Disclaimer. By accessing this document you acknowledge acceptance of these terms.

Transcription

1 Disclaimer This document is provided to you for information purposes only. This document may not be reproduced either in full or in part nor may it be passed on to another party. It constitutes neither an offer nor an invitation to subscribe or to purchase securities, nor is this document or the information contained herein meant to serve as a basis for any kind of obligation, contractual or otherwise. In all legal systems this document may only be distributed in compliance with the respective applicable law, and persons obtaining possession of this document should familiarize themselves with and adhere to the relevant applicable legal provisions. A breach of these restrictions may constitute a violation of U.S. securities law regulations or of the law applicable in other legal systems. The information contained in this document is historical and speaks only as of its date. KfW disclaims any intention or obligation to update or revise the information contained in this document. By accessing this document you acknowledge acceptance of these terms.

2 up.date News for Investors. December Editorial The Funding of KfW Review of the Year of the US Dollar

3 e.ditorial This is the first issue of our newsletter "update" published since KfW's funding department moved to its newly-built offices at the beginning of November. We use the opportunity of this change in location to give you some information "on our own behalf". We would like to briefly summarize the most important stages in the development of our funding activities in the last few years and give you an overview of the tasks of the individual teams in our department. And we would equally like to present the faces behind KfW's securities. We can be well satisfied with the course of business in the year We concluded our strategic funding program for this year with the issue of our sixth EUR Benchmark Bond at the end of October, which found a very positive public echo, thus reaching a total volume of EUR 50 billion. As usual, you will find further information on current developments in KfW's business activities in the newsticker. At the beginning of October we further expanded our USD Program, which we had set up to take off early this year, by issuing a third global bond with a volume of USD 3 billion and a 3-year maturity. As regards funding in US dollars overall, we can look back on a particularly successful year. For this reason we have dedicated a special article to a more detailed review and an in-depth presentation of our US-dollar funding. Enjoy the reading! Gerhard Lewark Treasurer of KfW On our own behalf: the Funding of KfW The Eastern Arcade, the new building at KfW s headquarters in Frankfurt Having had to relocate in November, we now have the pleasure to work in the newly constructed East building at KfW's headquarters in Frankfurt (see photograph). We would like to use this opportunity to present to you in more detail the organizational unit responsible for KfW's securities. First, we would like to look back and describe briefly what we believe were the milestones for KfW and its funding department in the course of the last two decades and then present the various teams in the department, their tasks and the cooperation among the teams. In the last two decades KfW has seen a very dynamic development marked by the emergence of a variety of new promotional tasks. The dynamics can be measured by one single figure, that is KfW's balance-sheet total which today is eight times as high as at the beginning of the 1980s. For our funding this has meant not only that the funding volume has increased continuously since then but also that our funding activities had to be permanently adjusted to developments in the capital markets and the needs of investors. As KfW expanded its lending activities to include foreigncurrency loans, funding in foreign currency was also started at the beginning of the 1980s, originally though in the form of Schuldscheindarlehen (loans against debt certificates). By the mid-80s funding by means of bond issuance in the international capital markets became increasingly important and thus in 1987 KfW issued the first bond denominated in US dollars. In 1988 KfW founded KfW International Finance Inc. as a 100% subsidiary, to gain direct access to the US dollar home market and to make foreign-currency funding even more efficient.

4 The staff of KfW s Funding Department German unification mainly shaped KfW's activities at the beginning of the 1990s. KfW was entrusted with the new tasks of financing the reconstruction in the new federal states and in 1994 became the legal successor of the Staatsbank, the central bank of the former East Germany. This meant a continuous increase in KfW's funding volume throughout the 1990s. Considering the new millennium, the most recent growth in our annual issuing is mainly due to the pooling of funding activities of the promotional banks owned by the Federal Republic of Germany, with which KfW was entrusted. Since 2001 KfW has also been responsible for the funding of the Deutsche Ausgleichsbank (DtA), which had previously acted as an independent entity in the capital markets, and of DEG, which now also belongs to the KfW Group. This made KfW's bonds the only Bund surrogate available in the market. Now that the funding for the government-owned promotional banks has been taken over by KfW the speed of growth of our funding volume will clearly slow down in the coming years. Compared with the expansion of KfW's tasks and its loan business since the early 1980s, the increase in the number of staff employed in the funding department was proportionately much lower. Its staff roughly doubled in the last two decades. This only moderate growth was enabled by a stronger standardization in the issuing business, the higher volumes of the individual issues - Liquidity Management/ Forex from which you as investors benefit owing to the higher liquidity of the bonds - and not least by a permanent improvement in the efficiency of internal processes. The most recent step in this respect is the move to our new domicile, where all units of the department are jointed in one place. The heart of the floor which the department now occupies is the new trading room where approximately two thirds of the total of 45 of the department's staff are working on about 400 square metres. The main objective was to improve the communication and cooperation among the individual teams. Now, the teams responsible for money-market activities and liquidity management, asset/liability management, hedging and portfolio management, capital market issues and investor relations all sit together in one room. The photo on the top shows you the majority of the staff working in the department. Organisationally, the funding department is divided into two divisions, one focussing on capital market issues and the other on treasury activities. However, the activities of all teams are closely intertwined and both divisions perform cross-cutting functions concerning the entire department. For instance, the "asset/liability management" team is responsible for the management and control of the funding in general. The "liquidity management" team is also in charge of issuing shortterm securities under our Commercial Paper Organisation Chart of KfW's Funding Department Treasury Asset/Liability Management/ Interest Management Asset Management/ Derivate Treasury and Capital Markets Capital Market New Issues Capital Markets Investor Relations/ Rating IT Coordination Transaction Management Programs, which in turn requires coordination with the team in charge of medium and longterm issuing. The transaction management team is responsible for the documentation - irrespective of whether issues are made in the capital market or the money market. The investor relations team, which organisationally is part of the capital market division, does not only concentrate its activities on bonds with long maturities. And finally the team responsible for hedging interest risks has to cooperate closely with the new issues team. The new working environment also contributes to higher job satisfaction and motivation of the staff. Modern materials, spacious rooms and an ergonomic planning including a natural climatisation of workplaces with temperature reduction at night help to create a good working atmosphere. This is an atmosphere which will also pass on to visitors - so, if you happen to be in Frankfurt, you are kindly invited to pay us a visit! Review of the Year of the US Dollar Even though the year is not over yet, one can already say that, viewed from the angle of KfW's funding, it was the year of the US dollar. In the first ten months of the year total funds raised in US dollars in the capital markets amounted to US 22.2 billion (approx. EUR 22.3 bn). Thus, in this period the US dollar accounted for almost 50% of our total capital market funding, however adding the sixth EUR Benchmark Bond (volume: EUR 5 billion), which was payable at the beginning of November, this share will be reduced in favour of the Euro and will be around 45% for the year as a whole. Indeed, this development was to some degree foreseeable since at the beginning of the year, when launching the USD Program as the "little sister" of the EUR Benchmark Program, we expanded our strategic refinancing to include the US dollar. But other unexpected and pleasing factors also have to be mentioned. An example of this is the success of the USD Program, which originally having planned only two bonds, induced us to issue a third USD 3 billion bond under the Program. Another very pleasing fact is that we were able to move into a new market segment with the issue of two callable global bonds of USD 1 billion each. Also worth mentioning are several notes issued under our Medium-Term Note Program in amounts between USD 100 million and USD 750 million which were tailored to investors' specific needs. The USD Program was kicked off as early as in January by the launch of a USD 3 billion 5- year global bond. After a thorough preparation with intensive roadshows especially in the United States, the order book for the bond was heavily

5 Distribution of the first and the second callable USD Global Bond Orderbook Asia Oceania (excl. Japan) 38,0% Africa 1,7% Other 8,5% Western Europe 10,3% North America 38,0% Latin America 0,4% Japan 1,0% Central and Eastern Europe 2,1% oversubscribed and we finally were able to place a share of 55% of the issue volume of USD 3 billion with investors in the USA (see chart). Never before had a KfW global bond achieved such a high placement share in the USA. Also the second bond issued under the Program in April, which has a 3- year maturity, showed a similar distribution in the primary market. In contrast, the structure of the primary distribution of the third 3-year global bond issued in October was different. The main reason for this was that in an extremely volatile market environment, due to continuing uncertainty about growth prospects in the United States, the bond met with particularly strong investor interest from Asian central banks. KfW can also be satisfied with the development of the bonds issued under the USD Program with regard to the secondary market performance. It is still too early to evaluate the Program as a whole since the third bond was issued only a few weeks ago. However, since they were launched the spreads of the first two bonds have substantially narrowed against the Treasuries. While to some extent this is obviously due to the general movement of the market overall, we would like to draw your attention to an important agreement we recently concluded with our main business partners in the investment banking community. It specifies that our securities will from now on be dealt with by the same teams that are already taking care of the bonds of the large US agencies. As a result, bid-offer spreads have narrowed and turnover has increased, making our securities overall even more attractive to investors. Looking at our two callable USD global bonds, their distribution, too, was mainly outside Europe. Particularly investors in North America and Asia showed a great interest in the new KfW product, which could benefited from a volatility that was historically high this year. Regional and sectoral distribution of KfW USD Global Bonds USD-Bond I US 55% Asia 29% Europe 16% USD-Bond II US 50% Asia 30% Europe 20% USD-Bond III US 39% Asia 39% Europe 18% Others 4% USD-Bond I Fund Managers 29% Central Banks 27% Banks 16% Others 5% Corporates 2% Pension Funds 12% Insurance Companies 9% USD-Bond II Fund Managers 25% Central Banks 30% Banks 15% Others 5% Corporates 5% Pension Funds 5% Insurance Companies 15% USD-Bond III Fund Managers 26% Central Banks 35% Banks 9% Others 19% Corporates 1% Pension Funds 2% Insurance Companies 8%

6 THE NEWSTICKER FROM THE NEWSTICKER+ + + FROM THE NEWSTICKER + + VOLUME OF COMMITMENTS - ALSO FOR SMES - CONTINUES TO GROW STRONGLY The development of KfW's financing volume has been very dynamic this year and after nine months commitments have already reached EUR 39.9 billion, which is a 44.2% increase over the previous year. Securitizations account for the principal part of this development contributing approx. EUR 14 billion to the financing volume. Loan commitments to small and medium-sized enterprises amounted to EUR 5.4 billion. Thus, despite the persistent weakness of the economy SME commitments increased by about 6.1% over Global loans, the new promotional instrument, made a substantial contribution to the positive result accounting for commitments of EUR 1.3 billion. NEW PROGRAMME "CAPITAL FOR WORK" LAUNCHED In the context of the so-called "Hartz Initiative" to reduce unemployment in Germany, KfW and the German government have agreed a new program entitled "Capital for Work". The program is available to healthy small and medium-sized enterprises which give permanent employment to jobless people and need financing. The companies may receive up to EUR 100,000 with a term of up to ten years for every jobless person taken on. The funds are granted in two equal tranches: one senior loan tranche and one subordinated tranche. HOUSING FINANCE FURTHER EXPANDED In the field of housing promotion the total commitment volume in the first three quarters of 2002 amounted to EUR 16.5 billion. Of this, EUR 14.7 billion were for the modernisation of owneroccupied housing and EUR 4.7 billion were granted under the KfW Home Ownership Program. In addition, KfW grants global loans to the banks, which serve as credit lines, to extend loans to promote the creation of owner-occupied housing. By the end of September one global loan for EUR 1.3 billion has been committed. Under the PROVI- DE securitization program KfW takes over the risks related to housing loans from the lending banks and places these risks in the capital market. This creates an incentive for the banks to extend new housing loans at favourable interest rates. Total transactions under PROVIDE amounted to EUR 8.6 billion. Moreover, KfW committed EUR 1.8 billion to finance energy conservation measures that reduce CO2 emissions in residential buildings and the rehabilitation and modernization of housing in eastern Germany. RENEWABLE ENERGY SOURCES CONTINUE ON THE ROAD TO SUCCESS Under the 100,000 Roofs Solar Power Program the threshold of 150 megawatt of photovoltaic capacity financed was surpassed in the 3rd quarter. This enables the generation of enough power to supply 40,000 private households. The 1000th loan was committed under the Program to Promote Renewable Energy Sources. The systems financed in the areas of biogas, biomass and small hydropower can supply 100,000 private households with power. In addition, a capacity of 500 megawatt was installed to supply heating from renewable sources of energy, which is sufficient to heat 40,000 flats. These results were achieved with commitments of EUR 264 million under the 100,000 Roofs Solar Power Program and of EUR 70 million under the Program for Renewable Energy Sources made in the first three quarters of EXPORT AND PROJECT FINANCE New commitments for loans as per September 30 amounted to EUR 4.4 billion (previous year: EUR 5.5 bn). The development has stabilized across all branches. Approximately three quarters of all commitments were made for exports to, or corporate investments in, European countries. But Central and Eastern European countries have also gained in importance. However, the share of North and Latin America and Asia in new commitments was clearly lower than in the previous years. THE NEWSTICKER FROM THE NEWSTICKER FROM THE NEWSTICKER +

7 + FROM KfW Palmengartenstraße Frankfurt am Main Phone Fax im.print Investor Relations Phone Fax Press Office Capital Markets: Nathalie Drücke Phone Fax