argets Innovation Trust Strength Unity Reciprocity Solidarity Quality Safety Guidance Optimizati

Transcription

1 ficiency Experience Partnership Input Innovation Integrity Longevity Cooperation Proximity Market ME partner Fairness Openness Focus Optimization Unity Reciprocity Quality Safety Guidance Solidar xperts Stability Strategy Subsidiarity Synergy Continuity Drive Tradition Competence Transparency stainability Responsibility Reliability Network Trust Competitiveness Growth Foresight Targets Stre xperience Partnership INPUT Innovation Integrity Cooperation Efficiency SME partner Coordination ngevity Openness Focus Optimization Unity Reciprocity Marketability Quality Safety Guidance Solid perts Synergy Continuity Fairness Strategy Subsidiarity Drive Tradition Competence Growth Transp rspective Sustainability Responsibility Reliability Stability Network Foresight Competitiveness Proxi argets Innovation Trust Strength Unity Reciprocity Solidarity Quality Safety Guidance Optimizati ficiency Experience Partnership Input Innovation Integrity Longevity Cooperation Proximity Market ME partner Fairness Openness Focus Optimization Unity Reciprocity Quality Safety Guidance Solidar xperts Stability Strategy Subsidiarity Synergy Continuity Drive Tradition Competence Transparency stainability Responsibility Reliability Network Trust Competitiveness Growth Foresight Targets Stre ship Subsidiarity Longevity Cooperation Coordination Proximity Fairness Openness Integrity Efficien petus Marketability SME partner Innovation Optimization Sustainability Unity Reciprocity Quality Sa gets Guidance Solidarity Strength Experience Experts Competitiveness Stability Continuity Synergy Drive Tradition Competence Transparency Perspective Responsibility Reliability Network Trust Fores th Efficiency Experience Partnership Input Innovation Integrity Longevity Cooperation Coordinatio oximity Marketability SME partner Fairness Openness Focus Optimization Unity Reciprocity Guidance perts Stability Subsidiarity Drive Synergy Continuity Tradition Competence Transparency Perspectiv stainability Responsibility Reliability Network Strength Competitiveness Trust Foresight Growth Tar xperience Partnership Input Innovation Integrity Cooperation Efficiency SME partner Coordination lo ngevity Openness Focus Optimization Unity Reciprocity Marketability Quality Safety Guidance Solid perts Synergy Continuity Fairness Strategy Subsidiarity Drive Tradition Competence Growth Transp rspective Sustainability Responsibility Reliability Stability Network Foresight Competitiveness Proxim ts Trust Strength Unity Reciprocity Guidance Solidarity Experience Quality Safety Input Innovation ngevity Cooperation SME partner Fairness optimization Unity Reciprocity Quality Safety Guidance ability Continuity Subsidiarit Strategy Continuity Drive Tradition Guidance Competence Transparenc erts Responsibility Reliability Network Trust Competitiveness Growth Foresight Experience Partnersh novation Integrity Cooperation Efficiency SME partner Coordination LONGevity Openness Focus Optim ity Reciprocity Marketability Quality Safety Guidance Solid arity Experts Synergy Continuity Fair xperience Partnership Input Innovation Integrity Cooperation Efficiency SME partner Coordination Pr ngevity Openness Focus Optimization Unity Reciprocity Marketability Quality Safety Guidance Solid perts Synergy Continuity Fairness Strategy Subsidiarity Drive Tradition Competence Growth Transp rspective Sustainability Responsibility Reliability Stability Network Foresight Competitiveness Proximi ficiency Experience Partnership Input Innovation Integrity Longevity Cooperation Proximity Marketa ME partner Fairness Openness Focus Optimization Unity Reciprocity Solidarity Quality Safety Guidan 2011 xperts Stability Strategy Subsidiarity Synergy Continuity Drive Tradition Competence Transparency stainability Responsibility Reliability Network Trust Competitiveness Growth Foresight Targets Stre ship Subsidiarity Longevity Cooperation Coordination Proximity Fairness Openness Integrity Efficien petus Marketability SME partner Innovation Optimization Sustainability Unity Reciprocity Quality Sa gets Guidance Solidarity Strength Experience Experts Competitiveness Stability Continuity Synerg Drive Tradition Competence Transparency Perspective Responsibility Reliability Network Trust Fores th Efficiency Experience Partnership Input Innovation Integrity Longevity Cooperation Coordinatio oximity Marketability SME partner Fairness Openness Focus Optimization Unity Reciprocity GuidanceF perts Stability Subsidiarity Drive Synergy Continuity Tradition Competence Transparency Perspectiv us tainability Responsibility et HALF-YEAR FINANCIAL REPORT work Strength Competiti perts Stability Subsidiarity Drive Synergy Continuity Tradition Competence Transparency Perspectiv rspective Sustainability Responsibility Reliability Stability Network Foresight Competitiveness Proxim stainability Responsibility Reliability Network Strength Competitiveness Trust Foresight Growth Tar xperience Partnership Input Innovation Integrity Cooperation Efficiency SME partner Coordination Pr

2 KEY FIGURES DZ BANK GROUP million Jun. 30, 2011 Jun. 30, 2010 Financial performance Operating profit Allowances for losses on loans and advances Profit before taxes Net profit Cost/income ratio (percent) million Jun. 30, 2011 Dec. 31, 2010 Financial position Assets Loans and advances to banks 73,899 73,614 Loans and advances to customers 115, ,275 Financial assets held for trading 63,918 68,047 Investments 61,394 58,732 Investments held by insurance companies 59,498 57,996 Remaining assets 9,186 8,800 Equity and liabilities Deposits from banks 97, ,156 Amounts owed to other depositors 91,223 84,935 Debt certificates including bonds 55,137 55,189 Financial liabilities held for trading 56,583 57,691 Insurance liabilities 57,970 56,216 Remaining liabilities 13,736 14,550 Equity 11,397 10,727 Total assets / total equity and liabilities 383, ,464 Volume of business 2 588, ,909 Regulatory capital ratios under Solvency Regulation (SolvV) Total capital ratio (percent) Tier 1 capital ratio (percent) Jun. 30, 2011 Jun. 30, 2010 Average number of employees during the period 27,700 26,624 1 Operating income (net interest income + net fee and commission income + gains and losses on trading activities + gains and losses on investments + other gains and losses on valuation of financial instruments + net income from insurance business + other net operating income) less administrative expenses 2 Total assets including financial guarantee contracts and loan commitments, trust activities and assets under management of the Union Investment Group

3 DZ BANK CONTENTS 01 CONTENTS 03 Letter to shareholders 07 Interim group management report 47 Interim consolidated financial statements 85 Responsibility statement 86 Review report (translation)

4 02

5 DZ BANK LETTER TO SHAREHOLDERS 03 Wolfgang Kirsch, Chief Executive Officer The DZ BANK Group ended the first half of 2011 on a successful note in what was an extremely volatile and challenging environment. We earned a profit before taxes of 638 million, which was an improvement of 3.6 percent on the corresponding period of The DZ BANK Group s strategy of consistently focusing on the needs of the Volksbanken Raiffeisenbanken cooperative financial network has once again paid off and provides a solid platform on which to generate growth across the entire organization. Economic activity in the first half of 2011 was a tale of two highly divergent trends. On the one hand, the performance of the economy in our domestic German market remained especially impressive and was supported to a large extent by the emerging economies of Asia and Latin America. A survey of small and medium-sized enterprises in Germany conducted by DZ BANK in the spring revealed that 86 percent of the firms questioned rated their current situation as either good or very good. This was the highest percentage ever revealed by this survey. On the other hand, however, this trend is being accompanied by significant adverse developments. Uncertainty in the markets has grown considerably again since the early summer. The most prominent factor in this regard has been the sovereign debt crisis in certain euro zone member states, which has necessitated considerable write-downs on the bonds of the countries affected and, consequently, has impacted on the DZ BANK Group s financial results for the first half of this year. The European Union has already agreed a second bailout for Greece. Other members of the euro area are about to implement sweeping spending cuts in their public finances, which will act as a drag on growth. There are therefore no indications that the

6 04 DZ BANK LETTER TO SHAREHOLDERS imbalances in the real economies of individual euro zone countries will be reduced any time soon. There are growing signs of a slowdown in the euro zone economy. The global economy is also being severely hampered by the unsatisfactory economic performance of the United States. The weakness of the labor and housing markets in this country is giving particular cause for concern. Against this backdrop, we wholeheartedly welcome the efforts undertaken by politicians, central bankers, and regulators to place the international financial system on a more stable footing. Major projects to regulate the financial markets and, in particular, the banking system have already been initiated. We believe it is important that these plans are being internationally coordinated and will enable banks to continue to perform their function in the real economy. This applies especially to decentralized business models such as ours that are firmly rooted in the real economy. We are working closely with the National Association of German Cooperative Banks, BVR, to ensure that the mechanisms, authorities, and remits used in the cooperative financial network which have proved useful in dealing with crises are not disadvantaged as a result of regulatory intervention. The stability of our business model is also underlined by the financial results reported by the DZ BANK Group for the first half of They are attributable to the outstanding contribution made by our employees, and my colleagues on the Board of Managing Directors and I would like to take this opportunity to thank each and every one of them for their achievements. Our pre-tax profit of 638 million stemmed largely from the high level of net interest income, which rose by 19.4 percent to 1.49 billion. By contrast, our net fee and commission income decreased by 9.2 percent to 493 million. This was caused by the lower level of net fee and commission income earned by Bausparkasse Schwäbisch Hall, although this in turn was attributable to the encouragingly significant growth in new home savings business and, consequently, higher fee and commission expenses initially. Allowances for losses on loans and advances remained virtually unchanged year on year at the low level of 135 million. Gains on trading activities in the reporting period fell to 362 million from 528 million in the first half of 2010, which had been positively impacted by reversals of impairment losses on bond portfolios. On the other hand, the level of gains and losses on investments improved from a loss of 306 million to a loss of 231 million, which included impairment losses of 216 million on Greek government bonds. Net income from the DZ BANK Group's insurance business declined owing to the tough market environment and the earthquake disasters in Japan and New Zealand. It amounted to 100 million compared with 149 million in the first half of 2010 and included impairment losses of 27 million on Greek government bonds. Administrative expenses rose by 6.6 percent to 1.31 billion. This was due to the first-time recognition of the bank levy and, in particular, higher expenses incurred by DZ PRIVATBANK in connection with the private banking market initiative. DZ BANK and WGZ BANK agreed in June to merge their Luxembourg-based private banking operations as part of this market initiative. DZ PRIVATBANK will in the future be run as a joint decentralized specialized service provider and will be responsible for all private banking activities of the two cooperative central institutions. The merged entity will therefore be able to work with the local cooperative banks to develop and fully exploit this important and highly promising business segment. Together with WGZ BANK, we are delighted that we have taken

7 DZ BANK LETTER TO SHAREHOLDERS 05 this positive and significant step, which will build on a number of successful joint projects that we have recently undertaken, such as in payments processing and the advising of corporate customers. The guiding principle behind all of these projects is to further strengthen the competitiveness of the local cooperative banks. Another key event during the first half of this year was our participation in the EU-wide banking stress test conducted for the first time by the new European Banking Authority (EBA) on 91 banks. The DZ BANK Group successfully passed this stress test, achieving a core Tier 1 capital ratio of 6.9 percent as defined by the EBA. According to the regulatory definition currently applied, our Tier 1 capital ratio as at June 30, 2011 amounted to 11.5 percent, which was 0.9 percentage points higher than at the end of We believe that this further strengthening of our capital base vindicates our strategy of consistently focusing on the needs of the Volksbanken Raiffeisenbanken cooperative financial network. This situation is largely attributable to the strengthening of our capital base in the past by DZ BANK and its owners and to the comprehensive measures taken to optimize the DZ BANK Group s capital. Nonetheless, the results of the stress test emphasize the need to continue to pursue a rigorous capital management approach especially in order to meet the growing regulatory capital requirements. The challenges in the macroeconomic environment will not diminish in the second half of the year. A sustainable long-term solution to the sovereign debt crisis in the euro zone has yet to be found and would need to include a closer integration of economic and fiscal policy in the individual countries. The continued heightened state of anxiety in the markets was reflected in the way that prices reacted to the downgrade of the United States credit rating. In both of these economic areas the solutions adopted by politicians will be key to financial stability and economic growth in 2011 and beyond. Participants in the international financial markets will be keeping a watchful eye on the extent to which politicians manage to deliver sustainable and lasting results. Germany will not remain totally unscathed by these negative factors. Our economists expect German gross domestic product (GDP) to grow by only 1.8 percent in 2012 after having increased by 3.0 percent this year. We therefore reckon that the DZ BANK Group s earnings for 2011 as a whole will be lower than they were last year especially if the sovereign debt crisis in Europe continues to escalate. Nonetheless, we are optimistic that by working closely with the local cooperative banks we will be able to leverage our shared strengths. Our remit as a financial services group that is fully focused on the needs of the cooperative financial network will therefore remain an integral feature of our corporate strategy. Kind regards, Wolfgang Kirsch Chief Executive Officer

8 06

9 DZ BANK INTERIM GROUP MANAGEMENT REPORT CONTENTS 07 Interim Group Management Report 08 Business performance 08 Economic conditions 08 Developments in the banking industry as the European rescue package is expanded and continues to be utilized 11 Close and lasting partnership within the cooperative financial network 11 Retail Banking 12 Corporate Banking 12 Capital Markets 13 Transaction Banking 14 Earnings performance 23 Performance of the business segments 23 Volume growth 25 Risk report 25 Risk management system 25 Action taken to mitigate market crises 25 Sovereign debt crisis and political flashpoints 25 Sophisticated risk management system 26 Targeted management action 26 Risk capital management 26 Management of economic capital adequacy 27 Management of regulatory capital adequacy 28 Credit risk 28 Modifications to risk strategy 29 Modifications to risk management 29 Credit portfolio analysis 37 Market risk 38 Liquidity risk 40 Actuarial risk 41 Operational risk 41 Summary and outlook 42 Outlook

10 08 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE I. Business Performance 1. ECONOMIC CONDITIONS German gross domestic product in the first half of 2011 grew by an average price-adjusted amount of roughly 1.5 percent compared with the second half of The economic recovery that had started in 2010 continued in the first quarter of 2011, with gross domestic product (GDP) increasing by 1.3 percent. Economic output advanced by 0.1 percent in the second quarter of the reporting period as global economic growth slowed. GDP across the euro-zone countries as a whole grew substantially in the first half of 2011, although economic performance varied considerably from one country to another. Whereas the core countries of the euro area achieved impressive growth rates, the economic and fiscal austerity measures taken to reduce the extraordinarily high budget deficits in the periphery countries acted as a significant drag on the eurozone economy as a whole. In the United States, strongly expansionary monetary policy coupled with fiscal policy initiatives supported fairly subdued economic growth in the first half of Nonetheless, the economy continued to slow over the course of 2011 compared with the second half of The massive expansion of government debt, persistently high unemployment, and the ailing housing market weighed on consumer spending, which is the main driver of the US economy. The emerging markets of Asia and Latin America once again proved to be the main growth engines of the global economy in the first 6 months of However, surging inflation especially in China and India suggests that there is a risk of these economies overheating, so economic policymakers are attempting to address this problem by slowing down the rate of growth. Stronger demand, especially from the emerging markets, boosted the high level of exports from Germany, which has one of the highest levels of economic growth in the euro zone. Apart from the strength of the country s exports, a sharp rise in capital spending was responsible for the impressive economic growth in the first half of This in turn was largely attributable to the pent-up demand for construction investment following the severe winter weather in December 2010 and the significant growth in capital expenditure on machinery, equipment, and vehicles. Government spending and private consumer demand also held up well on the back of a robust labor market and higher household incomes. Higher inflation caused by rising commodity prices in particular persuaded the European Central Bank (ECB) to raise its key lending rate on April 7, 2011 and again on July 7 by 25 basis points each time, bringing the final interest rate to 1.50 percent. The continued improvement in economic conditions offers a good opportunity to considerably reduce Germany s net government borrowing this year. 2. DEVELOPMENTS IN THE BANKING INDUS- TRY AS THE EUROPEAN RESCUE PACKAGE IS EXPANDED AND CONTINUES TO BE UTILIZED Events in the financial markets centered on the continued weakness of the US economy, political efforts to strengthen the existing euro rescue package and create a permanent bailout mechanism from mid- 2013, and the adoption of a second rescue package for Greece. An escalation of the European sovereign debt crisis at the beginning of the third quarter of 2011 and the impending insolvency of the United States were finally averted after much domestic political wrangling. However, the rating agency Standard & Poor s Ratings Services (Standard & Poor s) stripped the United States of its triple-a rating on August 5, 2011 and downgraded the country s long-term government bonds to AA+ with a negative outlook for the first time since Standard & Poor s justified its decision not only by pointing to the political stalemate

11 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE 09 that had made it more difficult to reach an agreement but, above all, by drawing attention to the level of budget spending cuts that had been agreed by Congress but was regarded as insufficient. After Portugal had made use of the rescue package at the beginning of the second quarter of 2011, attention started to focus on Greece s mounting economic problems over the course of the second quarter, which presented the Euro Pact with new crisis resolution challenges. The main discussion among euro-zone member states in the first few weeks of 2011 centered on how to convert the nominal 750 billion rescue package agreed in May 2010 into an effective lending capacity of 750 billion. The reason for these deliberations was that the nominal amount of 440 billion made available by the euro-area countries the so-called European Financial Stability Facility (EFSF) only translated into an effective lending capacity of some 250 billion. This is because only around 60 percent of the euro-zone member states were able to provide the necessary level of guarantees for the EFSF lending facility based on the triple-a rating preferred for funding requirements. This meant that this guarantee facility had to be made fit for purpose by increasing the level of guarantees provided by each member state. In Germany s case this involved almost doubling the value of guarantees that it was required to provide. Finally the EU heads of state and government agreed at the EU summit on March 24/25, 2011 to convert the EFSF s existing lending facility of a nominal 440 billion into an effective lending capacity of 440 billion by increasing the overall level of guarantees provided. The aim was to ensure that, if you included the 60 billion committed by the EU Commission and the 250 billion promised by the International Monetary Fund (IMF) in May 2010, an effective lending capacity of 750 billion would be available to euro-zone member states in financial difficulty. The aforementioned increase in the overall level of guarantees was approved by EU finance ministers on June 20, The above decision made by the EU member states also specified plans to create a permanent bailout mechanism with an effective lending capacity of 500 billion ( 700 billion in nominal terms) which, including the IMF s contribution, would amount to 750 billion in total. This bailout mechanism is set to replace the current arrangement from mid It requires the EU member states to pay a total cash contribution of 80 billion and provide total guarantees worth 620 billion. Germany s share of these contributions amounts to guarantees worth 168 billion and a cash payment of just under 22 billion, divided into 5 equal annual installments over the period up to The arrangements agreed to set up a permanent bailout mechanism require the euro-zone member states to commit to specific annual targets aimed at strengthening their competitiveness as part of a Euro Plus Pact. This package, which was originally intended to be approved at the end of June 2011, has yet to be adopted by the EU Parliament. It contains 6 legislative proposals (the so-called Six Pack ) that are designed as a more stringent successor to the Stability Pact and provide for closer coordination of national economic policies in the form of macroeconomic surveillance. The EU summit at the end of March 2011 took place as the crisis engulfing Portugal a euro-zone country in severe financial difficulty continued to escalate. The leading rating agencies had significantly downgraded Portuguese government bonds by the beginning of April This deterioration in its credit rating meant that Portugal was no longer able to raise funding at reasonable rates in the capital markets. The EU finance ministers granted the application for financial support submitted by Portugal on April 7, This acceptance was based on the borrowing requirement they had calculated at their summit meeting held in Brussels on May 16 / 17, 2011 and involved providing a financial support package worth 78 billion. One third of this total amount was provided by the IMF, one third by the EFSF fund set up by the 17 euro member countries, and one third by

12 10 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE the EU Commission s assistance fund. In return, Portugal promised to implement comprehensive structural reforms and to cut its new public-sector borrowing from roughly 6 percent of GDP this year to below 3 percent by At the beginning of May 2011 the euro group president Jean-Claude Juncker confirmed that the total loans of 110 billion approved for Greece in May 2010 would no longer be sufficient and that a further adjustment program would be needed to support Greece. In anticipation of the additional costs that such a program would be likely to impose, the euro finance ministers meeting in Luxembourg on June 20, 2011 attached preconditions to the payment of the next loan tranche of 12 billion due to be disbursed from the existing rescue package of 110 billion at the beginning of July These conditions required the Greek parliament to approve cost savings of 28 billion and the sale of state assets worth 50 billion in advance of any further loans. Once the Greek parliament had passed these measures at the end of June 2011, the euro-zone finance ministers approved the loan tranche of 12 billion on July 2, 2011, and subsequently the IMF s executive board also gave its consent. Rating agency Moody s downgraded Portugal s government bonds to junk status on July 5, 2011 and then did the same to Irish bonds on July 13. The reason given by Moody s for this action was that it believed that both countries would require further bailouts starting in This then caused credit spreads in the capital markets for sovereign credit risk of the euro-zone periphery countries to widen sharply. The EU heads of state and government meeting in Brussels on July 21, 2011 finally approved a second bailout for Greece. Including the support offered by the IMF, this package provides a total amount of 109 billion over a period up to the end of The interest rate payable on future government support loans for Greece as with the loans provided to Portugal and Ireland will be reduced to around 3.5 percent and the term of the loans will be extended to at least 15 years. The agreed arrangements will also increase the powers of both the existing EFSF bailout fund and the subsequent European Stabilization Mechanism (ESM). Both of these rescue mechanisms will in the future be authorized to take preventive action as soon as a crisis has been identified by the ECB, which will involve providing credit lines to crisis-stricken EU countries and their banks and buying up the bonds of crisis-prone euro-zone member states in the secondary market. These extended powers still need to be approved by the EU member states national parliaments. The new Greek rescue package also includes a voluntary contribution by creditors. This means in effect that banks and insurance companies will agree to accept a debt repayment waiver ( haircut ) of 21 percent on the Greek government bonds that fall due for redemption by the end of The euro-zone member states have addressed the issue of temporary default resulting from such haircuts for creditors by providing comprehensive guarantees for Greek government bonds in order to ensure that the ECB will accept these government bonds as collateral in its funding operations for Greek banks. However, all the proposed measures can only be fully effective if the countries faced with impending crises play their part by gradually improving the competitiveness of their economies. They also flag up the need to develop and enhance the Stability and Growth Pact and to establish an effective mechanism of sanctions and surveillance. At its meeting on July 8, 2011 the Bundesrat, the second chamber of the German parliament, reached agreement with the German federal finance and justice ministries on the content of the Restructuring Fund Ordinance, which specifies the details of the bank levy based on the German Restructuring Act of December 14, This ordinance essentially states that the bank levy should be assessed on the basis of the total equity and liabilities reported on the balance sheet, adjusted for certain line items. A rising scale of charges is applied to the total calculated. The maximum bank levy that an institution is required to pay amounts to 20 percent

13 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE 11 of its net profit for the previous year. If this limit is exceeded by the aforementioned charge, the resulting difference incurs an additional payment that is limited to 2 years up to 2019; once this period has elapsed the payment is limited to 5 years. In addition, smaller institutions are exempted from the bank levy owing to the introduction of an allowance of 300 million that is based on the total equity and liabilities used to assess the levy. The global equity markets remained stable overall in the first half of Share prices came under severe pressure at times as a result of the natural disaster in Japan and the political unrest in the Middle East and North Africa in the first quarter of the reporting period. After share prices had subsequently rallied, attention in the second quarter of 2011 also became increasingly focused on the sovereign debt crisis in the euro-zone periphery countries and, in particular, the efforts undertaken to avert the imminent threat of insolvency facing the Portuguese and, above all, Greek governments. On balance, however, share prices in the DAX index comfortably exceeded their average for the first half of 2010 on the back of the steady but sharp upturn in the Germany economy and the corporate earnings growth achieved during the reporting period, especially in the first quarter. The DAX closed the first half of 2011 almost 400 points above the level of 7,000 points where it had started the year. However, growing concerns about the high levels of government debt in the United States and Europe caused share prices on stock markets around the world to plunge at the beginning of August. Consequently, the DAX fell by around 1,500 points from where it had been at the beginning of the year. Overall, the major German banks reported an encouraging level of operating income in the first half of Net interest income was on the level of the first half of 2010 or exceeded this level on the back of continued low interest rates and, consequently, favorable funding conditions. The cost of allowances for losses on loans and advances largely fell as a result of the benign economic environment. Administrative expenses rose moderately in relation to the growth in operating income. 3. CLOSE AND LASTING PARTNERSHIP WITH- IN THE COOPERATIVE FINANCIAL NETWORK DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main (DZ BANK), operates as a central institution, corporate bank, and holding company, offering a wide range of attractive products and services to the local cooperative banks, which are both its shareholders and its most important customers. The DZ BANK Group s success is founded on the 1,138 cooperative banks, which have 30 million customers and 16.7 million members. The DZ BANK Group s activities are divided into four strategic business lines: retail banking, corporate banking, transaction banking, and capital markets business focused on the cooperative financial network. 3.1 RETAIL BANKING Pooling of resources in private banking The expansion of DZ PRIVATBANK s private banking activities continued to make good progress in the first half of DZ PRIVATBANK will generate further growth from the merger between DZ PRIVATBANK S.A., Luxembourg-Strassen (DZ PRIVATBANK S.A.), and WGZ BANK Luxembourg S.A., Luxembourg (WGZ Luxembourg). By signing the agreement in principle in April 2011, the boards of managing directors and the supervisory boards of DZ BANK and WGZ BANK AG Westdeutsche Genossenschafts-Zentralbank, Düsseldorf (WGZ BANK), gave their consent to the merger of their two Luxembourg-based subsidiaries. The extraordinary general meetings of the merging institutions were held in June. The new entity has client assets of approximately 14 billion under management and serves more than 70,000 private banking clients. The interim targets and objectives set by the private banking market initiative, which will eventually increase the cooperative banks share of the private banking market over the long term, were achieved on schedule. The cooperative banks private banking activities were launched throughout Germany under their VR-PrivateBanking brand in the second quarter of 2011.

14 12 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE WGZ BANK s private banking operations are to be relocated to a new Düsseldorf branch of DZ PRIVAT- BANK in the fourth quarter of this year. Further branches in Hamburg among other places will be opened in addition to the existing branches in Hanover, Munich, and Stuttgart in order to increase the decentralized market presence of this business across Germany and provide even better support for the cooperative banks in each locality. AKZENT Invest brand strengthened further AKZENT Invest, the high-quality brand of investment certificates issued by DZ BANK, once again generated a very high level of sales in line with 2010 s figure. Roughly half of the investment volume achieved stemmed from first-time investors in these certificates or totally new investors. There was continued strong demand for capital protection products, which offer investors not only attractive investment returns but also the desired safety and stability. However, there was also more robust demand for riskier securities issues. Based on its impressive sales figures, the cooperative financial network remains the undisputed market leader in capital protection certificates with a market share of almost 48 percent (according to the Deutscher Derivate Verband (DDV) [German Derivatives Association]). 3.2 CORPORATE BANKING Sharper focus in corporate banking By introducing ProFi DZ BANK, a new customer service and support concept, and organizing its loan processing on a regional basis (syndicated loans of up to 5 million are processed directly at the respective location), the DZ BANK Group increased its business volume by 12 percent and significantly improved the satisfaction levels of the local cooperative banks. The corporate banking activities conducted by the DZ BANK Group during the first 6 months of 2011 focused on boosting the sale of its financial services products. This enabled DZ BANK to substantially intensify its marketing operations by working closely with the entities in the cooperative financial network. The business model of adopting a customer-focused advisory approach paid dividends here. This model effectively combines sectoral and product-related expertise with a capital markets capability. The plan is to further increase and accelerate growth in both direct business and jointly extended loans. The main focus of this strategy is for the cooperative financial network to exploit more fully its business with large and medium-sized companies (corporate customers with revenues of between 50 million and 500 million). To this end, a number of changes to organizational structures in the market segments are planned. In addition, the entire corporate banking network will be organized on a regional basis in the future. This will involve, among other things, considerably sim plifying the interfaces to the local cooperative banks. 3.3 CAPITAL MARKETS Encouraging growth in client-driven capital markets business Market trends in the first half of 2011 continued to be determined by persistent uncertainty surrounding the levels of government debt run up by various European countries. Clients rediscovered their enthusiasm for traditional Pfandbriefe and other covered bonds as well as bonds issued by European countries that had not been affected by the sovereign debt crisis. Customers invested heavily in equity products in what at times were fairly volatile markets. Against this backdrop, DZ BANK managed to extend its lead in the market for structured products. It is responding to clients growing demand for commodity products for investment and hedging purposes by expanding its range of products and advisory services in this field. Advisory services for cooperative banks further intensified The significant changes in the regulatory environment created strong demand for advisory services for local cooperative banks. A particular focal point here was the liquidity regulations that will need to be complied with in the future under Basel III. In order to satisfy the level of demand, DZ BANK added a further component to its range of market risk advisory services. It also offered more advice on interest-rate risk arising from maturity transformation and on new aspects of hedge accounting.

15 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE 13 By working closely with the Union Investment Group (UIG), DZ BANK managed to meet the much more stringent transparency requirements applicable to its clients investments in mutual funds as a result of amendments to the regulations governing large exposures and exposures of 1.5 million or more (GroMiKV). It continued to develop its existing Geno-SAVE application for this purpose. The ECB s announcement of interest-rate hikes boosted sales of interest-rate hedging instruments. In addition, most business in own-account securities related to short and medium maturity periods, with issuers with high credit ratings being preferred. Buoyant capital markets business with corporate and institutional clients There was strong demand from corporate customers for interest-rate hedging products in the first half of Large and medium-sized companies in particular purchased larger volumes of structured products in order to hedge their exchange-rate risk. Business at institutional banks was driven by new bond issues and buoyant derivatives operations. The renewed success of the primary markets business also helped to meet the requirements and preferences of cooperative banks and other institutional investors. Fund management companies, for example, invested in liquid new benchmark-size issues, in which DZ BANK managed to expand its market share. Seal of approval for sustainability awarded in research DZ BANK Research provides the local cooperative banks with its own in-depth market research and analysis in order to assist them in their business. The cooperative banks therefore benefit from the high quality of this research, which is prepared to institutional standards. In order to take account of sustainability issues, which are increasingly being requested by investors as well, the equity research team has added sustainability factors to its research and analysis criteria for the entire equity universe analyzed by DZ BANK Research (334 stocks). The individual equities are awarded a sustainability rating, which forms part of the overall assessment. The innovative aspect of this new approach is that it provides a truly holistic view of the company concerned. In addition to the usual social, environmental, and corporate-governance sustainability factors it also includes economic criteria so that companies that are especially sustainable as well as financially successful can stand out. Those equities that are considered to be investible from a sustainability perspective are awarded DZ BANK s seal of approval for sustainability, which is then highlighted in all inhouse publications. 3.4 TRANSACTION BANKING Cash service with potential synergies DZ BANK in collaboration with its partner Cash Logistik Security AG, Düsseldorf has been offering a nationwide coin service as part of its comprehensive cash service since January 1, This highly flexible service is used by many local cooperative banks and a number of corporate customers. This has therefore plugged the gap that was left when the Bundesbank changed the way in which it supplies the German economy with cash. WGZ BANK has also availed itself of this service and uses its established infrastructure to supply itself with coins, which it then passes on to its customers. The deposit safes provided for corporate customers are also becoming increasingly popular because they offer these clients a number of advantages. This cash service has already made DZ BANK a market leader in Germany. VR-RechnungsService successful An innovative tool for corporate banking is VR-Re chnungsservice, a computerized invoicing system that provides customers with a fully electronic processing chain from the invoice receipt stage to automatic processing and eventual invoice dispatch. DZ BANK has entered into an alliance with WGZ BANK so that it can now offer this service throughout Germany. The number of customers using it rose sharply in the first half of By adding VR-NetWorld to this service, DZ BANK managed to acquire a strong partner in the cooperative financial network. VR- NetWorld now provides its affiliated local cooperative banks with electronic invoices. This enabled DZ BANK to acquire an additional 100 or so local coop erative banks as clients for VR-RechnungsService.

16 14 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE 4. EARNINGS PERFORMANCE The DZ BANK Group successfully overcame the tough market conditions and the diverse challenges facing its business in the first half of The year-on-year changes in the key figures that make up the net profit or loss generated by the DZ BANK Group in the first half of 2011 were as described below. Operating income in the DZ BANK Group amounted to 2,088 million (first half of 2010: 1,986 million). This figure includes net interest income, net fee and commission income, gains and losses on trading activities, gains and losses on investments, other gains and losses on valuation of financial instruments, net income from insurance business, and other net operating income. Net interest income achieved impressive growth, rising by 242 million. In addition, gains and losses on investments (up by 75 million), other gains and losses on valuation of financial instruments (up by 27 million), and other net operating income (up by 23 million) all improved. By contrast, gains and losses on trading activities (down by 166 million), net fee and commission income (down by 50 million), and net income from insurance business (down by 49 million) all decreased year on year. Operating income rose by 102 million in the first half of Allowances for losses on loans and advances during the reporting period came to 135 million (first half of 2010: 136 million). The DZ BANK Group s administrative expenses rose by 81 million, or 6.6 percent, to 1,315 million (first half of 2010: 1,234 million). Profit before taxes during the reporting period amounted to 638 million compared with 616 million in the first 6 months of In detail, the earnings performance of the DZ BANK Group in the first half of 2011 was as follows. FIG. 1 INCOME STATEMENT million Jun. 30, 2011 Jun. 30, 2010 Change (%) Net interest income 1,491 1, Allowances for losses on loans and advances Net fee and commission income Gains and losses on trading activities Gains and losses on investments Other gains and losses on valuation of financial instruments Net income from insurance business Administrative expenses -1,315-1, Staff expenses Other administrative expenses Other net operating income 8-15 >100.0 Profit before taxes Income taxes Net profit General and administrative expenses plus depreciation/amortization expense on property, plant and equipment, and investment property, and on other assets Net interest income (including income from long-term equity investments) in the DZ BANK Group increased by 19.4 percent year on year to 1,491 million. Net interest income rose especially at DZ BANK (excluding income from long-term equity investments), advancing by 40 million. It also increased by 25 million each at both TeamBank AG Nürnberg, Nuremberg, (TeamBank) and in the subgroup Bausparkasse Schwäbisch Hall AG, Schwäbisch Hall, (BSH); in addition, it grew by 10 million each at both Deutsche Genossenschafts-Hypothekenbank AG, Hamburg, (DG HYP) and in the VR LEASING subgroup (VR LEASING). Furthermore, net interest income improved by 9 million at DZ PRIVATBANK and by 4 million in the subgroup DVB Bank SE, Frankfurt am Main, (DVB). At DZ BANK, net interest income from operating business (excluding income from long-term equity investments) climbed by 24.7 percent to 202 million.

17 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE 15 The encouraging trend of 2010 in joint credit business with the local cooperative banks continued in the first 6 months of Both the volumes of new business and the numbers of applications in traditional syndicated META-lending business once again increased. Consequently, net operating interest income from lending in VR-Mittelstand again rose substantially year on year in the first half of This sustained growth underlines the successful support provided by DZ BANK as a partner to the local cooperative banks. Financing provided in the highly promising market segment of renewable energies continued to make an especially valuable contribution. After DZ BANK had increased its front-office customer service and support capacity in 2010, it also increased its back-office capacity in the first half of DZ BANK supported development lending business by the local cooperative banks with the effective deployment of experts with regional responsibility and with sales activities directed at specific target groups. During the reporting period, however, it failed to replicate the record growth in new business that it had achieved in the first half of The main reasons for this were cuts to subsidies for solar energy and the expiry of financial support programs for small and medium-sized enterprises. Future stimulus might well come from the relaunch of subsidy programs in connection with the changes in energy policy. General economic and market conditions in the corporate finance business picked up increasingly during the reporting period, which improved borrowers credit standing. At the same time we are seeing greater pressure on margins as a result of increasing competition because of the growing market presence of banks that had withdrawn entirely from the corporate finance business during the recent financial and economic crisis. By intensifying its marketing strategy in partnership with the entities in the Volksbanken Raiffeisenbanken cooperative financial network, DZ BANK ensured that its consistent business model of adopting a customer-focused advisory approach paid dividends. This model effectively combines sectoral and product-related expertise with a capital markets capability in a single package. DZ BANK continued to strengthen its market position during the reporting period, almost achieving the impressive level of net operating interest income that it had generated in the first half of The structured finance business offers financing solutions that meet corporate customers needs. Although this business is mainly based in Frankfurt, it also maintains an international network that includes key financial centers such as Hong Kong, London, New York, and Singapore and supports the business activities undertaken by German corporate customers. By acquiring international clients who have significant links to Germany, this business is also broadening its client base in Germany. Net operating interest income from the structured finance business in the first half of 2011 declined year on year owing to the planned reduction of portfolios that were not consistent with the agreed strategy as well as the expiry of transactions from previous years. Despite the higher number of new transactions completed, net operating interest income from acquisition finance was, as planned, lower than in the first half of 2010 owing to an overall contraction in the business portfolio and the lower level of margins. Business in international trade and export finance in the first 6 months of 2011 was largely characterized by a continued focus on German and international core customers. The main strategy in Germany was to expand business with small and medium-sized enterprises. Net operating interest income in the first half of 2011 fell year on year owing to a general narrowing of margins in the market. The focus of the project finance business was on renewable energies. However, the lower volume of new business compared with the first half of 2010 reduced net operating interest income year on year. The net interest income generated by TeamBank jumped by 13.8 percent year on year to 206 million in the first 6 months of 2011.

18 16 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE One of the main reasons for this impressive performance in the first half of 2011 was the increase in the gross volume of the easycredit portfolio (excluding Austria), which comfortably exceeded the adjusted overall market growth rate of 2.4 percent (latest figures as at March 31, 2011 compared with March 31, 2010). The number of customers as at June 30, 2011 had risen to 545,000 (December 31, 2010: 521,000). easycredit continued to strengthen its market position in the fiercely competitive consumer finance market. Some 78 percent of all cooperative banks in Germany work in partnership with TeamBank. TeamBank has been offering its fair credit products in the Austrian market since 2008 and is now represented in all of the country s federal states. By the end of the first half of 2011, 52 cooperative partner banks were working in collaboration with TeamBank in Austria. With a brand recognition rate that had risen steadily to 86 percent, the company had fulfilled the necessary preconditions for a successful market presence in the consumer finance sector by positioning itself with a unique profile. This was largely because in previous years the company had refined the product features of easycredit and combined them into a fairness package. TeamBank continued its quality and growth strategy in the first half of 2011 by stepping up the marketing of its easycredit card function, which it had successfully piloted in This credit card with a consumer finance function, which is currently unique in the market, combines the inherent flexibility of easy- Credit with the benefits of a flexible financial reserve. A total of 23,000 or so customers were using the easy- Credit card as a preferred tool for state-of-the-art liqui - dity management as at June 30, This provides customers with a financial reserve of 179 million. Net interest income in the BSH subgroup grew by 5.6 percent to 472 million. This result was largely due to the fact that the Hungarian building society Fundamenta was, other than in the first half of 2010, fully consolidated in the first half of It was also boosted by volume-related effects that primarily stemmed from the strong growth in new business in recent years. Home savings contracts are becoming increasingly popular as a safe and stable form of investment, especially in view of the ongoing sovereign debt crisis. This is particularly the case because the German government s recognition of owner-occupied housing as a form of retirement pension provision that deserves to receive financial assistance enables customers with home savings contracts to take advantage of interestfree subsidies. In addition, home savings contracts provide effective protection against rising interest rates because the low interest rates on the loan element are fixed over the entire term of the contract as soon as it is signed. The innovative Schwäbisch Hall Tarif Fuchs scale of rates and charges remained highly popular with customers in Germany during the reporting period, reaffirming BSH s leading position in the building society market. The net interest income generated by DG HYP advanced by 8.5 percent to 128 million in the first half of This increase was largely attributable to the continued replacement of the portfolio of consumer home finance contracts by higher-margin commercial real-estate loans. German economic growth in the first 6 months of 2011 was stronger than had been expected at the beginning of the year. The volume of transactions completed in the real-estate market managed to build on the encouraging performance achieved in 2010 and continued to grow across all market segments. Against this backdrop, DG HYP continued its successful, established strategy of focusing on its core German market. The volume of new commercial real-estate finance business in Germany had grown by 13.5 percent from 1,522 million in the first half of 2010 to 1,728 million as at June 30, This enabled DG HYP to consolidate its position as one of the leading real-estate banks. New business outside Germany contracted, as planned, to 97 million (first half of 2010: 813 million), which meant that the total volume of new business fell year on year to 1,825 million (first half of 2010: 2,335 million).

19 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE 17 The partnership with the local cooperative banks was developed and enhanced in the first 6 months of the current year, during which joint marketing activities were intensified. In addition, the IMMO META REVERSE + product introduced in 2010 attracted growing interest. Against this background, the volume of business jointly generated with the local cooperative banks in the first half of 2011 achieved above-average growth, rising to 631 million, which represented a year-on-year increase of 61.8 percent on the corresponding prior-year period (first half of 2010: 390 million). By lending to public bodies, DG HYP assists its cooperative partner banks in their primary local authority lending business. Given the prevailing competitive environment, new business worth a total of only 185 million was generated in the first half of 2011 (first half of 2010: 410 million). Net interest income in the VR LEASING subgroup grew by 9.4 percent during the reporting period to 116 million. The economic upturn in Germany had only a delayed impact on leasing activities from the fourth quarter of 2010, boosting this business significantly. This increase continued in the first half of Consequently, the total volume of leases in the equipment and vendor finance sector originated by VR LEASING both in Germany and abroad grew by 3.6 percent compared with the first half of 2010 to 1,513 million. The continued strength of the German economy coupled with the high level of production capacity utilization at small and medium-sized enterprises enabled VR LEASING to expand the volume of leases that it originated in Germany in the first 6 months of 2011 by 0.7 percent to 916 million (first half of 2010: 910 million). In the future VR LEASING will only originate leases outside Germany if this business brings tangible benefits for the Volksbanken Raiffeisenbanken cooperative financial network. The volume of leases originated outside Germany during the reporting period came to 597 million (first half of 2010: 550 million). VR LEASING continued to increase its standardized retail business with partner banks during the reporting period by using its proven VR-LeasyOnline application. The volume of leases originated in the first 6 months of 2011 amounted to 78 million. VR LEAS- ING also offers leases for SMEs in the rapidly growing market of renewable energies in association with relevant development programs offered by Landwirtschaftliche Rentenbank. The volume of leases generated in this product segment in the first half of 2011 totaled 35 million. During the reporting period VR LEASING supplemented this business strategy by requiring that unutilized leasing potential be better exploited in respect of small and medium-sized enterprises as commercial customers of the cooperative banks by focusing on offering them leases, factoring, centralized settlement, and innovative new products. The current additional proprietary marketing of leases via automobile and equipment vendors, vehicle fleet business, and real-estate leasing will no longer form part of VR LEASING s core business in the future. Factoring and discounting operations were substantially expanded during the reporting period. The revenue generated by VR FACTOREM GmbH, Eschborn, amounted to 1,349 million (first half of 2010: 1,028 million), while VR DISKONTBANK GmbH, Eschborn, earned revenue of 4,043 million (first half of 2010: 3,499 million). The net interest income earned by DZ PRIVATBANK in the reporting period rose by 9.7 percent to 102 mil - lion. DZ PRIVATBANK benefited from the favorable funding situation created by the low level of interest rates and from the considerable expansion in the Lux- Credit foreign-currency lending business. Following the merger between DZ PRIVATBANK S.A., DZ PB S.A., Luxembourg-Strassen, and WGZ Luxembourg, which was completed at the beginning of June 2011, the merged DZ PRIVATBANK entity is continuing its core activities in the product segments of private banking, credit, investment funds, and treasury by strengthening its market presence. This expanded business base offers DZ PRIVATBANK the

20 18 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE opportunity to exploit its locational advantages in Luxembourg, Switzerland, and Singapore as well as in all German regions even more than in the past by sharpening its client focus and providing attractive products and services from a single source for the cooperative financial network and for its retail and institutional clients. DZ PRIVATBANK acts as the competence center for foreign-currency lending and borrowing in the interest-earning business. In LuxCredit foreign-currency lending, the volume of loans guaranteed for the local cooperative banks clients had increased by 1.1 billion to 7.2 billion as at June 30, 2011, 0.4 billion of which stemmed from the merger. The net interest income earned by the DVB subgroup grew by 3.7 percent to 113 million. As world trade continued to recover during the reporting period, global freight and passenger transportation increased, albeit with significant regional variations. While demand in the transportation markets fluctuated, capacity continued to grow significantly on the back of new deliveries. As a major player in the transport finance market, DVB substantially increased its volume of new lending business during the reporting period as a result of its credit portfolio, which was strongly diversified across various types of transportation, geographical regions, and users. In the first 6 months of 2011 it completed 75 transactions with an appropriate risk/return profile and a total volume of 2,375 million. The like-for-like volume in the first half of 2010 was 1,609 million with a total of 54 transactions. The DZ BANK Group s income from long-term equity investments advanced by 50 million to 71 million during the reporting period (first half of 2010: 21 million). This growth was primarily attributable to the fact that the Österreichische Volksbanken-AG Group, which is recognized on a pro-rata basis, achieved breakeven in the reporting period whereas it had incurred a net loss of 48 million in the first half of Allowances for losses on loans and advances for the DZ BANK Group in the period under review were reported at 135 million (first half of 2010: 136 million). DZ BANK s allowances for losses on loans and advances in the first half of 2011 amounted to a net reversal of 9 million compared with a corresponding figure of 17 million in the first 6 months of Further detailed disclosures regarding the risk situation in the DZ BANK Group can be found in the risk report starting on page 25 of this interim group management report. Net fee and commission income in the DZ BANK Group fell by 9.2 percent to 493 million. The DVB subgroup, DZ BANK, and DZ PRIVAT- BANK all raised their net fee and commission income, whereas this line item decreased in the BSH subgroup, in the Union Investment Group, and at TeamBank. Net fee and commission income in the DVB subgroup increased by 31.7 percent to 54 million in the reporting period. This income largely comprised commission earned from structured finance in the transport finance business and, increasingly, from asset management as well as consultancy fees. Given the sharp expansion in world trade, especially since the second half of 2010, DVB which specializes in international transport finance substantially raised its net fee and commission income in the first half of 2011 by focusing on sophisticated structured finance. The shipping and aviation asset management teams also made a significant contribution to profits in the first half of 2011 and provided clients, investors, and other banks with solutions for debt restructuring and for the assumption and sale of aircraft and ships. Net fee and commission income at DZ BANK rose by 3.0 percent to 136 million largely on the back of a significant year-on-year increase in profit contribution from the securities business, which was primarily attributable to the success of the investment banking business.

21 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE 19 The profit contribution from payments processing (including card processing) was slightly lower than it had been in the first half of The profit contribution from lending and trust activities improved year on year. The profit contribution from international business remained virtually unchanged. The net fee and commission income from corporate finance, which during the reporting period largely stemmed from lending fees and commissions, almost matched the highly impressive figure achieved in the first half of The first half of 2010 was characterized by relatively high fee and commission income, which was not generated to the same extent during the reporting period owing to the significant upturn in economic activity and the consequent improvement in clients credit standing. Net fee and commission income from the structured finance business declined overall year on year in the first half of 2011 owing to the planned reduction in business volumes. By contrast, the syndicated lending and acquisition finance department improved its net fee and commission income owing to its acquisition of further mandates in cooperative network-related business with large German corporates / German small and medium-sized enterprises. In addition, fee and commission income from documentary business also rose on the back of the continued strength of exports. The primary equity market was characterized by increasing issuing activity during the reporting period. The initial public offerings (IPOs) conducted in the Prime Standard of the Frankfurt Stock Exchange were dominated by big-ticket transactions. DZ BANK benefited in this environment from its broad product range of customized equity solutions and equitiesbased services. The net fee and commission income earned by DZ PRIVATBANK during the reporting period increased by 5.4 percent to 39 million. This result was largely attributable to the intensified private banking alliance with the cooperative banks coupled with a strengthened marketing strategy. Additional business stimulus came from the private banking portfolio acquired by UniCredit Luxembourg S.A., Luxembourg, at the beginning of The funds under management had grown by 3.2 billion to 13.2 billion by the end of the reporting period. 0.8 billion of this increase was attributable to the merger with WGZ Luxembourg. Furthermore, DZ PRIVATBANK continued to expand its business in services for investment funds in the first 6 months of Excluding the merger, it won a net total of 34 new fund-related mandates during the reporting period compared with the first half of A further 50 mandates were acquired as a result of the merger. Excluding the merger, the value of funds under management had grown by 10.4 billion to 49.3 billion as at June 30, 2011 (June 30, 2010: 38.9 billion). Including the merger, the value of funds under management amounted to 68.3 billion at the end of the first half of Excluding the merger, the growth in the LuxCredit foreign-currency lending business resulted in a 7 million increase in commission payments to cooperative banks acting as intermediaries, taking the total to 39 million. BSH pays fees and commissions to the cooperative banks and to the integrated bank-supported field sales force on the basis of BSH contracts signed with customers. Given the sharp increase in the volume of new business during the reporting period, the associated fee and commission expense reduced the net fee and commission income in the BSH subgroup accordingly to a net expense of 122 million (first half of 2010: net expense of 91 million). During the reporting period the building society operations that constitute the home savings business generated 470,000 new home savings contracts worth a total of 17.6 billion, which represented a year-on-year increase of 25.5 percent. The lending volume brokered together with the cooperative banks in the home finance business generated above-average growth for the sector, rising by 13.0 percent to 5.6 billion. The volume of interest-only loans brokered by the cooperative banks and supported by a

22 20 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE home savings contract achieved a new half-year record of 4.0 billion. A key factor in the performance of this business was the refurbishment of older properties in order to improve their energy efficiency, which is becoming especially important in the drive to save energy and protect the environment. In addition, the number of new builds is expected to grow at a faster rate in 2011 than in By cross-selling supplementary pension products, BSH field sales staff once again sold a large volume of cooperative bank pension products, Union Investment Group investment funds, and R+V insurance policies. The net fee and commission income generated by the Union Investment Group in the first half of 2011 fell by 6.4 percent year on year to 425 million. The volume of assets under management increased further because inflows of funds continued and share prices were generally much higher than they had been in the first half of While the income generated by this business increased during the reporting period, performance fees were lower. Retail investors remained reluctant to invest in equity funds in the first half of 2011, not least in view of the ongoing debate about the sustainability of the levels of government debt in certain euro-zone periphery countries. Once historically low interest rates had bottomed out at the beginning of April 2011, fixedincome funds were hit by the rebound in interest rates and the consequent fall in bond prices during the reporting period. The UniOpti 4 fund, which no longer enjoys tax-privileged status, suffered net outflows of 1.8 billion in the first 6 months of Excluding this exceptional situation, net sales of fixed-income funds to retail clients would have amounted to 0.9 billion. Union Investment remained the market leader in both capital-protected investments and fund-based Riester products for retail customers. By signing 43,000 new UniProfiRente contracts, Union Investment had increased its Riester business portfolio to 1.9 million customers by June 30, The funds in the new PrivatFonds (private-client funds) product series launched in the middle of 2010, which comprises three investment concepts Privat- Fonds: Flexibel, PrivatFonds: Konsequent, and Privat- Fonds: Kontrolliert, each of which is available in two different types and combines active management with the flexible coordination of a large number of asset classes, had generated a total investment volume of 1.2 billion as at June 30, The Union Investment Group maintained its strong market position in open-ended real-estate funds with assets under management totaling 18.0 billion at the end of the reporting period. Union Investment was also affected by the year-on-year contraction in investor demand for this category of funds a trend that was observed across the sector in the first half of In its institutional business, Union Investment generated net inflows of 2.5 billion and increased total institutional client assets to 92.4 billion in the first 6 months of In doing so, it benefited from its expertise in convertible and corporate bonds and in actively managed capital-preservation mandates. The net fee and commission income earned by Team- Bank in the first half of 2011 fell by 13.3 percent to a net expense of 34 million (first half of 2010: net expense of 30 million). Increased trailer fees and sales commissions paid by TeamBank to the primary banks in connection with the expansion of its easycredit business incurred higher fee and commission expenses, which were partly offset by higher fee and commission income from the sale of credit insurance policies as part of TeamBank s customer business (easy Credit shops, letters, telephone, and internet). The gains and losses on trading activities in the DZ BANK Group during the reporting period amounted to a net gain of 362 million compared with a net gain of 528 million in the first half of This result was largely attributable to the trading profit of 294 million earned by DZ BANK from capital markets business (first half of 2010: profit of

23 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE million). The group s gains and losses on trading activities during the reporting period had been reduced by reversals of write-downs of 100 million on DZ BANK s liabilities, which had resulted from the recognition of higher carrying amounts for the fair value of liabilities owing to narrower spreads. The group also recognized impairment losses of 18 million on asset-backed securities (ABSs) during the reporting period (first half of 2010: net gains of 14 million). As in previous years, the encouraging level of gains and losses on trading activities in the DZ BANK Group in the first half of 2011 stemmed mainly from DZ BANK s customer-related business in investment and risk management products involving the asset classes of equities, interest rates, and foreign exchange. DZ BANK continued to meet its clients needs in terms of structured products for retail business and for the risk management activities of banks, corporate customers, and institutional clients. In view of the ongoing debate about the levels of sovereign debt in certain euro-zone periphery countries in particular during the reporting period, retail investors attached considerable importance to the safety and reliability of investments and to issuers credit standing. DZ BANK s business in investment certificates therefore attracted strong client demand for its high-quality AKZENT Invest brand in the first half of DZ BANK remained the undisputed market leader in capital protection certificates, which were especially popular during the reporting period. The volatile market environment boosted customers demand for investment-grade covered bank bonds and first-class government bonds in the first half of The ECB s two interest-rate hikes of 25 basis points each at the beginning of April 2011 and again at the start of July, which eventually brought the key lending rate up to 1.50 percent, strengthened primary banks and corporate customers interest in long-term funding and interest-rate derivatives. In its business with institutional investors, DZ BANK managed to meet its customers preferences in the first 6 months of 2011 by placing investment-grade covered registered bonds issued by a number of foreign entities with insurance companies and pension funds. Foreignexchange business with small and medium-sized enterprises achieved strong growth in structured exchangerate hedges compared with the first half of In addition, corporate customers used derivatives to lock in the low interest rates. In the primary market for new bond issues, DZ BANK again demonstrated its significant placing power in the cooperative financial network and with institutional customers around the world. As one of the lead managers of the 4.75 billion euro-denominated bond issued by the European Financial Stability Facility (EFSF) in May 2011, it impressively underscored its considerable market reputation by contributing to the successful placement of this issue. The DZ BANK Group s gains and losses on investments amounted to a net loss of 231 million (first half of 2010: net loss of 306 million). The figure reported for the first half of 2011 included impairment losses of 216 million on Greek government bonds, of which 146 million was attributable to DZ PRIVATBANK and 70 million to DZ BANK. The corresponding figure reported for the first half of 2010 contained impairment losses of 295 million on ABSs. ABSs had only a marginal effect on the overall level of gains and losses on investments in the first 6 months of Other gains and losses on valuation of financial instruments in the DZ BANK Group during the reporting period amounted to a loss of 135 million (first half of 2010: loss of 162 million). 138 million of the loss reported for the first half of 2011 related to DG HYP. This includes losses on securities portfolios caused by the impairment of bonds related to the sovereign debt crisis in peripheral European countries. The DZ BANK Group s net income from insurance business amounted to 100 million in the reporting period compared with 149 million in the first half of It was reduced by 27 million by the recognition

24 22 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE of impairment losses on Greek government bonds. Net income from insurance business comprises premiums earned, gains and losses on investments held by insurance companies and other insurance company gains and losses, insurance benefit payments, and insurance business operating expenses. The close partnership between R+V and the local cooperative banks maintained the insurance premiums earned by the company at a high level. The fact that R+V is firmly anchored in the cooperative financial network is becoming increasingly important given the persistently stiff competition in the insurance industry. The level of premiums earned remained virtually unchanged at 5,439 million (first half of 2010: 5,470 million). R+V therefore managed to build on the already very high level of premiums earned in the first half of 2010, which had been boosted by significant growth stimulus. Forecasts that R+V would outperform the general sectoral trend in terms of premium growth in its property and casualty insurance business were confirmed. R+V generated slightly lower premium income in its life insurance business, especially in its one-off premium pension insurance business. Despite the adverse impact of the ongoing debate about the future structure of the healthcare system in Germany, R+V Krankenversicherung was able to increase its premium income. R+V continued its growth strategy in inward reinsurance. Gains and losses on investments held by insurance companies and other insurance company gains and losses amounted to a net gain of 1,076 million (first half of 2010: 1,474 million). The lower level of gains on investments held by insurance companies compared with the first half of 2010 reflected the relevant developments in the financial, capital, and currency markets. It included impairment losses on Greek government bonds for the first time as at June 30, Owing to the recognition of reserves for deferred policyholder participation in life insurance in the insurance benefit payments line item presented below, however, the associated change in the level of gains on investments held by insurance companies only partially affects the level of net income from insurance business. Insurance benefit payments decreased by 7.3 percent from 5,860 million in the first half of 2010 to 5,433 million in the first 6 months of There was a significant fall in the number of high-volume minor claims in property and casualty insurance business despite the large number of claims during the winter period. In line with the gains and losses on investments held by insurance companies, lower additions were made to insurance liabilities at companies offering personal insurance. By contrast, losses in inward reinsurance in the first half of 2011 were significantly higher than in the corresponding period of The earthquake disasters in Japan and New Zealand were one of the main causes of additional losses. Insurance business operating expenses incurred in the course of ordinary business activities rose from 935 million in the first half of 2010 to 982 million in the first 6 months of The DZ BANK Group s administrative expenses rose by 81 million, or 6.6 percent, to 1,315 million (first half of 2010: 1,234 million), with staff ex - penses increasing by 16 million, or 2.3 percent, to 699 million (first half of 2010: 683 million) and other administrative expenses advancing by 65 million, or 11.8 percent, to 616 million (first half of 2010: 551 million).

25 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE 23 DZ BANK s other administrative expenses rose by 20 million to 190 million largely as a result of the first-time recognition of the bank levy ( 15 million). Higher consultancy costs and the payment of the bank levy were mainly responsible for the fact that DVB s other administrative expenses grew by 6 million to 39 million. 5. Performance of the business segments The business segment breakdown of the DZ BANK Group s profit before taxes of 638 million for the first half of 2011 was as follows: The increase in the DZ BANK Group s staff expenses was primarily attributable to the fact that DZ PRI- VATBANK s staff expenses rose by 9 million to 46 million owing to the expansion of the private banking business. Other net operating income earned by the DZ BANK Group in the reporting period rose by 23 million to 8 million (first half of 2010: net expense of 15 million). This increase was largely attributable to an improvement of 43 million at DZ BANK and, at the same time, a decrease of 25 million at DG HYP. The cost/income ratio for the DZ BANK Group in the first half of 2011 was 63.0 percent (first half of 2010: 62.1 percent). The income taxes paid by the DZ BANK Group in the first 6 months of 2011 amounted to 189 million compared with a corresponding figure of 130 million for the first half of The DZ BANK Group generated a net profit of 449 million in the first 6 months of 2011 compared with 486 million in the first half of FIG. 2 PERFORMANCE OF THE BUSINESS SEGMENTS million Jun. 30, 2011 Jun. 30, 2010 Bank Retail Real Estate Finance Insurance Consolidation/reconciliation Profit before taxes increased by 31 million in the Bank business segment and by 129 million in the Real Estate Finance business segment compared with the first six months of Profit before taxes fell by 112 million and 35 million respectively in the Retail and Insurance business segments. The net effect of consolidation/reconciliation increased by 9 million to minus 202 million. The income statements for the individual business segments are shown in detail in section 4 of the notes to the interim consolidated financial statements. 6. VOLUME GROWTH The DZ BANK Group s total assets as at June 30, 2011 had decreased marginally by 0.2 billion to billion (December 31, 2010: billion). DG HYP s total assets contracted by 4.8 billion to 60.1 billion; total assets at DZ PRIVATBANK increased by 3.1 billion to 17.9 billion, and at R+V they grew by 1.6 billion to 66.3 billion.

26 24 DZ BANK INTERIM GROUP MANAGEMENT REPORT BUSINESS PERFORMANCE The DZ BANK Group s loans and advances to banks increased by 0.3 billion, or 0.4 percent, to 73.9 billion. Loans and advances to domestic banks grew by 1.9 billion, or 3.0 percent, to 65.6 billion, while loans and advances to foreign banks declined by 1.6 billion, or 16.2 percent, to 8.3 billion. Loans and advances to customers in the DZ BANK Group fell by 0.8 billion, or 0.7 percent, to bil - lion. The decrease in loans and advances to customers at DG HYP ( 1.5 billion) and at DZ BANK ( 0.7 billion) more than offset the increase in loans and advances to customers at DZ PRIVATBANK ( 0.8 billion) and in the BSH subgroup ( 0.8 billion). Financial assets held for trading as at June 30, 2011 amounted to 63.9 billion, which represented a decrease of 4.1 billion, or 6.1 percent, on the figure as at December 31, The decrease was primarily attributable to a reduction in the amount of derivatives (positive fair values), which decreased by 3.9 billion, and lower holdings of bonds and other fixed-income securities, which fell by 2.4 billion. By contrast, money market placements grew by 2.1 billion. Investments grew by 2.7 billion, or 4.5 percent, to 61.4 billion. This was primarily attributable to an increase of 2.6 billion in the volume of bonds and other fixed-income securities. The DZ BANK Group s deposits from banks as at June 30, 2011 amounted to 97.3 billion, which was 6.9 billion, or 6.6 percent, lower than the figure reported as at December 31, 2010, with deposits from domestic banks rising by 0.3 billion and deposits from foreign banks contracting by 7.2 billion. Amounts owed to other depositors grew by 6.3 billion, or 7.4 percent, to 91.2 billion. Amounts owed to other depositors rose by 4.0 billion at DZ BANK, by 1.9 billion at DZ PRIVATBANK, and by 1.5 billion in the BSH subgroup, while these amounts declined by 0.9 billion at DG HYP. The carrying amount of debt certificates including bonds in the DZ BANK Group had reached 55.1 billion as at June 30, 2011 (December 31, 2010: 55.2 billion). While DG HYP and DZ BANK Ireland plc, Dublin (DZ BANK Ireland), both recorded decreases in their debt certificates including bonds of 3.7 billion and 1.3 billion respectively, DZ BANK and the DVB subgroup reported increases of 4.2 billion and 0.5 billion respectively. Financial liabilities held for trading declined by 1.1 billion, or 1.9 percent, to 56.6 billion. This decrease mainly included a reduction of 5.6 billion in derivatives (negative fair values), which was primarily partly offset by an increase of 3.2 billion in money market deposits. The equity reported by the DZ BANK Group as at June 30, 2011 totaled 11,397 million (December 31, 2010: 10,727 million), with the revaluation reserve falling from minus 680 million as at December 31, 2010 to minus 550 million as at June 30, The regulatory capital ratios for the DZ BANK Group are discussed on page 27 et seq. of this interim group management report. Risk capital management and liquidity risk management in the DZ BANK Group are presented in detail on page 26 et seqq. and page 38 et seqq. of this interim group management report respectively. The year-on-year changes in cash flows from operating activities, investing activities, and financing activities are shown in the statement of cash flows in the interim consolidated financial statements.

27 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT 25 II. Risk report The figures in this risk report are rounded to the nearest whole number. This may give rise to small discrepancies between the totals shown in the tables and totals calculated from the individual values shown. 1. RISK MANAGEMENT SYSTEM The objectives and strategies of the DZ BANK Group s risk management system and the types of risk relevant to the group are set out in the disclosures starting on page 61 of the risk report in the group management report for All group companies are integrated into the DZ BANK Group s risk management system. The following companies are deemed to be material in terms of their contribution to the DZ BANK Group s aggregate risk and are therefore directly incorporated into the group s risk management system: DZ BANK, BSH, DG HYP, DVB, DZ BANK Ireland, DZ BANK Polska S.A., Warsaw (DZ BANK Polska), DZ PRIVATBANK S.A. and DZ PRIVATBANK (Schweiz) AG, Zurich (both collectively also referred to below as DZ PRIVAT- BANK), R+V, TeamBank, Union Asset Management Holding AG, Frankfurt am Main (Union Asset Management Holding), and VR-LEASING AG, Eschborn (VR LEASING). The other companies are recorded and managed as part of equity risk. Apart from the details described in this risk report, no material modifications have been made to the risk management system since December 31, The details in this regard set out in the risk report within the 2010 group management report therefore continue to apply. 2. ACTION TAKEN TO MITIGATE MARKET CRISES 2.1 SOVEREIGN DEBT CRISIS AND POLITICAL FLASHPOINTS For some time now, substantial budget deficits have been a feature of the euro zone economies of Portugal, Ireland, Italy, Greece, and Spain, and these deficits are accompanied by government debt levels that are high in relation to gross domestic product. The sovereign debt crisis in these European countries intensified in 2010 and continued to be felt during the first half of The public finances of Greece and Ireland, in particular, remained heavily in deficit. Greece s budget deficit is a result of the country s high levels of government debt, whereas Ireland s parlous situation is attributable to its ailing banking sector. Consequently, the DZ BANK Group s loans and advances to borrowers in these countries continue to be closely monitored. While the threat of a default by the United States has been averted for the time being, further uncertainties remain. The subsequent downgrade of the country s credit standing by rating agency Standard & Poor s rattled the capital markets. Fears that forthcoming austerity measures might tip the United States back into recession are fueling downbeat forecasts about global economic growth. This situation might well mean that the entities in the DZ BANK Group have to increase the level of allowances that they set aside for losses on loans and advances over the further course of the year. In addition to the financial and sovereign debt crises, the political flashpoints in North Africa and the Middle East increasingly became the focus of attention in the first 6 months of this year. 2.2 SOPHISTICATED RISK MANAGEMENT SYSTEM The DZ BANK Group has a range of sophisticated risk management tools at its disposal that enable it to respond appropriately to market turmoil. Changes in risk factors, such as a deterioration in the credit rating of counterparties or the widening of spreads on securities, are reflected in adjusted risk parameters in the mark-to-model measurement of credit risks and market risks. Conservative crisis scenarios for shortterm liquidity ensure that liquidity risk management also takes adequate account of market crises. A risk limit system based on risk-bearing capacity, stress testing encompassing all risk types, and a flexible internal reporting system ensure that the management team is in a position to initiate targeted corrective action if required.

28 26 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT 2.3 TARGETED MANAGEMENT ACTION Since the financial crisis broke out, the entities in the DZ BANK Group have stepped up the monitoring of their credit portfolios, with attention focused on exposures to the financial sector and to the countries and regions that have been particularly affected by the ongoing sovereign debt crisis. Individual exposures are subject to intensified loan management using standard processes within the workout management system. The risks in subportfolios are monitored and analyzed with regular reports. The DZ BANK Group responded to the events unfolding in North Africa and the Middle East by suspending or reducing the national credit limits granted to the countries in these regions. New business was transacted in only a few exceptional cases in the countries affected. The DZ BANK Group s exposure to the countries hit by the European sovereign debt crisis continued to contract in the first half of The proportion of lending attributable to this subportfolio decreased from 8 percent of total exposure as at December 31, 2010 to 6 percent as at June 30, Credit exposure to the crisis-stricken regions of North Africa and the Middle East remained virtually unchanged at the low level of less than 1 percent of total lending between December 31, 2010 and June 30, The entities in the DZ BANK Group have recognized adequate levels of allowances for losses on loans and advances in respect of the exposures affected by the current crises. Further information about the impact of the financial and sovereign debt crises on credit risk, market risk, and the actuarial risk arising from the DZ BANK Group s credit insurance business is disclosed in chapter 4.3 ( Credit portfolio analysis ), chapter 5 ( Market risk ), and chapter 7 ( Actuarial risk ) of this risk report. 3. Risk capital management Risk capital management is an integral component of business management in the DZ BANK Group. Active management of economic capital adequacy on the basis of both internal risk measurement methods and regulatory capital adequacy requirements ensures that the assumption of risk is always consistent with the DZ BANK Group s capital resources. 3.1 Management of economic capital adequacy Modifications to risk capital management methods Business risk and strategic risk, which were previously collectively analyzed and monitored as a single type of risk, were split into two separate categories in the first quarter of 2011 in order to develop and refine the risk measurement methods used by the DZ BANK Group. Business risk denotes the risk of losses arising from unexpected earnings volatility which, for a given business strategy, is caused by changes in external conditions or parameters and cannot be offset by cost-cutting. Fluctuations in earnings attributable to other types of risk are not included in this analysis. Strategic risk is defined as the risk of losses resulting from poor decisions made by the management team in the future in respect of the DZ BANK Group s strategic positioning. As far as business risk is concerned, the previous collective approach to determining business risk and strategic risk as a single parameter has been replaced by a risk model that is based on an earnings-atrisk approach. Strategic risk is no longer quantified. The building society risk attaching to BSH has been separated out from general business risk as part of a reconfiguration of risk measurement methods. Building society risk has been managed as a separate type of risk since the first quarter of this year. Analysis of economic capital adequacy The aggregate risk cover available to the DZ BANK Group for this year was set at 11,474 million with effect from December 31, 2010 (December 31, 2009 for 2010: 11,758 million).

29 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT 27 Figure 1 shows a breakdown of the upper loss limit by type of risk and the capital requirement for each type of risk compared with The total upper loss limit for the group amounted to 10,692 million as at June 30, 2011 (December 31, 2010: 10,563 million). The total risk capital requirement was determined to be 8,670 million (December 31, 2010: 8,795 million). The group s lower risk capital requirement was largely attributable to lower risk levels at DZ BANK. As things currently stand, the DZ BANK Group s economic capital adequacy will continue to be safeguarded in the second half of FIG. 1 UPPER LOSS LIMITS AND RISK CAPITAL REQUIREMENT million Upper loss limit Jun. 30, 2011 Dec. 31, 2010 Risk capital requirement Jun. 30, 2011 Dec. 31, 2010 Credit risk 4,325 4,328 3,430 3,557 Equity risk 988 1, Market risk 3,811 3,756 2,814 2,994 Building society risk Actuarial risk 1,970 1,710 1,895 1,684 Operational risk Business risk Total after diversification 10,692 10,563 8,670 8,795 Separate stress tests are carried out for each type of risk included in risk capital management: credit risk, equity risk, market risk, building society risk, actuarial risk, operational risk, and business risk. The risk-type stress tests are supplemented by a stress scenario that models the correlations between different types of risk. Internal risk measurement methods are used to carry out the stress tests. The initial parameters for measuring risk are scaled in such a way as to reflect extremely adverse economic conditions. The procedure for aggregating risk types into a stress test result covering all group companies and risk types is similar to the regular procedure used for risk measurement. 3.2 MANAGEMENT OF REGULATORY CAPITAL ADEQUACY In addition to the management of economic capital the key figure in the management of business activities regulatory solvency requirements for the DZ BANK financial conglomerate, the DZ BANK banking group, and the R+V insurance group are strictly observed. The DZ BANK financial conglomerate comprises the DZ BANK banking group and the R+V insurance group. The calculations of financial conglomerate solvency as at June 30, 2011 carried out as part of capital management reveal that the DZ BANK financial conglomerate comfortably exceeds the minimum regulatory requirements. As in prior years, the DZ BANK banking group s regulatory capital was calculated on the basis of the HGB single-entity financial statements of the companies included within the scope of consolidation and amounted to a total of 11,299 million as at June 30, 2011 (December 31, 2010: 10,967 million). Tier 1 capital as at June 30, 2011 had grown by 561 million since the end of This increase stemmed largely from the fact that the appropriation of profit for 2010 was used to strengthen the capital base by a total of 489 million. The 65 million decrease in deductions for securitization exposures in the first half of 2011 also helped to increase Tier 1 capital. Expired capital elements in particular and, on the other hand, the lower deduction for securitization exposures resulted in a total reduction of 229 million in Tier 2 capital. Regulatory capital requirements as at June 30, 2011 were calculated to be 6,807 million (December 31, 2010: 6,926 million). The total capital ratio rose from 12.7 percent as at De - cember 31, 2010 to 13.3 percent at the balance sheet date. The Tier 1 capital ratio as at June 30, 2011 amounted to 11.5 percent, which was a significant im - provement on the ratio of 10.6 percent at the end of Both these key ratios therefore exceeded the regulatory minimums of 8.0 percent for the total capital ratio

30 28 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT and 4.0 percent for the Tier 1 capital ratio. The improvement in capital ratios is the result of consistent active capital management and risk management, which ensured that capital resources were used efficiently. Figure 2 provides an overview of the DZ BANK banking group s regulatory capital ratios. As in 2010, DZ BANK and its material group companies successfully took part in the EU-wide stress test conducted by the European Banking Authority (EBA) in the second quarter of The stress test used the scenarios, methods, and key assumptions specified by the EBA. This result is proof positive of the DZ BANK banking group s consistently robust capital resources, which are supported by encouraging revenue growth. The regulatory solvency requirements for insurance companies and insurance groups provide a means of evaluating the overall risk position in the R+V insurance group. The group s risk-bearing capacity for regulatory purposes is defined as the eligible capital at group level in relation to the risks arising from operating activities. In compliance with the legislation currently applicable to the insurance sector, the changes in the regulatory risk-bearing capacity of the R+V insurance group as a whole and each of its constituent companies are analyzed at least once a quarter. Both the R+V insurance group as a whole and each of its group companies met the regulatory solvency requirements in the first half of FIG. 2 REGULATORY CAPITAL RATIOS OF THE DZ BANK BANKING GROUP million Capital Jun. 30, 2011 Dec. 31, 2010 Tier 1 capital 9,769 9,208 Total Tier 2 capital after capital deductions 1,530 1,759 Eligible Tier 3 capital Total 11,299 10,967 Capital requirements Credit risk (including equity risk) 5,962 6,127 Market risk Operational risk Total 6,807 6,926 Capital ratios Total capital ratio 13.3% 12.7% Tier 1 capital ratio 11.5% 10.6% 4. CREDIT RISK 4.1 MODIFICATIONS TO RISK STRATEGY The following key aspects of DZ BANK s credit risk strategy were modified in the first half of 2011: The upper limit on the size of loans allowed for non-banks was reduced. Future structured finance exposures will be aligned even more closely with cooperative network business. The credit quality requirements in export finance for bank clients were in some areas extended to include rating categories that presented a higher probability of default. The requirements applicable to Group Treasury in respect of the credit quality of liquid assets held for the purposes of long-term liquidity management were specified more clearly. The management of limits for exposures to banks was aligned with the level of risk involved. In addition, DG HYP s business strategy was reconfigured to sharpen its focus on its core German market.

31 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT MODIFICATIONS TO RISK MANAGEMENT A number of internal rating systems that had been revised or newly designed in 2010 were implemented in the first 6 months of this year. These included a new shipping-finance rating system used by DZ BANK and a newly designed system for rating investment funds. DZ PRIVATBANK S.A. has been using its newly developed rating system for securities financing business since the first half of this year. In addition, the rating systems used for the banking and country rating segments that were fundamentally revised in 2010 have been implemented at DZ BANK. 4.3 CREDIT PORTFOLIO ANALYSIS Structure of the total lending volume The contraction in securities business lending already observed in 2010 continued in the first half of Most of this decrease was attributable to the financial sector. The growth in lending to the public sector stemmed largely from top-rated German securities. The increase in lending for derivatives and money market business was mainly attributable to the expansion in DZ BANK s money market business with toprated borrowers. As a result of these developments, the total volume of lending in the first 6 months of this year shrank by 1 percent year on year to billion as at June 30, 2011 (December 31, 2010: billion). The industrial breakdown of the credit portfolio presented in figure 3 shows that the total volume of lending as at June 30, 2011 remained highly concentrated in the financial sector (43 percent), a unchainged situation since December 31, In addition to the local cooperative banks, the borrowers in this customer segment comprised banks from other sectors of the credit industry and other financial institutions. In particular the total volume of lending to corporates as at June 30, 2011 had fallen by 2.9 billion compared with the end of In performing its function as the central institution for the Volksbanken Raiffeisenbanken cooperative financial network, DZ BANK provides funding for the entities in the DZ BANK Group and for the local cooperative banks. For this reason, the cooperative banks account for one of the largest proportions of loans and advances in the DZ BANK Group s credit portfolio. DZ BANK also supports the local cooperative banks in the provision of large-scale funding to corporate customers. The resulting syndicated business, DZ BANK and DVB s direct business with corporate customers in Germany and abroad, the retail real-estate business under the umbrella of BSH and DG HYP, and TeamBank s consumer finance business determine the sectoral breakdown of the remainder of the portfolio. FIG. 3 LENDING VOLUME BY INDUSTRY Traditional lending business Securities business Derivatives and money market business Total billion Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Financial sector Public sector Corporates Retail Industry conglomerates Other Total

32 30 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT FIG. 4 LENDING VOLUME BY COUNTRY GROUP Traditional lending business Securities business Derivatives and money market business Total billion Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Germany Other industrialized nations Non-industrialized nations Total Figure 4 shows the geographical distribution of the credit portfolio by country group. As at June 30, 2011, 98 percent of the total lending volume (December 31, 2010: 97 percent) was concentrated in Germany and the other industrialized nations. The comparative data presented in figures 4 and 11 has been restated to reflect the fact that some countries were reclassified from non-industrialized nations to other industrialized nations during the reporting period. Loans and advances from DZ BANK Group entities to borrowers in the countries that have been particularly affected by the current sovereign debt crisis Portugal, Ireland, Italy, Greece, and Spain are shown in figure 5. These loans and advances totaled 19,539 million as at June 30, 2011 (December 31, 2010: 23,163 million), which constituted a year-onyear decrease of 16 percent. The breakdown of the credit portfolio by residual maturity presented in figure 6 shows that the lending volume in the shortest maturity band contracted by 1.2 billion between December 31, 2010 and June 30, This trend stemmed largely from the lower volume of securities business lending. The volume of lending in the longest maturity band also decreased by 1.2 billion. FIG. 5 LOANS AND ADVANCES TO BORROWERS IN THE COUN- TRIES PARTICULARLY AFFECTED BY THE SOVEREIGN DEBT CRISIS million Total lending volume 1 Jun. 30, 2011 Dec. 31, 2010 Portugal 1,236 1,846 of which: public sector of which: non-public sector 748 1,115 Italy 4,999 6,068 of which: public sector 2,111 2,136 of which: non-public sector 2,889 3,932 Ireland 2 2,186 2,747 of which: public sector of which: non-public sector 2 2,141 2,696 Greece 2,024 2,303 of which: public sector 793 1,002 of which: non-public sector 1,231 1,301 Spain 9,094 10,200 of which: public sector 3,581 3,884 of which: non-public sector 5,514 6,316 Total 2 19,539 23,163 of which: public sector 7,017 7,803 of which: non-public sector 2 12,522 15,360 1 Traditional lending business (including long-term equity investments), securities business, and derivatives and money market business 2 The comparative figures presented as at December 31, 2010 differ from those shown on page 92 of the 2010 annual report owing to the exclusion of intragroup transactions as at June 30, 2011 Figure 7 sets out the DZ BANK Group s consolidated lending volume broken down by the rating categories of the VR master scale. Not rated comprises counterparties for which a rating classification is not required.

33 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT 31 FIG. 6 LENDING VOLUME BY RESIDUAL MATURITY Traditional lending business Securities business Derivatives and money market business Total billion Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, year > 1 year to 5 years > 5 years Total FIG. 7 RATING STRUCTURE OF THE CREDIT PORTFOLIO Lending volume ( billion) Rating classes according to VR master scale 1A 1B 1C 1D 1E 2A 2B 2C 2D 2E 3A 3B 3C 3D 3E 4A 4B 4C 4D 4E Default (5A to 5E) Not rated The proportion of the total credit portfolio accounted for by rating classes 1A to 3A (investment grade) remained unchanged at 77 percent between December 31, 2010 and June 30, Within the investment grade category, the proportion of virtually all good rating classes (1A to 2B) increased. The share of total lending volume in rating classes 3B to 4E (non-investment grade) also remained unchanged between the end of 2010 and June 30, 2011, amounting to 21 percent. Defaults in rating classes 5A to 5E as at June 30, 2011 accounted for less than 2 percent of the DZ BANK Group s total credit portfolio and thus remained at the low prior-year level. Breakdown of securitization portfolio The DZ BANK Group uses securitization as a credit portfolio management tool and to optimize its risk/ return profile. DZ BANK s objective in its role as an originator of long-term funded securitizations is to transfer risk, thereby releasing economic and regulatory capital. DZ BANK also sponsors special-purpose entities (conduits), which fund themselves by issuing money market-linked asset-backed commercial paper (ABCP). These conduits are predominantly made available to DZ BANK customers who then use these companies to securitize their own assets. The CORAL securitizations are currently mainly financed via liquidity lines. DZ BANK plans to further expand the use of ABCP to obtain funding. Jun. 30, 2011 Dec. 31, 2010

34 32 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT FIG. 8 SECURITIZATION EXPOSURES OF THE COMPANIES IN THE DZ BANK GROUP IN THEIR CAPACITY AS ORIGINATORS AND SPONSORS Company & transaction Type of transaction Role Purpose of transaction Type of assets Volume 1 Retained exposures Comments (Jun. 30, 2011) Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 DZ BANK CORAL AUTOBAHN ABCP conduit Sponsor Generation of commission income Loans and advances to European corporates and an ABS exposure Loans and advances to North American customers 0.9 billion 0.8 billion 1.3 billion 1.5 billion Commitments of 0.9 billion, 0.8 billion of which has been utilized Commitments of 2.1 billion, 0.05 billion of which has been utilized Commitments of 0.8 billion, 0.78 billion of which has been utilized Commitments of 2.4 billion, 0.04 billion of which has been utilized Provision of liquidity lines DG HYP Mortgagebacked PROVIDE VR PROSCORE VR Synthetic RMBSs 2 Synthetic CMBSs 2 Originator Optimization of capital employed; reduction of credit risk real-estate loans in German retail business Mortgagebacked real-estate loans to corporates in Germany 0.4 billion 0.5 billion 0.2 billion 0.2 billion Exposure of 26 million Exposure of 3 million Exposure of 27 million Including first-loss pieces for which adequate impairment losses have been Exposure of recognized 12 million VR LEASING LEAGUE CORAL 3 Originator Lease receivables from corporates in Germany 0.1 billion 0.1 billion 0.3 billion 0.3 billion Synthetic securitization Lease securitization Capital and liquidity management; transfer of risk Credit enhancements amounting to 16 million Credit enhancements amounting to 16 million Credit enhancements amounting to 17 million Credit enhancements amounting to 15 million Non-recourse sale to DZ BANK for securiti zation purposes Credit enhancements not hedged 1 Disclosures before consolidation 2 CMBSs = commercial mortgage-backed securities; RMBSs = residential mortgage-backed securities 3 Contained in DZ BANK s CORAL program

35 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT 33 FIG. 9 CHANGES IN THE COMPOSITION AND VALUE OF THE SECURITIZATION PORTFOLIO million Fair value as at Dec. 31 before changes in composition and value Changes in composition due to purchases, sales, redemptions, and exchange-rate fluctuations Changes in value Fair value as at Jun. 30 after changes in composition and value Receivables from retail loans 8, ,388 of which: RMBSs 8, ,244 of which: assets classified as subprime 1, ,036 of which: assets classified as Alt-A Receivables from corporate loans Receivables from CMBSs 2, ,957 Receivables from CDOs 1, ,100 Total exposures reported on the balance sheet 12,725-1, ,854 Exposures to conduits 2 3, ,479 Total for first half of ,385-1, ,333 Total for first half of , ,981 1 Including receivables from purchased leased assets amounting to 75 million (December 31, 2010: 142 million) 2 Including reported receivables from conduits especially ABCP conduits and liquidity facilities provided for ABCP conduits Figure 8 provides an overview of the main securitization exposures held by the DZ BANK Group s companies as originators and sponsors. In the first half of 2011 the DZ BANK Group continued to significantly reduce its securitization exposure, which it had already begun to do between 2008 and The fair value of the DZ BANK Group s entire securitization exposure as at June 30, 2011 amounted to 14.3 billion after having been as high as 16.4 billion as at December 31, This represents a reduction of almost 13 percent. The reduction in the fair value of the portfolios held by the group was largely the result of redemptions. The credit rating awarded to each securitization is based on the lowest available rating issued by the rating agencies Standard & Poor s, Moody s Investors Service, and Fitch Ratings Ltd. 48 percent of the securitization exposure on the balance sheet as at June 30, 2011 consisted of AAA tranches as rated by external credit rating agencies (December 31, 2010: 54 percent). A further 16 percent (December 31, 2010: 17 percent) was in the external rating classes AA+ to AA-. The fact that the proportion of securitization exposures in credit rating categories BBB+ to B- rose to 13 percent (December 31, 2010: 8 percent) of total securitization exposure on the balance sheet was attributable to the deterioration of economic conditions in both the United States and in the European countries affected by the sovereign debt crisis. Exposures to conduits accounted for 3.5 billion of the total exposure outstanding at the end of the first half of the year (December 31, 2010: 3.7 billion). Of this amount, 68 percent was accounted for by undrawn liquidity lines provided for conduits (December 31, 2010: 68 percent). As at June 30, 2011, 73 percent (December 31, 2010: 68 percent) of total securitization exposure to conduits was categorized in external rating class A or higher. Securitization exposures classified as AAA accounted for 8 percent of the total exposure to conduits at the balance sheet date (December 31, 2010: 6 percent). A further 21 percent (December 31, 2010: 22 percent) was rated AA. Rating categories BBB+ to B- accounted for 25 percent of the total exposure to conduits as at June 30, 2011 (December 31, 2010: 28 percent).

36 34 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT FIG. 10 LENDING VOLUME PAST DUE BUT NOT IMPAIRED, BY INDUSTRY Lending volume past due but not impaired Past due up to 5 days Past due > 5 days to 1 month Past due > 1 month to 2 months Past due > 2 months to 3 months Past due > 3 months Total million Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Financial sector Public sector Corporates ,173 Retail Industry conglomerates Other Total ,624 1,979 FIG. 11 LENDING VOLUME PAST DUE BUT NOT IMPAIRED, BY COUNTRY GROUP Lending volume past due but not impaired Past due up to 5 days Past due > 5 days to 1 month Past due > 1 month to 2 months Past due > 2 months to 3 months Past due > 3 months Total million Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Germany ,229 1,188 Other industrialized nations Non-industrialized nations Total ,624 1,979 Figure 9 shows the changes in the fair value of the entire securitization portfolio broken down by impairment losses and changes in portfolio composition in the first half of Impairment losses of 863 million were recognized on the portfolio in the first 6 months of 2011 (first half of 2010: 428 million). As things stand, these impairment losses largely constitute fluctuations in market value that can be offset by the time the securitization exposures reach their maturity date. In addition to these impairment losses, the changes in the value of the securitization portfolio were heavily influenced by the US dollar exchange rate, which fell by 8 percent in the first half of This exchange-rate effect partially exacerbated the reductions resulting from repayments and sales.

37 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT 35 FIG. 12 IMPAIRED LENDING VOLUME, BY INDUSTRY Amount before specific loan loss allowances Impaired lending volume Specific loan loss allowances Amount after specific loan loss allowances million Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Financial sector Public sector Corporates 2,582 2,805 1,099 1,117 1,483 1,688 Retail 1,119 1, Industry conglomerates Other Total 4,102 4,317 1,760 1,900 2,342 2,417 FIG. 13 IMPAIRED LENDING VOLUME, BY COUNTRY GROUP Amount before specific loan loss allowances Impaired lending volume Specific loan loss allowances Amount after specific loan loss allowances million Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Germany 2,263 2,308 1,102 1,230 1,161 1,078 Other industrialized nations 1,586 1, ,059 1,126 Non-industrialized nations Total 4,102 4,317 1,760 1,900 2,342 2,417 Breakdown of credit portfolio that is past due but not impaired Figures 10 and 11 show the portion of the lending volume that is past due but not impaired. The disclosures largely relate to traditional lending business. Because the entities in the DZ BANK Group pursue a conservative policy on loan-loss allowances, past-due loans account for only a relatively small proportion of the total credit portfolio. Despite the financial and sovereign debt crises, the decline in the past-due but not impaired portion of the credit portfolio in the first half of 2011 was greater in percentage terms than the decrease in the total lending volume. The past-due loans with a residual maturity of more than 3 months amounting to 273 million (December 31, 2010: 315 million) were predominantly secured by physical collateral. Internal limits available for these past-due loans as at June 30, 2011 totaled 188 million (December 31, 2010: 334 million). Breakdown of the impaired credit portfolio Figures 12 and 13 show the impaired lending volume. The disclosures largely relate to traditional lending business. The year-on-year decrease was attributable to the lower volume of impaired loans to corporate clients, which was partly offset by a slight increase in impaired lending to retail customers. The amounts shown as at December 31, 2010 both before specific loan loss allowances (total: 4,317 million) and after specific loan loss allowances (total: 2,417 million) have been restated and therefore differ from the figures shown in the risk report contained in the group management report for 2010 (totals: 5,078 million and 3,178 million respectively).

38 36 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT FIG. 14 ALLOWANCES FOR LOSSES ON LOANS AND ADVANCES FOR THE ENTIRE CREDIT PORTFOLIO Specific loan loss allowances 1 Portfolio loan loss allowances Total loan loss allowances Provisions for loan commitments and liabilities under financial guarantee contracts million 1st half of st half of st half of st half of st half of st half of st half of st half of 2010 Balance as at Jan. 1 1,899 2, ,245 2, Additions Utilizations Reversals Interest income Other changes Balance as at Jun. 30 1,760 2, ,217 2, Directly recognized impairment losses Receipts from loans and advances previously impaired Including specific loan loss allowances evaluated on a group basis Analysis of allowances for losses on loans and advances for the entire credit portfolio Figure 14 shows the changes in allowances (specific loan loss allowances including the specific loan loss allowances evaluated on a group basis and portfolio loan loss allowances), in the provisions for loan commitments, and in liabilities arising on financial guarantee contracts in the first half of this year and in the corresponding period of The components of the loan-loss allowances shown in the tables are also disclosed in the notes to the interim consolidated financial statements. Discrepancies between the amounts shown in the risk report and those reported in the notes are primarily attributable to differences in the scope of consolidation. Total specific loan loss allowances in the DZ BANK Group were reduced by 139 million in the first half of These allowances had decreased by a net 43 million in the corresponding period of The level of specific loan loss allowances required for DZ BANK s lending operations was better than expected in the first 6 months of this year, which was largely because economic and market conditions on the whole remained benign. However, the level of specific loan loss allowances is expected to rise over the further course of this year. The DZ BANK Group needed to recognize additional portfolio loan loss allowances amounting to a net 111 million for future latent risks in the first 6 months of this year (first half of 2010: net additional allowances of 6 million). The level of provisions recognized by the entities in the DZ BANK Group was reduced by 14 million in the first half of 2011 (first half of 2010: reduction of 19 million). Provisions for loan commitments form part of the provisions reported on the face of the balance sheet. Liabilities arising from financial guarantee contracts are reported as other liabilities on the balance sheet. The provisions shown in the risk report are almost entirely attributable to DZ BANK.

39 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT MARKET RISK The economic capital requirement for market risk remained within the upper loss limits in the DZ BANK Group s banking business and in its building society operations and insurance activities at all times during the first 6 months of Figure 15 shows the relevant data as at June 30, 2011 and December 31, FIG. 15 UPPER LOSS LIMITS AND CAPITAL REQUIREMENT FOR MARKET RISK BY TYPE OF BUSINESS million Upper loss limit Jun. 30, 2011 Dec. 31, 2010 Risk capital requirement Jun. 30, 2011 Dec. 31, 2010 Banking 2,122 2,277 1,569 1,853 Building society operations and insurance business 1,689 1,479 1,245 1,141 Total 3,811 3,756 2,814 2,994 The decrease in the risk capital requirement for the DZ BANK Group s banking business was largely attributable to the decline in market risk at DZ BANK. The slight increase in the risks attaching to investments made by BSH and R+V resulted from interest-rate movements in building society operations and from movements in interest rates and share prices in the insurance business. Figure 16 shows the changes in value-at-risk for the different types of market risk in respect of the trading and non-trading portfolios in the banking business in the first half of Figure 17 shows the changes in value-at-risk during the first 6 months of 2011 and the results of daily backtesting of DZ BANK s trading portfolios. Backtesting revealed that the fair value of the portfolio exceeded the forecast risk data in a hypothetical buy-and-hold scenario owing to changes in market parameters on one trading day in the first half of 2011 (the forecast risk data was exceeded three times during the corresponding period of 2010). The overshoot on June 23, 2011 was attributable to market movements that were triggered by the sovereign debt crisis affecting European countries. The decline in value-at-risk at the end of March stemmed from an improvement in the supply of market data on US securitizations. FIG. 16 VALUE-AT-RISK 1 IN THE BANKING BUSINESS Market liquidity risk in the DZ BANK Group arises primarily in respect of credit-rating-linked securities held by DZ BANK and DG HYP. The securities that are most susceptible to market liquidity risk are asset- Interest-rate Spread risk Equity price Currency risk Commodity Diversification Total million Trading portfolios Jun. 30, 2011 risk risk 2 7 price risk effect Average Maximum Minimum Dec. 31, Non-trading portfolios Jun. 30, Average Maximum Minimum Dec. 31, Value-at-risk with percent confidence level, 1-day holding period, 1-year observation period, based on company-specific modeling; the banking business is an aggregation of the following entities: DZ BANK, DG HYP, DVB, DZ BANK Ireland, DZ BANK Polska, DZ PRIVATBANK, TeamBank, and Union Asset Management Holding 2 Total effects of diversification between the types of market risk for all consolidated group companies

40 38 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT FIG. 17 VALUE-AT-RISK AND HYPOTHETICAL CHANGES IN FAIR VALUE IN DZ BANK S TRADING PORTFOLIOS million, 99.00% confidence level, 1-day holding period Jan Feb Mar Apr May 2011 Jun Hypothetical changes in fair value Value-at-risk backed securities. The level of market liquidity even in classes of securities that had previously been regarded as highly liquid fell during the course of the market crises. 6. LIQUIDITY RISK Since the end of the second quarter of 2011 the DZ BANK Group has also been analyzing introductory scenarios in addition to scenarios that are subject to limits. These introductory scenarios differ in terms of the definition of the securities recognized for liquidity generation purposes, which means that only highly liquid securities are recognized within the first forecasting month. The ability to readily convert such securities into cash in private markets is another focal point of this analysis, especially for forecasting periods of up to one week. By adopting these changes, the DZ BANK Group is implementing the latest liquidity risk management rules applicable to banks whose securities are admitted to trading on a regulated market in the EU; these regulations arise from the third amendment to the Minimum Requirements for Risk Management for banks and financial services institutions. The minimum liquidity surplus for the DZ BANK Group measured as at June 30, 2011 for the period from July 1, 2011 to June 30, 2012 under the risk scenario amounted to 26.3 billion (December 31, 2010 for the 2011 financial year: 25.4 billion). Figure 18 shows a comparison between the forward cash exposure and the counterbalancing capacity under the risk scenario for the coming 12 months. The diagram illustrates the effect on liquidity of the measures that can be implemented to generate liquidity. These measures include the collateralized funding of securities via central banks or in the repo market.

41 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT 39 FIG. 18 LIQUIDITY RISK AS AT JUNE 30, 2011: LIQUIDITY FORECAST FOR ONE YEAR UNDER THE RISK SCENARIO billion Forward cash exposure Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 2012 Jun Counterbalancing capacity Liquidity surplus Forward cash exposure Counterbalancing capacity Liquidity surplus DZ BANK s liquidity did not fall below the observation threshold or minimum liquidity surplus in any of the stress scenarios during the reporting period. DZ BANK s long-term ratio as at June 30, 2011 was 95 percent (December 31, 2010: 93 percent). This meant that the items tying up liquidity with residual maturities of over one year were almost fully funded by liabilities that also had residual maturities of more than one year. The structure of short-term and medium-term funding in the DZ BANK Group is based on an appropriately broad, well-diversified range of geographical regions, investors, markets, products, and maturities. The deposits held by the local cooperative banks provide the main source of funding. As at June 30, 2011 they provided 48 percent (December 31, 2010: 50 percent) of unsecured funding. Figure 19 shows a breakdown of the main sources of unsecured short-term and medium-term funding as at June 30, 2011 compared with December 31, To secure liquidity on an ongoing basis, DZ BANK has at its disposal portfolios of securities eligible for central bank borrowing. These securities can be sold at short notice or used as collateral in monetary policy funding transactions with central banks, in bilateral FIG. 19 UNSECURED SHORT-TERM AND MEDIUM-TERM FUNDING % Jun. 30, 2011 Dec. 31, 2010 Local cooperative banks Other banks Corporate customers Commercial Paper & certificates of deposit 9 19 repos, or in the tri-party repo market (secured funding). In the event of a short-term liquidity requirement, securities in DZ BANK s trading portfolios that are not funded through repo activities can be used for intraday liquidity management. DZ BANK secures its long-term funding by using structured and non-structured capital market products that are mainly marketed through the local cooperative banks own-account and customer-account securities business and through institutional clients in Germany and abroad. Both DZ BANK and DG HYP also have the option of obtaining liquidity through covered issues in the form of DZ BANK BRIEFE and DG HYP Pfandbriefe. In this case, funding is primarily obtained from institutional investors.

42 40 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT 7. ACTUARIAL RISK In the first half of this year the property and casualty insurance businesses of the companies in the R+V Group continued to benefit disproportionately from the economic recovery in Germany by exploiting the synergies offered by the Volksbanken Raiffeisenbanken cooperative financial network. The level of premiums earned continued to grow sharply in all main segments compared with projections and the market as a whole. Major claims in direct composite insurance rose slightly in the first half of This trend was compensated for in terms of total claims by the fact that there were no major individual events during the natural disasters. With the exception of vehicle insurance, there was a slight decrease in the frequency of claims. The number of claims fell compared with the corresponding period of The annual claims rate was below the relevant figure for both the first 6 months of 2010 and the three-year average. The value of limits issued in the credit insurance business declined from 24.0 billion as at December 31, 2010 to 23.5 billion as at June 30, However, utilization of these facilities rose from 18.1 billion to 19.2 billion. This increase was attributable to the stable level of business activity in the construction industry, the consequent stronger demand for guarantees, and the general economic recovery. The volume of insured supply contracts also rose on the back of the significant growth in German companies trading volumes. The business lines in R+V s Banking & Credit division were not affected by the turmoil in the financial markets. R+V has no business lines in which it covered guarantees for interest payments or repayment of principal on bonds, default risks on debt instruments, or credit risks attaching to commercial or mortgage banks. The level of reserves in property and casualty insurance as at June 30, 2011 can generally be described as ample. During the reporting period R+V had reinsurance cover in place in its direct insurance operations to mitigate its risk exposure to natural disasters, to protect its existing financial strength and earnings power, and to enhance its ability to sustain risk. In common with all other reinsurers, R+V s inward reinsurance business was affected by exceptional events in the first half of A number of severe natural disasters occurred on an unprecedented scale. The economic cost of natural disasters in the first 6 months of 2011 alone was greater than in any other year to date. The economic cost of roughly 188 billion incurred by the end of June already exceeds the total for the most expensive year so far (2005: 156 bil - lion for the year as a whole). The total economic cost incurred in the first half of 2011 was therefore more than five times as high as the average for the first 6 months of the previous 10 years. The damage and losses insured worldwide in the first half of 2011 amounted to approximately 43 billion, which was almost five times the average for the first 6 months of each year since R+V recognized claims expenses of 240 million in the first half of 2011 for the five largest natural disasters: the earthquakes in Japan and New Zealand, the series of tornadoes in the United States, the floods in Brisbane, and Cyclone Yasi (the last two both occurring in Australia). It is not yet possible to put a final figure on the cost of all these disasters. This is particularly the case in Japan and New Zealand because R+V s contractual partners on the ground in the Shendai/Fukushima region and in Christchurch are being seriously hampered in their efforts to ascertain the level of damage and losses inflicted. R+V made adequate provision for the biometric risk involved in personal insurance by allowing sufficient safety margins and making the necessary adjustments in line with the latest risk analysis findings.

43 DZ BANK INTERIM GROUP MANAGEMENT REPORT RISK REPORT OPERATIONAL RISK The collection of loss data enables the DZ BANK Group s entities to identify, analyze, and evaluate loss events, thereby highlighting trends and concentrations of operational risk. The data history collected also provides the basis for the risk-sensitive allocation of capital. Losses are recorded if they exceed a threshold value of 1,000. Figure 20 shows the claims and losses reported in the first 6 months of 2011 and classified by loss event category. At no point did losses reach a critical level relative to the upper loss limit. 9. SUMMARY AND OUTLOOK By setting up a sophisticated risk management system, the DZ BANK Group has created the conditions required to meet the challenges that arise during times of crisis. The DZ BANK Group remained within its economic risk-bearing capacity in 2010 and complied with regulatory requirements at all times. Despite the persistent market turmoil, at no point was the DZ BANK Group s solvency at risk during the reporting period. DZ BANK was able to adequately mitigate the impact of the financial and sovereign debt crises on its liquidity position by using the existing organizational arrangements available in its liquidity risk management. FIG. 20 NET LOSSES BY EVENT CATEGORY 1 (%) Internal fraud External fraud Employment practice and workplace safety Clients, products, and business practices 2.2 Damage to physical assets Business disruption and system failures Execution, delivery, and process management st half of st half of As things stand, if the prevailing situation in the capital markets were to continue from the reporting date until December 31, 2011, the DZ BANK financial conglomerate, the DZ BANK banking group, and the R+V insurance group would comply with the requirements for both economic capital adequacy and regulatory solvency throughout the rest of the year. Also as things stand, the DZ BANK Group is expected to continue to have sufficient liquidity reserves available throughout the rest of the year in order to meet the liquidity requirements identified by the economic stress tests that are governed by limits. There are no indications that the DZ BANK Group s continued existence as a going concern might be at risk. The prospects for the remaining 6 months of 2011 are discussed in the outlook contained in the interim group management report. 1 In accordance with the Solvency Regulation, losses caused by operational risks that are associated with risks such as credit risk are also shown

44 42 DZ BANK INTERIM GROUP MANAGEMENT REPORT OUTLOOK III. Outlook Following the setback of the financial crisis and then the rapid economic recovery during the autumn and winter months of 2010/2011, the global economy is currently going through a period of weaker growth at a slower pace. The principal global reasons for the more subdued growth rates are the rise in commodity prices and the discontinuation of many fiscal and economic stimulus packages at the end of The negative fallout from the sovereign debt crisis and the monetary policies being pursued in some emerging markets are acting as an additional drag on economic activity. No growth stimulus is expected to come from economic policymakers. The gradual tightening of monetary policy especially in emerging markets will continue, and fiscal policy offers no more scope for boosting the economy either. Given the challenging nature of economic conditions, both the global economy and, consequently, world trade are likely to grow at a slower rate until In the United States, the parlous state of the labor market presents one of the greatest obstacles to a strong recovery in private consumer demand. The ongoing crisis in the housing market continues to weigh on sentiment and is dampening US households willingness to spend their money. Personal consumption is unlikely to bounce back to any great extent until house prices have bottomed out. What s more, plans to cut public spending will depress demand, thus making an economic recovery more difficult. Although monetary policymakers in the United States have not yet started to raise interest rates, the special quantitative easing carried out to mitigate the effects of the financial crisis was discontinued in the middle of 2011, which probably signals a less expansionary US monetary policy stance going forward. However, the US central bank is likely to leave interest rates on hold throughout the rest of 2011 and until at least the end of the first half of The need to consolidate the public finances will continue to act as a drag on the US economy. Fiscal policy will therefore play a key role in stimulating economic growth over the next few years. In Europe, economic output in the euro area is only forecast to grow by less than 2 percent this year and next despite the relatively robust economic recovery in some of the core member states of monetary union. Although labor market conditions across the euro zone as a whole are less critical than in the United States, the situation varies considerably from one member country to another. For example, the job markets in those countries that have been hit particularly hard by the sovereign debt crisis are in a much worse state. Consequently, there are also substantial variations in consumer sentiment across the euro area. The imbalances persisting in some parts of the euro zone will continue to hamper economic activity in these countries for some time to come. The public finances of these member states need to be consolidated over a number of years, while their labor markets are imposing an additional burden on consumer spending. This means that the growth prospects for Greece, Portugal, and Ireland in particular, but also for Spain and Italy, are set to remain pretty gloomy over the coming years. There is a fairly good chance that economic growth in the core euro-zone countries especially Germany will experience only a temporary setback in 2011 before consolidating again next year. The conditions for boosting private demand, which could compensate for the slowdown in foreign demand, are especially benign given households growing purchasing power, the healthy state of the labor market, and the favorable climate for corporate investment. Consumer prices are continuing to be driven up by rising energy prices in particular. Euro-zone inflation is unlikely to return to anywhere in the region of 2 percent until 2012.

45 DZ BANK INTERIM GROUP MANAGEMENT REPORT OUTLOOK 43 Given the strength of economic growth in the core member states and the considerable vulnerability of weaker countries, the European Central Bank (ECB) currently has hardly any option but to gradually tighten monetary policy. This means that the benchmark interest rate will probably be 1.75 percent by the end of this year. In 12 months time, however, monetary policy will have been tightened much more to a rate of 2.25 percent. The German economy is currently on an upward trajectory that is being supported by both buoyant exports and domestic demand. Following a very strong start to the year, however, the pace of growth will slow. Nonetheless, this does not mean that the economic upturn will grind to a halt merely that the rate of growth will return to more normal levels in Consumer spending is likely to boost economic growth on the back of the robust labor market and rising personal incomes. Even though commodity prices have provided some respite of late, inflationary pressures remain fairly strong. The sovereign debt crisis in the euro zone constitutes a major threat to future economic growth and the stability of financial markets. Despite the decisions reached at the special summit meeting on Greece, financial market volatility will remain high throughout the second half of The aim must be to bring lasting calm to the markets. To achieve this goal, the institutional framework needs to be enhanced to ensure that the sovereign debt crisis is finally resolved. This will require all stakeholders to establish precise ground rules and agree the roles that they each need to play in order to place fiscal policy on a sustainable footing. The political unrest in North Africa and the Middle East also presents a risk to the economy over the next few years because it could have a negative impact on oil supplies for the global economy. The financial sector will be undergoing changes over the next few years. Basel III s planned changes to capital adequacy requirements and capital ratios are based on a tighter definition of qualifying Tier 1 capital. Two internationally standardized liquidity ratios the liquidity coverage ratio and the net stable funding ratio aim to provide a more solid foundation for banks availability of liquidity. These enhanced requirements are to be implemented in stages between 2013 and It is therefore to be expected that Basel III will have a far-reaching impact on banks capital situation, risk position, and financial performance and that it will also have macroeconomic effects. Given the prevailing economic conditions, especially in Germany, DZ BANK believes that its sharp strategic focus on being a network-oriented central institution with close ties to the local cooperative banks offers ample potential for further network-based growth going forward. The starting point for the DZ BANK Group s business activities is therefore the systematic identification of opportunities for the cooperative financial network. To this end, the DZ BANK Group has expanded its strategic planning as an integrated standard process and further refined its capital planning. Strategic capital management faces considerable regulatory challenges during this process. The more stringent regulatory requirements and their consequences will continue to feature heavily in the DZ BANK Group s strategic and operational planning process. Measures to implement these requirements in its operations have already been initiated and will continue in 2011 and In doing so, the DZ BANK Group focuses above all on closely monitoring the main capital drivers across the group and continuing to implement the defined measures to reallocate capital in order to further improve capital allocation.

46 44 DZ BANK INTERIM GROUP MANAGEMENT REPORT OUTLOOK The impressive performance of the German economy to date will boost net interest income throughout the remainder of This is expected to generate year-on-year growth on the back of the larger volume of new business. This encouraging trend will continue in The strategic focus on stronger market penetration in corporate banking and the targeted expansion of retail banking will also yield positive results. Higher interest expenses and possible further adjustments to the business model could have an adverse effect on net interest income. Although the level of allowances for losses on loans and advances has been fairly low over the year to date as economic and market conditions have remained benign on the whole, specific loan loss allowances are expected to increase during the rest of According to our latest forecast, however, allowances for losses on loans and advances should decrease moderately in Developments in the capital markets will remain one of the main value drivers for net fee and commission income in the second half of We expect performance-related management fees for 2011 as a whole to be lower than the record level they achieved in The fallout from the sovereign debt crisis and the poor performance of the equity markets are likely to depress fee and commission income. We will probably not see any growth in net fee and commission income in 2012 until lasting calm is restored to the markets and both private and institutional investors regain their confidence. Net gains on trading activities will be lower in 2011 than they were in This is because we will see market conditions return to normal in the form of narrowing credit spreads and gains will be depressed by the fact that investors will be spooked by the sovereign debt crisis in the second half of Consequently, net gains on trading activities will probably reach their pre-financial crisis levels in 2012 if the proposed solutions to the sovereign debt crisis prove to be sustainable. Net gains on investments will be depressed by the impairment losses recognized on Greek bonds. These effects were recognized in accordance with the decisions made at the special summit meeting on the sovereign debt crisis in the first half of By contrast, impairment losses on securitization exposures are expected to fall further this year and in 2012, thereby increasing gains on investments. Other gains and losses on the valuation of financial instruments might be adversely impacted over the further course of the year. These additional negative effects could arise from a further widening of spreads on fair value option securities for countries with debt problems. Net income from insurance business in the second half of 2011 is performing well on the back of rising premium income. Provided that no further adverse effects materialize from the reinsurance business, these operations are expected to generate a satisfactory level of net income for 2011 as a whole, although it is likely to be lower than the net income achieved in Profitability for 2011 will be depressed by the impairment losses recognized on Greek bonds and reported under gains and losses on investments in accordance with the decisions made at the special summit meeting on Greece. It is anticipated that premiums earned will grow at a rate above the average for the sector overall in 2011 and In line with the level of premiums earned, net insurance expenses will rise as a result of capital spending plans and higher fees and commissions.

47 DZ BANK INTERIM GROUP MANAGEMENT REPORT OUTLOOK 45 Exceptional events in the capital markets caused by the sovereign debt crisis as well as changes in the legal framework could affect earnings targets in the insurance business. Administrative expenses in 2011 are being increased by the bank levy. A rise in staff expenses in line with collective pay agreements and inflation-related increases in general and administrative expenses are also expected. The cost/income ratio will improve up to 2012 due to growth in operating activities and continued rigorous cost management. Based on cautious estimates for 2011 as a whole, the DZ BANK Group expects earnings for this year to be lower than they were in 2010, especially if the European sovereign debt crisis continues to escalate. Despite further political attempts to resolve the global debt situation, financial market volatility will remain high throughout the second half of It is not yet possible to accurately quantify what impact the sovereign debt crisis will have on DZ BANK s net profit for this year owing to the volatility of financial markets and the lack of available details about the exchange of Greek bonds. The DZ BANK Group s strong strategic positioning and the refinement of strategy in its business lines will generate earnings growth in Earnings targets may be particularly adversely affected by imbalances in financial markets, which could be exacerbated by the fallout from the sovereign debt crisis in the euro zone.

48 46

49 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS CONTENTS 47 INTERIM CONSOLIDATED FINANCIAL STATEMENTS Income statement for the period January 1 to June 30, Statement of comprehensive income for the period January 1 to June 30, Balance sheet as at June 30, Statement of changes in equity 51 Statement of cash flows 52 Notes A General disclosures»01 Basis of preparation 53»02 Accounting policies and estimates 53»03 Scope of consolidation 55 B disclosures relating to the income statement and the statement of comprehensive income»04 Segment information 56»05 Net interest income 57»06 Allowances for losses on loans and advances 57»07 Net fee and commission income 58»08 Gains and losses on trading activities 58»09 Gains and losses on investments 58»10 Other gains and losses on valuation of financial instruments 59»11 Premiums earned 59»12 Gains and losses on investments held by insurance companies and other insurance company gains and losses 60»13 Insurance benefit payments 60»14 Insurance business operating expenses 60»15 Administrative expenses 61»16 Other net operating income 61»17 Income taxes 61»18 Amounts reclassified to the income statement 62»19 Income taxes relating to components of other comprehensive income 62»29 Other assets 67»30 Non-current assets and disposal groups classified as held for sale 68»31 Deposits from banks 68»32 Amounts owed to other depositors 68»33 Debt certificates including bonds 69»34 Derivatives used for hedging (negative fair values) 69»35 Financial liabilities held for trading 69»36 Provisions 70»37 Insurance liabilities 70»38 Other liabilities 70»39 Subordinated capital 71 D Financial instruments disclosures»40 Classes, categories, and fair values of financial instruments 72»41 Fair value hierarchy 75»42 Reclassifications 77»43 Exposures to countries particularly affected by the sovereign debt crisis 78 E Other disclosures»44 Financial guarantee contracts and loan commitments 80»45 Trust activities 80»46 Asset management by the Union Investment Group 80»47 Business combinations 80»48 Employees 83»49 Board of Managing Directors 83»50 Supervisory Board 83 C Balance sheet disclosures»20 Cash and cash equivalents 63»21 Loans and advances to banks 63»22 Loans and advances to customers 63»23 Allowances for losses on loans and advances 64»24 Derivatives used for hedging (positive fair values) 65»25 Financial assets held for trading 65»26 Investments 66»27 Investments held by insurance companies 66»28 Property, plant and equipment, and investment property 67

50 48 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS INCOME STATEMENT Income statement for the period January 1 to June 30, 2011 million (Note) Jun. 30, 2011 Jun. 30, 2010 Net interest income (5) 1,491 1,249 Allowances for losses on loans and advances (6) Net fee and commission income (7) Gains and losses on trading activities (8) Gains and losses on investments (9) Other gains and losses on valuation of financial instruments (10) Premiums earned (11) 5,439 5,470 Gains and losses on investments held by insurance companies and other insurance company gains and losses (12) 1,076 1,474 Insurance benefit payments (13) -5,433-5,860 Insurance business operating expenses (14) Administrative expenses (15) -1,315-1,234 Other net operating income (16) 8-15 Profit before taxes Income taxes (17) Net profit Attributable to: Shareholders of DZ BANK Non-controlling interests

51 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF COMPREHENSIVE INCOME 49 Statement of comprehensive income for the period January 1 to June 30, 2011 million (Note) Jun. 30, 2011 Jun. 30, 2010 Net profit Gains and losses on available-for-sale financial assets (18) Gains and losses on cash flow hedges (18) Exchange differences on currency translation of foreign operations Actuarial gains and losses on defined benefit plans -192 Share of other comprehensive income/loss of joint ventures and associates accounted for using the equity method 3 4 Other comprehensive income/loss before taxes Income taxes relating to components of other comprehensive income (19) Other comprehensive income/loss Total comprehensive income/loss Attributable to: Shareholders of DZ BANK Non-controlling interests

52 50 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS BALANCE SHEET Balance sheet as at June 30, 2011 Assets million (Note) Jun. 30, 2011 Dec. 31, 2010 Cash and cash equivalents (20) Loans and advances to banks (21) 73,899 73,614 Loans and advances to customers (22) 115, ,275 Allowances for losses on loans and advances (23) -2,192-2,224 Derivatives used for hedging (positive fair values) (24) Financial assets held for trading (25) 63,918 68,047 Investments (26) 61,394 58,732 Investments held by insurance companies (27) 59,498 57,996 Property, plant and equipment, and investment property (28) 2,259 2,152 Income tax assets 2,481 2,626 Other assets (29) 4,806 4,647 Non-current assets and disposal groups classified as held for sale (30) Fair value changes of the hedged items in portfolio hedges of interest-rate risk Total assets 383, ,464 Equity and liabilities million (Note) Jun. 30, 2011 Dec. 31, 2010 Deposits from banks (31) 97, ,156 Amounts owed to other depositors (32) 91,223 84,935 Debt certificates including bonds (33) 55,137 55,189 Derivatives used for hedging (negative fair values) (34) 1,183 1,362 Financial liabilities held for trading (35) 56,583 57,691 Provisions (36) 1,723 1,773 Insurance liabilities (37) 57,970 56,216 Income tax liabilities 1,336 1,311 Other liabilities (38) 5,256 5,718 Subordinated capital (39) 4,164 4,262 Liabilities included in disposal groups classified as held for sale (30) 9 13 Fair value changes of the hedged items in portfolio hedges of interest-rate risk Equity 11,397 10,727 Subscribed capital 3,160 3,160 Capital reserves 1,111 1,111 Retained earnings 2,870 2,687 Revaluation reserve Cash flow hedge reserve Currency translation reserve 15 8 Non-controlling interests 4,455 4,312 Unappropriated earnings Total equity and liabilities 383, ,464

53 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF CHANGES IN EQUITY 51 Statement of changes in equity million Subscribed capital Capital reserves Equity earned by the group Revaluation reserve Cash flow hedge reserve Currency translation reserve Equity before noncontrolling interests Noncontrolling interests Total equity Equity as at Jan. 1, ,160 1,111 2, ,058 4,175 10,233 Net profit Other comprehensive income/loss Total comprehensive income/loss Capital repaid -2-2 Changes in scope of consolidation Acquisition/disposal of non-controlling interests Dividends paid Equity as at Jun. 30, ,160 1,111 2, ,122 4,128 10,250 Equity as at Jan. 1, ,160 1,111 2, ,415 4,312 10,727 Net profit Other comprehensive income/loss Total comprehensive income/loss Capital increase Changes in scope of consolidation Acquisition/disposal of non-controlling interests Dividends paid Equity as at Jun. 30, ,160 1,111 3, ,942 4,455 11,397 In the first half of 2011 a dividend of 0.12 per share was paid for the 2010 financial year (first half of 2010: 0.10).

54 52 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS STATEMENT OF CASH FLOWS Statement of cash flows million Cash and cash equivalents as at January Cash flows from operating activities 5,785 6,017 Cash flows from investing activities -5,498-4,188 Cash flows from financing activities Cash and cash equivalents as at June ,911 The statement of cash flows shows the changes in cash and cash equivalents during the reporting period. Cash and cash equivalents consist of cash on hand, balances with central banks and other government institutions, treasury bills, and non-interest-bearing treasury notes. The cash and cash equivalents do not include any financial investments with maturities of more than 3 months at the date of acquisition. Changes in cash and cash equivalents are broken down into operating, investing and financing activities.

55 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 53 Notes A General disclosures Pursuant to section 37w of the German Securities Trading Act (WpHG) in conjunction with section 37y no. 2 WpHG, the interim consolidated financial statements of DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ BANK), Frankfurt am Main, for the first half of the 2011 financial year have been prepared in accordance with the provisions of the International Financial Reporting Standards (IFRS), as adopted by the European Union (EU). In particular, the requirements of IAS 34 Interim Financial Reporting have been taken into account.» 01 Basis of preparation Changes in accounting policies First-time application in 2011 of changes in IFRS The financial statements of the entities consolidated in the DZ BANK Group have been prepared using uniform accounting policies. The accounting policies used to prepare these financial statements were the same as those applied in the consolidated financial statements for the 2010 financial year, unless these policies are subject to the IFRS amendments described below.» 02 Accounting policies and estimates The following amendments to and revised versions of financial reporting standards, the new interpretation below, and the specified improvements to IFRSs are applied for the first time in DZ BANK s interim consolidated financial statements for the first half of the 2011 financial year: IAS 24 Related Party Disclosures (IAS 24 (2009)), Amendment to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters, Amendment to IAS 32 Classification of Rights Issues, IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments, Amendments to IFRIC 14 Prepayments of a Minimum Funding Requirement, Improvements to IFRSs (2010). The DZ BANK Group applies the above-mentioned IFRS amendments from the 2011 financial year in compliance with the relevant transitional provisions. The IFRS improvements (2010) to IAS 34 Interim Financial Reporting have an impact on DZ BANK s interim consolidated financial statements. Disclosures on transfers between the fair value hierarchy levels of financial instruments and on reclassifications of financial assets owing to changes in their intended use are included in interim financial reporting. Previously mandatory disclosures on contingent liabilities in interim financial reporting no longer apply because no material changes occurred in the DZ BANK Group during the reporting period.

56 54 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES The other amendments to IFRSs have had no material impact on DZ BANK s interim consolidated financial statements. Voluntary changes in accounting policies Because VR Kreditwerk AG (Kreditwerk), Schwäbisch Hall, was consolidated in the Bausparkasse Schwäbisch Hall AG (BSH), Schwäbisch Hall, subgroup in 2010, BSH is now responsible for the financial and risk management of Kreditwerk. In line with the consequent change in internal reporting, Kreditwerk was reclassified from the Bank operating segment to the Real Estate Finance operating segment in the second half of The disclosures for the first half of 2010 have been restated accordingly. These changes have had the following impact on operating segment disclosures and on the consolidation/reconciliation for the first half of 2010: Bank operating segment million Jun. 30, 2010 before restatement Amount of restatement Jun. 30, 2010 after restatement Net interest income ( ) Net fee and commission income ( ) Administrative expenses Other net operating income Profit before taxes Cost / income ratio (%) Real Estate Finance operating segment million Jun. 30, 2010 before restatement Amount of restatement Jun. 30, 2010 after restatement Net interest income ( ) Administrative expenses Other net operating income Profit before taxes Cost / income ratio (%) > > 100.0

57 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 55 Consolidation / reconciliation million Jun. 30, 2010 before restatement Amount of restatement Jun. 30, 2010 after restatement ( ) Net fee and commission income ( ) Administrative expenses Other net operating income Profit before taxes Sources of uncertainty associated with estimates It is necessary to make assumptions and estimates in accordance with the relevant financial reporting standards in order to determine the carrying amounts of assets, liabilities, income, and expenses recognized in these interim consolidated financial statements. These assumptions and estimates are based on historical experience, planning, and expectations or forecasts regarding future events. Assumptions and estimates are used primarily in determining the fair value of financial assets and financial liabilities and in identifying any impairment of financial assets. In addition, estimates have a significant impact on the identification of goodwill impairment and the impairment of intangible assets acquired as a result of business combinations. Furthermore, assumptions and estimates affect the measurement of insurance liabilities, provisions for employee benefits, and other provisions as well as the recognition and measurement of income tax assets and income tax liabilities. changes in accounting estimates In the first half of 2011 the DZ BANK Group modified estimates used to calculate reserves for IBNR reinsurance claims. These reserves are set aside to cover any claims for damage or losses that have been incurred but not yet reported (IBNR) by the balance sheet date. Historical statistical data is used to quantify these reserves. The experience adjustments made to estimates decreased the provision for claims outstanding which is reported as an insurance liability by 51 million. These adjustments reduce the expenses for claims outstanding which are reported as insurance benefit payments by the same amount. The main changes to the group of consolidated entities in the first half of 2011 reflected the fact that the subsidiaries DZ Beteiligungsgesellschaft mbh Nr. 18, Frankfurt am Main, and WBS Wohnwirtschaftliche Baubetreuungs- und Servicegesellschaft mbh, Stuttgart, were fully consolidated for the first time. In addition, DZ PB S.A., Luxembourg-Strassen, was merged with its subsidiary DZ PRIVATBANK S.A., Luxembourg-Strassen, as part of an intragroup transaction. Further changes in the scope of consolidation resulted from business combinations and are presented in note 47.» 03 Scope of consolidation

58 56 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES B Disclosures relating to the income statement and the statement of comprehensive income» 04 Segment information Information on operating segments for the period January 1 to June 30, 2011 million Bank Retail Real Estate Finance Insurance Net interest income ,491 Allowances for losses on loans and advances Net fee and commission income Gains and losses on trading activities Gains and losses on investments Other gains and losses on valuation of financial instruments Premiums earned 5,439 5,439 Gains and losses on investments held by insurance companies and other insurance company gains and losses 1, ,076 Insurance benefit payments -5,433-5,433 Insurance business operating expenses -1, Administrative expenses ,315 Other net operating income Profit before taxes Cost/income ratio (%) Total Information on operating segments for the period January 1 to June 30, 2010 Consolidation / reconciliation Bank Retail Real Estate Finance Insurance Consolidation / reconciliation Total million Net interest income ,249 Allowances for losses on loans and advances Net fee and commission income Gains and losses on trading activities Gains and losses on investments Other gains and losses on valuation of financial instruments Premiums earned 5,470 5,470 Gains and losses on investments held by insurance companies and other insurance company gains and losses 1, ,474 Insurance benefit payments -5,860-5,860 Insurance business operating expenses Administrative expenses ,234 Other net operating income Profit before taxes Cost/income ratio (%) >

59 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 57 million Jun. 30, 2011 Jun. 30, 2010 Interest income and current income and expense 4,487 4,446 Interest income from 4,340 4,360 Lending and money market business 3,831 3,915 Fixed-income securities Portfolio hedges of interest-rate risk Current income from Shares and other variable-yield securities Investments in subsidiaries 4 5 Operating leases Income / loss from using the equity method for 48-6 Interests in joint ventures Investments in associates 7-40 Income from profit-pooling, profit-transfer and partial profit-transfer agreements Interest expense on -2,996-3,197 Deposits from banks and amounts owed to other depositors -2,140-2,182 Debt certificates including bonds Subordinated capital Portfolio hedges of interest-rate risk Provisions and other liabilities Total 1,491 1,249» 05 Net interest income The income/loss from using the equity method for investments in associates in the first half of 2010 included income of 15 million generated by an associate s discontinued operations. million Jun. 30, 2011 Jun. 30, 2010 Allowances for losses on loans and advances to banks -7-3 Additions Reversals 6 41 Allowances for losses on loans and advances to customers Additions Reversals Directly recognized impairment losses Receipts from loans and advances previously impaired 22 14» 06 Allowances for losses on loans and advances Changes in provisions for loan commitments, in other provisions for loans and advances, and in liabilities from financial guarantee contracts 9 26 Total

60 58 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES million Jun. 30, 2011 Jun. 30, 2010 Fee and commission income 1,329 1,271 Securities business Asset management Payments processing including card processing Lending business and trust activities Financial guarantee contracts and loan commitments International business 7 8 Building society operations Other Fee and commission expenses Securities business Asset management Payments processing including card processing Lending business Financial guarantee contracts and loan commitments -1-3 Building society operations Other Total » 07 Net fee and commission income million Jun. 30, 2011 Jun. 30, 2010 Gains and losses on non-derivative financial instruments and embedded derivatives 627 1,154 Gains and losses on derivatives Gains and losses on exchange differences Total » 08 Gains and losses on trading activities million Jun. 30, 2011 Jun. 30, 2010 Gains and losses on bonds and other fixed-income securities Disposals Impairment losses Reversals of impairment losses 64 7 Gains and losses on shares and other variable-yield securities Disposals 1-1 Impairment losses -12 Total » 09 Gains and losses on investments

61 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 59 million Jun. 30, 2011 Jun. 30, 2010 Gains and losses arising on hedging transactions 2 3 Fair value hedges 3 4 Gains and losses on hedging instruments Gains and losses on hedged items Portfolio fair value hedges -2-1 Gains and losses on hedging instruments Gains and losses on hedged items Gains and losses on cash flow hedges 1 Gains and losses on derivatives used for purposes other than trading 3-20» 10 Other gains and losses on valuation of financial instruments Gains and losses on financial instruments designated as at fair value through profit or loss Gains and losses on non-derivative financial instruments and embedded derivatives Gains and losses on derivatives Total » 11 Premiums earned million Jun. 30, 2011 Jun. 30, 2010 Net premiums written 5,969 5,964 Gross premiums written 5,998 6,055 Reinsurance premiums ceded Change in provision for unearned premiums Gross premiums Reinsurers share Total 5,439 5,470

62 60 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES million Jun. 30, 2011 Jun. 30, 2010 Income from investments held by insurance companies 1,791 1,985 Interest income and current income 1,266 1,216 Income from reversal of impairment losses and unrealized gains Gains on valuation through profit or loss of investments held by insurance companies Gains on disposals Expenses in connection with investments held by insurance companies Administrative expenses Depreciation/amortization expense, impairment losses and unrealized losses Losses on valuation through profit or loss of investments held by insurance companies Losses on disposals Other gains and losses of insurance companies 75 1 Other insurance gains and losses Other non-insurance gains and losses 7-95 Total 1,076 1,474» 12 Gains and losses on investments held by insurance companies and other insurance company gains and losses million Jun. 30, 2011 Jun. 30, 2010 Expenses for claims outstanding -4,016-3,516 Gross expenses for claims outstanding -4,041-3,584 Reinsurers share 25 68» 13 Insurance benefit payments Changes in benefit reserve, reserve for deferred policyholder participation, and in other insurance liabilities -1,417-2,344 Changes in gross liabilities -1,384-2,327 Reinsurers share Total -5,433-5,860 million Jun. 30, 2011 Jun. 30, 2010 Gross expenses Reinsurers share Total » 14 Insurance business operating expenses

63 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 61 million Jun. 30, 2011 Jun. 30, 2010 Staff expenses General and administrative expenses Depreciation and amortization Total -1,315-1,234» 15 Administrative expenses million Jun. 30, 2011 Jun. 30, 2010 Other income from leasing business 8-1 Residual net operating income -14 Total 8-15» 16 Other net operating income IAS 34 states that the methods used to calculate income taxes in interim financial statements should be the same as those applied in the annual financial statements. Income taxes are therefore computed based on the best estimate of the annual income tax rate expected for the year as a whole. This tax rate is based on the legislation that is in force or has been adopted at the relevant balance sheet date.» 17 Income taxes

64 62 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES The table below shows the gains and losses on available-for-sale financial assets and on cash flow hedges.» 18 Amounts reclassified to the income statement million Jun. 30, 2011 Jun. 30, 2010 Gains and losses on available-for-sale financial assets Gains (+) / losses (-) arising during the reporting period Gains (-) / losses (+) reclassified to the income statement Gains and losses on cash flow hedges Gains (+) / losses (-) arising during the reporting period Gains (-) / losses (+) reclassified to the income statement 13 The table below shows the income taxes on the various components of other comprehensive income. Jun. 30, 2011 Jun. 30, 2010» 19 Income taxes relating to components of other comprehensive income million Amount before taxes Income taxes Amount after taxes Amount before taxes Income taxes Amount after taxes Gains and losses on availablefor-sale financial assets Gains and losses on cash flow hedges Exchange differences on currency translation of foreign operations Actuarial gains and losses on defined benefit plans Share of other comprehensive income/loss of joint ventures and associates accounted for using the equity method Other comprehensive income/loss

65 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 63 C Balance sheet disclosures million Jun. 30, 2011 Dec. 31, 2010 Cash on hand Balances with central banks and other government institutions Treasury bills, non-interest-bearing treasury notes Total » 20 Cash and cash equivalents Repayable on demand Other loans and advances million Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Domestic banks 5,535 4,268 60,025 59,393 65,560 63,661 Affiliated banks 1,870 1,877 47,721 47,295 49,591 49,172 Other banks 3,665 2,391 12,304 12,098 15,969 14,489 Foreign banks 3,507 4,541 4,832 5,412 8,339 9,953 Total 9,042 8,809 64,857 64,805 73,899 73,614 Total» 21 Loans and advances to banks million Jun. 30, 2011 Dec. 31, 2010 Loans and advances to domestic customers 85,229 84,225 Loans and advances to foreign customers 30,222 32,050 Total 115, ,275» 22 Loans and advances to customers

66 64 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES The table below shows the breakdown of loans and advances to customers by type of business. million Jun. 30, 2011 Dec. 31, 2010 Local authority loans 15,256 16,154 Mortgage loans 20,873 21,520 Loans secured by ship mortgages and other loans secured by mortgages on real estate Building loans advanced by building society 22,996 22,182 Finance leases 4,901 5,041 Money market placements Other loans and advances 49,520 49,893 Total 115, ,275 The changes in allowances for losses on loans and advances recognized under assets were as follows:» 23 Allowances for losses on loans and advances Allowances for losses on loans and advances to banks Allowances for losses on loans and advances to customers Total million Specific loan loss allowances Portfolio loan loss allowances Specific loan loss allowances Portfolio loan loss allowances Balance as at Jan. 1, , ,462 Additions Utilizations Reversals Interest income Other changes Balance as at Jun. 30, , ,424 Balance as at Jan. 1, , ,224 Additions Utilizations Reversals Interest income Other changes Balance as at Jun. 30, , ,192 Interest income was accrued on impaired loans and advances in accordance with IAS 39.AG 93 (unwinding).

67 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 65 million Jun. 30, 2011 Dec. 31, 2010 Derivatives used as fair value hedges Derivatives used as cash flow hedges 13 6 Total » 24 Derivatives used for hedging (positive fair values) million Jun. 30, 2011 Dec. 31, 2010 Derivatives (positive fair values) 19,723 23,609 Interest-linked contracts 14,922 19,198 Currency-linked contracts Share-/index-linked contracts 1,263 1,260 Other contracts 1,670 1,126 Credit derivatives 1,229 1,368 Bonds and other fixed-income securities 23,908 26,355 Money market instruments from public-sector issuers from other issuers Bonds 23,243 25,966 from public-sector issuers 4,284 3,587 from other issuers 18,959 22,379 Shares and other variable-yield securities Shares Investment fund units Other variable-yield securities Receivables 19,310 17,204 Money market placements 17,473 15,362 with banks 12,767 11,908 of which: with affiliated banks 2,425 3,023 with other banks 10,342 8,885 with customers 4,706 3,454 Promissory notes, registered bonds, and other receivables 1,837 1,842 from banks from customers Total 63,918 68,047» 25 Financial assets held for trading

68 66 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES» 26 Investments million Jun. 30, 2011 Dec. 31, 2010 Bonds and other fixed-income securities 58,168 55,573 Money market instruments from public-sector issuers 15 from other issuers Bonds 57,829 55,086 from public-sector issuers 19,567 17,511 from other issuers 38,262 37,575 Shares and other variable-yield securities 1,167 1,180 Shares and other shareholdings Investment fund units Other variable-yield securities Investments in subsidiaries 1,226 1,212 Interests in joint ventures Investments in associates Total 61,394 58,732 The carrying amount of interests in joint ventures accounted for using the equity method totaled 567 million (December 31, 2010: 525 million). 214 million of the investments in associates was accounted for under the equity method; this figure had remained unchanged since December 31, million Jun. 30, 2011 Dec. 31, 2010 Investment property 1,349 1,170 Investments in subsidiaries Interests in joint ventures Investments in associates Mortgage loans 5,283 4,975 Promissory notes and loans 10,759 11,221 Registered bonds 10,138 10,102 Other loans 1,705 1,722 Variable-yield securities 4,799 4,476 Fixed-income securities 19,693 18,562 Derivatives (positive fair values) Deposits with ceding insurers Assets related to unit-linked contracts 5,059 5,039 Total 59,498 57,996» 27 Investments held by insurance companies

69 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 67 million Jun. 30, 2011 Dec. 31, 2010 Land and buildings Office furniture and equipment Assets subject to operating leases 1,491 1,488 Investment property Payments in advance Total 2,259 2,152» 28 Property, plant and equipment, and investment property» 29 Other assets million Jun. 30, 2011 Dec. 31, 2010 Other assets held by insurance companies 3,339 3,326 Intangible assets of which: goodwill Other receivables Residual other assets Total 4,806 4,647 The main items recognized under intangible assets are goodwill, software, and customer relationships acquired. The breakdown of other assets held by insurance companies is as follows: million Jun. 30, 2011 Dec. 31, 2010 Intangible assets Reinsurance assets Insurance company receivables Credit balances with banks, checks and cash on hand Residual other assets held by insurance companies 1,735 1,579 Total 3,339 3,326

70 68 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES The non-current assets and disposal groups classified as held for sale largely comprise shares in companies. These line items also include individual pieces of real estate as well as assets and liabilities of a consolidated special fund.» 30 Non-current assets and disposal groups classified as held for sale Repayable on demand With agreed maturity or notice period million Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Domestic banks 16,751 18,062 65,285 63,624 82,036 81,686 Affiliated banks 11,919 14,090 27,968 26,920 39,887 41,010 Other banks 4,832 3,972 37,317 36,704 42,149 40,676 Foreign banks 3,114 1,940 12,150 20,530 15,264 22,470 Total 19,865 20,002 77,435 84,154 97, ,156 Total» 31 Deposits from banks million Jun. 30, 2011 Dec. 31, 2010 Amounts owed to other domestic depositors 80,975 77,148 Home savings deposits 36,323 34,950 Other amounts owed to other depositors 44,652 42,198 Repayable on demand 7,652 4,924 With agreed maturity or notice period 37,000 37,274 Amounts owed to other foreign depositors 10,248 7,787 Home savings deposits 1,343 1,208 Other amounts owed to other depositors 8,905 6,579 Repayable on demand 4,563 2,261 With agreed maturity or notice period 4,342 4,318 Total 91,223 84,935» 32 Amounts owed to other depositors

71 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 69 million Jun. 30, 2011 Dec. 31, 2010 Bonds issued 49,322 50,944 Mortgage Pfandbriefe 6,344 7,061 Public-sector Pfandbriefe 11,242 12,707 Other bonds 31,736 31,176 Other debt certificates 5,815 4,245 Total 55,137 55,189» 33 Debt certificates including bonds All other debt certificates are commercial paper. million Jun. 30, 2011 Dec. 31, 2010 Derivatives used as fair value hedges 1,161 1,334 Derivatives used as cash flow hedges Total 1,183 1,362» 34 Derivatives used for hedging (negative fair values) million Jun. 30, 2011 Dec. 31, 2010 Derivatives (negative fair values) 20,568 26,238 Interest-linked contracts 15,515 20,376 Currency-linked contracts 951 1,022 Share-/index-linked contracts 2,090 2,265 Other contracts 776 1,187 Credit derivatives 1,236 1,388 Delivery commitments arising from short sales of securities 3,966 2,756 Bonds and other debt certificates issued 15,277 15,057 Commercial paper 1,386 2,102 Other bonds 13,891 12,955 Liabilities 16,772 13,640 Money market deposits 16,768 13,640 from banks 14,007 11,083 of which: from affiliated banks 4,828 7,848 from other banks 9,179 3,235 from customers 2,761 2,557 Promissory notes and registered bonds issued 4 to banks 2 to customers 2 Total 56,583 57,691» 35 Financial liabilities held for trading The other bonds mainly relate to share- and index-linked certificates.

72 70 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES» 36 Provisions million Jun. 30, 2011 Dec. 31, 2010 Provisions for employee benefits 1,017 1,032 Provisions for defined benefit obligations Provisions for other long-term employee benefits Provisions for termination benefits of which: for early retirement schemes for preretirement part-time employment schemes for restructuring Provisions for short-term employee benefits Other provisions Provisions for onerous contracts Provisions for restructuring 9 11 Provisions for loan commitments Other provisions for loans and advances Provisions relating to building society operations Residual provisions Total 1,723 1,773 million Jun. 30, 2011 Dec. 31, 2010 Provision for unearned premiums 1,538 1,016 Benefit reserve 40,095 39,145 Provision for claims outstanding 6,445 6,115 Reserve for deferred policyholder participation 5,141 5,253 Other insurance liabilities Reserve for unit-linked insurance contracts 4,711 4,637 Total 57,970 56,216» 37 Insurance liabilities» 38 Other liabilities million Jun. 30, 2011 Dec. 31, 2010 Other liabilities of insurance companies 4,003 4,129 Liabilities from financial guarantee contracts Accruals Other payables Residual other liabilities Total 5,256 5,718

73 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 71 The table below gives a breakdown of insurance companies other liabilities. million Jun. 30, 2011 Dec. 31, 2010 Other provisions of insurance companies Payables and residual other liabilities of insurance companies 3,770 3,902 Total 4,003 4,129 million Jun. 30, 2011 Dec. 31, 2010 Subordinated liabilities 2,867 2,886 Liabilities to dormant partners Profit-sharing rights Other hybrid capital Share capital repayable on demand Total 4,164 4,262» 39 Subordinated capital

74 72 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES D Financial instruments disclosures million Jun. 30, 2011 Dec. 31, 2010 Carrying amount Fair value Carrying amount Fair value Financial assets measured at fair value 148, , , ,918 Financial instruments held for trading 64,026 64,026 68,173 68,173 Financial assets held for trading 63,918 63,918 68,047 68,047 Investments held by insurance companies Fair value option 22,736 22,736 24,487 24,487 Loans and advances to banks 1,012 1,012 1,407 1,407 Loans and advances to customers 6,759 6,759 6,929 6,929 Investments 13,965 13,965 15,173 15,173 Investments held by insurance companies 1,000 1, Derivatives used for hedging Derivatives used for hedging (positive fair values) Available-for-sale financial assets 60,699 60,699 54,460 54,460 Investments 36,100 36,100 31,308 31,308 Investments held by insurance companies 24,599 24,599 23,152 23,152 Financial assets measured at amortized cost 213, , , ,514 Loans and receivables 213, , , ,836 Cash and cash equivalents Loans and advances to banks 72,705 73,015 72,036 72,705 Loans and advances to customers 101, , , ,408 Investments 9,865 8,679 10,834 9,936 Investments held by insurance companies 27,203 27,492 27,362 27,612 Other assets » 40 Classes, categories, and fair values of financial instruments Fair value changes of the hedged items in portfolio hedges of interest-rate risk Available-for-sale financial assets Investments Other financial assets 4,862 5,065 5,004 5,228 Finance leases 4,862 5,065 5,004 5,228 Loans and advances to customers 4,862 5,065 5,004 5,228

75 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 73 million Jun. 30, 2011 Dec. 31, 2010 Carrying amount Fair value Carrying amount Fair value Financial liabilities measured at fair value 91,534 91,534 92,454 92,454 Financial instruments held for trading 56,615 56,615 57,751 57,751 Financial liabilities held for trading 56,583 56,583 57,691 57,691 Other liabilities Fair value option 33,736 33,736 33,341 33,341 Deposits from banks 7,870 7,870 6,932 6,932 Amounts owed to other depositors 9,817 9,817 11,006 11,006 Debt certificates including bonds 14,625 14,625 14,007 14,007 Subordinated capital 1,424 1,424 1,396 1,396 Derivatives used for hedging 1,183 1,183 1,362 1,362 Derivatives used for hedging (negative fair values) 1,183 1,183 1,362 1,362 Financial liabilities measured at amortized cost 215, , , ,272 Deposits from banks 89,430 89,307 97,224 97,315 Amounts owed to other depositors 81,395 81,819 73,916 74,690 Debt certificates including bonds 40,477 40,702 41,108 41,789 Other liabilities 1,432 1,431 1,515 1,515 Subordinated capital 2,740 2,858 2,866 2,963 Fair value changes of the hedged items in portfolio hedges of interest-rate risk Other financial liabilities Finance leases Amounts owed to other depositors Other liabilities Liabilities in connection with continuing involvement Debt certificates including bonds Liabilities from financial guarantee contracts Other liabilities

76 74 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES If there is an active market in financial assets and financial liabilities, the fair value is determined on the basis of the relevant market price as at the balance sheet date. This applies, for example, to exchange-traded futures and options as well as the vast majority of quoted shares, government bonds, bank bonds, corporate bonds, and Pfandbriefe held. If no active market is available at the balance sheet date, generally accepted valuation models are used to determine fair value. Discounted cash flow methods are generally used for nonderivative financial instruments and non-option derivatives. Option derivatives are measured using generally accepted option pricing models such as the Black-Scholes model and the Garman-Kohlhagen model. The valuation models rely on valuation parameters that are primarily based on observable market data such as credit and liquidity risk premiums, and interest rates for matching maturities. In the case of unreliable market prices in illiquid markets, non-observable parameters or substitute values are estimated for use in valuation models. For the purposes of valuation, structured products are broken down into their constituent components. Market participants verify the existence of an inactive market by analyzing the transaction volumes supplied by market data providers. Primary and secondary market activity in assetbacked securities based on US assets and in commercial mortgage-backed securities had almost totally ground to a halt. A modified discounted cash flow method was therefore used to determine the fair value in this case, this being the method used since the beginning of the financial crisis. The regular tests conducted during the first half of 2011 revealed that the markets for the DZ BANK Group s asset-backed securities were no longer deemed to be illiquid. These securities are therefore once again measured on the basis of parameters that can be observed in the market at the balance sheet date. The fair value of investments classified as equity instruments that are not quoted in an active market is determined using discounted cash flow methods based on unobservable parameters such as beta factors or discount rates that reflect the risk involved. If fair value cannot be reliably determined largely owing to the unavailability of profit planning data, equity instruments that are not quoted in an active market are measured at cost. The fair values of investment fund units are the redemption prices published by the relevant asset management companies. The fair value of financial instruments repayable on demand is equivalent to their carrying amount. This applies specifically to current account balances and demand deposits. The valuation methods described above are used to determine the fair values of all classes of financial instruments. The fair values of financial assets and financial liabilities resulting from building society operations are shown at their carrying amounts. Given the complex structure of home savings contracts, these fair values cannot be reliably determined using either comparable market prices or suitable option pricing models. The purpose of the building society management models developed in practice is solely to support the overall management of the bank; these models do not provide an adequate basis for the determination of fair values as required

77 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 75 by IFRS. On the basis of the management models used for the building society, the overall performance of building society operations during the reporting period was positive. The fair value reported under investments held by insurance companies relates to fixed-income securities matched as cover for long-term insurance-related obligations as part of insurance operations. Because these instruments are normally held over their entire maturity, interest-rate-related changes in fair value have no impact on net profit / loss. The fair values determined for the purposes of balance sheet measurement are broken down into the following hierarchy levels:» 41 Fair value hierarchy million Jun. 30, 2011 Level 1 Level 2 Level 3 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Jun. 30, 2011 Dec. 31, 2010 Financial assets measured at fair value 75,517 67,453 72,185 78, ,134 Loans and advances to banks 1,012 1,407 Loans and advances to customers 6,759 6,929 Derivatives used for hedging (positive fair values) Financial assets held for trading 18,069 16,267 45,734 50, ,295 Investments 34,927 29,852 15,034 16, Investments held by insurance companies 22,521 21,334 2,977 2, Financial liabilities measured at fair value 7,666 6,557 82,709 84,455 1,159 1,442 Deposits from banks 7,792 6, Amounts owed to other depositors 9,797 10, Debt certificates including bonds 2,143 2,245 11,531 10, ,306 Derivatives used for hedging (negative fair values) 1,183 1,362 Financial liabilities held for trading 5,517 4,309 50,956 53, Other liabilities Subordinated capital 1,424 1,396

78 76 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES The following transfers took place between hierarchy levels during the reporting period: Transfers from Level 1 to Level 2 Transfers from Level 2 to Level 1 million Jun. 30, 2011 Jun. 30, 2010 Jun. 30, 2011 Jun. 30, 2010 Financial assets measured at fair value 2, ,269 2,313 Financial assets held for trading , Investments 2, ,105 1,960 Investments held by insurance companies Financial liabilities measured at fair value Debt certificates including bonds 100 Financial liabilities held for trading 79 1 Other liabilities 1 Transfers from Level 3 to Levels 1 and 2 Transfers from Levels 1 and 2 to Level 3 million Jun. 30, 2011 Jun. 30, 2010 Jun. 30, 2011 Jun. 30, 2010 Financial assets measured at fair value 1, Financial assets held for trading 1,180 6 Investments Investments held by insurance companies Financial liabilities measured at fair value 2 10 Debt certificates including bonds 2 Financial liabilities held for trading 10

79 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 77 No financial assets were reclassified in the first half of During the corresponding period of 2010 there was one reclassification of financial assets with carrying amounts of 245 million from the financial instruments held for trading category to the available-forsale financial assets category.» 42 Reclassifications The table below shows the carrying amounts and the fair values of the financial assets that have been reclassified in accordance with the amendments made to IAS 39 and IFRS 7 in October 2008 and that were held at the balance sheet date. million Jun. 30, 2011 Dec. 31, 2010 Carrying amounts 3,160 3,657 Fair values 2,767 3,394 Excluding all reclassifications in previous years, an additional loss of 28 million before taxes would have been recognized in the income statement in the first half of 2011 as a result of the fair value measurement (first half of 2010: pre-tax gain of 10 million). In addition, excluding the reclassification of available-for-sale financial assets performed in 2008, a further pre-tax loss of 10 million in respect of the fair value measurement would have been recognized in other comprehensive income during the reporting period (first half of 2010: gain of 173 million).

80 78 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES The table below shows the carrying amounts of the DZ BANK Group s exposures to bonds issued by entities from countries particularly affected by the sovereign debt crisis, broken down into the categories applied to financial instruments under IAS 39.» 43 Exposures to countries particularly affected by the sovereign debt crisis million Jun. 30, 2011 Portugal 1,319 Financial instruments held for trading 480 Fair value option 351 Available-for-sale financial assets 130 Loans and receivables 358 Italy 5,758 Financial instruments held for trading 1,399 Fair value option 1,300 Available-for-sale financial assets 2,969 Loans and receivables 90 Ireland 916 Financial instruments held for trading 377 Fair value option 44 Available-for-sale financial assets 291 Loans and receivables 204 Greece 824 Financial instruments held for trading 44 Fair value option 393 Available-for-sale financial assets 375 Loans and receivables 12 Spain 7,486 Financial instruments held for trading 1,700 Fair value option 3,546 Available-for-sale financial assets 1,496 Loans and receivables 744 Total 16,303 The fair values of all exposures to bonds issued by entities from countries particularly affected by the sovereign debt crisis which are classified as either financial instruments held for trading, fair value option, or available-for-sale financial assets are contained in Levels 1 and 2 of the fair value hierarchy.

81 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 79 Exposures to Greek issuers include Greek government bonds with the following carrying amounts: million Jun. 30, 2011 Fair value option 15 Available-for-sale financial assets 339 Total 354 The carrying amount of bonds falling due after the end of 2020 amounted to 62 million. An active market is available for all exposures to Greek government bonds held by the DZ BANK Group. The euro-zone heads of state and government decided at their summit meeting on July 21, 2011 that private-sector creditors should contribute to the support package being provided for the Greek government. The continued solvency of the Greek state can only be guaranteed if the public sector and private creditors all work together. There is therefore objective evidence that exposures to the Greek government are impaired. For the reporting period the DZ BANK Group has recognized impairment losses corresponding to the difference between the amortized cost and fair value of all exposures classified as available-for-sale financial assets irrespective of their term to maturity at the balance sheet date. The impairment losses recognized in profit or loss for the reporting period amounted to 243 million. This figure includes impairment losses of 73 million on bonds falling due after the end of The DZ BANK Group has recognized impairment losses on bonds classified as available-forsale financial assets by reclassifying losses recognized in previous reporting periods as other comprehensive income/loss to the income statement. Exposures to countries particularly affected by the sovereign debt crisis and impairment losses on these exposures have only been recognized to the extent to which they are attributable to the DZ BANK Group s shareholders within the scope of its insurance business. No impairment losses have been recognized on exposures to Portugal, Italy, Ireland, or Spain countries that have all been particularly affected by the sovereign debt crisis because there was insufficient objective evidence of impairment at the time this report was being prepared.

82 80 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES E Other disclosures million Jun. 30, 2011 Dec. 31, 2010 Financial guarantee contracts 5,420 5,222 Loan guarantees 2,520 2,368 Letters of credit Other guarantees and warranties 2,537 2,101 Loan commitments 19,829 20,236 Credit facilities to banks 2,979 2,914 Credit facilities to customers 7,741 7,281 Guarantee credits Letters of credit Global limits 8,977 9,921 Total 25,249 25,458» 44 Financial guarantee contracts and loan commitments The figures shown for financial guarantee contracts and loan commitments are the nominal amounts of the exposure in each case. Trust assets and trust liabilities each amounted to 2,450 million at the balance sheet date (December 31, 2010: 2,582 million).» 45 Trust activities The Union Investment Group had total assets under management of 177,187 million at the balance sheet date (December 31, 2010: 177,405 million).» 46 Asset management by the Union Investment Group Business combinations and intragroup restructuring involving the group companies engaged in private banking were carried out during the reporting period as a continuation of the private banking market initiative in order to pool the cooperative financial network s competencies and strengthen its position.» 47 Business combinations The resolutions adopted by the general meetings of DZ PRIVATBANK S.A. (DZ PRIVAT- BANK S.A.), Luxembourg-Strassen, and of WGZ BANK Luxembourg S.A. (WGZ Luxembourg), Luxembourg, on June 9, 2011 made the merger of WGZ Luxembourg with DZ PRIVATBANK S.A. legally effective. The merger involved transferring the assets of WGZ Luxembourg together with all rights and obligations, including all liabilities to DZ PRIVATBANK S.A. by way of universal succession. DZ PRIVATBANK S.A. is a subsidiary of DZ BANK. This transaction constitutes a business combination as defined in IFRS 3 with DZ PRIVATBANK S.A. as acquirer and WGZ Luxembourg as acquiree. The date of acquisition was June 9, In addition, the former shareholders of WGZ Luxembourg transferred their 20.0 percent shareholding in the group company DZ PRIVAT- BANK (Schweiz) AG (DZ PRIVATBANK Schweiz), Zurich, to DZ PRIVATBANK S.A. by

83 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 81 way of a non-cash capital contribution. Furthermore, DZ PB S.A., Luxembourg-Strassen, was merged with its subsidiary DZ PRIVATBANK S.A. as part of an intragroup transaction. The last two aforementioned transactions increased DZ PRIVATBANK S.A. s shareholding in DZ PRIVATBANK Schweiz from 0.0 percent to percent. DZ BANK s shareholding in DZ PRIVATBANK S.A. now amounts to 70.3 percent (previously 89.7 percent). A total of 4,608,942 new shares in DZ PRIVATBANK S.A. were issued to the former shareholders of WGZ Luxembourg as part of the merger between these two companies. The fair value of the new shares issued amounted to 377 million at the acquisition date. The fair value of these shares was based on the enterprise values of the companies involved in the merger, which were calculated using the income capitalization approach to determine the exchange ratio. Measurement of the acquiree s assets and liabilities at their fair value as at the acquisition date revealed total net assets of 249 million, which are broken down as follows: million Fair value Assets Cash and cash equivalents 1 Loans and advances to banks 1,184 Loans and advances to customers 508 Financial assets held for trading 22 Investments 1,142 Property, plant and equipment, and investment property 1 Income tax assets 1 Other (intangible) assets 127 Liabilities Deposits from banks 1,121 Amounts owed to other depositors 1,500 Financial liabilities held for trading 27 Provisions 4 Income tax liabilities 60 Other liabilities 1 Subordinated capital 24 The nominal amount of loans and advances acquired totaled 1,683 million. There are no material future contractual cash flows that are likely to be uncollectible. The business combination gave rise to goodwill of 128 million. The main reasons for the recognition of this goodwill were future anticipated synergies and surplus income. The accounting treatment of the acquisition is only provisional owing to the short period between the acquisition date and the balance sheet date. This applies particularly to the carrying amounts of intangible assets, loans and advances, liabilities, goodwill, and deferred taxes.

84 82 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES If the merger with WGZ Luxembourg had taken place at the beginning of the reporting period, the DZ BANK Group s net interest income would have been 14 million higher and its net fee and commission income would have increased by 8 million; its administrative expenses would have risen by 6 million. Allowing for other income and expenses recognized in profit or loss, the DZ BANK Group s net profit for the period would have been 4 million higher in total. The merger of DZ PRIVATBANK S.A. with WGZ Luxembourg and the accompanying transfer of shares in DZ PRIVATBANK Schweiz to DZ PRIVATBANK S.A. by the former shareholders of WGZ Luxembourg increased the DZ BANK Group s equity by a total of 377 million. Of this amount, 190 million was attributable to DZ BANK s shareholders and 187 million to non-controlling interests. The effects of this increase are shown under the changes in the scope of consolidation that are presented within the statement of changes in equity. In addition, the group company DZ PRIVATBANK S.A. acquired parts of the private banking business owned by UniCredit Luxembourg S.A., Luxembourg. The transaction took the form of an asset deal and constituted a business combination as defined in IFRS 3. DZ PRI- VATBANK S.A. obtained control by acquiring legal title to the pertinent assets and liabilities and taking on the relevant employees with effect from January 1, The consideration transferred amounted to 27 million. Of this amount, 24 million was paid in cash and 3 million represented the fair value of a contingent consideration at the acquisition date. The contingent consideration relates to compensation payments that are determined by the performance of the client portfolio. Measurement of the acquiree s assets and liabilities at their fair value as at the acquisition date revealed total net assets of 27 million, which are broken down as follows: million Fair value Assets Loans and advances to banks 555 Loans and advances to customers 25 Other (intangible) assets 27 Liabilities Amounts owed to other depositors 580 Because the business combination took the form of an asset deal and the assets acquired and liabilities assumed have not been accounted for separately, the acquiree s revenue and net profit or loss since the acquisition date have not been disclosed separately.

85 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES 83 The table below shows the average number of employees by group.» 48 Employees Jun. 30, 2011 Jun. 30, 2010 Female employees 12,807 12,156 Full-time employees 8,725 8,477 Part-time employees 4,082 3,679 Male employees 14,893 14,468 Full-time employees 14,355 14,031 Part-time employees Total employees 27,700 26,624 Wolfgang Kirsch (Chief Executive Officer) Lars Hille Wolfgang Köhler» 49 Board of Managing Directors Hans-Theo Macke Albrecht Merz Thomas Ullrich Frank Westhoff Helmut Gottschalk (Chairman of the Supervisory Board) Spokesman of the Board of Managing Directors Volksbank Herrenberg-Rottenburg eg» 50 Supervisory Board Wolfgang Apitzsch (Deputy Chairman of the Supervisory Board) Attorney Henning Deneke-Jöhrens (Deputy Chairman of the Supervisory Board) Spokesman of the Board of Managing Directors Volksbank eg Lehrte-Springe-Pattensen-Ronnenberg

86 84 DZ BANK INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTES Rüdiger Beins Employee DZ BANK AG Deutsche Zentral-Genossenschaftsbank Werner Böhnke Chief Executive Officer WGZ BANK AG Westdeutsche Genossenschafts-Zentralbank Carl-Christian Ehlers (Member of the Supervisory Board until May 10, 2011) Chief Executive Officer Kieler Volksbank eg Uwe Fröhlich President Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.v. Bernd Hühn Spokesman of the Board of Managing Directors Volksbank Worms-Wonnegau eg Sigmar Kleinert Employee DZ BANK AG Deutsche Zentral-Genossenschaftsbank Rainer Mangels Employee R+V Rechtsschutzversicherung AG Dieter Rembde Member of the Board of Managing Directors VR-Bank Schwalm-Eder eg Gudrun Schmidt Employee ver.di Landesbezirk Hessen Ulrich Birkenstock Employee R+V Allgemeine Versicherung AG Hermann Buerstedde Employee Union Asset Management Holding AG Karl Eichele Employee VR Kreditwerk AG Dr. Roman Glaser Chief Executive Officer Volksbank Baden-Baden Rastatt eg Rita Jakli Senior Manager R+V Versicherung AG Willy Köhler Chief Executive Officer VR Bank Rhein-Neckar eg Walter Müller Chief Executive Officer Volksbank Raiffeisenbank Fürstenfeldbruck eg Stephan Schack (Member of the Supervisory Board since May 10, 2011) Spokesman of the Board of Managing Directors Volksbank Raiffeisenbank eg Itzehoe Uwe Spitzbarth National Group Director Banks ver.di Bundesverwaltung

87 DZ BANK Responsibility statement 85 Responsibility statement To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the material opportunities and risks associated with the expected development of the group for the remaining months of the financial year. Frankfurt am Main, August 23, 2011 DZ BANK AG Deutsche Zentral-Genossenschaftsbank The Board of Managing Directors Kirsch Hille Köhler Macke Merz Ullrich Westhoff

88 86 DZ BANK REVIEW REPORT (TRANSLATION) Review report (translation) To DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main We have reviewed the interim condensed consolidated financial statements, comprising the condensed income statement, the statement of comprehensive income, the balance sheet, the statement of changes in equity, the condensed statement of cash flows, and selected explanatory notes, and the interim group management report of DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main, for the period from January 1 to June 30, 2011, which are part of the six-monthly financial report pursuant to Sec. 37w WpHG [ Wertpapierhandelsgesetz : German Securities Trading Act]. The preparation of the interim condensed consolidated financial statements in accordance with IFRSs on interim financial reporting as adopted by the EU and of the interim group management report in accordance with the requirements of the WpHG applicable to interim group management reports is the responsibility of the Company s management. Our responsibility is to issue a report on the interim condensed consolidated financial statements and the interim group management report based on our review. We conducted our review of the interim condensed consolidated financial statements and the interim group management report in accordance with German generally accepted standards for the review of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the review to obtain a certain level of assurance in our critical appraisal to preclude that the interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IFRSs on interim financial reporting as adopted by the EU and that the interim group management report is not prepared, in all material respects, in accordance with the provisions of the WpHG applicable to interim group management reports. A review is limited primarily to making inquiries of company personnel and applying analytical procedures and thus does not provide the assurance that we would obtain from an audit of financial statements. In accordance with our engagement, we have not performed an audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IFRSs on interim financial reporting as adopted by the EU or that the interim group management report is not prepared, in all material respects, in accordance with the provisions of the WpHG applicable to interim group management reports. Eschborn / Frankfurt am Main, August 23, 2011 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft Professor Dr. Pfitzer Wirtschaftsprüfer (German Public Auditor) Dombek Wirtschaftsprüferin (German Public Auditor)