In early 2007, FIH entered into an agreement with ATP on a DKK 15 billion credit facility, and in 2008, a DKK 3 billion facility was entered into with a leading Nordic bank. Over the past year, these facilities have provided FIH with great flexibility in its liquidity planning. Both facilities will expire in 2010 and FIH intends to negotiate an extension of the facilities. As a result of these measures, FIH's liquidity is solid, totalling DKK 22.9 billion at the end of December, equivalent to excess cover of 80.5 per cent relative to the statutory requirement. Moreover, at the end of 2009, FIH has no drawings under the DKK 15 billion credit facility provided to FIH by ATP the reason being that the bank packages have ensured that FIH has adequate liquidity and thus has not needed to use the facility in Q4. By raising new hybrid core capital, FIH has ensured that its solvency position is strong and at the end of 2009, FIH's solvency ratio is FIH has calculated the Bank's individual solvency requirement to be 9.8 per cent. In other words, FIH has a solid capital base and is able to continue supporting the loan requirements of the Danish corporate sector, while at the same time having the capacity to increase its lending activities. FIH's ownership remains unresolved FIH's ownership remains unresolved after FIH's parent company, Kaupthing Bank hf., was put into administration by the Icelandic government in the autumn of FIH is - and always has been - ring fenced in relation to Kaupthing. This means that the collapse of Kaupthing has not resulted in direct losses for FIH. Nor are there (or have there been) any direct or indirect Icelandic risks on FIH's books. FIH is an independent Danish bank subject to Danish regulation. Net profit for the year For 2009, profit for the year after taxation was DKK 11.5 million, or DKK million lower than in The result before taxation was DKK million, or DKK million lower than in The full amount of net profit for the year was transferred to reserves. After the proposed provision, equity will amount to DKK 7,820 million and the liable capital DKK 12,119 million while the solvency ratio is 13.8 per cent. Changes in FIH Executive Board On 30 June 2009, CEO Lars Johansen retired and Henrik Sjøgreen was appointed CEO.

10 10 Net profit for the year (DKK million) Net interest and fee income Interest income Due from credit institutions and central banks Loans and other receivables 3, ,825.6 Bonds 1, ,100.8 Total derivative financial instruments Other interest income Total interest income 4, ,144.8 Interest expenses Credit institutions and central banks ,506.6 Deposits and other debt 1, ,046.9 Bonds issued ,153.7 Subordinated debt Other interest expenses Total interest expenses 3, ,859.0 Net interest income 1, ,285.8 Dividends from shares, etc Fee and commission income Fees and commissions paid Net interest and fee income 1, ,510.0 Average interest-bearing assets and liabilities Interest-bearing assets 111, ,377 Interest-bearing liabilities 109,470 97,225 Average interest rate, per cent p.a. Total interest income/interest-bearing assets 3.9 % 6.1 % Total interest expenses/interest-bearing liabilities 2.8 % 5.0 % Average interest margin 1.1 % 1.1 % Net interest income/interest-bearing assets 1.3 % 1.5 % Loans average interest Interest income on loans 3, ,825.6 Average loan balance before impairment 67,464 74,218 Average interest rate on loans 4.4 % 6.5 % Market value adjustments Mortgage loans Loans and other receivables at fair value Bonds Shares, etc Investment properties Foreign currency Total foreign currency, interest rate, share, commodity and other contracts as well as derivative financial instruments Mortgage bonds issued Other liabilities Total market value adjustments Other operating income

11 Net profit for the year 11 The FIH Group's net profit for 2009 is DKK 11.5 million, which is below the expectations at the end of Q The lower result is primarily due to lower net interest and fee income, lower market value adjustments and higher expenses than expected. In view of macroeconomic developments, net profit for the year is acceptable. Moreover, the trend of quarterly results has been positive. Net interest and fee income The total amount of net interest and fee income fell by DKK 74.4 million relative to 2008, which is satisfactory viewed in light of the market conditions. Net interest income for 2009 amounts to DKK 1,300.1 million, representing an increase of DKK 14.3 million compared with The performance is considered satisfactory, reflecting partly an increase in the credit margins and partly a fall in the average loan balance from DKK 74,218 million in 2008 to DKK 67,464 million in The primary cause of the reduction in the loan balance is ordinary repayments under existing agreements. In addition, lower customer investment needs are reflected in lower demand for new loans. Finally, FIH has been focusing on reducing the number of large exposures, which has also led to a reduction in the loan balance. In 2009, interest income declined by DKK 1,760.4 million relative to In the same period, interest expenses dropped by DKK 1,774.7 million. The lower loan balance and a declining interest rate level compared with rising interest margins caused interest rate income from loans to fall by DKK 1,824.2 million in 2009 relative to Interest rate income from bonds amounted to DKK 1,687.2 million against DKK 1,100.8 million in The increase reflected FIH's large bond portfolio in Interest on derivative financial instruments amounts to a negative DKK million in 2009, down DKK million on Derivative financial instruments are used primarily for hedging purposes and in customer transactions. The development in this figure should be seen in the context of the interest rate and exchange rate developments for the products hedged. In 2009, interest expenses on deposits rose by 27 per cent to DKK 1,332.0 million compared with the previous year. Interest expenses on issued bonds fell by DKK 1,197.0 million, or 56 per cent in 2009, despite three bond issues in the second half of This is due to the fact that the issues were not made until late in the year and that the issues were made at a relatively low interest rate. In 2009, interest expenses on subordinated debt rose by DKK 28.9 million relative to 2008 and is now DKK million. The increase consists of a higher interest expense in connection with the raising of hybrid core capital and lower interest expenses as a result of redemption of subordinated debt. Fees and commission income fell by DKK 83.3 million in 2009, to a total of DKK million. The fall in fees is attributable, in particular, to declining turnover in Corporate Finance, decreasing from DKK 139 million in 2008 to DKK 80 million in Market value adjustments Market value adjustments were DKK million, up DKK million on 2008.

12 12 Net profit for the year Market value adjustments on bonds total DKK million in 2009 relative to DKK million in The adjustments are attributable, in part, to FIH's buybacks of own issued bonds and subordinated debt totalling DKK 1,281.0 million. In 2009, the buy-backs produced positive market value adjustments on bonds of DKK million. In 2009, market value adjustments on shares were DKK million against DKK 18.9 million in The share portfolio consists mainly of unlisted shares. The value adjustment of shares covers both positive and negative adjustments. Investment properties (operating leasing) have been subject to fair value adjustment at DKK million. Part of the value adjustment corresponds to the repayment part of the lease rental, which is recognised under the item Other operating income. In addition, a DKK million value adjustment was made on leasing properties, on which the lessees were unable to pay the lease rental. Market value adjustments of mortgage loans amounted to DKK 13.8 million in 2009 against DKK 3.7 million in 2008 and are offset by a corresponding expense under market value adjustments of issued mortgage bonds. Market value adjustments of loans etc. of DKK 88.1 million relate to loans hedged by financial instruments. Market value adjustments of derivative financial instruments were DKK million against DKK million in For issued mortgage bonds market value adjustments were DKK -15 million while the adjustment made for other obligations was DKK 60 million. Other operating income Other operating income amounted to DKK million, up DKK 13.0 million on The largest item under other operating income is rental income from investment properties. Furthermore, VAT and payroll tax relating to previous years have been adjusted with a positive effect on other operating income. Expenses In 2009, expenses increased by DKK million relative to 2008, equivalent to 17 per cent. The increase is attributable to a rise in the guarantee commission under Bank Package I of DKK million compared with 2008, reduced staff costs and administration expenses of DKK 61.4 million and a reduction in amortisation of intangible assets and depreciation of tangible assets totalling DKK 28.0 million. In January 2009, FIH refocused the bank with the effect that 21 per cent of the employees were dismissed and nonrecurring expenses of DKK 75 million were incurred, i.e. DKK 70 million staff costs and DKK 5 million other administration expenses. Despite the non-recurring refocusing costs, staff costs were down DKK 18.6 million on The guarantee commission expenses under Bank Package I were DKK million relative to DKK 82.3 million in The average number of employees in 2009 was 379 against 396 in At year-end 2009, the number of employees was 343 exclusive of employees who had been dismissed but not yet left their jobs. At year-end 2008, the number of employees was 411.

13 Net profit for the year 13 (DKK million) Expenses Staff costs and administrative expenses Depreciation, amortisation and impairment losses; property, plant and equipment as well as intangible assets Other operating expenses Total 1, Loans and guarantees, total writedowns Writedowns, beginning of year Reversal of previous writedowns Writedowns during the period 1, Losses recorded Total writedowns, end of year 1, Writedowns of loans and guarantee debtors 1, Losses recorded Amounts received on claims previously written off Net losses recorded Accumulated writedowns of loans and guarantee debtors as a percentage of loans and guarantees, end of year 1.7 % 0.6 % Losses and writedowns of debtors as a percentage of loans and guarantees, end of year 1.7 % 0.6 % Net losses recorded as a percentage of the writedown balance, beginning of year 98.6 % % Results Profit for the year before taxation Net profit for the year Allocation of net profit for the year Shareholders Minority interests Profit for the year before taxation as a percentage of average equity Profit for the year after taxation as a percentage of average equity Writedowns The negative economic trends continued in 2009 and are still affecting substantial parts of the corporate sector negatively. As a result, FIH had large writedowns of DKK 1,177.0 million against DKK million in In 2009, provisions for guarantees under Bank Package I totalled DKK million against DKK 50.2 million in Of the year's writedowns of DKK 1,177.0 million recognised in the income statement, new writedowns totalled DKK 1,245.5 million relative to DKK million in 2008 while DKK 65.7 million of previous years writedowns was reversed against DKK 86.0 million in An amount of DKK 2.8 million was received on claims previously written off. The loss recorded for the year was DKK million against DKK million in 2008.

14 14 Net profit for the year Loss on investments in associates The loss on investments in associates amounted to DKK -8.4 million in 2009 against DKK 17.6 million in Tax Tax represents income of DKK million in 2009 against an expense of DKK 23.9 million in The income primarily reflects the adoption of the tax reform, which has introduced changed rules for the taxation of shares. As a result of the changed taxation, unrealised gains on shares are subject to lower taxation in 2009 and consequently a reduced provision for deferred tax in Further, previous years' deferred tax on unrealised gains on shares has been reversed. In addition, deferred tax is affected by other timing and permanent differences. Altogether, this produces an income of DKK 88.3 million. Furthermore, the tax on realised and unrealised capital losses on shares for set-off against future gains has been calculated at DKK 32.3 million. The total amount recognised as income under deferred tax is DKK million. The amount of tax reversed relating to previous years was DKK 38.7 million. Balance sheet Total loans, including investment properties, amount to DKK 65,197 million, down DKK 8,570 million - or 12 per cent - since the beginning of the year. At year-end 2009, the bond portfolio amounted to DKK 51,396 million against DKK 29,296 million at the beginning of the year. The main cause of the improvement is an increase in cash resources which are mainly placed in bonds. The portfolio was, however, significantly reduced in January 2010 as a result of repayment of debt due and disposals from the portfolio. The portfolio of shares and investments in associates amounts to DKK 1,798 million, up from DKK 1,332 million at the beginning of the year. In 2009, development projects were capitalised under "Intangible assets" at DKK 4 million against DKK 28 million in 2008, leaving after the year's amortisation a balance of DKK 31 million at year-end In recent years, FIH has been working on diversification of the funding base. In 2009, FIH made several bond issues, including issues under the individual government guarantee established at the beginning of July As a result, the portfolio of issued bonds rose. At the same time, deposits and funding from other credit institutions fell. Issued bonds, inclusive of issued mortgage bonds, totalled DKK 49,197 million against DKK 32,681 million at the beginning of the year. Subordinated debt amounted to DKK 4,299 million, up DKK 1,272 million on the beginning of the year. The increase is due to the raising of hybrid core capital of DKK 1,900 million at the end of June Furthermore, the item was reduced by buy-backs of subordinated debt of DKK 312 million, ordinary expiry of DKK 228 million and value adjustments of DKK 88 million. At the beginning of the year, equity was DKK 7,809 million. No dividend will be paid for 2009, so net profit for the year is transferred to reserves, leaving equity at DKK 7,820 million. The average return on equity is -1.9 per cent before taxation and 0.1 per cent after taxation.

15 Net profit for the year 15 Solvency The solvency ratio is 13.8 per cent against 11.9 per cent at year-end 2008, while the core capital ratio is 11.4 per cent against 8.8 per cent at year-end The increase in the solvency ratio and the core capital ratio, respectively, reflects the raising of hybrid core capital at the end of the first half of 2009 and a falling loan balance. Uncertainty on recognition and measurement For recognition and measurement of certain assets and liabilities estimates have been used and hence the valuation may be uncertain. These estimates have been made by the bank management in accordance with the accounting policies and based on the recognised valuation models, historical experiences and assumptions that the management considers to be reasonable and realistic. The main estimates concern writedowns on loans provisions for losses and guarantees calculation of fair values for financial instruments. In the calculation of writedowns on loans and receivables, significant estimates have been used in the quantification of the risk that the debtor is unable to meet its future obligations in whole or in part. The calculation of provisions for losses on guarantees is connected with uncertainty as regards the assessment of the risk that the guarantee will crystallise. In the opinion of the Management, the risk on the Bank's loan exposures is greater on the presentation of the financial statements for 2009 than in previous years. Profitability has been under pressure in a number of markets, which affects the Bank's customers, and the general financing terms have become more difficult. The measurement of bank exposures depends not only on the earnings of the Bank's customers but also on the valuation of collateral etc. The valuation of the Bank's securities greatly depends on the Management's estimate of return requirements in the property market. The management's estimates of the fair values of properties are based on the possible uses of the property, location, level of renting, rental terms, state of repair, special characteristics, local plans etc. In those cases where the Bank has provided structured financing or otherwise participates in credit granting together with other sources of finance, renegotiations, any restructurings etc. will have to take place in consultation with a number of additional sources of finance. This may lead to some uncertainty in renegotiation situations, particularly if the customer is in financial difficulties. In the calculation of the fair value of financial instruments, which are not traded in an active market, the calculation is based on estimates. The fair values are calculated on the basis of recognised valuation models and input variables in the form of yield curves, volatility curves, spreads etc. The valuation models discount future cash flows and value any option elements. These models are subject to some model risk. Details are given about the accounting estimates under accounting policies. Further, no special uncertainties have affected the recognition and measurement in the annual report.

16 16 Net profit for the year No events have occurred after the balance sheet date that would significantly affect the assessment of the company's financial position. Accounting policies FIH's accounting policies are consistent with those applied for Profit for Q Profit is DKK 45.0 million before tax and DKK million after tax. Profit after tax is positively influenced by significant tax adjustments. Profit for Q4 is acceptable - in view of macroeconomic developments. FIH's net interest income for the fourth quarter is DKK million, or DKK 47.8 million lower than in Q3. This development reflects two opposing trends. On the one hand, interest margins on loans continue to increase, while the loan balance is decreasing, resulting in higher overall net interest income. On the other hand, a large portfolio of low-yield bonds serves to reduce total interest income - and thus net interest income, which in Q4 is affected by lower non-recurring earnings than in Q3. Earnings from fees total DKK 62.4 million in Q4, up DKK 29.3 million on Q3, which was in line with Q1 and Q2. Market value adjustments, at DKK million for Q4, are influenced by positive market value adjustments on shares and interest rate instruments. Expenses for Q4 amount to DKK million. Adjusted for expenses related to strategic business refocusing, expenses for Q4 have declined by DKK 21.4 million relative to Q1 and are in line with Q2. However, expenses show a DKK 25.3 million increase compared with Q3, which is due, among other factors, to a change in the VAT deduction rate. Disregarding the change in the VAT deduction rate, etc., expenses for Q4 are in line with Q3. Expenses related to Bank Package I, including provisions for losses, are DKK million for Q4 compared with DKK million for Q1, DKK million for Q2 and DKK million for Q3. While Q3 saw lower writedowns than the Q1 and Q2 writedowns increased in Q4, to a total of DKK million.

17 Prospects for Prospects for 2010 FIH expects the stabilisation of the economy to be replaced by weak growth in Further, FIH expects that the access to liquidity will become more difficult, particularly when Bank Package I expires in autumn 2010, and that the price of liquidity may therefore go up. In the second half of 2009, FIH has implemented significant government initiatives to stop the decline in the loan balance. Loans to existing as well as new customers are expected to grow in 2010, causing an increase of about DKK 3 billion in the loan balance. During 2009, FIH raised the interest margins on loans to cover, among other things, the expenses connected with participation in the Bank Packages and the enhanced credit risk related to the loan portfolio. The full effect of these increases will come through in 2010, giving rise to expectations of a slight increase in earnings from loans. In Capital Markets total earnings are expected to be slightly lower than in This is due to expectations of more normalised financial markets with a generally lower level of volatility and spread and hence lower earnings in Trading. Conversely, higher earnings are expected on advisory and trading activities operated by customers as FIH expects general growth in business activity in 2010 in the form of increased lending, more transactions and new customers. The portfolio of unlisted shares is expected to produce a return of more than 10 per cent per annum on average over the years is also expected to record a positive return on the investment securities portfolio. In 2010, profit before writedowns and taxation is expected to be approximately 1.1 billion. Great uncertainty is associated with the writedowns for 2010, which at the present moment are expected to be about DKK 700 million inclusive of a provision for loss guarantee to the Private Contingency Association. Provided that writedowns of DKK 700 million are made, profit after taxation will be about DKK 300 million.

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19 FIH s business 19 FIH's BUSINESS FIH was founded in 1958 as Finansieringsinstituttet for Industri og Håndværk (Finance for Danish Industry) and has since its start focused on providing financial solutions to the Danish corporate sector. FIH is today purely a corporate bank. However, in 2008, it also started offering highinterest deposits to private individuals. At year-end 2009, FIH's total loans inclusive of guaranteed mortgage loans amounted to DKK 72,524 million. The core customers of the FIH business - corporate customers with a balance sheet total of more than DKK 10 million, professional property investors and private equity funds - are served by three business units: Banking consisting of three subareas Corporate Banking: Financial solutions for the Danish corporate sector Property Finance: Capital and advisory services for property investors in connection with property purchases Structured Finance: Integrated financing solutions for Nordic private equity funds and industrial buyers in connection with business transactions Capital Markets: Financial advisory services for large and medium sized companies relating to, for example, risk management, debt management and capital structure. Each of the areas is described on the following pages. A general feature of the Banking areas is that net interest and fee income is declining as a result of a lower loan volume, a much lower return on the allocated equity as well as a higher internal rate of return to cover rising funding costs. Furthermore, nonrecurring income was exceptionally high in 2008 compared with 2009, which also contributed to a decline in net interest and fee income. The fall in net interest and fee income in Banking is off-set by a corresponding increase in net interest and fee income in Treasury. In autumn 2009, FIH conducted a customer satisfaction analysis. The analysis showed that 84 per cent of the customers are satisfied or very satisfied with the cooperation. The result of the analysis was satisfactory, particularly under the current market conditions, and it underpins our vision - to be Danish industry's preferred financial partner. The analysis also provides a good basis for continuing and developing the existing good cooperation with the customers in the coming period. Corporate Finance: Financial advisory services relating to purchases and sales of companies, mergers, privatisation and capital injections etc.

20 20 FIH s business FIH CORPORATE BANKING Income statement (DKK million) Net interest and fee income Market value adjustments Other operating income Operating expenses Writedowns of loans and receivables, etc Profit from investments Profit before taxation Taxation Net profit for the year Loans 28,446 35,403 Guaranteed mortgage loans 5,770 4,630 Business area Corporate Banking's focus is placed on advisory services and financing of Danish business enterprises. The customer base comprises companies ranging from small owner managed companies with growth potential to the absolutely largest business groups in Denmark, with particular focus on companies which demand advisory service based financial solutions. Corporate Banking provides flexible and competitive financial solutions by offering professional advisory services, direct communication and focus on long-term customer relations. capital structure or preparation of risk scenarios of interest rates, foreign currency and liquidity. Furthermore, local presence in the form of five regional offices provide Corporate Banking with the best possible basis for understanding the business conditions of the individual company. Market development 2009 was a turbulent year, both for Danish business enterprises and for Corporate Banking. Companies have primarily focused on optimising profitability and the liquidity situation. As a consequence, growth and investment plans have been very limited. Corporate Banking's aim is to provide simple and uncomplicated solutions everywhere it is possible. For more complex needs financing solutions are designed which match the challenges concerned such as a generational change or a forthcoming expansion. The solutions may be based on an analysis of the company's Activities Due to the market developments, demand was significantly lower for financing. This together with the ordinary repayment of the loan portfolio has resulted in a declining loan balance in Corporate Banking.

21 FIH s business 21 In response to the market development, Corporate Banking has focused on having a close dialogue with the existing customers, partly with a view to monitoring the economic development and credit quality and partly with a view to continuing and expanding advisory services relating to the company's liquidity, interest and foreign currency risks. Net profit for the year In 2009, Corporate Banking's net result for the year was a loss of DKK 63.2 million against a profit of DKK 40.6 million in Performance for the year is considered unsatisfactory, due mainly to substantial writedowns and a falling loan balance. Substantial writedowns were made in 2009, amounting to DKK million, or 0.9 per cent of the total loan balance, inclusive of guaranteed mortgage loans at year-end. The writedowns are distributed on a number of companies in various industries. The loan balance, inclusive of guaranteed mortgage loans, was DKK 34,216 million at year-end 2009 against DKK 40,033 million at year-end 2008.

22 22 FIH s business FIH PROPERTY FINANCE Income statement (DKK million) Net interest and fee income Market value adjustments Other operating income Operating expenses Writedowns of loans and receivables, etc Profit from investments Profit before taxation Taxation Net profit for the year Loans 19,430 20,368 Guaranteed mortgage loans 2,620 1,929 Business area Property Finance has focus on Danish professional property investors investing in commercial and rental properties. Market development In 2009, the market for commercial and rental properties was characterised by price falls and few transactions. The geographical focus of financing is mainly investments in Denmark and Germany but also Sweden and Finland are part of the loan portfolio. The business model is based on Property Finance as a strategic partner for investors in relation to financing tasks and financial advisory services. As an overriding rule, Property Finance only grants financing secured by first priority pledge, with strong focus on the cash flows of the individual investor's total property portfolio and of the individual financed property. A general feature of all markets is - irrespective of type of property - that employment and price developments are closely correlated, and falling employment has therefore naturally had a negative impact on price developments. In the Danish market in particular, the number of sellers exceeded the number of purchasers in The market was exposed to increasing polarisation, which is reflected in an expansion of the return spread between good and less good locations and the potential alternative uses of the property.

23 FIH s business 23 The interest margins of financial providers have been expanded in combination with general tightening of credit. This has affected liquidity adversely in the property portfolios, and a falling interest rate level could not in that context compensate for the negative effect on the price formation. The German market has not to the same extent experienced price falls as the commercial property market has not historically experienced the same bubble effect as, for example, in Denmark. The liquidity is typically solid in the property portfolios but the necessity of a strong property administration in Germany has come as a surprise to some Danish investors. Activities The low transaction level has naturally affected the level of activity in Property Finance in the form of fewer new loans. Net profit for the year In 2009, Property Finance's net profit for the year was DKK 19.4 million against DKK 79.7 million in Net profit for the year is considered acceptable in the light of negative market developments, a declining level of activity and growing writedowns. The writedowns amounted to DKK million against DKK million in 2008 and are distributed on a number of customers. The growth is driven by the market development. Compared to the total loan balance inclusive of guaranteed mortgage loans of DKK 22,050 million the writedowns for the year constitute 0.7 per cent, which, compared with the market developments, is regarded as an acceptable level. As a result of the market situation, sharp focus was put on the existing customer portfolio in On the positive side, the efforts to maintain the loan balance in combination with growing interest margins were successful. In addition, all major customers in Property Finance are today using FIH s liability management concept, which continuously analyses interest rate and foreign currency risks. As a result, there was a reasonable turnover within derivatives in despite a low level of new loans.

24 24 FIH s business FIH STRUCTURED FINANCE Income statement (DKK million) Net interest and fee income Market value adjustments Other operating income Operating expenses Writedowns of loans and receivables, etc Profit from investments Profit before taxation Taxation Net profit for the year Loans 14,441 16,762 Guaranteed mortgage loans Business area Structured Finance provides financing solutions in connection with ownership changes in the Nordic market, including private equity funds purchases of companies and refinancing of investments previously made as well as management buy-outs and management buy-ins. The financing solutions are planned individually in accordance with the characteristics of the individual transaction so that pricing reflects the risk and the maturity of the financing. The range of products comprises conventional financing of operations and capital investments as well as acquisition financing. Cooperation has been established with all leading private equity funds in the Nordic market. The mentioned transactions are often subject to critical time lines where resolution and competence are important factors in customers choice of business partners. Structured Finance is continuously striving to meet these criteria. Thus, the business model is based on a position as strategic business partner, and the role as arranging bank is therefore given higher priority than the role as participating bank in transactions arranged by other banks. The importance of the right risk profile remains one of highest priority. Market development The activity in the Nordic market for business transactions has been adversely affected by the global credit and liquidity crisis. Consequently, the slowdown in the number of business transactions in 2008 continued in especially for major transactions. The trend within the market for financing of business transactions, especially from the second half of 2008, continued in 2009 and is characterised by

25 FIH s business 25 focus on the existing customer portfolio reduced willingness among banks to finance transactions. In addition, a few banks have withdrawn from acquisition financing a reduction in the individual bank's loan participation per transaction lower financial gearing higher pricing, reflecting to a greater extent the real risk. Activities In 2009, too, Structured Finance put primary focus on the market for small and medium sized transactions. Despite fewer business transactions in 2009, six transactions were arranged in the form of new acquistions and supplementary investments. This is considered very satisfactory considering the market conditions. In the first half of 2009 in particular, the focus was directed at the existing portfolio. As a consequence of the international credit and liquidity crisis, a number of customers in the portfolio were not able to meet the agreed obligations. This resulted in renegotiation and restructuring of these cases so that the loan structure and terms to a greater extent reflect the current market conditions. In most of the mentioned cases, the owners have provided new capital to the company. In very problematic cases, reasonable solutions have been found together with the relevant group of owners. In a few cases, it was necessary to make large writedowns corresponding to most of the year's writedowns in Structured Finance. In connection with the reconstruction of these cases, FIH has received minor shareholdings, having in this way the possibility of making a future gain. The book value of these shareholdings is modest. Net profit for the year In 2009, Structured Finance's net result for the year was a loss of DKK million against a profit of DKK million in The performance is considered satisfactory in the light of the substantial writedowns on few exposures. The total loan balance was reduced from DKK 16,762 million at year-end 2008 to DKK 14,441 million at year-end 2009, primarily as a result of redemption of a very large exposure. The performance of the loan balance was satisfactory, taking into account the level of activity within acquisitions and the intended redemption of a very large exposure. Total writedowns for 2009 were DKK million corresponding to 3.7 per cent of the total loan balance at the end of the year. The writedowns amounted to DKK 15.4 million in Despite the economic slowdown, the portfolio is found to be good with a satisfactory credit quality.

26 26 FIH s business FIH CAPITAL MARKETS Income statement (DKK million) Net interest and fee income Market value adjustments Other operating income Operating expenses Writedowns of loans and receivables, etc Profit from investments Profit before taxation Taxation Net profit for the year Loans* 1, Bonds 18,966 1,050 * Loans in Capital Markets primarily comprise repo transactions to non-financial customers Business area Capital Markets is responsible for the Bank's activities in the financial markets, and handles trade and customer-oriented activities in the interest, foreign currency and securities markets. Capital Markets is divided into Financial Solutions, Trading, Treasury and Operations. Financial Solutions provides advisory services to the Bank's large and medium sized customers. The focus areas are strategic risk management, which helps to convert the company's strategic objectives into concrete action plans to manage the company's financial risks liability management where customers can outsource the optimisation and monitoring of total interest rate and foreign currency risks relating to the company's liabilities to FIH financial policies which support companies in setting optimum targets within interest rate, foreign currency and liquidity management capital structure analysis, which balances the composition of the company's loan capital and equity with a view to optimising the capital structure strategic advisory services and sparring for medium sized companies in connection with the calculation of the value of companies, capital raising opportunities, advice on rating/credit quality, generational changes and consequences of purchases or sales. Financial Solutions supports FIH's aim to be the preferred financial partner in the Danish corporate sector. Trading handles all pricing in connection with trade in interest rate and foreign currency products, primarily aimed at Financial Solutions. Further, Trading, holding the money market function, is responsible for optimising FIH s interest, cash and foreign currency flows and is authorised to do proprietary trading, which is trade in the Bank's short-term portfolios.

27 FIH s business 27 At the end of the first half of 2009, FIH s Treasury function was organisationally placed in Capital Markets in order to strengthen FIH s handling of market risks, its own portfolio, liquidity management and the execution of funding transactions. For reporting purposes, Treasury is part of Other areas and is therefore not included in Capital Markets. The Treasury function is today divided into Treasury Portfolio and Treasury Funding. Treasury Portfolio is responsible for investment of FIH s own holding (cash reserve). The investments are made within the framework laid down by FIH s Asset-Liability Committee. The frameworks have been laid down with a view to diversification of the portfolio. At the same time, it reflects that the purpose of own holdings is to achieve the highest possible absolute return with a low risk. Account is taken of the liquidity and funding strategy on investment of the funds. Treasury Funding is responsible for FIH s raising of long-term funding, maintenance of the Bank's loan programmes and Investor Relations. Market development and activities Customer-operated advisory services and trading activity relating to instruments to hedge especially interest and foreign currency risks were reasonable throughout the period. At the beginning of 2009, the difference between purchase and selling prices had been strongly extended. However, it was narrowed during the year due to falling volatility. In addition to sales of advisory services to FIH s customers, significant earnings were generated in Trading. Position taking with focus on short-term and medium-term interest rates, high volatility as well as the widening of the credit span made an extraordinary positive contribution to net profit for the year. At the beginning of 2009, Capital Markets adjusted its organisation to focus on the generation of cross sales to FIH s existing loan customers in line with the other business activities. Loans combined with related advisory services are the core of FIH s business, and the adjustment of Capital Markets supports this strategy. This has also caused a material reduction of the cost level. Net profit for the year In 2009, net profit for the year for Capital Markets was DKK million, or DKK million up on The earnings expectations for 2009 were fully met for Capital Markets, and net profit for the year is considered to be very satisfactory.

28 28 FIH s business FIH CORPORATE FINANCE Income statement (DKK million) Net interest and fee income Market value adjustments Other operating income Operating expenses Writedowns of loans and receivables, etc Profit from investments Profit before taxation Taxation Net profit for the year Business area The Corporate Finance activities are handled by the wholly-owned subsidiary FIH PARTNERS A/S. Services include independent advisory services on purchases and sales of companies (M&A), stock exchange listing of companies, preemption rights issues, advisory services in connection with acquisitions of listed companies etc. Market development Measured by the value of traded companies, the Nordic M&A market declined by two-thirds in 2009 compared with The global economic trend, including the trend in the financing markets in particular, has required an extraordinarily high amount of resources for the implementation of transactions. Activities In 2009, as in 2008, FIH PARTNERS A/S managed to profile itself as the leading Danish M&A adviser. In 2009, FIH PARTNERS A/S provided advice to enterprises such as Dyrup in connection with the sale of Dyrup Industri Local Government Denmark (Kommunernes Landsforening) in connection with the sale of KommuneData A/S to the private equity fund EQT DONG Energy in connection with the sale of fibre networks to TDC Sjælsø Gruppen in connection with advice on refinancing and share issue in autumn 2009 Alm. Brand in connection with the sale of Kjøbenhavnske Re to Nordic Run- Off Limited, a British subsidiary of the CC Enstar Group Limited Arla Foods in connection with the sale of Corona Packaging DONG Energy in connection with the purchase of A2SEA from LD, Dansk Kapitalanlæg and Clipper, among others Altor Equity Partners in connection with the purchase of Pulse Medtech from Tecnitrol Inc. DONG Energy in connection with the purchase of the Polish off-shore windturbine plant project Karcino Local Government Denmark in connection with the sale of Kommunekemi A/S to the private equity fund EQT Infrastructure. Net profit for the year Net profit for the year in Corporate Finance amounted to DKK 17.0 million against DKK 54.6 million in In the light of the market development the performance is considered acceptable.

29 FIH s business 29 FIH PRIVATE EQUITY Income statement (DKK million) Net interest and fee income Market value adjustments Other operating income Operating expenses Writedowns of loans and receivables, etc Profit from investments Profit before taxation Taxation Net profit for the year Holding of unlisted shares and investments in associates 1,648 1,324 Business area Private Equity makes long-term investments in shares. Investments are made on the basis of return expectations for the investment and are made in private equity funds or directly as investments in unlisted shares. Before the investment is made, a strategy must have been formulated for the company's further development, including a clear dividend and/or exit strategy. FIH believes that participation in private equity funds can partly produce an attractive return on the individual investment and partly add to FIH s loan business an opportunity to participate in a number of structured financing tasks that follow from the private equity funds acquisitions of companies. The investment horizon is normally five to ten years. The investment in unlisted shares is primarily made in medium sized Danish companies in mature industries showing healthy growth. The investment will typically be made in connection with the companies desire for a generational change or an industrial spin-off and where Private Equity's participation is a friendly one. The investment horizon is normally three to five years. Private Equity also invests on a minor scale in unlisted shares in connection with the reconstruction of loan customers companies, where debt is converted into share capital. This kind of investment is made by FIH in dialogue with the customers and requires that there is a realistic foundation for the company's future operations and further development. Net profit for the year In 2009, Private Equity's net profit for the year was DKK million against DKK 45.9 million in Net profit for the year corresponds to a return of 16.2 per cent. The investment return on unlisted shares was 12.8 per cent against an average for the five preceding years of 25.9 per cent. Net profit for the year is considered satisfactory. The performance of the individual companies has varied a great deal, with a number of companies performing slightly negatively whereas a few companies performed positively.

30 30 FIH s business OTHER ACTIVITIES Income statement (DKK million) Net interest and fee income Market value adjustments Other operating income Operating expenses Writedowns of loans and receivables, etc Profit from investments Profit before taxation Taxation Net profit for the year Other areas include all the other activities of the Bank, including expenses related to Bank Package I, costs in connection with the refocusing initiative in January 2009 and the Bank's Treasury function. Bank Package I The participation in Bank Package I involves high expenses for FIH as well as the rest of the financial sector. FIH's share of the expenses related to Bank Package I is 4.3 per cent, distributed on guarantee commission of DKK 15 billion and a loss guarantee of DKK 20 billion for which provisions are made. At the end of 2009, the Private Contingency Association calculated the provisioning requirements on the financial sector's loss guarantee at a total of DKK 5.8 billion, of which DKK 4.8 billion have been made in This means that, in 2009, FIH's expenses related to Bank Package I totalled DKK million, of which payments under the guarantee commission amount to DKK million, while loss provisions amount to DKK million. Refocusing in January 2009 In January 2009, FIH refocused the Bank as part of the efforts to adjust it to the new market situation in the financial sector. As a result of the refocusing, FIH shed 94 jobs, including 24 vacancies. This meant that 21 per cent of the employees were dismissed. Costs in connection with the refocusing amounted to DKK 75 million, distributed on DKK 70 million staff costs and DKK 5 million other administration expenses. Costs and expenses were recognised in Q Treasury function Most of the profit of Treasury consists of the Bank's earnings on its own holdings. For 2009, the profit was negatively affected by a timing difference between the fixing of the rate of interest on loans and deposits but positively by buy-backs of its own issued bonds and subordinated debt. Lastly, the result was affected by higher interest income as a result of a higher funding premium which is to cover increased funding costs in connection with the Bank Packages. Other In addition to the mentioned areas, other activities include a minor portfolio of listed shares.

31 31

32 32 Funding Funding sources (per cent) Central banks Repo transactions 10 0 Deposits from credit institutions 1 2 Corporate current accounts 1 2 Term deposits - Corporate Term deposits - Netbank Pro 2 2 Commercial Papers 5 1 Draw downs on credit facilities 0 11 Short-term funding Medium-term Notes Other bonds issued 4 6 Credit institutions 5 8 Subordinated debt 4 3 Shareholders' equity 7 7 Long-term funding After a challenging fourth quarter 2008 during which FIH was faced with both the amplification of the international financial crisis and the collapse of its parent company Kaupthing, 2009 saw a stabilisation of the international capital markets. This has been a positive factor for FIH which is dependent on market funding. The uncertainty concerning the ownership structure of FIH has affected the funding mix. Hence, in 2009, FIH used government guaranteed funding by participating in the following schemes: Bank Package I: On 7 October 2008, FIH decided to apply for membership of Bank Package I, the aim of which is to ensure financial stability in Denmark. Under the scheme, all depositors and lenders (with the exception of subordinated debt lenders) are covered by the government guarantee until 30 September irrespective of the size of their loan or deposit. An individual government guarantee for issues passed in Parliament in early February 2009 is a supplement to Bank Package I. On 3 July 2009, FIH entered into an agreement with the Financial Stability Company, which, on behalf of the Danish government, made a framework guarantee facility available to FIH for issues up to DKK 50 billion. Under the terms of the agreement and until 31 December 2010, FIH can apply for government guarantee on issues with a tenor of up to 3 years. At year-end 2009, DKK 13.1 billion had been utilized under the guarantee facility. Bank Package II: On 25 June 2009, FIH entered into an agreement with the Danish Government regarding a hybrid core capital injection of DKK 1.9 billion according to the Danish Act on State-Funded Capital Injections. Fuelled by the government guarantee under Bank Package I, FIH experienced a satisfactory inflow of deposits in These deposits were to a large extent collected from Danish companies and pension funds. Furthermore, in the second half of 2009, FIH started to issue significant volumes of its Commercial

33 Funding 33 Papers to European institutional investors. At the beginning of 2007, FIH entered into an agreement with ATP (the largest pension fund in Denmark) on a credit facility of DKK 15 billion. During 2009, part of the short-term funding need was covered by drawing on the ATP facility. The facility expires in September 2010, and FIH intends to negotiate an extension of the facility. At year-end 2009, the facility was undrawn. At year-end 2009, FIH's liquidity amounted to DKK 22.9 billion corresponding to excess cover of 80.5 per cent compared with statutory liquidity. In addition to this is the ATP facility of DKK 15 billion. In January 2009, FIH issued bonds in the international capital market from which it had been absent since In 2009, issues were made off FIH's Euro Medium-Term Note Programme and their redemption dates did not exceed 30 September These issues are covered by the government guarantee under Bank Package I. Furthermore, FIH established a Guaranteed Euro Medium-Term Note Programme in July 2009 under the individual government guarantee. This new Programme enabled FIH to access the US bond market in which a total amount of USD 3.5 billion bonds (corresponding to DKK 18 billion) have been issued since August 2009, primarily with a 3-year tenor. NETBANK PRO In recent years FIH has been working on diversifying the funding base. As a result, in 2009 FIH expanded Netbank Pro to include deposits from corporate customers as well. Customers are now offered deposit products with a fixed term of 1, 3, 12, 24 and 36 months at attractive interest rates. At year-end 2009, deposits in Netbank Pro totalled DKK 1.8 billion. During 2009, Netbank Pro worked on streamlining the work processes. All processes are automated, making it possible to offer higher interest rates as a result of an optimised expense structure. In 2010, Netbank Pro is expected to be leading on deposit rates and will make a targeted effort to generate growth in the deposit balance. Development in FIH's ratings with Moody's On 25 March 2009, Moody's announced that it had downgraded the long-term deposit and senior debt ratings of FIH to Baa3 from A2, and its bank financial strength rating (BFSR) to D+ from C. Moody's also downgraded FIH's shortterm deposit and debt ratings to Prime-3 from Prime-1 and its subordinated debt rating to Ba3 from A3. All the Bank's ratings, including the Prime-3 short-term rating, remained on review for a further possible downgrade. On 23 June 2009, Moody's announced that it had assigned ratings of Aaa to long-term senior debt issues that are guaranteed by the Financial Stability Company on behalf of the Danish government and issued within the guarantee period under the individual government guarantee, i.e. by the end of 2010 and maturing up to three years of the issue. Furthermore, Moody's assigned shortterm issuer ratings of Prime-1 to FIH. In addition, Moody's assigned short-term backed ratings of Prime-1 to Commercial Paper and French CD Programs. This reflects that senior unsecured short-term debt obligations maturing within the

34 34 Funding guarantee period of Bank Package I - on or prior to 30 September are guaranteed by the Danish government. On 8 September 2009, Moody's announced that it had downgraded FIH's BFSR to D- from D+. The Baa3/Prime-3 long- and short-term debt and deposit ratings were confirmed with stable outlook. The Management has as its strategic aim to improve FIH's rating. For that purpose a number of initiatives have been taken to address the items open to criticism that have been raised by Moody's in connection with the assessment of FIH's business model and credit quality. Funding strategy 2010 In 2009, the liquidity situation was good, but the cash flow is expected to be reduced towards the expiry of Bank Package I. As from 30 September 2010, funding will no longer automatically be covered by the government guarantee. Considering that there is a significant degree of volatility in the short-term funding base of FIH, the funding mix of the Bank is anticipated to change gradually in the first half of 2010, when new medium-term funding is expected to refinance discontinued short-term funding. In addition, 2010 will be a year of significant redemptions of existing funding in a total amount of DKK 21.6 billion. Due to the uncertainty surrounding FIH's ownership and Moody's ratings, FIH does not have access to the bond markets for subordinated debt. In order to maintain a satisfactory solvency ratio, FIH currently does not expect to exercise call options under the subordinated debt. FIH's overall funding strategy is to ensure diversification of the funding mix in order to increase the tenor. This is achieved through: debt issues under the individual Danish government guarantee scheme, primarily with a 3-year tenor. raising new senior funding with a tenor of more than 3 years without use of the individual government guarantee, including use of FIH Kapital Bank A/S. The objective of this funding source is to reduce the dependence on government guaranteed funding and to reduce the refinancing risk in raising new unsecured senior funding with a tenor of less than 3 years, including expansion of the volume of retail deposits collected through Netbank Pro. From 1 October 2010, deposits up to Euro 100,000 will be covered by the Danish Guarantee Fund for Depositors and Investors. extend existing credit facilities to enable FIH to absorb fluctuations in shortterm liquidity needs focus on investor relations and other external stakeholders, including rating agencies.

35 Funding 35 Debt Maturity Profile (nominal values) DKK billion

36 36 Risk Management CREDIT RISKS Credit approvals Any credit exposure in FIH is based on a careful analysis of risk and profitability made on the basis of thorough knowledge and analysis of the customer concerned and a thorough assessment of the financing. FIH is thus familiar with the background and purpose of any financing task. Where possible, mainly in the Corporate Banking and Property Finance business areas, first priority pledge is usually established on financed assets. Financing is basically without any credit commitment, and repayment is adapted to the nature and economic life of the investment. At the same time, FIH s loan terms usually include conditions concerning renegotiation of loan terms, collateral and price with the customer at least once a year. Where FIH offers loans with no possibility of renegotiation of the terms for short or long periods of time, the loan is typically subject to compliance with a number of covenants on an ongoing basis. Any credit exposure is subject to approval according to FIH s hierarchy of powers. This means that at least two employees are involved in the process of credit granting. All major credit exposures are granted centrally in the credit organisation or in FIH s Risk Committee. As an aid in determining loan terms, FIH uses price support tools which calculate the risk adjusted return corresponding to the earnings after the expected risk of loss and return requirement. Monitoring of and follow-up on credit risks FIH closely and continually monitors and follows up on credits risks. Monitoring and follow-up are partly portfolio based, using FIH's credit system, and partly individual and exposure-specific, based on one or more annual credit follow-ups, depending on the size, complexity, quality and risk of the loan exposures. FIH's credit system contains all relevant information on debtors, the size of exposures, utilisation of facilities, market values and collateral values, ratings, industry codes, etc. Portfolio-based monitoring thus ensures monitoring of the scope, diversification, collateral security and quality of the total loan portfolio. Monitoring is conducted by the credit organisation, reporting its findings to the Executive Board and the Board of Directors on an ongoing basis. Individual credit monitoring and follow-up on a loan exposure is based on the Account Manager's review and analysis of the customer's relevant circumstances, including annual reports, interim financial statements and budget material, along with the Account Manager's qualitative assessment of the customer's strategy, market position and refinancing opportunities, among other factors. Follow-up includes updating of ratings, collateral values and other relevant system information. A credit follow-up is approved in accordance with FIH s hierarchy of powers. This means that more than 90 per cent of the loan exposure is approved/granted centrally in the credit organisation or in the Risk Committee.

37 Risk Management 37 At least twice a year, FIH also performs a structured review of all significant exposures in a formalised process with the participation of the Executive Board, the credit management, internal audit and the management of the lending areas. This review usually comprises more than two-thirds of FIH's loan exposures and is based on size, complexity, quality and risk. Rating Rating models are integral elements of FIH's credit processing. For all customers, the rating models calculate the probability that, within the next 12 months, the customer will not be able to meet his financial obligations towards FIH (the probability of default) in accordance with the capital adequacy rules (the Basel II rules). The probability is expressed in terms of the customer's rating, determined on a scale from 0 to 12. A rating of 0 indicates a high probability of default, while a rating of 12 indicates a very low probability of default. Loan exposures that are subject to public liability are rated 13. All ratings are approved centrally by FIH's credit department. The following figure shows the distribution of FIH s loan exposure by rating categories. Distribution on rating categories % 25% 20% 15% 10% 5% 0% D In process

38 38 Risk Management Ratings 7-13 correspond to investment grade as defined by the credit rating agencies. Ratings 4-6 are below investment grade, representing the BB rating category of the credit rating agencies, and being of acceptable credit quality. Ratings 1-3 cover weaker customers, corresponding to the single B segment of the credit rating agencies. Rating 0 covers the weakest and most risky customers, corresponding to the C-CCC segment of the credit rating agencies. FIH monitors customers in the 0-3 rating classes very closely. Rating class D represents exposures in default. Default occurs if a debtor has been in arrears for more than 90 days, or earlier, if FIH believes that it is unlikely that the debtor will be able to pay off all of his liabilities without FIH's intervention - e.g. in the form of realisation of collateral or guarantees. Customer exposures with an objective indication of impairment are all placed in the D category and all exposures in this category have been subject to an assessment of the writedown requirement in accordance with rules and regulations. The average probability of default - weighted in terms of loan DKK - increased in 2009, from 1.4 per cent to 2.0 per cent, reflecting customer challenges in the current economic crisis. FIH believes that the recession has reached bottom in Denmark, and, accordingly, the Bank believes that the average probability of default is close to peaking. FIH also expects that it will be some quarters before a significant improvement in ratings - and thus a lower average probability of default - will be registered. As is evident from the following figure, the proportion of loans in default also reached a high level for FIH in Share of default on customers and exposures Share of customers in default Share of exposures in default 7% 6% 5% 4% 3% 2% 1% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q4 2009

39 Risk Management 39 The proportion of FIH's customers and loans in default has been increasing since Q The rise in the average default probability and in the number of customers and loans in default reflects the current challenges facing Danish companies. However, the quality of the loan portfolio should not be assessed in isolation based on the rating distribution, as this distribution allows only for the probability of default and fails to take into account whether the exposure in question is secured, in full or in part, by collateral or in other words: how much will be lost in case of default. As a significant portion of FIH's lending is secured by first priority pledge and as FIH's loan terms provide the opportunity for renegotiating loan terms and for securing collateral in case of deterioration in the customer's credit quality, FIH's nonperforming and weak exposures are generally well secured. For each rating class, the table shows the total exposure, including mortgage credit, etc., the total collateral value (market value less a safety margin - a haircut - of around per cent, depending on the underlying asset) and the average secured part per rating class. The table shows that FIH is best protected in the low rating classes and that the collateral value generally falls as debtor quality increases. The table does not include all types and forms of collateral. Thus, at present, the value of some charges that are subject to great volatility, such as company charges, is not included. Moreover, certain legal structures in which FIH is the only creditor are not assigned separate collateral values either. Rating Exposure DKK million Collateral value DKK million Average secured part D 4,493 3, % % 1 1,983 1, % 2 1, % 3 4,730 2, % 4 7,918 4, % 5 8,431 5, % 6 13,041 6, % 7 10,771 5, % 8 12,932 6, % 9 4,323 1, % 10 2, % % 12 1, % 13 1, % In process % Total 77,106 38, %

40 40 Risk Management Spreading of loan portfolio The objective of FIH is to spread the lending activities across business areas, industries and objects. FIH's aim is a balanced distribution of loans among FIH s three business areas where Corporate Banking always represents at least 50 per cent of FIH s total loans, Property Finance not more than 30 per cent and Structured Finance not more than 20 per cent. FIH is currently not meeting its target of a balanced distribution of loans among the three business areas. This is due to the fact that the repayment of loans in 2009 was relatively larger in Corporate Banking than in Property Finance and Structured Finance. According to the Danish Financial Business Act, the total amount of exposures representing 10 per cent or more of the capital base must not exceed 800 per cent of the capital base. As, however, FIH does not want the total amount of these exposures to exceed 100 per cent of the capital base it has targeted its efforts to reduce the extent of these exposures in recent years. In 2009, the target was reached and the total amount of large exposures was 70.8 per cent of the capital base at year-end 2009, reflecting four loan exposures. It also includes two exposures with banking groups at the balance sheet date. These two exposures were reduced immediately after the balance sheet date and will therefore only have a short effect on the total amount of large exposures. The total amount of exposures exceeding 10 per cent of the capital base is therefore expected to decline further during Writedowns The growth in FIH s writedowns was, of course, affected by the national and international economic crisis. Total expensed writedowns amounted to DKK 1,177.0 million in 2009 against DKK million in 2008 and the total writedown balance was DKK 1,184.0 million at year-end 2009 against DKK million at year-end The provision for the guarantee made to the Private Contingency Association is included in the writedowns for the year at a total amount of DKK million. A significant proportion of FIH's writedowns for 2009 is attributable to the Structured Finance business area. Writedowns in Structured Finance relate to a few companies and their financial reconstruction. The credit quality among other companies in Structured Finance is generally satisfactory and is monitored closely. Accordingly, the level of writedowns for 2009 is not regarded as representative. The average default probability for loan exposures established in Structured Finance is 1.5 per cent relative to 2.0 per cent for FIH's general loan portfolio. Total writedowns at Structured Finance amount to 1.3 per cent and writedowns for the year are 3.7 per cent of the business area's total loans. Total writedowns made in relation to the Property Finance business area are 1.1 per cent and writedowns for the year constitute 0.7 per cent of the business area's total loans. The low writedowns ratio reflects that FIH's exposure to the property sector in general is secured by first priority pledge.

41 Risk Management 41 Development in large exposures Non-financial Financial Percentage of captial base Distribution of lending in Banking units (2009: DKK 62,317 million and 2008: DKK 72,533 million) 60% Percentage of total lending in Banking units 50% 40% 30% 20% 10% 45.6% 48.9% 31.2% 28.0% 23.2% % 0% Corporate Banking Property Finance Structured Finance Distribution of writedowns in 2009 and 2008 (2009: DKK 1,177 million and 2008: DKK 494 million) 70% 60% 66.0% Percentage of total writedowns 50% 40% 30% 20% 24.9% 20.7% 44.8% 17.7% 10% 12.6% 10.1% 3.1% 0% Corporate Banking Property Finance Structured Finance The Sector Fund

42 42 Risk Management Writedowns and losses in percentage of total lending Writedowns Losses 3.0% Writedowns The rules for writedowns were changed in Losses 0.8% 2.5% 0.7% 0.6% 2.0% 0.5% 1.5% 0.4% 1.0% 0.3% 0.2% 0.5% 0.1% 0.0% % Total writedowns made in Corporate Banking amount to 1.5 per cent and writedowns for the year constitute 0.9 per cent of total loans. The level of writedowns related to this business area should be seen, in part, in light of the quality of the portfolio and the value of the collateral security provided and, in part, in light of the fact that companies in Corporate Banking's portfolio were hit by the financial crisis at a later stage in the business cycle than the companies of the other business areas. The total writedown balance is 1.9 per cent of total lending, and FIH s realised losses in 2009 were 0.8 per cent of loans. The writedown balance totalling DKK 1,184.0 million is distributed as follows: DKK 511 million on Corporate Banking, DKK 233 million on Property Finance and DKK 188 million on Structured Finance. The remaining amount concerns the Private Contingency Association. Due to adverse economic developments, FIH's writedowns were high in The most cyclical companies with limited capital resources were particularly hard hit in Q1 and Q2. In Q3 and Q4 2009, writedowns were somewhat lower than in the first two quarters of the year. Thus writedowns for the first half of 2009 are approximately 70 per cent of total writedowns for the year. However, writedowns are still high for FIH and are increasingly seen to affect the Corporate Banking business area. FIH expects 2010 to be another year of relatively high losses and writedowns, although the level is expected to be reduced to about DKK 700 million, including provisions for the loss guarantee to the Private Contingency Association. In 2010, small and medium-sized companies in Corporate Banking are expected to face the greatest economic challenges. Further information about credit risk For further information about FIH s credit risk and risk management see Risk Management in FIH 2009 on fih.com.

43 Risk Management 43 MARKET RISK Market risk is the risk of loss of market value arising from movements in financial markets (interest rate, foreign exchange, equity and volatility risks, etc.). Through its business activities, FIH naturally incurs a number of market risks. Overall, the size of limits for various types of market risk is determined by FIH's procedure for the Board of Directors, the Board of Directors instructions to the Executive Board and also through instructions sanctioned by the Executive Board, and activities are managed by and reported on in accordance with these instructions on an ongoing basis. Approach to market risk FIH wishes to assume only limited risk within the areas of listed shares, foreign exchange (with the exception of EUR) and volatility. FIH's approach to market risk is that the market risk must be in line with or lower than that of comparable banks, for example group 1 banks and major group 2 banks. In the annual Risk Management Report to the Board of Directors, an analysis is conducted of market risk ratios (e.g. from the Danish Financial Supervisory Authority) for FIH compared with comparable banks. This analysis shows that FIH's objective has been achieved. Interest rate risk Interest rate risk is the risk of loss arising from changes in market rates. Interest rate risk is managed through changes in the composition of the bond portfolio and through positions in financial instruments. The interest rate risk is calculated, in part, by setting a target for FIH's gains or losses in case of a one percentage point interest rate change for all maturities and, in part, by a Value-at-Risk (VaR) target. Interest rate risk - calculated using the calculation method of the Danish Financial Supervisory Authority as the risk in case of a one percentage point parallel shift in the interest rate level of all currencies - amounts to DKK 263 million at the end of the year. The figure below shows FIH's interest rate risk during 2009 as a loss/gain in case of a one percentage point increase in the interest rate. 300 Interest Rate Risk in 2009 DKK million /1/09 30/1/09 27/2/09 31/3/09 30/4/09 29/5/09 30/6/09 31/7/09 31/8/09 30/9/09 30/10/09 30/11/09 30/12/09

44 44 Risk Management Foreign exchange risk Foreign exchange risk is the risk of loss arising from adverse changes in foreign exchange rates. Most of FIH's funding is raised in foreign currency, which is subsequently swapped into the currency in which the loan is granted. Accordingly, the exchange rate risk is modest. FIH generally wishes to assume only limited foreign exchange risk (with the exception of EUR). Foreign exchange risk is managed on the basis of VaR targets and limits on open positions in individual currencies and a limit on the total foreign exchange position. FIH's foreign exchange risk, based on Value-at-Risk for foreign exchange (calculated at a one-day horizon and 99-percent probability) was DKK 3.7 million at the end of the year. FIH also calculates a target using the Danish Financial Supervisory Authority's exchange rate indicator 1 method. Under this method, overall exchange rate risk is calculated as the higher of the sum of positions in currencies in which FIH has a net receivable and the sum of positions in which FIH has net debt. Equity risk Equity risk is the risk of loss arising from changes in equity prices. FIH generally wishes to assume only limited risk within listed shares. At the end of 2009, FIH had a portfolio of listed shares of DKK 150 million. At year-end the portfolio of unlisted shares and investments was DKK 1,648 million. For details see the section Private Equity.

45 Risk Management 45 Value-at-Risk With Value-at-Risk (VaR), a portfolio approach is adopted in the calculation of market risks for financial assets. Thus, in the calculation of asset risk, allowance is made not only for the standard deviation, but also for the inter-correlation of assets. Using VaR, it is thus possible to summarise, in a single figure expressed in DKK, the total risk of the Bank's balance sheet. FIH calculates VaR at 99 per cent probability and at a one-day horizon. Thus FIH, at 99 per cent probability, does not expect to lose more than the figure indicated by the VaR model on any given day. FIH's policy for market risk is low to moderate market risk for the Group as a whole. This means that the VaR limit for the Group may not exceed the higher absolute amount of, respectively, 0.50 per cent of the capital base, corresponding, at the end of December 2009, to a VaR figure of DKK 57.5 million, or DKK 50 million. By making full utilisation of the VaR limit, FIH thus does not expect to lose (or earn) more on its market positions than the maximum of either 0.50 per cent of the capital base or DKK 50 million for more than two or three days a year. If the VaR figure exceeds 0.25 per cent of the capital base (which, at the end of December 2009, was equivalent to DKK 28.7 million) several times during a quarter, the Board of Directors must be notified and actively take a position on the risk level. The market risk of the Bank's total balance sheet (including the market risk not included in the trading portfolio), calculated as the VaR of interest rate, foreign exchange and equity risks, was DKK 27 million at the end of the year. The average VaR figure for 2009 was DKK 19 million. During the year, the figure fluctuated between DKK 13 million and DKK 33 million. Value-at-Risk 2009, 99 % probability and one-day horizon DKK million /1/09 30/1/09 27/2/09 31/3/09 30/4/09 29/5/09 30/6/09 31/7/09 31/8/09 30/9/09 30/10/09 30/11/09 30/12/09

46 46 Risk Management FIH conducts daily back testing of the internal model for market risk to document that the internal VaR model is sufficiently robust to measure FIH's market risk. The back testing compares the model's calculated losses with actual losses, as well as with hypothetical losses in a situation in which FIH's positions are unchanged, but market prices change. The calculation of hypothetical losses does not include losses and gains from intraday trading. Scenario-based interest rate and foreign exchange stress testing is performed as a supplement to VaR. For more information on stress testing, see the report Risk Management at FIH 2009, which can be downloaded from FIH's website (fih.com). LIQUIDITY RISKS Liquidity risk is the risk of loss arising from excessive increases in FIH's funding costs or the risk that the Bank does not have sufficient financial resources available to meet its payment obligations when they fall due. Liquidity is calculated as holdings of certificates of deposits with Danmarks Nationalbank (central bank), short-term positions with Danish and foreign banks, the bond portfolio and committed loan facilities from other financial institutions (exclusive of repo transactions with Danmarks Nationalbank). Pursuant to the Danish Financial Business Act, FIH is required to have adequate liquidity at least equivalent to 15 per cent of the liabilities which FIH, regardless of possible payment conditions, is under an obligation to pay on demand or at a notice of less than one month; and 10 per cent of FIH's total liabilities and guarantee commitments, exclusive of subordinated debt, that may be included in the calculation of the capital base. FIH's Board of Directors has formulated a liquidity policy, based on statutory requirements, which establishes the framework of the net short-term liquidity requirement. In the liquidity policy FIH has chosen to increase the statutory 10 per cent requirement of total debt and guarantee commitments by 50 per cent so that it is equal to 15 per cent. FIH's ambition is to ensure a solid and adequate liquidity at all times. For that purpose, funding diversification is important with respect to the utilisation of available resources and costs of setting up, maintaining and utilising funding programmes and structures. Bank Package I secured ample liquidity for FIH in In 2009, FIH had access to the following two credit facilities which were undrawn at year-end The DKK 15 billion credit facility through the Danish pension fund ATP. The facility expires in September 2010, and it is the intention of FIH to negotiate an extension of the facility. The facility is not included in the Bank's statutory liquidity position but as part of the liquidity buffer. The establishment of the facility has provided FIH with great flexibility in its use of liquidity in the past twelve months. A DKK 3 billion facility was entered into with a leading Nordic bank in This facility expires in June 2010 and FIH intends to negotiate an extension of the facility.

47 Risk Management 47 In 2009, liquidity was solid, but towards the date of expiry of Bank Package I, the supply of liquidity is expected to decrease. The aim of FIH's funding strategy for 2010 is to ensure that FIH will continue to diversify its funding sources and prefund debt due so that the Bank will manage to cope with the expiry of Bank Package I and comply with its regulatory requirements in 2010, too. CAPITAL POSITION The capital objective is to have such a high solvency ratio that it is possible to continue the lending activities even during periods of poor economic conditions. The size of the capital must ensure that regulatory requirements are complied with and that FIH can cope with unexpected losses. This objective is achieved by maintaining a solvency ratio which is much higher than the regulatory requirements. The Bank's capital planning has been adjusted to the current economic situation. In spring 2009, FIH applied to the Danish government for an injection of hybrid core capital. The application was made because of the poor economic climate, the uncertainty surrounding FIH s ownership, and to underpin the desire for an extra capital buffer to cope with any losses arising from the currently economically uncertain times. At the end of June, FIH received hybrid core capital in the amount of DKK 1.9 billion. FIH reports its solvency using the standard method under the Capital Adequacy Order. The standard method is believed to be less sensitive to risk compared to the internal rating-based methods. FIH s solvency ratio was 13.8 per cent at yearend Parallel with reporting under the standard method, FIH assesses the potential improvements of the solvency ratio should FIH in future decide to apply for approval to use the advanced internal rating based method. FIH estimates that a change in the calculation principle will have a positive impact of about 200 basis points on the solvency ratio. FIH s focus is directed at maximum consolidation of profit for the year after taxation optimisation of risk-weighted items having regard to FIH s strategy and the economic trends.

48 48 Risk Management Capital base (DKK million) FIH Group 2009 Share capital 514 Reserves 10 Retained earnings 7,265 Net profit for the year 29 Total core capital 7,818 Primary deductions from core capital Intangible assets -31 Core capital after primary deductions 7,787 Hybrid core capital 1,900 Core capital including hybrid core capital after primary deductions 9,687 Other deductions from core capital Half the amount of equity investments > 10 % 0 Core capital including hybrid core capital after dedeductions 9,687 Supplementary capital Subordinated loan capital 2,296 Deductions, maturities -185 Revaluation reserve transferred to supplementary capital 1 Total supplementary capital 2,112 Deductions from the capital base Half the amount of equity investments > 10 % 0 Capital base after deductions 11,799 Supplementary capital before deductions (DKK million) Maturity Debt Var. % EUR % JPY Var. % EUR Total 2,296 Supplementary capital is stated at nominal value in the calculation of solvency. Specification of the necessary capital per type of risk (DKK million) 2009 Credit risk 7,204 Market risk 466 Operational risk 400 Other risks 321 Total 8,391 Solvency requirement 9.8%

49 Risk Management 49 Overview of capital base and the components of the solvency requirement analyses Adequate solvency Economic Capital Other Risks Stress tests Solvency requirement 9.8 % Capital requirements Basel II Standard Capital Buffer Base Capital 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Capital base The capital base is calculated in accordance with Part 10 of the Danish Financial Business Act, using the standard method. The subordinated debt elements were DKK 2,112 million at year-end As stated previously, FIH does not currently expect to exercise call options on subordinated debt. Furthermore, hybrid core capital of DKK 1.9 billion is included in the capital base. Adequate capital base The capital requirement of the Bank's risk profile must be evaluated by FIH s management on an ongoing basis. As a basis for calculation of the individual solvency requirement, FIH has, in the past eight years, used an advanced model to calculate economic capital. In addition, a few estimated elements are used which are evaluated by FIH's own management and which are not based on actual economic models. The result of FIH s own solvency requirement analysis shows a solvency requirement of 9.3 per cent against 9.5 per cent at the end of Q In continuation of the Danish Financial Supervisory Authority's publication of a new guide for the calculation of the solvency requirement on 18 January 2010, FIH has incorporated this in the solvency requirement analysis. The use of the guide has resulted in 0.5 percentage points being added to FIH s own calculation. FIH s total solvency requirement is then calculated at 9.8 per cent. In the coming period, FIH will carry out a more detailed analysis to decide whether the Danish Financial Supervisory Authority's new guide should in fact cause an addition to be made to FIH s own solvency calculation. The gap between the solvency ratio and the individual solvency requirement determined by the Management is known as the capital buffer, totalling 4.0 percentage points, or DKK 3.4 billion, at the end of FIH s individually calculated solvency requirement (the adequate capital base) is thus much lower than the actual current level. This reflects a deliberate strategy on the part of FIH which wants to be a well-consolidated bank at all times. New legislation means that, in addition to calculating the individual solvency requirement, FIH is also obliged to publish the solvency need and its calculation elements. Reference is made to the report Risk Management in FIH 2009 for a detailed description of the elements of the calculation of the solvency requirement. The report is found on fih.com.

50 50 Corporate Social Responsibility Approach to social responsibility at FIH FIH defines social responsibility as aspects that voluntarily are integrated - internally as well as externally - in relation to the areas environment, energy and climate social affairs, health promotion and occupational health and safety Historically, social responsibility has always been on the FIH Management's agenda. The foundation for the efforts made so far has been a behaviour driven by FIH s values: responsibility, orderliness and value creation. The financial crisis has not changed FIH s view on the need to show social responsibility or the efforts expected in this connection - on the contrary. In 2010, an activity will be launched to streamline the work on social responsibility, including greater efforts to support the objectives set by explicit policies (internal guidelines, objectives, strategies etc). Environment, energy and climate With five locations in Denmark, FIH is aware of the need to reduce physical meeting activity, which involves transport. As an alternative to physical meetings, video conference equipment was established at all locations in Ongoing efforts also include energy savings measures, e.g. in the form of changes to light sources etc. Social affairs, health promotion and occupational health and safety In connection with the refocusing initiative in January 2009, FIH unfortunately had to dismiss 21 per cent of its employees. In that connection, FIH entered into an agreement with Financial Services Union Denmark concerning alleviating measures which exceeded what is prescribed by the Danish Salaried Employees Act and the collective agreement. The elements of the agreement were a longer notice period, cash compensation as well as an offer of training and an outplacement process. Based on the desire to promote the employees health, welfare and job satisfaction, FIH has launched a comprehensive concept. The concept comprises elements such as a canteen plan with focus on healthy food, influenza vaccinations, medical examinations, workstation design, fitness plan and the holding of first-aid courses. Further, the following separate policies have been prepared smoking policy alcohol policy substance abuse policy senior policy. The effect of these initiatives will be followed up through the annual employee satisfaction analysis and a calculation of employees sick absence.

51 Internal controls 51 Important internal controls and risk management systems in connection with the presentation of financial statements The Board of Directors and the Executive Board have overall responsibility for FIH s control and risk management in connection with the presentation of financial statements, including compliance with relevant legislation and other regulation in relation to the presentation of financial statements. The Group's internal controls and risk management systems are mainly designed to ensure efficient management of the Group's business and activities and the associated risks. Control environment The Board of Directors and the Executive Board determine and approve overall policies, procedures and controls in important areas in connection with the presentation of financial statements process. The Executive Board continually monitors compliance with relevant legislation and other rules and provisions in relation to the presentation of financial statements and regularly reports on this to the Board of Directors. The internal control system comprises clearly defined organisational roles and areas of responsibility, reporting requirements and approval procedures. In 2009, the Board of Directors set up an audit committee, which continuously monitors the presentation of financial statements process, the effectiveness of the Group's internal control systems, internal audit and risk systems on an ongoing basis. The committee meets according to a timetable of meetings. In 2009, it also made decisions relating to the Group's accounting policies, including methods for writing down loans. The Group has an internal audit function answering and reporting to the Board of Directors and the audit committee. Internal audit reviews and evaluates business procedures and internal controls with a view to testing their effectiveness and adequacy. Risk assessment The Board of Directors and the Executive Board assess the risks of the Group including risks affecting the presentation of financial statements process, on an ongoing basis. Control activities The planning of the Group's control activities is based on the risk assessment. The objective is partly to ensure compliance with the objectives, policies, procedures etc. approved by the Board of Directors and the Executive Board and partly to ensure that any errors and defects are prevented, discovered and corrected in time. The control activities include both manual and physical controls such as general IT controls and automatic application controls. The Board of Directors and the Executive Board have established formal group reporting procedures, which comprise monthly reporting of actual financial results compared with the budget. Reporting is done on the basis of established procedures for reconciliations and analyses of data to ensure reliable and effective reporting of accounting data on an ongoing basis. Additional analyses and control activities are conducted in connection with the preparation of financial statements to ensure that the financial statements are presented in accordance with the IFRS provisions described under Accounting policies in the annual report.

52 52 Organisation and owners FIH COMPANIES The FIH Group comprises FIH Erhvervsbank A/S and a number of wholly-owned subsidiaries. During Q FIH Erhvervsbank A/S sold its ownership interest in Capital Markets Technologies (CMT) A/S, which is therefore no longer included in the Group. FIH Realkredit A/S At the end of 2009, FIH Realkredit's loans to customers totalled DKK 0.5 billion. The company's sole task is to divest the existing portfolio. FIH Kapital Bank A/S The company is financed by the parent company FIH Erhvervsbank A/S, but has also been granted a DKK 15 billion credit facility by ATP. FIH Kapital Bank A/S has been established with a separate Executive Board and a Board of Directors comprising representatives from FIH, as well as one appointed by ATP. FIH PARTNERS A/S In 2008, FIH acquired the shares of other shareholders in the company and now owns 100 per cent of the share capital. The company is in charge of FIH's Corporate Finance activities. FIH Leasing og Finans A/S The company issues guarantees to FIH in connection with loans and is the owner of certain lease assets. FIH Finance A/S The company invests in private equities and equity investments as well as loans. OTHER COMPANIES Axcel In 1994, FIH was a co-founder of Axcel - a company investing in large companies with potential for development and value-added growth. Axcel has established a portfolio of companies that are developed and sold on an ongoing basis. Axcel is backed by a select group of investors with broad affiliations with industry and the financial sector. Credit approvals total more than DKK 6.6 billion. Capital is divided between three companies: Axcel I, Axcel II and Axcel III. Fondsmæglerselskabet LD Invest A/S Towards the end of 2004, LD (the Employees' Capital Pension Fund) and FIH concluded an agreement on strategic cooperation. In 2005, the Danish Financial Supervisory Authority approved a joint company, Fondsmæglerselskabet af 2004 A/S. The company s business areas are capital management of listed and unlisted securities as well as stock exchange transactions. In 2009, the company changed its name to Fondsmæglerselskabet LD Invest A/S. LD is a majority shareholder in LD Invest Holding A/S, which owns Fondsmæglerselskabet LD Invest A/S. LD Equity 1, 2 and 3 Fondsmæglerselskabet LD Invest A/S provides advice to three private equity funds established in 2005 onwards: LD Equity 1, LD Equity 2 and LD Equity 3. The funds focus on unlisted shares. FIH has invested in the funds. FIH Aztec Holding ApS The company is an investment company.

53 Organisation and owners 53 SHAREHOLDER INFORMATION The shares in FIH Erhvervsbank A/S are owned by Kaupthing Bank hf. except for the portion of the share capital forming part of the employee share plan. Kaupthing Bank hf. At the beginning of Q4, the Icelandic economy broke down due to overheating and a committee appointed by the Icelandic Authorities assumed control of Kaupthing Bank. Board of Directors On 15 January 2009 Gudni Níels Adalsteinsson and Ragnar Árnason joined the Board of Directors in replacement of Sigurdur Einarsson og Hreidar Már Sigurdsson, who both resigned in December EMPLOYEE SHARE AND OPTION PLANS FIH has established a range of loyalty and performance-related incentive schemes in an effort to attract and retain employees, while at the same time increasing the focus on value creation. Employee shares An employee share plan - offered to all FIH employees - was launched in Shares were allocated in proportion to wages and they will be held on trust for five years. Option plans In 2004 and 2006, FIH launched option plans for a broad group of employees. The employee share and option plans are described in more detail in note 9.

54 54

55 Income statement FIH Group FIH Erhvervsbank A/S (DKK 1,000) Note INCOME STATEMENT Interest income 5 4,384,352 6,144,764 3,787,817 5,539,744 Interest expenses 6 3,084,279 4,858,997 2,759,851 4,506,573 Net interest income 1,300,073 1,285,767 1,027,966 1,033,171 Dividends from shares, etc. 1,705 10,816 1,520 1,290 Fee and commission income 7 167, ,904 87, ,204 Fees and commissions paid 7 33,783 37,508 26,887 27,082 Net interest and fee income 1,435,639 1,509,979 1,089,684 1,120,583 Market value adjustments 8 510,723-53, , ,105 Other operating income 108,603 95, , ,711 Staff costs and administrative expenses 9, , , , ,860 Depreciation, amortisation and impairment losses; property, plant and equipment as well as intangible assets 21, 23 30,397 58,513 28,161 58,238 Other operating expenses 321,606 82, ,712 68,100 Writedowns of loans and receivables, etc. 1,177, , , ,045 Profit from investments in group enterprises and associates 11-8,360 17, , ,073 Profit before taxation -147, ,883-64, ,019 Taxation ,341 23, ,010-6,894 Net profit for the year 11, ,029 52, ,913 Allocation of net profit for the year FIH's shareholders 10, ,125 52, ,913 Minority interests 1, Total comprehensive income Net profit for the year 11, ,029 52, ,913 Other total comprehensive income Revaluation of domicile properties Adjustments of minority interests 0-123, Tax impact on other total comprehensive income Total other comprehensive income 0-123, Total comprehensive income 11,533 60,883 52, ,275 Allocation of total comprehensive income FIH's shareholders 10,364 60,979 52, ,275 Minority interests 1,

56 56 Balance sheet 31 December 2009 FIH Group FIH Erhvervsbank A/S (DKK 1,000) Note ASSETS Cash in hand and demand deposits with central banks 90, ,006 90, ,006 Debt instruments eligible for refinancing with central banks 699,834 3,197, ,834 3,197,398 Due from credit institutions and central banks 13 3,015,139 2,011,272 14,798,282 3,670,685 Loans and other receivables at fair value 14, , , Loans and other receivables at amortised cost 14, 15, 16 63,679,296 72,064,336 52,987,435 58,782,554 Bonds at fair value 18 51,395,756 29,295,692 49,085,988 27,801,126 Shares, etc. 19 1,731,662 1,250,661 64,419 55,724 Investments in associates 20 65,996 80,836 33,208 25,584 Investments in group enterprises ,573,270 4,315,516 Intangible assets 21 30,901 44,486 30,901 42,315 Land and buildings: Investment properties 22 1,063,450 1,152,412 1,063,450 1,152,412 Domicile properties 23 3,986 4,012 3,986 4,012 Other tangible assets 23 19,979 15,285 19,770 14,605 Current tax assets 37,417 52,068 25,291 51,214 Other assets 24 7,971,382 11,855,160 7,994,122 11,679,830 Prepayments 96,486 65,770 76,951 42,376 Total assets 130,355, ,124, ,547, ,320,357

57 Balance sheet 31 December FIH Group FIH Erhvervsbank A/S (DKK 1,000) Note LIABILITIES AND EQUITY Debt Due to credit institutions and central banks 25 35,057,105 36,306,183 35,489,412 37,052,983 Deposits and other debt 26 20,708,800 32,091,075 21,771,442 21,195,275 Bonds issued at fair value 17, , , Bonds issued at amortised cost 27 48,723,755 32,151,678 48,723,756 32,151,678 Other liabilities 28 12,836,819 9,809,901 12,786,101 9,550,355 Accruals and deferred income 9,108 13,825 8,125 12,579 Total debt 117,808, ,901, ,778,836 99,962,870 Provisions for commitments: 29 Provisions for pensions and similar commitments ,400 3,400 3,400 Provisions for deferred taxes 172, , , ,498 Provisions for losses on guarantees 252,617 44, ,311 56,988 Total provisions for liabilities 428, , , ,886 Subordinated debt 30 4,299,357 3,027,214 4,299,357 3,027,214 Equity 31 Share capital 513, , , ,573 Revaluation reserves 1,336 1,336 1,336 1,336 Share option plan Other reserves 9,966 13, , ,104 Brought forward from previous years 7,294,722 7,280,900 6,824,967 7,039,374 Shareholders equity interest 7,819,597 7,809,266 8,020,008 7,967,387 Minority interests Total equity 7,819,597 7,809,320 8,020,008 7,967,387 Total liabilities and equity 130,355, ,124, ,547, ,320,357 Off-balance-sheet items 32 Contingent liabilities 3,401,541 4,449,122 3,765,867 4,817,729 Other contingent liabilities 4,994,911 4,633,269 4,253,435 3,504,060 Total off-balance-sheet items 8,396,452 9,082,391 8,019,302 8,321,789 Supplementary notes Derivative financial instruments are specified in supplementary notes.

58 58 Statement in changes in equity 2009 Equity statement FIH Group FIH Erhvervsbank A/S (DKK million) Shareholders equity, beginning of year 7, , , ,849.1 Distributed dividend Share option plan Total comprehensive income Minority interests Total changes in equity Total shareholders equity, end of year 7, , , ,967.4 Minority interests share of equity, beginning of year Minority interests share of dividends Disposal/addition, minority interests Minority interests share of comprehensive income Total minority interests share of equity, end of year Total equity, end of year 7, , , ,967.4 Specification of changes in equity: Share capital, beginning of year Share capital, end of year Share option plan, beginning of year Changes for the year Share option plan, end of year Revaluation reserve property, beginning of year Revaluation for the year Revaluation reserve property, end of year Net revaluation reserve according to the equity method, beginning of year Transferred Other addition/disposals, transferred to retained earnings Net revaluation reserve according to the equity method, end of year Retained earnings, beginning of year 7, , , ,087.5 Dividend Transferred Other additions/disposals, transferred from net revaluation reserve according to the equity method Adjustments of minority interests Minority interests Retained earnings, end of year 7, , , ,039.3 Total shareholders equity interest, end of year 7, , , ,967.4 Minority interests share of equity, beginning of year Minority interests share of dividends Addition/disposals, minority interests Minority interests share of comprehensive income Total minority interests share of equity, end of year Total equity, end of year 7, , , ,967.4

59 Cash flow statement FIH Group (DKK million) Cash flow from operating activities Interest received 5, ,780.1 Interest paid -3, ,499.4 Fees received and paid Expenses paid Other operating income Received on claims previously written off Loans disbursed -9, ,339.9 Repayments on loans 17, ,034.9 Change in bond holding -16, ,154.2 Securities, purchase Securities, sale Dividends from shares and equity investments Taxes paid Total -8, ,783.8 Cash flow from investing activities Net investment property, plant and equipment as well as intangible assets Sundry assets 5, ,312.0 Total 5, ,298.6 Cash flow from financing activities New bond loans 40, ,339.0 Repayments on bond loans -25, ,178.3 Change in bank debt -1, ,411.6 Change in short-term funding -11, ,631.8 New subordinated debt 1, Repayment on subordinated debt Adjustments, minority interests Changes of minority interests Sundry liabilities -3, Total ,799.1 Total cash flow -2, Cash and cash equivalents, beginning of year 5, ,813.0 Value adjustments of cash and cash equivalents Cash and cash equivalents, end of year 3, ,805.2 Cash and cash equivalents, end of year Cash in hand and demand deposits with central banks, etc ,682.4 Due from credit institutions, etc. 3, ,011.3 Bonds, etc Cash and cash equivalents, end of year 3, ,805.2 Bonds Up to 12 months ,024.3 More than 12 months 50, ,271.4 Total 51, ,295.7

60 60 Income statement per quarter FIH Group (DKK million) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Interest income , , , , , , ,467.8 Interest expenses , , , , ,155.9 Net interest income Dividends from shares, etc Fee and commission income Fees and commissions paid Net interest and fee income Market value adjustments Other operating income Staff costs and administrative expenses Depreciation, amortisation and impairment losses; property, plant and equipment as well as intangible assets Other operating expenses Writedowns of loans and receivables, etc Profit from investments in group enterprises and associates Profit before taxation Taxation Net profit for the year Allocation of net profit for the year FIH's shareholders Minority interests

61 Summary of notes 61 Note Page 1 Accounting policies 62 2 Segment information 70 3 Financial assets and liabilities 72 4 Financial assets and liabilities at fair value 74 5 Interest income/premiums on forward transactions 74 6 Interest expenses 74 7 Fees and commissions 75 8 Market value adjustments 75 9 Staff costs and administrative expenses Audit fee Profit/loss on investments in associates and group enterprises Taxation Due from credit institutions and central banks Loans Writedowns of loans and other receivables Non-performing loans Loans and other receivables at fair value Bonds at fair value Shares, etc Financial current assets Intangible assets Land and buildings Other tangible fixed assets Other assets Due to credit institutions and central banks Deposits and other debt Bonds issued Other liabilities Provisions Subordinated debt Equity Off-balance-sheet items Contingent assets and liabilities Assets provided as collateral 90 Supplementary note 35 Ratios Hedge accounting Derivative financial instruments Solvency Maximum credit exposure Credit risk Market risk Interest rate risk Related parties Group structure 101

62 62 Notes Note 1 Accounting policies The consolidated financial statements are presented in accordance with the International Financial Reporting Standards (IFRS) as approved by the EU. The consolidated financial statements are also presented in accordance with the additional Danish disclosure requirements of Nasdaq OMX Copenhagen for financial institutions with listed debt instruments and the IFRS Executive Order on financial institutions issued under the Danish Financial Business Act (lov om finansiel virksomhed). The annual report of the parent company - FIH Erhvervsbank A/S - is presented in accordance with the Danish Financial Business Act, including Executive Order on the Presentation of Financial Statements by Credit Institutions and Investment Firms, etc. (Executive Order on the Presentation of Financial Statements). The rules applied by FIH for recognition and measurement in the Parent Company comply with IFRS - except for measurement of group enterprises and associates at equity value according to FSA's Executive Order on the Presentation of Financial Statements where IFRS prescribes measurement at cost or fair value. The annual report is also presented in accordance with the additional Danish disclosure requirements of Nasdaq OMX Copenhagen for financial institutions with listed debt instruments and the Danish Financial Business Act. The accounting policies applied are consistent with those of Measurement and recognition Assets are recognised in the balance sheet when, as a result of a previous event, it is probable that future economic benefits will flow to FIH; that the value of the assets can be measured reliably; and that the assets are under FIH's control. Liabilities are recognised in the balance sheet when, as a result of a previous event, FIH has a legal or constructive obligation and it is probable that future economic benefits will flow from FIH and the value of the liability can be measured reliably. When assets and liabilities are recognised and measured, allowance is made for predictable losses and risks materialising before the annual report is presented and proving or disproving conditions existing at the balance sheet date. Financial instruments are recognised at the time of trading. Recognition of financial assets and liabilities is initially recorded on the trade date and ceases when the right to receive/surrender cash flows from the financial asset or liability has expired, or if it has been transferred, and the Group has also essentially transferred all risks and returns related to the ownership. Accounting estimates Calculation of the carrying amount of certain assets and liabilities involves an estimate of how future events will affect the value of these assets and liabilities. The most significant estimates relate to writedowns of loans provisions for losses on guaranties calculation of fair values of financial instruments. Estimates made are based on assumptions believed by the management to be reasonable, but which are uncertain. In addition, FIH is subject to risks and uncertainties that may cause actual results to deviate from the estimates. The accounting estimates made are assessed on an ongoing basis and are adjusted to reflect new information. Where possible, the accounting estimates in the financial statements are verified against the estimates of others e.g. by comparing market values, spreads, etc., received from counterparties and other external parties. Writedowns of loans and receivables Significant estimates are involved in the calculation of writedowns of loans and receivables in connection with the quantification of the risk that the debtor is unable to meet his future obligations in full or in part. In the event that it is assessed that the debtor will be unable to meet his future obligations, the calculation of future actual payments, including the realisation value of collateral security, dividends, etc., is subject to uncertainty and is, to a significant extent, based on estimates. Provisions for losses on guarantees In the determination of provisions for losses on guarantees, uncertainty is attached to the assessment of the risk that the guarantee will be exercised and the financial impact thereof. Calculation of fair value The calculation of the fair value of financial instruments which are not traded in an active market, involves an estimate. The fair value is calculated based on recognised valuation models and input variables in the form of yield curves, volatility curves, etc. The valuation models discount future cash flows and measure option elements, if any. Some amount of model risk is attached to these models. The calculation of the input variables also involves an estimate in the gathering of data and the processing thereof. Private equities are measured based on the discounting of future cash flows. The preparation is based on budget and accounting documentation and other information available that may have an impact on future cash flows. Uncertainty is involved in the preparation of these cash flows. The change in the fair value of financial instruments measured by means of models that use data other than observable market data is recognised under market value adjustment.

63 Notes 63 Because of the financial market turbulence, a number of financial instruments have had less turnover and spreads have been wider between purchase and sales prices; moreover, individual events have been able to influence market prices. As a result, it has been necessary, in a number of instances, to use estimates of the real market value. On account of the difficult market conditions, the Management has paid particular attention to the estimates made. Determination of fair values The fair value is the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm's length transaction. The determination of fair values is divided into three levels: Level 1 (quoted market prices) The fair value of financial instruments in active markets is determined at the closing price on the balance sheet date or, if there is no such date, another published price that must be assumed to be the best matching price. Level 2 (valuation based on observable inputs) For financial instruments, which are valued at level 2, the fair value is determined using generally accepted valuation techniques, which in all essentials are based on observable, current interest rates and volatilities obtained from price providers such as Bloomberg and Reuters. Level 3 (valuation based on unobservable inputs) Level 3 comprises partly financial instruments, which are valued on the basis of observable market data as at level 2 but where also inputs are used which are not directly observable and which have a significant effect on the valuation. In addition, level 3 comprises financial instruments whose fair value is determined either based on price indications from external qualified sources or based on accepted valuation methods using accounting data, expectations for the future (budgets) and multiples. Hedge accounting The FIH Group applies the rules for hedge accounting of fair values of loans and funding (IAS 39). The interest rate exposure is hedged, calculated based on the basic rate on loans and funding, using derivatives. The hedged interest rate exposure calculated on the basis of the basic rate is restated at fair value, and the change in value is recognised in the income statement under market value adjustments. Like all other derivatives, derivatives used for hedging interest rate risks are measured at fair value. The change in value is also recognised in the income statement under market value adjustments. Financial products On first recognition, financial assets and liabilities are classified in one of the following categories: trading portfolio, financial assets/ liabilities at fair value or loans and receivables. Financial assets/liabilities are classified as trading portfolio if they were acquired with a view to creating a short-term gain through short-term fluctuations in exchange rates or through earnings from trading margins, or if they form part of portfolios with this pattern. Financial assets/liabilities at fair value (investment assets/ liabilities) are products that do not meet the classification criteria for trading porfolio, but are measured at fair value on initial recognition. After initial recognition, they are measured at fair value using the fair value option set out in IAS 39. The objective is to reduce or eliminate measurement inconsistencies. Derivative financial instruments are always classified as trading portfolio, unless they are used for hedge accounting. Repurchase/reverse repurchase transactions Securities sold as part of a repurchase transaction (repo) remain in the balance sheet, under the balance sheet item of the security, e.g. bonds, and the operating result of the security is recognised under interest rates and market value adjustment in the usual manner. Amounts received under repurchase transactions are recognised as due to credit institutions or deposits. The return of repurchase and reverse repurchase transactions is recognised under interest income from credit institutions, loans and deposits, respectively. Foreign currency translation The consolidated financial statements are presented in Danish kroner, the functional currency of FIH Erhvervsbank A/S. On initial recognition, transactions in currencies other than the Group's functional currency are translated at the exchange rates ruling at the date of the transaction. Monetary assets and liabilities in foreign currencies as well as non-monetary assets and liabilities are translated at the rate of the balance sheet date. All foreign exchange adjustments are recognised in the income statement. Non-monetary assets and liabilities in foreign currencies that are not remeasured to fair value are translated at the exchange rates at the date of the transaction. Consolidated financial statements The consolidated financial statements comprise FIH Erhvervsbank A/S and the subsidiaries controlled by the parent company. The parent company is considered to control a subsidiary when, directly or indirectly, it holds more than 50 per cent of the voting rights or it otherwise controls or actually exercises significant influence over the subsidiary.

64 64 Notes The consolidated financial statements are prepared by combining items of a uniform nature and subsequently eliminating intercompany income and expense items, gains and losses, internal share holdings and intercompany balances, including guarantees. The financial statements used for consolidation are revised in accordance with the Group's accounting policies. Segment information Segment information is reported for business areas representing the Group's operating segment format. The segmental disclosures comply with the Group's risks and internal financial management and are calculated using the same principles as the consolidated financial statements. The segment results and assets comprise items that may be directly attributed to the individual segment or allocated to the individual segment on a reliable basis. Other activities primarily comprise the Group's administrative functions, investing activities, income taxes, etc. Overhead costs, including costs related to staff functions, administrative and back-office functions, are allocated to the business segments based on an assessment of the business generating capacity of the individual segment. Segment assets comprise assets directly related to the operations of the segment, including loans, bonds, etc. In FIH's internal cash management, liabilities are not allocated to individual segments; they are managed collectively. Individual business areas are managed based on margin earnings on assets. Accordingly, liabilities are not allocated between business areas and, similarly, net interest is calculated only per business area. All transactions between segments are conducted at arm's length or on a cost recovery basis. BALANCE SHEET Cash in hand and demand deposits On first recognition, cash in hand and demand deposits with central banks are measured at fair value on first recognition, and subsequently they are measured at amortised cost. Debt instruments eligible for refinancing with central banks Debt instruments eligible for refinancing with central banks are measured at fair value on first recognition, and subsequently they are measured at amortised cost. Due from credit institutions and central banks Amounts due from credit institutions and central banks include amounts due from other credit institutions, time deposits in central banks and reverse repurchase transactions, i.e. purchase of securities where an agreement is made to sell them back at a later time and where the counterparty is a credit institution or a central bank. On first recognition, amounts due from credit institutions and central banks are measured at fair value and subsequently they are measured at amortised cost. Loans and other receivables at amortised cost Loans comprise bank loans and assets held under finance leases. On first recognition loans are measured at fair value less establishment fee etc. They are subsequently measured at amortised cost applying the effective-interest method less writedowns for losses incurred but not yet realised. The change between the recognised value and the amortised value is recognised under interest income. For fixed-rate loans where the interest rate exposure is hedged by derivatives, the amortised cost is supplemented by the fair value of the hedged interest rate exposure. Fair value changes are recognised under market value adjustments. Impairment is recorded for individually assessed loans and collectively assessed loans. Individually assessed loans: FIH conducts an individual review of all significant loans, as well as a qualified random sample of other loans. The objective is to assess whether events have occurred that may negatively impact the value of the loan asset, causing FIH to no longer expect to recover the full carrying amount of the loan. In case of objective evidence of impairment of the loan, impairment is recorded equivalent to the difference between the carrying amount of the loan and the present value of expected future payments, proceeds from collateral and, possibly, dividends. Expected future payments on loans subject to individual impairment are prepared based on a specific assessment of the financial position of the individual company and the collateral, etc., provided for the loan. For individually assessed loans, objective evidence of impairment is deemed to exist if one or more of the following events have occurred: 1. The borrower is facing significant financial difficulties. 2. The borrower is in material breach of contract, e.g. by failing to meet his payment obligations in terms of interest and principal on the loan. 3. FIH has given the borrower more lenient terms that would not have been considered, had it not been for the borrower's financial difficulties. 4. The borrower is likely to go bankrupt or be subject to other types of financial reconstruction. Collectively assessed loans: Collectively assessed loans comprise all loans, with the exception of loans with objective evidence of impairment that have been written down based on an individual assessment and loans that

65 Notes 65 are monitored and price-adjusted on an ongoing basis in accordance with risks and developments. Groups of loans that share similar characteristics in terms of credit risk must be assessed collectively. FIH records collective impairment of loans using the rating model and based on the Bank's rating system. Under the rating model, collective impairment can be attributed to the migration of loans to lower rating classes - and thus to cash flow deterioration. Therefore, each rating category from D (default) to 13 represents a rating class. The model for collective impairment is based on a change in PD (probability of default) and LGD (loss given default), the current carrying amount of the group of loans being compared with the expected discounted cash flow. If the value of the expected discounted cash flow is lower than the carrying amount, the difference is written down. FIH applies the gross concept for collective impairment. Expected future payments on loans subject to collective impairment are prepared based on the historical loss factor. Where the model for collective impairment applies concepts and numbers from the Basel II complex, these concepts and numbers have been adjusted to comply with IFRS. Thus, expected loss has been adjusted to incurred loss. The determination of collective impairment has no IBNR element (incurred but not recorded); this is believed to be in compliance with the guidelines issued by the Danish Financial Supervisory Authority. Mortgage loans and mortgage bonds issued Loans granted under Danish mortgage credit legislation are financed by issued listed mortgage bonds subject to identical conditions. These loans may be redeemed by returning the underlying bonds. On initial recognition, mortgage loans and mortgage bonds issued are measured at fair value (market price). Mortgage loans are subsequently measured at fair value. The measurement at fair value is based partly on the value of the bonds issued and partly on an adjustment for the credit risk based on the need for writedowns. Mortgage bonds issued are subsequently also measured at fair value. Bonds drawn are measured at the present value of future payments. In general, mortgage loans and mortgage bonds issued are to be measured at amortised cost. However, use of amortised cost will result in a timing difference in the recognition of gains and losses. This timing inconsistency is avoided by measurement at fair value of both the mortgage loan and the related mortgage bonds with reference to the fair value option, cf. IAS 39. Bonds and shares Bonds and shares are divided into a trading portfolio and an investment portfolio. The objective of the trading portfolio is purchase and sale with a short-term investment horizon. The trading portfolio comprises Capital Markets holdings. The investment portfolio comprises holdings the purpose of which is investment of funds and long-term investment. On initial recognition, bonds and shares are measured at fair value, which is cost less transaction costs. The trading portfolios are subsequently measured at fair value. On initial recognition, the investment portfolio is measured at fair value, which is cost less transaction costs. The investment portfolios are subsequently measured at fair value using the fair value option of IAS 39. Bonds and shares traded in active markets are subsequently measured at fair value. The fair value is stated at the closing price of the relevant market at the balance sheet date or - if this price is not available - at another published price which must be assumed to correspond to this price. The fair value of securities, for which there is no active market, is subsequently measured using generally accepted valuation models and techniques. As far as interest rate instruments are concerned, these valuation models comprise discounting of future cash flows, allowance being made for factors that may impact the value, such as credit risks. Embedded option elements, if any, are measured using generally accepted option models, including market parameters of significance to measurement. Private equities are primarily measured based on two methods. One method uses price indications provided by external sources believed to be knowledgeable about the value of the private equities. The other method is generally accepted valuation models, based on financial data, future expectations (budgets) and multiples. Investments in associates Investments in associates comprise shares and other equity holdings in companies in which the Group holds a minimum of 20 per cent and a maximum of 50 per cent of the voting rights and at the same time exercises significant influence over the company's operational and financial management. For investments planned through holding structures, the significant influence is assessed in relation to the company ultimately acquired. On initial recognition, investments in associates are measured at cost. Subsequently, investments in associates are measured under the equity method. The proportionate share of the companies' profits or losses, adjusted for goodwill impairment, if any, and unrealised intercompany gains and losses, is included in the item Profit/loss on investments in associates and group enterprises.

66 66 Notes Investments in group enterprises Investments in group enterprises comprise shares and other equity holdings in companies in which the Group holds more than 50 per cent of the voting rights or otherwise controls the enterprise. On initial recognition, investments in group enterprises are measured at cost. Subsequently, they are measured under the equity method. The proportionate share of the companies' profits or losses, adjusted for goodwill impairment, if any, and unrealised intercompany gains and losses, is included in the item Profit/loss on investments in associates and group enterprises. Intangible assets Development projects Development projects include projects that are expected to generate future financial benefits - in part as a result of expected resource-saving initiatives and in part in the form of higher net earnings. On initial recognition, development projects are measured at cost, comprising costs directly attributable to the development project. Development projects are subsequently measured at cost less accumulated amortisation. Completed development projects are amortised on a straight-line basis over a period of 3 to 5 years. Expenses related to the maintenance of development projects, including primarily staff costs, are charged to the income statement on a continuing basis. An impairment test is conducted for each development project. If the carrying amount of the development project exceeds the calculated present value, the project is written down. The present value/the recoverable amount is based on a value-in-use calculation, determined using expected net cash flows based on 5-year budgets for individual projects. The 3-month Cibor rate is used as the discount factor. Investment properties On initial recognition, investment properties (properties leased under operating leases) are measured at cost. Subsequently they are measured at fair value. The fair value of investment properties is determined based on discounted future cash flows. A specific assessment of the properties' value is made to verify that the carrying amount does not exceed this value. Changes to fair value are recognised under market value adjustments, whereas lease payments received are recognised under other operating income. Other property, plant and equipment, including domicile properties Other property, plant and equipment comprise operating equipment, domicile properties and vehicles and are recognised at cost, including costs directly related to the acquisition and costs related to the preparation of the asset until the time at which it is ready for use. Other property, plant and equipment are subsequently measured at cost less depreciation. Depreciation is provided on a straightline basis over the estimated useful economic lives of the assets, not exceeding four years, however. Individual assets of insignificant value, as well as computer software, are fully depreciated in the year of acquisition. Domicile properties are properties used by the Group. Domicile properties are recognised at cost, including improvement expenses, and are subsequently measured at the revalued amount, equivalent to the fair value at the balance-sheet date. The fair value is determined using a return model. Other assets Other assets include, e.g. interest receivable and commission, unsettled transactions and the positive fair value of derivative financial instruments. On initial recognition, other assets are measured at fair value. After initial recognition, these assets are measured at fair value. Derivative financial instruments On initial recognition, derivative financial instruments are measured at fair value, usually equivalent to the contribution paid or received. After initial recognition, derivative financial instruments are measured at fair value at the balance sheet date. Changes in the fair value of derivative financial instruments are recognised in the income statement along with changes in the value of the hedged asset or liability. For derivative financial instruments that are traded in active markets, the fair value is stated at the closing price of the relevant market at the balance sheet date or if this price is not available at another published price which must be assumed to correspond to this price. For derivative financial instruments, for which there is no active market, fair value is determined using generally accepted valuation models and techniques. Prepayments, assets Prepayments are recognised and measured at cost. Prepayments recognised under assets comprise mainly prepaid salaries and fees. Due to credit institutions and central banks Amounts due to credit institutions comprise amounts due to other credit institutions and central banks as well as repurchase agreements. On initial recognition, amounts due to credit institutions and deposits are measured at fair value. Subsequently they are measured at amortised cost. Deposits and other payables Deposits and other payables comprise payables to private individuals and companies that are not credit institutions. On initial recognition, deposits and other payables are measured at fair value. Subsequently, they are measured at amortised cost.

67 Notes 67 Bonds issued at fair value Bonds issued at fair value comprise mortgage bonds issued which, on initial recognition, are measured at cost and subsequently are measured at fair value. Bonds issued at amortised cost Bonds issued at amortised cost comprise the Group's bonds issued except for mortgage bonds issued. On initial recognition, bonds issued are recognised at fair value; subsequently they are measured at amortised cost. Amortised cost is supplemented by the fair value of the hedged interest rate exposure for the bonds issued that are included in hedging operations. Holdings of own bonds issued are set off against the liability item in question; similarly, interest income on own holdings is set off against interest expenses. The capital gain realised on the repurchase is recognised under market value adjustments on bonds (assets). Embedded financial instruments FIH holds financial instruments with embedded derivatives. Where the economic characteristics and risks of the derivative are not closely related to the bond issued, the derivative is separated out and measured at fair value, while the bond issued is measured at amortised cost. The embedded instrument is recognised in the balance sheet under bonds issued. Other liabilities Other liabilities include interest payable, fee and commission income, unsettled transactions and the negative fair value of derivative financial instruments. On initial recognition, other liabilities are measured at cost. Subsequently, they are measured at fair value. Deferred income, liabilities Deferred income is recognised and measured at cost. Deferred income under liabilities comprises mainly accrued interest. Provisions for liabilities Provisions for liabilities are recognised when - as a result of an event occurred before or on the balance sheet date - the Group has a legal or constructive obligation, and it is probable that FIH will have to forego economic benefits to pay the liability. Provisions are recognized at the Management's best estimate of the amount at which the liability is expected to be payable. In the measurement of provisions, expenses incurred in the settlement of the liability are discounted. A discount rate is used which reflects the general level of interest rates in the market, with the addition of the specific risks estimated to be attached to the provisions in question. Provisions for pensions and similar liabilities FIH has entered into defined contribution pension plans with most of its employees. Under defined contribution plans, fixed contributions are paid into an independent pension fund. FIH has no obligation to pay further contributions. Contributions payable are recognised in the balance sheet as a liability. Provisions for defined benefit pension plans are made on the basis of an actuarial assessment. Current and deferred tax Current tax liabilities, respectively current tax receivables, are recognised in the balance sheet at an amount stated as calculated tax on the taxable income for the year adjusted for prepaid tax. Deferred tax is measured under the balance sheet liability method as all temporary differences between the carrying amount and the tax base of assets and liabilities. Where the calculation of the tax base can be made according to different taxation rules, deferred tax is measured based on the Management's intended use of the asset and settlement of the liability, respectively. Deferred tax assets are recognised in the balance sheet at the value at which the assets are expected to be realisable, either by set-off against deferred tax liabilities or as net assets. Deferred tax is measured on the basis of the tax rules that will be effective when the deferred tax is expected to crystallise as current tax based on the legislation at the balance sheet date. Changes in deferred tax as a result of changes in tax rates are recognised in the income statement. Provisions for losses on guarantees Provisions are made for losses on guarantees in case of an objective indication that the customer is unable to meet his financial obligations under the guarantee. However, provisions for losses on guarantees are not recognised at an amount below the commission received under the guarantee and accrued over the guarantee period. Provisions for losses on guarantees include guarantee obligations to the Private Contingency Association. These provisions are determined based on a specific assessment of the expected loss as well as FIH's portion of the loss. Subordinated debt Subordinated debt is debt in the form of subordinate loan capital which is, on initial recognition, recognised at fair value and subsequently at amortised cost. Equity Share capital Share capital is classified as equity when there is no obligation to transfer cash or other assets. Revaluation reserve The revaluation reserve relates to revaluation of property, plant and equipment less deferred tax on the revaluation. The revaluation reserve is dissolved when the assets are sold or retired.

68 68 Notes Share option plan Expenses recognised under the share option programme under equity include expenses related to employee shares as well as expenses related to share options. Other reserves Other reserves include market value adjustments of investments in group enterprises and associates. Other reserves are reduced by dividend distributions to the parent company and adjusted by other changes in equity in group enterprises and associates. Minority interests Minority interests correspond to the carrying amount of the proportion of the net assets of group enterprises that are not owned by FIH Erhvervsbank A/S. Off-balance sheet items This item comprises guarantees issued and indemnities, irrevocable credit commitments and similar liabilities that are not recognised in the balance sheet. Guarantees are measured at nominal value less provisions for losses. Provisions for losses are recognised under writedowns of loans and receivables, etc. in the income statement and provisions for losses on guarantees in the balance sheet. INCOME STATEMENT Interest Interest income and interest expenses relating to interest-bearing financial instruments at amortised cost are recognised in the income statement using the effective interest method based on the cost of the financial instrument. Interest includes amortisation of fees and commissions - which is an integral part of the effective yield of a financial instrument - and amortisation of any additional difference between cost and redemption price. Interest income and interest expenses also include interest on financial instruments measured at fair value. Interest income on loans that are fully or partly written down are recognised as income at an amount equivalent to the effective interest rate of the loan written down. Dividends on shares, etc. Dividends on equity investments are recognised when the right to dividends has been finally acquired. This is typically at the time of the annual general meeting's approval of the distribution from the company in question. This does not, however, apply to investments in associates, which are measured under the equity method. Fees paid and received Fees and commissions that are part of the current interest and capital repayments are recognised over the life of the loan. Other fees are recognised in the income statement at the date of the transaction. Market value adjustments Market value adjustments comprise unrealised and realised market value adjustments from bonds, shares, financial instruments and hedged loans and funding. Other operating income and expenses Other operating income and expenses comprise income and expenses of a secondary nature to the Group's main activities, including lease payments under operating leases as well as gains and losses on the sale of property, plant and equipment and intangible assets. Staff costs and administrative expenses Staff costs comprise wages and salaries as well as social security costs, pensions, etc. to FIH's staff. Anniversary bonuses and severance pay are recognised on an ongoing basis, allowance being made for the expected probability that the employees will retire from their positions before the time of payment. Employee shares On sale of own shares to employees at a favourable price, the favourable price element is fully expensed in the income statement as staff costs; at the same time, a corresponding amount is recognised under equity. Share options Option plans are measured at the time of allocation of the options and are recognised in the income statement as staff costs over the vesting period. At each balance sheet date until the time of exercise, cash-based plans are re-measured and value adjustments are recognised in the income statement under market value adjustments. Depending on the characteristics of the plan, provisions are made for amounts recognised in the income statement or the amounts are recognised under equity. Taxation The tax for the year, comprising the current tax for the year and changes in deferred tax, is recognised in the income statement at the share attributable to the net profit/loss for the year and directly under equity at the share attributable to items directly under equity. Moreover, tax relating to prior years is recognised in the income statement at the share attributable to income statement items and under equity at the share attributable to items directly under equity. FIH Erhvervsbank A/S is jointly taxed with its Danish consolidated companies. The tax effect of the joint taxation with the subsidiaries is allocated to profit and loss-making companies in proportion to their taxable income. The jointly-taxed companies form part of the tax prepayment scheme. Cash flow statement The cash flow statement shows the Group's cash flows, broken down on cash flows from operating activities, investing activities and financing activities for the year, changes in cash and cash

69 Notes 69 equivalents for the year and cash and cash equivalents at the beginning and end of the year. Cash flows are presented according to the direct method. Cash flows from operating activities Cash flows from operating activities are stated as profit before tax adjusted for non-cash operating items, changes in working capital, interest paid and income tax paid. Cash flows from investing activities Cash flows from investing activities comprise payments related to purchase and sale of activities, purchase and sale of intangible assets, property, plant and equipment and other long-term assets, as well as purchase and sale of securities not included in cash and cash equivalents. Cash flows from financing activities Cash flows from financing activities comprise changes in the size or composition of the share capital and expenses related thereto, as well as raising of loans, payments on interest-bearing debt, purchase and sale of own shares and payment of dividends to shareholders. Amendments to IFRS 2. The amendmendts are effective for financial years commencing on or after 1 January Amendments to IAS 17. The amendmendts are effective for financial years commencing on or after 1 January Amendments to IAS 24. The amendmendts are effective for financial years commencing on or after 1 January IFRS 9. The standard is effective for financial years commencing on or after 1 January Amendments to IFRIC 14. The amendmendts are effective for financial years commencing on or after 1 January IFRIC 19. The interpretation is effective for financial years commencing on or after 1 July In the opinion of the Management, application of these new and amended standards and interpretations will not have any material impact on the annual reports for the coming financial years, apart from additional disclosure requirements. Cash and cash equivalents Cash and cash equivalents comprise cash and short-term securities subject to insignificant price exposure less any overdrafts included as an integral element of the Group's cash liquidity management. Standards and interpretations that have not yet become effective All standards and interpretations issued and approved by the EU on the date of approval of the annual report have been implemented. IFRS 8 has been implemented early as from When this annual report is published, the following new or amended standards and interpretations have not yet come into effect and, accordingly, they have not been applied in the annual report: Amendments to IAS 27. The amendmendts are effective for financial years commencing on or after 1 July Amendments to IAS 39. The amendmendts are effective for financial years commencing on or after 1 July Amendments to IAS 39/IFRIC 9. The amendmendts are effective for financial years commencing on or after 1 June Amendments to IFRS 3. The amendmendts are effective for financial years commencing on or after 1 July IFRIC 17. The interpretation is effective for financial years commencing on or after 1 July IFRIC 18. The interpretation is effective for financial years commencing on or after 1 July Amendments to IAS 32. The amendmendts are effective for financial years commencing on or after 1 February 2010.

70 70 Notes Note 2 Segment information Segment financial statements based on the primary activities of the FIH Group are presented below (DKK million) Corporate Banking* Property Finance Structured Finance Capital Markets Corporate Finance** Private Equity Other activities Group total Income statement Net interest and fee income ,435.6 Market value adjustments Other operating income Operating costs ,017.3 Writedowns and losses on loans and other receivables, etc ,177.0 Profit/loss on equity investments Profit before taxation Tax Net profit for the year Allocation of net profit for the year FIH's shareholders 10.4 Minority interests 1.1 Balance sheet Loans 28, , , , ,133.8 Bonds , , ,395.8 Shares , ,731.7 Investments in associates Other assets, etc , , ,028.6 Total assets 30, , , , , , ,355.9 The Private Equity segment is in charge of the Group's investment activities related to private equities. No internal rate of interest applies between segments and no liabilities are allocated to the segments, as only margins are recognised as income by the individual business areas. The costs of refocusing in January 2009 and the costs of Bank Package I are expensed under Other activities. The costs of refocusing amount to DKK 75 million under operating expenses while the costs of Bank Package I are DKK 322 million under operating expenses and DKK 208 million under writedowns, respectively. * In 2009, the business units Corporate Banking and SME were merged and are now reported under the name of Corporate Banking. The comparative figures for 2008 have been restated accordingly. ** In Q2 2009, the Investment Banking business area was renamed into Corporate Finance. Geographical distribution Denmark The rest of Europe Other Total Netto rente- og gebyrindtægter ,435.6

71 Notes 71 Note 2 Segment information Segment financial statements based on the primary activities of the FIH Group are presented below (DKK million) Corporate Banking Property Finance Structured Finance Capital Markets Corporate Finance* Private Equity Other activities Group total Income statement Net interest and fee income ,510.0 Market value adjustments Other operating income Operating costs Writedowns and losses on loans and other receivables, etc Profit/loss on equity investments Profit before taxation Tax Net profit for the year Allocation of net profit for the year FIH's shareholders Minority interests -0.1 Balance sheet Loans 35, , , ,614.5 Bonds 1, , , ,295.7 Shares , ,250.7 Investments in associates Other assets, etc , , ,882.8 Total assets 37, , , , , , ,124.6 The Private Equity segment is in charge of the Group's investment activities related to private equities. No internal rate of interest applies between segments and no liabilities are allocated to the segments, as only margins are recognised as income by the individual business areas. The costs of the Private Contingency Association are expensed under Other activities, amounting to DKK 81 million under operating costs and DKK 50 million under writedowns. * In December 2009, the distribution of costs was changed, leading to a change of the comparative figures. Geographical distribution Denmark The rest of Europe Other Total Netto rente- og gebyrindtægter 1, ,510.0

72 72 Notes Note 3 Financial assets and liabilities FIH Group 2009 FIH Group 2008 (DKK million) Carrying amount Fair value Carrying amount Fair value Financial assets Cash in hand and demand deposits with central banks Debt instruments eligible for refinancing with central banks , ,197.4 Due from credit institutions and central banks 3, , , ,011.4 Loans and other receivables at fair value Loans and other receivables at amortised cost 63, , , ,871.6 Bonds at fair value 51, , , ,295.7 Shares and equity investments 1, , , ,331.5 Other assets 5, , , ,808.5 Total financial assets 127, , , ,551.3 Financial commitments Due to credit institutions and central banks 35, , , ,343.9 Deposits and other debt 20, , , ,091.1 Bonds issued at fair value Bonds issued at amortised cost 48, , , ,206.1 Other liabilities 6, , , ,105.9 Subordinated debt 4, , , ,033.0 Total financial liabilities 115, , , ,309.2 Other assets, cf. balance sheet 7, ,855.2 Of which financial assets 5, ,808.5 Other liabilities, cf. balance sheet 12, ,809.9 Of which financial liabilities 6, ,105.9 In addition, the following methods and assumptions have been applied in the determination of the fair value of the financial assets and liabilities specified in the table above: The fair value of short-term financial assets and liabilities corresponds to the carrying amount. In the determination of the fair value of loans and other receivables at amortised cost or fair value, adjustment has been made for the credit risk based on the need for writedowns. Reference is made to the section Determination of fair values under accounting policies.

73 Notes 73 Note 3 continued Financial assets and liabilities sub-divided into categories FIH Group (DKK million) 2009 Carrying amount Net market value adjustments Financial assets Trading portfolio 1) 24, Investment assets at fair value 34, Mortgage loans at fair value Loans and other receivables 67, Interest income/expense Effective Fees and interest rate commissions Total financial assets 127, , , Financial liabilities Trading portfolio 1) 6, ,179.3 Mortgage bonds issued at fair value Liabilities at amortised cost 108, Total financial liabilities 115, , , Financial assets Trading portfolio 1) 5, ,008.8 Investment assets at fair value 29, Mortgage loans at fair value Loans and other receivables 77, Total financial assets 113, , , Financial liabilities Trading portfolio 1) 6, ,949.6 Mortgage bonds issued at fair value Liabilities at amortised cost 103, ,141.2 Total financial liabilities 110, , , The breakdown of financial assets and liabilities set out above has been prepared in compliance with IAS 39. Writedowns of loans and receivables, etc., in the amount of DKK million (2008: DKK 494 million) relate to the balance sheet item Loans and other receivables at amortised cost. Interest income on loans written down totals DKK 24.5 million (2008: DKK 16.8 million). 1) The proportion of derivatives used for hedge accounting of liabilities totals a negative DKK 7.6 million (2008: DKK million), while the proportion used for hedge accounting of loans totals a negative DKK million (2008: DKK million).

74 74 Notes Note 4 Financial assets and liabilities at fair value (DKK million) 2009 Balance sheet total Level 1 Quoted prices Level 2 Observable inputs Level 3 Non observable inputs Financial assets Loans and other receivables at fair value Bonds at fair value 51, , Shares and equity investments 1, ,648.2 Other assets 5, , Total financial assets 59, , , ,648.2 Financial liabilities Bonds issued at fair value Other liabilities 6, , Total financial liabilities 6, , FIH Group FIH Erhvervsbank A/S Note 5 Interest income/premium on forward transactions Due from credit institutions and central banks Reverse repurchase transactions related to credit institutions and central banks Loans and other receivables 2, , , ,949.8 Contributions Reverse repurchase transactions Bonds 1, , , ,032.8 Total derivative financial instruments Other interest income Total interest income 4, , , ,539.7 Derivative financial instruments Currency contracts Interest rate contracts Share contracts Total Note 6 Interest expenses Credit institutions and central banks , ,465.4 Repurchase transactions (repos) related to credit institutions and central banks Deposits and other debt 1, , Repurchase transactions (repos) Bonds issued , ,124.9 Subordinated debt Other interest expenses Total interest expenses 3, , , ,506.6

75 Notes 75 FIH Group FIH Erhvervsbank A/S (DKK million) Note 7 Fees and commissions Fee and commission income Securities trading and safe custody accounts Loan application fees Guarantee commission Other fees and commissions Total fee and commission income Fees and commissions paid Guarantee commission Other fees and commissions Total fees and commissions paid Note 8 Market value adjustments Mortgage loans Other loans and receivables at amortised cost, hedging Bonds Shares, etc Investment properties Foreign currency Derivative financial instruments Derivative financial instruments used for hedging Bonds issued Bonds issued mortgage credit bonds Bonds issued hedged Total market value adjustments Derivative financial instruments: Currency contracts Interest rate contracts Share contracts Total Market value adjustment of shares: Unrealised market value adjustment Realised market value adjustment Total

76 76 Notes FIH Group FIH Erhvervsbank A/S (DKK million) Note 9 Staff costs and administrative expenses Salaries and remuneration of Board of Directors and Executive Board Board of Directors Executive Board Total salaries and remuneration of Board of Directors and Executive Board Staff costs Salaries Defined benefit plans Defined contribution plans Social security costs Share-based payments 1) Total staff costs Other administrative expenses Total staff costs and administrative expenses Average number of employees converted into full-time employment Remuneration of Board of Directors and Executive Board Board of Directors Salaries Total Executive Board Salaries Bonus Pensions Share-based payments 1) Total 2) Of which non deductible costs ) These payments relate to FIH's overall share and option plan, totalling DKK 16.7 million (2008: DKK 18.8 million). 2) In 2009, the total remuneration of the Executive Board of FIH Erhvervsbank A/S includes the remuneration of two managing directors from 1 January - 30 June At 1 July 2009, one managing retired. The average manning for 2009 was 1.5 with a staffing level of 1 at year-end. In 2008, there were two managing directors throughout the year. Non deductible costs According to the Danish Act on State-Funded Capital Injections into Credit Institutions, it is a condition that during the period in which the credit institution receives capital injections, it must not deduct more than half the pay of the individual manager in the tax accounts. In the coming tax accounts to be filed for 2009, only 50 per cent will be deducted from the remuneration of managers for the period from 1 July 31 December The amount is DKK 1.7 million. Severance terms for the Executive Board There is a reciprocal notice period of 12 months. In the event of severance initiated by the Bank, the member of the Executive Board is entitled to receive severance pay equivalent to 24 months salary. Share and option plans Employee shares In February 2005, FIH launched a share plan for all employees. The shares were allocated in proportion to salaries and will be held in trust until and including The plan includes a total of 25,883 shares. The favourable price element, at DKK 7.9 million, is expensed under salaries.

77 Notes 77 Option plans Plan 1 In 2004, FIH Erhvervsbank A/S launched a share option plan for a broad group of employees. The options was allocated over a period of three years, with three tranches of a nominal value of DKK 6 million. Allocations were made individually for each employee in 2004, 2005 and The options may be exercised as follows: tranche 1 was converted in 2008, while tranche 2 may be converted in the years 2009 and 2010, and tranche 3 in the year In the years in question, options may be exercised only during a 30-day period following the publication of the company's annual report. The conversion price will be revalued by 7 per cent a year, amounting to, respectively, 388 and 416 in the years 2009 and On conversion, shares are provided or settled in cash as determined by the company. At the time of conversion, the shares are measured based on established multiples for price/earnings and price/book value based on the company's earnings and capital position at the time in question. Plan 2 A supplementary plan was launched in 2006 for employees subsequently hired by the Group. Options under this plan was allocated over a three-year period in the form of three tranches of a nominal value of DKK 1.6 million. Options were allocated individually for each employee in 2006, 2007 and Options may be exercised in the following way: tranche 1 may be converted during the years , tranche 2 during the years and tranche 3 in the year During the years in question, execution may be effected only during a 60-day period after the publishing of the company's interim report. The conversion price is revalued by 7 per cent a year and amounts to 550, 589 and 631, respectively, for the years 2010, 2011 and At the time of conversion, shares are provided or settled in cash, as determined by the company. Shares are measured on the date of conversion based on established multiples for price/earnings and price/book value based on the company's current earnings and capital position. Common features for plans 1 and 2 Options are measured at fair value at the time of allocation and their value is accrued as payroll costs over the period until the first possible conversion date. At each balance sheet date until the time of exercise, the value is recalculated and value adjustments are recognised in the income statement under market value adjustments. In 2009, an amount of DKK 16.7 million has been recognised in the income statement, while an amount of DKK 0.2 million has been recognised under liabilities in the balance sheet. The fair value of outstanding options totals DKK 0.2 million at year-end, equivalent to an average option value of DKK 0.2. At year-end 2009, 767,000 (2008: 805,000) options are in circulation, the average remaining life of which is 11 months. The model for pricing of share options is used to determine fair value. The model comprises volatility of 19 per cent, fixed on the basis of the company's existing earnings conditions. Other elements are a risk-free rate of 1.2 per cent, a current share price of 309.1, the conversion prices applying in the years in question and the fact that the options are independent of dividend policy. Kaupthing Bank hf. launched an option plan for all employees of the Kaupthing Bank Group in This plan covers the period and includes 3.9 million options, all of which were allocated in Option holders may exercise up to one-third of the options allocated during the period 20 January - 25 February in each of the years 2007, 2008 and The options entitle their holders to purchase shares in Kaupthing Bank hf. at a fixed price of ISK 600 per share, equivalent to the market price at the time of allocation. At year-end 2006, Kaupthing Bank hf. launched a supplementary option plan for employees subsequently hired by the Group. This plan covers the period and includes 0.6 million options, all of which were allocated in Option holders may exercise up to one-third of the options allocated during the period 20 January - 20 February in each of the years 2008, 2009 and The options entitle their holders to purchase shares in Kaupthing Bank hf. at a fixed price of ISK 840 per share, equivalent to the market price at the time of allocation. In 2009, DKK 0.7 million has been charged to the income statement and DKK 2.7 million has been recognised under equity. Due to the very severe financial problems of Kaupthing, the options are not believed to have any value and it would make no sense to undertake an actual valuation of the option value. Accordingly, no valuation has been made. Loans to Board of Directors and Executive Board No loans, etc. have been granted to the Executive Board, or the Board of Directors.

78 78 Notes FIH Group FIH Erhvervsbank A/S (DKK million) Note 10 Audit fee Total fees to accounting firms appointed by the annual general meeting to perform the statutory audit Fee for other assurance engagements Fee for tax advisory services Fee for other services Note 11 Profit/loss from investments in associates and group enterprises Profit from investments in associates Profit from investments in group enterprises Total profit from investments in associates and group enterprises Note 12 Taxation Estimated tax charge on the profit for the year Deferred taxes (Note 29) Tax prior years Total taxation Effective tax rate: Rate of corporation tax in Denmark Non-taxable income and non-deductible expenses, etc Tax prior years Total Note 13 Due from credit institutions and central banks Due from credit institutions 2, , , ,412.7 Reverse repurchase transactions Total amount due from credit institutions and central banks 3, , , ,670.7 Specified by time to maturity: On demand 2, , , ,310.0 Up to and including 3 months , ,178.1 Over 3 months and up to and including 1 year Over 1 year and up to and including 5 years Over 5 years , ,000.0 Total 3, , , ,670.7

79 Notes 79 FIH Group FIH Erhvervsbank A/S (DKK million) Note 14 Loans Loans and receivables at fair value Loans and receivables at amortised cost 63, , , ,782.6 Total loans 64, , , ,782.6 FIH loans 61, , , ,624.3 Production loans EM loans Subordinated loan capital Leases, properties 2, , , ,391.7 Leases, machinery and equipment Mortgage loans , , , ,110.3 Writedowns on loans, end of year Total loans 64, , , ,782.6 Specified by time to maturity: On demand Up to and including 3 months 3, , , ,552.7 Over 3 months and up to and including 1 year 6, , , ,878.1 Over 1 year and up to and including 5 years 25, , , ,354.6 Over 5 years 27, , , ,972.8 Total 64, , , ,782.6 Gross investment in finance leases Up to and including 1 year Over 1 year and up to and including 5 years , ,189.9 Over 5 years 2, , , , , , , ,449.0 Unearned interest income , ,448.3 Total present value 2, , , ,000.7 The present value matures as follows: Up to and including 1 year Over 1 year and up to and including 5 years Over 5 years , , ,079.8 Total 2, , , ,000.7 Finance leases under loans comprise property leases and operating equipment leases with terms of between 1 and 40 years. Writedowns of finance leases total DKK 64.4 million for 2009 and DKK 25.5 million for In 2009, loans in arrears for which no writedowns have been provided are recognised at DKK 3,374.9 million for the FIH Group and DKK 2,470.8 million for FIH Erhvervsbank A/S. Loans mature as follows: Up to and including 3 months Over 3 months and up to and including 1 year Over 1 year and up to and including 5 years 1, Over 5 years 2, , , ,654.7 Total 3, , , ,412.1

80 80 Notes FIH Group FIH Erhvervsbank A/S (DKK million) Note 14 continued In 2009, outstanding amounts for which no writedowns have been provided total DKK million for the FIH Group and DKK mio. kr. for FIH Erhvervsbank A/S. Outstanding amounts may be broken down as follows: Up to and including 3 months Over 3 months and up to and including 1 year Over 1 year and up to and including 2 years Over 2 years Total DKK 0.0 million of the outstanding amounts specified above, totalling DKK million, relates to loans granted to the public sector. The corresponding figure for 2008 is DKK 0.0 million. The carrying amount of loans that are no longer in arrears as a result of a change in loan terms totals DKK 0.0 million (2008: DKK 0.0 million). The change in loan terms has not resulted in a change of writedowns, totalling DKK 0.0 million (2008: DKK 0,0 million). The carrying mount of loans that have not been written down as a result of a change in loan terms totals DKK 0.0 million (2008: DKK 0.0 million). In general, FIH Erhvervsbank A/S demands that collateral security be provided in full or in part to cover credit risks undertaken. Collateral is usually provided through a direct charge on the borrower's assets, typically secured on real estate, machinery and/or other movable property. FIH also attaches importance to securing commitments using other types of collateral security, such as company mortgages, guarantees, life insurance policies, etc., where considered relevant. Moreover, it is possible to reduce credit risks by set-off under the general provisions of Danish law and ISDA's set of agreements, where applicable. Commitments are established without provision of collateral security only to customers with a high credit rating or through structures where the contractual basis ensures close ongoing monitoring and enables intervention - and ultimately acquisition - in case the customer's performance deviates significantly from the assumptions provided. Financial assets that have not been written down or for which no outstanding interest and capital repayments are registered, may be broken down as follows in accordance with the FIH rating model: Proportion Rating * D 5.9 % 2.5 % % 4.5 % % 34.3 % % 46.7 % % 11.3 % In process 0.5 % 0.7 % % % * The comparative figures for 2008 have been restated to reflect FIH's extension of the rating model in 2009 to include the rating categories D and In process. Rating 0 is the lowest credit quality, while 12 is the highest credit quality. Rating 13 comprises only public corporations. D is customers in default. Financial assets that have been written down individually Outstanding debt on loans that have been written down in the FIH Group in 2009 totals DKK 3,150.3 million (2008: DKK 1,779.8 million). The value of collateral security in respect of loans that have been written down in the FIH Group in 2009 is DKK 1,802.3 million (2008: DKK 1,159.2 million). Collateral security is mainly in the form of real estate and movable property and, to a lesser extent, in the form of securities and contracts of guarantee.

81 Notes 81 FIH Group FIH Erhvervsbank A/S (DKK million) Note 15 Writedowns of loans and receivables Accumulated writedowns, etc. Loans and guarantees, individual writedowns Writedowns, beginning of year Reversal of previous writedowns Writedowns during the period 1, Losses recorded Individual writedowns, end of year 1, Loans and guarantees, collective writedowns Writedowns, beginning of year Reversal of previous writedowns Writedowns during the period Collective writedowns, end of year Loans and guarantees, total writedowns Writedowns, beginning of year Reversal of previous writedowns Writedowns during the period 1, , Losses recorded Total writedowns, end of year 1, Total loans and guarantee debtors for which an objective indication for impairment has occurred before writedown 4, , , ,478.3 Total loans and guarantee debtors for which an objective indication for impairment has occurred after writedown 3, , , ,148.8 Accumulated writedowns of loans and guarantee debtors, as a percentage of loans and guarantees, end of year 1.7 % 0.6 % 1.5 % 0.6 % Losses and writedowns of receivables as a percentage of loans and guarantees, end of year 1.7 % 0.6 % 1.6 % 0.6 % Net losses recorded, as a percentage of the writedown balance, beginning of year 98.6 % % % % Note 16 Non-performing loans Non-performing loan amounts due, end of year 1, , , Of which unsecured portion (included in writedowns)

82 82 Notes FIH Group FIH Erhvervsbank A/S (DKK million) Note 17 Loans and other receivables at fair value Mortgage loans Nominal value Adjustment of the interest rate risk to fair value Credit risk adjustment Total Mortgage bonds issued Nominal value Fair-value adjustment, funding of current loans Holding of own mortgage bonds Total Of the accumulated change in the credit risk, DKK 0 million relates to 2009 (2008: DKK 0 million). The total change in the fair value is due exclusively to changes in market rates and liquidity, while there are no changes in own credit risk, given that the rating of the bonds remains unchanged. Note 18 Bonds at fair value Own mortgage bonds Other mortgage bonds 44, , , ,675.4 Other bonds 6, , , ,116.1 Total bonds at fair value 51, , , ,801.1 Of which listed bonds 50, , , ,320.0 Bonds mature as follows: Up to 1 year , ,024.3 More than 1 year 50, , , ,776.8 Total 51, , , ,801.1 Note 19 Shares, etc. Listed shares Other shares 1, , Total shares, etc. 1, , Note 20 Financial current assets Associates Total cost, beginning of year Additions Disposals Total cost, end of year Revaluation and writedowns, beginning of year Net profit Dividend Other addition/disposals Revaluation and writedowns, end of year Carrying amount, end of year

83 Notes 83 FIH Group FIH Erhvervsbank A/S (DKK million) Note 20 continued Group enterprises Total cost, beginning of year , ,755.4 Additions Disposals Total cost, end of year , ,905.7 Revaluation and writedowns, beginning of year Net profit Dividend Other additions/disposals Revaluation and writedowns, end of year Carrying amount, end of year , ,315.5 Of which credit institutions , ,033.4 The group's investments in group enterprises and associates are shown under Supplementary notes. FIH Group FIH Erhvervsbank A/S (DKK million) Note 21 Intangible assets Development projects Development projects Total cost, beginning of year 106,0 78,0 103,9 78,0 Additions Disposals Total cost, end of year Amortisation and writedowns, beginning of year Writedowns for the year Amortisation for the year Amortisation and writedowns, end of year Carrying amount, end of year Of which development projects in progress Development projects are projects that are expected to generate future economic benefits, in part as a result of expected resourcesaving measures and in part as a result of higher net earnings. Existing development projects are amortised on a straight-line basis over 3-5 years. An impairment test has been conducted for each development project. If the carrying amount of the development project exceeds the calculated present value, the project is written down. The present value/recoverable value is based on a value in use calculation, determined on the basis of expected net cash flows based on 5-year budgets for the individual projects. Cibor 3 is used as the discount factor. Expenses for maintenance of development projects, mainly in the form of staff costs, are recognised in the income statement on an ongoing basis.

84 84 Notes FIH Group FIH Erhvervsbank A/S (DKK million) Note 22 Land and buildings Investment properties Fair value, beginning of year 1, , , ,129.8 Exchange rate adjustments Additions Disposals The year's adjustments at fair value Fair value, end of year 1, , , ,152.4 Lease income for the year Specified by time to maturity: Up to and including 1 year Over 1 year and up to and including 5 years Over 5 years Total 1, , , ,152.4 FIH Erhvervsbank A/S has entered into operating leases for properties. These are recognised at fair value under the item investment properties. The maturity distribution illustrates the minimum payment until the expiration of the contract. Property appraisers have been involved in the fair value measurement of investment properties. Note 23 Other tangible fixed assets 2009 FIH Group FIH Erhvervsbank A/S (DKK million) Domicile properties Equipment Domicile properties Equipment Total cost, beginning of year Additions Disposals Total cost, end of year Revaluation, beginning of year Revaluation for the year Revaluation, end of year Depreciation and writedowns, beginning of year Depreciation for the year Reversal of depreciation and writedowns Depreciation and writedowns, end of year Carrying amount, end of year The year's immediate depreciation on equipment

85 Notes 85 FIH Group FIH Erhvervsbank A/S (DKK million) Note 23 continued 2008 Domicile properties Equipment Domicile properties Equipment Total cost, beginning of year Additions Disposals Total cost, end of year Revaluation, beginning of year Revaluation for the year Revaluation, end of year Depreciation and writedowns, beginning of year Depreciation for the year Reversal of depreciation and writedowns Depreciation and writedowns, end of year Carrying amount, end of year The year's immediate depreciation on equipment No external sources have been involved in the measurement of the fair value of domicile properties. FIH Group FIH Erhvervsbank A/S (DKK million) Note 24 Other assets Interest and commissions receivable 1, , ,380.3 Positive market value of derivative financial instruments, etc. 5, , , ,808.5 Unsettled transactions , ,417.5 Other assets Total other assets 7, , , ,679.8 Specified by time to maturity: Up to 1 year 2, , , ,102.5 More than 1 year 5, , , ,577.3 Total 7, , , ,679.8 Note 25 Due to credit institutions and central banks Due to credit institutions 35, , , ,053.0 Repurchase transactions (repos) Total amount due to credit institutions and central banks 35, , , ,053.0 Specified by time to maturity: On demand Up to and including 3 months 28, , , ,511.7 Over 3 months and up to and including 1 year , ,961.6 Over 1 year and up to and including 5 years 4, , , ,756.9 Over 5 years 1, , , ,838.1 Total 35, , , ,053.0

86 86 Notes FIH Group FIH Erhvervsbank A/S (DKK million) Note 26 Deposits and other debt On demand , Time deposits 19, , , ,981.1 Total deposits and other debt 20, , , ,195.3 Specified by time to maturity: On demand , Up to and including 3 months 13, , , ,177.7 Over 3 months and up to and including 1 year 6, , , ,517.8 Over 1 year and up to and including 5 years Over 5 years Total 20, , , ,195.3 Note 27 Bonds issued Mortgage bonds at fair value Other bonds at amortised cost 48, , , ,151.7 Total bonds issued 49, , , ,151.7 Up to and including 3 months 14, , , ,821.7 Over 3 months and up to and including 1 year 12, , , ,356.6 Over 1 year and up to and including 5 years 20, , , ,229.7 Over 5 years 1, , , ,743.7 Total 49, , , ,151.7 FIH bought back own issues totalling DKK million in These buy-backs generated income under market value adjustments of DKK 95.3 million in Embedded financial instruments of a total value of DKK million have been recognised under bonds issued. The value of derivatives that have been separated out is DKK 0.7 million, measured at fair value. The redemption value of bonds issued totals DKK million. Note 28 Other liabilities Interest and commissions payable Negative market value of derivative financial instruments, etc. 6, , , ,105.9 Unsettled transactions 5, , , ,461.8 Other liabilities Total other liabilities 12, , , ,550.4 Specified by time to maturity: Up to 1 year 7, , , ,269.7 More than 1 year 5, , , ,280.7 Total 12, , , ,550.4

87 Notes 87 FIH Group FIH Erhvervsbank A/S (DKK million) Note 29 Provisions Provisions for pensions and similar liabilities Expenses for defined contribution plans are set out in note 9 Defined benefit plans Recognised actuarial losses Total amounts expensed under pensions Provisions, beginning of year Pension benefits paid Recognised actuarial value adjustments Present value of provisions for defined benefit plans Provisions for defined benefit plans in respect of a former member of the Executive Board. The plan is unhedged. The calculation has been performed by an external actuary. Provisions for deferred taxes Deferred taxes, beginning of year Deferred tax of the profit for the year Adjustment of prior-year estimated tax charge Deferred taxes, end of year Deferred taxes are included in the balance sheet as follows Deferred tax liabilities Deferred taxes cover Loans Shares and equity investments Intangible assets Property, plant and equipment Bonds issued Other liabilities Receivables Tax loss carryforwards Total deferred taxes Provisions for losses on guarantees Balance, beginning of year New provisions of which relating to the Private Contingency Association Unused provisions recognised as income Balance, end of year

88 88 Notes FIH Group FIH Erhvervsbank A/S (DKK million) Note 30 Subordinated debt 4.80 % JPY 10-bn maturity Var. % EUR 30-m maturity Var. % EUR 133-m maturity , ,301.8 Var. % EUR 100-m maturity % DKK 1.9-bn without maturity 1, , Total subordinated debt 4, , , ,027.2 Subordinated debt that may be included in the calculation of the capital base 4, , , ,703.1 FIH bought back own issues totalling DKK million in These buy-backs generated income under market value adjustments of DKK million in Costs of raising and redeeming subordinated debt during the financial year were DKK 7.1 million Note 31 Equity Share capital - - Share capital, number of shares of DKK 20 each ,678,625 25,678,625 Share capital, beginning of year Share capital, end of year No shares have special rights attached and there have been no movements in share capital in the past five years. Own shares Holding of own shares, beginning of year, number of shares - - 2,342 2,342 Repurchase of employee shares, number of shares Holding of own shares, end of year, number of shares - - 2,476 2,342 Carrying amount, end of year, DKK 1, Nominal value, end of year, DKK 1, Percentage of shareholding % 0 %

89 Notes 89 FIH Group FIH Erhvervsbank A/S (DKK million) Note 32 Off-balance-sheet items Contingent liabilities Financial guarantees Guarantees against losses for mortgage loans 3, , , ,779.2 Other contingent liabilities Total contingent liabilities 3, , , ,817.7 Of which concerning subsidiaries Specified by time to maturity: Up to and including 3 months Over 3 months and up to and including 1 year Over 1 year and up to and including 5 years Over 5 years 3, , , ,091.0 Total 3, , , ,817.7 Other binding agreements Irrevocable loan commitments 3, , , ,764.6 Other liabilities 1, , Total other binding agreements 4.994, , , ,1 Specified by time to maturity: Up to and including 3 months Over 3 months and up to and including 1 year 1, , Over 1 year and up to and including 5 years 1, , ,495.3 Over 5 years 2, , , ,515.5 Total 4, , , ,504.1 Note 33 Contingent assets and liabilities Contingent assets Deferred tax assets not included in the balance sheet Temporary differences Total deferred tax assets Contingent liabilities FIH Erhvervsbank A/S is jointly taxed with its subsidiaries. Current Danish income taxes are allocated among the jointly-taxed Danish companies in proportion to their taxable income. Each company under the joint taxation scheme is liable for the portion of income taxes, prepaid taxes and residual taxes, as well as surcharges and interest, relating to the portion of the income allocated to the company. If tax losses in the group companies are utilised, FIH Erhvervsbank A/S is under an obligation to pay the tax value of the loss to the loss-making company. The group companies utilising the losses are under an obligation to pay an amount equivalent to the tax value of the loss utilisation to FIH Erhvervsbank A/S. Upon receipt of payment for the loss utilisation, FIH Erhvervsbank A/S assumes liability. FIH Erhvervsbank A/S and the company's subsidiaries are jointly registered for VAT. The companies subject to joint VAT registration are jointly and severally liable for the tax liability for the respective tax years for which they have been subject to joint registration. FIH Erhvervsbank A/S has entered into a lease of the property at Langelinie Allé 43. This lease will be interminable until 1 May The annual rent totals DKK 29 million in The rent amount will be adjusted each year using the net consumer price index of Statistics Denmark. Part of the lease has been sublet. FIH Erhvervsbank A/S has entered into an external car lease agreement.

90 90 Notes FIH Group FIH Erhvervsbank A/S (DKK million) Note 33 - continued Operating lease contracts Specified by time to maturity: Up to and including 1 year Over 1 year and up to and including 5 years Over 5 years Total Of which sublet The business volume of the FIH Erhvervsbank Group implies that the Group is a party to various lawsuits. The pending lawsuits are not expected to have material impact on the financial position of the FIH Erhvervsbank Group. Note 34 Assets provided as collateral FIH Erhvervsbank A/S has deposited bonds with Danmarks Nationalbank (central bank) and VP Securities Services totalling DKK 26,011.0 million (2008: DKK 28,453.6 million) in connection with clearing and settlement. As far as repurchase transactions are concerned, i.e. sale of securities for which an agreement is simultaneously entered into for repurchase at a later date, the securities will remain in the balance sheet and the amount received will be recognised as amounts due to credit institutions. Securities in the form of repurchase transactions are treated as assets provided as collateral for liabilities. At yearend 2009, these securities totalled DKK 14,590.6 million (2008: DKK 0.0 million). In addition, FIH has pledged cash and bonds as collateral for exposures totalling DKK 2,235.5 million (2008: DKK 2,273.4 million) in connection with the CSA Agreement.

91 Supplementary notes 91 (DKK million) Note 35 Ratios FIH Erhvervsbank A/S Income statement Net interest and fee income 1,090 1, , Market value adjustment Other operating income Profit on net financials 1,520 1,126 1,047 1,505 1,066 Expenses and depreciation Writedowns of loans and other receivables, etc Profit on investments in associates and group enterprises Profit from ordinary activities before tax ,162 1, Taxation Net profit for the year , Balance sheet Loans 52,987 58,783 60,993 66,833 57,817 Equity 8,020 7,967 7,849 6,753 5,791 Total assets 131, , ,655 95,843 80,348 Capital base (liable capital) 12,319 10,994 10,860 8,333 7,487 Capital base relative to minimum capital adequacy requirement Solvency ratio, per cent Core capital ratio, per cent Return on equity before taxation Return on equity after taxation Income/cost ratio Interest rate risk as a percentage of core capital Foreign exchange position Foreign exchange risk Loans as a percentage of deposits ,483.9 Gearing of loans Growth in loans, per cent Excess cover relative to statutory liquidity requirements Total amount of large exposures Loss and impairment ratio for the year

92 92 Supplementary notes Note 36 Hedge accounting The FIH Group applies the rules for hedge accounting of fair values. The hedging instruments used are typically interest rate swaps or interest rate and currency swaps used to hedge against changes in the fair values of, respectively, fixed-rate funding and fixed-rate loans as a result of changes in the swap rate. Only the swap rate is hedged not credit margins, etc. Changes in the fair value of hedged instruments attributable to the interest rate risk hedged are adjusted in the carrying amount of the hedged item and recognised in the income statement. Changes in the fair value of the hedging instruments are adjusted in the positive, respectively the negative, value of the derivatives in the balance sheet and the hedging instruments are also included in the income statement (DKK million) ( - denotes a commitment) Nominal value Carrying amount Fair value Interest rate risk FIH Group Assets Loans - 13, , Total - 13, , Financial instruments designed to hedge interest rate risk Swaps 13, Liabilities Due to credit institutions - 1, , ,2 Deposits and other debt Bonds issued - 20, , Subordinated debt - 2, , Total - 24, , Financial instruments designed to hedge interest rate risk Swaps 26, FIH Erhvervsbank A/S Assets Loans - 11, , Total - 11, , Financial instruments designed to hedge interest rate risk Swaps 13, Liabilities Due to credit institutions - 1, , Bonds issued - 20, , Subordinated debt - 2, , Total - 24, , Financial instruments designed to hedge interest rate risk Swaps 26,

93 Supplementary notes 93 Note 36 continued 2008 (DKK million) ( - denotes a commitment) Nominal value Carrying amount Fair value Interest rate risk FIH Group Assets Loans - 18, , Total - 18, , Financial instruments designed to hedge interest rate risk Swaps 16, Liabilities Due to credit institutions - 1, , Deposits and other debt - 5, , Bonds issued - 6, , Subordinated debt Total - 14, , Financial instruments designed to hedge interest rate risk Swaps 32, FIH Erhvervsbank A/S Assets Loans - 14, , Total - 14, , Financial instruments designed to hedge interest rate risk Swaps 13, Liabilities Due to credit institutions - 1, , Bonds issued - 6, , Subordinated debt Total - 9, , Financial instruments designed to hedge interest rate risk Swaps 9,

94 94 Supplementary notes Note 37 Derivative financial instruments Specified by time to maturity FIH Group 2009 (DKK million) Up to and including 3 months Nominal Net value fair value Over 3 months and up to and including 1 year Nominal Net value fair value Over 1 year and up to and including 5 years Nominal Net Value fair value Over 5 years Nominal Net value fair value Currency contracts Forwards/futures, purchase 21, , Forwards/futures, sale 14, , Swaps 4, , , , Options, acquired Options, issued Interest rate contracts Forward Rate Agreements, purchase 14, , , , Forward Rate Agreements, sale 32, , , , Swaps 19, , , Options, acquired 1, , , Options, issued , , Total net market value I alt 2009 I alt 2008 I alt 2009 I alt 2008 FIH Group Nominal Net Nominal Net Fair value Fair value (DKK million) value fair value value fair value Positive Negative Positive Negative Currency contracts Forwards/futures, purchase 24, , Forwards/futures, sale 16, , Swaps 41, ,045-1,016 1,219 1,499 1,018 2,034 Options, acquired Options, issued Interest rate contracts Forward Rate Agreements, purchase 75, , Forward Rate Agreements, sale 103, , Swaps 340, , ,606 6,385 4,980 5,207 Options, acquired 8, , Options, issued 9, , Total net market value -90-1,342 8,542 8,632 7,141 8,483

95 Supplementary notes 95 Note 37 Derivative financial instruments continued Specified by time to maturity FIH Erhvervsbank A/S 2009 (DKK million) Up to and including 3 months Nominal Net value fair value Over 3 months and up to and including 1 year Nominal Net value fair value Over 1 year and up to and including 5 years Nominal Net Value fair value Over 5 years Nominal Net value fair value Currency contracts Forwards/futures, purchase 21, , Forwards/futures, sale 12, , Swaps 4, , , , Options, acquired Options, issued Interest rate contracts Forward Rate Agreements, purchase 14, , , , Forward Rate Agreements, sale 32, , , , Swaps 19, , , , Options, acquired 1, , , Options, issued , , Total net market value I alt 2009 I alt 2008 I alt 2009 I alt 2008 FIH Erhvervsbank A/S Nominal Net Nominal Net Fair value Fair value (DKK million) value fair value value fair value Positive Negative Positive Negative Currency contracts Forwards/futures, purchase 24, , Forwards/futures, sale 15, , Swaps 41, ,045-1,016 1,219 1,499 1,018 2,034 Options, acquired Options, issued Interest rate contracts Forward Rate Agreements, purchase 75, , Forward Rate Agreements, sale 103, , Swaps 337, , ,598 6,188 4,950 5,054 Options, acquired 8, , Options, issued 9, , Total net market value 97-1,201 8,531 8,434 7,108 8,309

96 96 Supplementary notes Note 37 Derivative financial instruments continued Fair value FIH Group FIH Erhvervsbank A/S 2009 Average fair value (DKK million) Positive Negative Positive Negative Currency contracts Forwards/futures, purchase Forwards/futures, sale Swaps 1,002 1,515 1,002 1,515 Options, acquired Options, issued Interest rate contracts Forward Rate Agreements, purchase Forward Rate Agreements, sale Swaps 5,632 5,989 5,630 5,866 Options, acquired Options, issued Total 7,136 8,110 7,133 7,987 Non-guaranteed contracts, fair value Positive Negative Positive Negative Currency contracts Forwards/futures, purchase Forwards/futures, sale Swaps 1,219 1,499 1,219 1,499 Options, acquired Options, issued Interest rate contracts Forward Rate Agreements, purchase Forward Rate Agreements, sale Swaps 6,606 6,385 6,598 6,188 Options, acquired Options, issued Total 8,542 8,632 8,531 8,434 Total after netting Average fair value of derivative financial instruments Average market value is calculated on the basis of quarterly statements. Credit risks on derivative financial instruments FIH Erhvervsbank A/S's calculations of total counterparty risk before weighting of derivative financial instruments include only the sum of the positive fair values, see above. Thus FIH Erhvervsbank A/S does not apply netting.

97 Supplementary notes 97 FIH Group FIH Erhvervsbank A/S (DKK million) Note 38 Solvency Capital requirement Core capital after deduction 9, , , ,923.7 Capital base (liable capital) 11, , , ,626.8 Weighted items not included in the trading portfolio 73, , , ,138.9 Weighted items with market risk, etc. 11, , , ,539.3 Total weighted items 85, , , ,678.2 Core capital after deductions as a percentage of total weighted items Solvency ratio according to section 124 of the Danish Financial Business Act (The minimum statutory requirement is 8 per cent) Core capital 7, , , ,966.0 Intangible assets Hybrid core capital 1, , Reduced core capital 9, , , ,923.7 Supplementary capital Revaluation reserve Subordinated debt less deductions 2, , , ,701.8 Capital base (liable capital) 11, , , ,626.8 Calculated in accordance with the Executive Order issued by the Danish Financial Supervisory Authority on capital adequacy requirements for banks and specialised credit institutions. Note 39 Maximum credit exposure Total assets 130, ,125 + Irrevocable loan commitments not disbursed 3,832 3,097 + Bank/financial guarantees 3,287 4, , ,557 - Assets with credit risks, zero weighting 10,380 12,064 - Investments 1,798 1,331 Maximum exposure to credit risk 125,297 16,162 Moreover, total weighted items included in the Group's calculation of solvency total DKK 85.2 billion, DKK 11.6 billion of which relates to weighted items subject to market risk.

98 98 Supplementary notes FIH Group FIH Erhvervsbank A/S (DKK million) Note 40 Credit risk (per cent, end of year) Loans and guarantee debtors, broken down by sector and industry Public sector Business sector: Agriculture, hunting and forestry Fisheries Manufacturing industries, extraction of raw materials, electricity, gas, water and heating utilities Building and construction Trade, hotels, and restaurants Transport, postal service and telecommunication Credit, finance, and insurance Property administration, purchase and sale, business services Other Total business sector Personal customers Total Note 41 Market risk Foreign exchange risk Total foreign exchange assets 58,991 45,761 55,514 44,578 Total foreign exchange liabilities 59,067 45,769 55,564 45,568 Exchange rate indicator ,136.9 Exchange rate indicator 1 as a percentage of core capital less deductions Exchange rate indicator Exchange rate indicator 2 as a percentage of core capital less deductions Indicator 1 represents the highest numerical value of currencies in which FIH Erhvervsbank A/S has net receivables or net debt, respectively. Indicator 2, which is calculated according to a statistical model, represents with 99 per cent probability the maximum amount that FIH Erhvervsbank A/S risks losing on foreign currency activities during a period of 10 days. Note 42 Interest rate risk Total interest rate risk on debt instruments, etc Interest rate risk (according to size) broken down by currency DKK EUR SEK NOK GBP USD JPY Other currencies In the following distribution of term to maturity of assets and liabilities, the debt outstanding has been distributed by maturity in accordance with interest rate adjustment or expiry, whichever occurs first. For a number of financial instruments, early redemption is possible subject to specified terms and conditions. Early redemption will affect the maturity distribution specified below. Moreover, general default on a loan usually entails that the debt outstanding falls due for payment.

99 Supplementary notes 99 Note 42 - continued Over 3 months Over 1 FIH Group 2009 and up year and (DKK million) Up to and to and up to and Noninterest risks Interest Maturity distribution On including including including 5 Over 5 Assets demand 3 months 1 year years years bearing Total Total Cash in hand and demand deposits with central banks Debt instruments eligible for refinancing with central banks Due from credit institutions and central banks 2, , Loans and other receivables 45 42,575 6,436 8,877 6, , Bonds, etc ,082 36,781 9, ,396-1,102 Other assets 0-55,551 4,512 31,670 27,183 3,207 11, Total assets 2,332-11,279 16,030 77,328 42,738 3, ,356-1,822 Debt and subordinated debt Due to credit institutions and central banks 31 33, , , Deposits and other debt ,714 6, , Bonds issued, etc. 0 29,989 5,646 13, , Other liabilities 0-36,526-15,476 34,863 29,093 1,320 13, Subordinated debt 0 1, , , Total debt and subordinated debt ,266-3,558 50,085 31,482 1, ,536 1,559 Note 43 Related parties Related parties with a controlling interest in FIH Erhvervsbank A/S Kaupthing Bank hf. owns the shares of FIH Erhvervsbank A/S. For information on other related parties, please refer to the group chart on page 101. The following transactions have taken place between FIH Erhvervsbank A/S and other related parties during the financial year: FIH Group FIH Erhvervsbank A/S (DKK million) Group enterprises Interest income Interest expenses Fee and commission income Fees and commissions paid Other operating income Due from credit institutions and central banks , ,841.7 Loans and other receivables at amortised cost , ,280.8 Bonds at fair value Other assets Total assets , ,237.0 Due to credit institutions and central banks Deposits and other debt , ,033.5 Other liabilities Provisions for losses on guarantees Total liabilities , ,827.6 Off-balance-sheet items All transactions with related parties are settled on market terms or on a cost recovery basis. Off-balance-sheet items concern intercompany guarantees.

100 100 Supplementary notes Note 43 continued FIH Leasing and Finans A/S issues guarantees to FIH Erhvervsbank A/S in connection with loans. This is cancelled out in part by a counter-guarantee issued by FIH Erhvervsbank A/S. FIH Erhvervsbank A/S also issues guarantees towards FIH Realkredit A/S and FIH Finance A/S in connection with loans in these companies. FIH Group FIH Erhvervsbank A/S (DKK million) Associates Interest income Interest expenses Market value adjustments Loans and other receivables at amortised cost Other assets Total assets Deposits and other debt Total liabilities During the financial year, the following transactions have taken place between FIH Erhvervsbank A/S and other related parties with a controlling interst: Kaupthing Bank hf. Interest expenses Other assets Total assets Other liabilities Subordinated debt Total liabilities Kaupthing Bank hf. subsidiaries (Kaupthing Bank Luxembourg SA, Kaupthing Bank Oyj Finland, Kaupthing Sverige AB, Kaupthing Ltd., London, Kaupthing Norge AS, Fron Insurance Ltd., Kaupthing New York, KSF Capital Markets) Interest income Administrative expenses Other assets Total assets At the balance sheet date, no collateral security or guarantees had been provided for outstanding items. Receivables as well as debt will be settled by cash payment. In the annual report, no losses have been realised in respect of receivables from related parties. Reference is made to note 9 for information on remuneration to the Group's Executive Board and Board of Directors.

101 Supplementary notes 101 Note 44 Group structure Consolidated subsidiaries (DKK million) Activity Holding Assets Equity Turnover Results FIH Realkredit A/S, Copenhagen Mortgage loans 100 % FIH Leasing og Finans A/S, Copenhagen Leasing and financing 100 % FIH Finance A/S, Copenhagen Financing and investment 100 % 3, , FIH PARTNERS A/S, Copenhagen Investment banking 100 % FIH Kapital Bank A/S*, Copenhagen Financing and investment 100 % 14, , FIH Atzec Holding ApS**, Copenhagen Investment 100 % Capital Markets Technologies (CMT) A/S, Copenhagen IT development 0 % Associates LRA 1 ApS, Copenhagen LD Invest Holding A/S, Copenhagen DDD Holding A/S, Hørsholm LDE Management ApS, Copenhagen Ejendomsselskabet Borgergade Parkering A/S, Copenhagen Owns shares in the company LRA 2 A/S and other related activities. In 2006, the company holds its stake in LRA 2 A/S Holds equity investments in companies operating in accordance with the Financial Services Act and related activities. The Group's key business areas are development, production and marketing of dermatological products Holds equity investments in LD Equity 1 K/S, LD Equity 2 K/S, and Equity 3 K/S and offers management and advisory services. Operation and development of parking facilities 17 % N/A 0 23 % N/A % N/A % N/A % N/A 3.1 * FIH Kapital Bank A/S may not distribute dividend this financial year, as the Bank has joined Bank Package I. ** FIH Aztec Holding ApS is a subsidiary of FIH Finance A/S.

102 102 Statement by the Executive Board and the Board of Directors on the annual report STATEMENT BY THE EXECUTIVE BOARD AND THE BOARD OF DIRECTORS The Executive Board and the Board of Directors have today presented the annual report of FIH Erhvervsbank A/S for the financial year 1 January - 31 December The consolidated financial statements are presented in accordance with International Financial Reporting Standards as adopted by the EU, and the parent bank financial statements are presented in accordance with the Danish Financial Business Act. Further, the annual report is prepared in accordance with additional Danish disclosure requirements for annual reports of financial companies with listed debt instruments. In our opinion, the consolidated financial statements and the parent bank financial statements give a true and fair view of the Group's and the Parent Bank's financial position as well as of their financial performance. We also believe that the management commentary contains a fair review of the development in the Group's and the Parent Bank's business and of their financial position as a whole together with a description of the principal risks and uncertainties that they face. We recommend the annual report for adoption at the Annual General Meeting. Copenhagen, 4 February 2010 EXECUTIVE BOARD Henrik Sjøgreen Managing Director and CEO /Kenneth Retbøll-Bauer Executive Director BOARD OF DIRECTORS Hans Skov Christensen Chairman Guðni Niels Aðalsteinsson Deputy Chairman Ragnar Árnason Hans Ejvind Hansen Svend-Aage Nielsen Jørgen Vorsholt Per Erlandsen Brun Jørgen Bruun-Toft Randi Holm Franke

103 Auditors report 103 INDEPENDENT AUDITORS' REPORT To the shareholders of FIH Erhvervsbank A/S We have audited the consolidated financial statements and parent bank financial statements of FIH Erhvervsbank A/S for the financial year 1 January - 31 December 2009, which comprise the income statement, balance sheet, statement of changes in equity, cash flow statement and notes, including the accounting policies. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU, and the parent bank financial statements and the management commentary have been prepared in accordance with the Danish Financial Business Act. Further, the consolidated financial statements, the parent bank financial statements and the management commentary have been prepared in accordance with additional Danish disclosure requirements for annual reports of financial companies with listed debt instruments. Management's responsibility for the consolidated financial statements and the parent bank financial statements Management is responsible for the preparation and fair presentation of consolidated financial statements and parent bank financial statements in accordance with International Financial Reporting Standards as adopted by the EU in respect of the consolidated financial statements, and in accordance with the Danish Financial Business Act in respect of the parent bank financial statements, and additional Danish disclosure requirements for annual reports of financial companies with listed debt instruments and for the preparation of a management commentary that contains a fair review in accordance with the Danish Financial Business Act. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements and parent bank financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances. Auditor's responsibility and basis of opinion Our responsibility is to express an opinion on these consolidated financial statements and parent bank financial statements based on our audit. We conducted our audit in accordance with Danish Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements and parent bank financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements and parent bank financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the consolidated financial statements and parent bank financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of consolidated financial statements and parent bank financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the consolidated financial statements and parent bank financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Our audit has not resulted in any qualification. Opinion In our opinion, the consolidated financial statements give a true and fair view of the Group's financial position at 31 December 2009 and of its financial performance for the financial year 1 January - 31 December 2009 in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for annual reports of financial companies with listed debt instruments. Further, in our opinion, the parent bank financial statements give a true and fair view of the Parent Bank's financial position at 31 December 2009 and of its financial performance for the financial year 1 January - 31 December 2009 in accordance with the Danish Financial Business Act and additional Danish disclosure requirements for annual reports of financial companies with listed debt instruments, and in our opinion, the management commentary contains a fair review in accordance with the Danish Financial Business Act. Copenhagen, 4 February 2010 Deloitte Statsautoriseret Revisionsaktieselskab Grant Thornton Statsautoriseret Revisionsaktieselskab Anders O. Gjelstrup State Authorised Public Accountant Jens Ringbæk State Authorised Public Accountant Erik Stener Jørgensen State Authorised Public Accountant Per H. Jensen State Authorised Public Accountant

104 104 Board of directors Board of Directors Hans Skov Christensen Chairman Guðni Niels Aðalsteinsson Deputy Chairman Ragnar Árnason Director General and CEO of Confederation of Danish Industries (DI) Chairman of the Board of Directors of Aktieselskabet Kristeligt Dagblad Center for kultur- og oplevelsesøkonomi Deputy Chairman of the Board of Directors of The Danish Industry Foundation Fonden Søren Kierkegaard Forskningscenter Pension Danmark Member of the Board of Directors of PFA Pension Member of the Kaupthing Resolution Committee Professor at the University of Iceland Chairman of the Board of Directors of Hagrannsóknir og Ráðgjöf ehf (a business consultancy company) Institute of Economic Studies Member of the Board of Directors of The Central Bank of Iceland Member of the Audit Committee of the FIH Group Hans Ejvind Hansen Svend-Aage Nielsen Jørgen Vorsholt Chairman of the Board of Directors of ATP Invest Freja Ejendomme A/S Investeringsforeningen Nykredit Invest Deputy Chairman of the Board of Directors of Statistics Denmark Member of the Board of Directors of Den Professionelle Forening LD The Employees Capital Pension Fund (LD) The Novo Nordisk Foundation Chairman of the Audit Committee of the FIH Group Chairman of the Board of Directors of Marius Pedersen/Violia Miljøservice Holding A/S Nielsen & Nielsen Holding A/S Terma Elektronik A/S Thrige-Titan A/S Member of the Board of Directors of Entreprenør Marius Pedersens Fond Thomas B. Thriges Fond Member of the Audit Committee of the FIH Group Chairman of The Danish Employers Confederation (DA) Senior Advisor of E. Pihl & Søn A.S. Chairman of the Board of Directors of Brøndum Holding A/S Bygteq it a/s Member of the Board of Directors of The Danish Labour Market Supplementary Pension Fund (ATP) Brøndum A/S The Employees Guarantee Fund (LG) Jørgen Bruun-Toft Per Erlandsen Brun Randi Holm Franke Senior Analyst Elected by the employees Account Manager Elected by the employees Senior Project Manager Elected by the employees

105 Executive Board 105 Executive Board Henrik Sjøgreen Managing Director and CEO Under section 80(8) Chairman of the Board of Directors of Axcel IndustriInvestor Invest A/S Chairman of the Board of Directors of FIH Aztec Holding A/S FIH Finance A/S FIH Kapital Bank A/S FIH Leasing og Finans A/S FIH PARTNERS A/S FIH Realkredit A/S