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2 DZ BANK HALF-YEAR FINANCIAL 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

3 08 DZ BANK HALF-YEAR FINANCIAL REPORT BUSINESS PERFORMANCE I. Business Performance 1. ECONOMIC CONDITIONS German gross domestic product in the first half of 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 continued in the first quarter of, 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, 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 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 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, 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 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, 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

4 DZ BANK HALF-YEAR FINANCIAL 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, 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 centered on how to convert the nominal 750 billion rescue package agreed in May 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, 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, 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, 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 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, 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

5 10 DZ BANK HALF-YEAR FINANCIAL 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 the euro group president Jean-Claude Juncker confirmed that the total loans of 110 billion approved for Greece in May 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, 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, the euro-zone finance ministers approved the loan tranche of 12 billion on July 2,, 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, 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, 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, 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

6 DZ BANK HALF-YEAR FINANCIAL 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 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 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 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 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, 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.

7 12 DZ BANK HALF-YEAR FINANCIAL 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 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 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 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.

8 DZ BANK HALF-YEAR FINANCIAL 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.

9 14 DZ BANK HALF-YEAR FINANCIAL 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 were as described below. Operating income in the DZ BANK Group amounted to 2,088 million (first half of : 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 : 136 million). The DZ BANK Group s administrative expenses rose by 81 million, or 6.6 percent, to 1,315 million (first half of : 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 was as follows. FIG. 1 INCOME STATEMENT million Jan. 1 Jan. 1 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.

10 DZ BANK HALF-YEAR FINANCIAL REPORT BUSINESS PERFORMANCE 15 The encouraging trend of 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, 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 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 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 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 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 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.

11 16 DZ BANK HALF-YEAR FINANCIAL REPORT BUSINESS PERFORMANCE One of the main reasons for this impressive performance in the first half of 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, compared with March 31, ). The number of customers as at June 30, had risen to 545,000 (December 31, : 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, 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 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, 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 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 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 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 : 813 million), which meant that the total volume of new business fell year on year to 1,825 million (first half of : 2,335 million).

12 DZ BANK HALF-YEAR FINANCIAL 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 attracted growing interest. Against this background, the volume of business jointly generated with the local cooperative banks in the first half of 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 : 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 (first half of : 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, 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 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 by 0.7 percent to 916 million (first half of : 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 : 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 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 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 : 1,028 million), while VR DISKONTBANK GmbH, Eschborn, earned revenue of 4,043 million (first half of : 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, 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

13 18 DZ BANK HALF-YEAR FINANCIAL 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,, 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 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 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 : 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 : 136 million). DZ BANK s allowances for losses on loans and advances in the first half of 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, DVB which specializes in international transport finance substantially raised its net fee and commission income in the first half of 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 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.

14 DZ BANK HALF-YEAR FINANCIAL 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 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 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, (June 30, : 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 : 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

15 20 DZ BANK HALF-YEAR FINANCIAL 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 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 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, 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, 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, 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 fell by 13.3 percent to a net expense of 34 million (first half of : 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 : profit of

16 DZ BANK HALF-YEAR FINANCIAL 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 : 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 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 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 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, 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 : net loss of 306 million). The figure reported for the first half of 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 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 : loss of 162 million). 138 million of the loss reported for the first half of 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

17 22 DZ BANK HALF-YEAR FINANCIAL 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 : 5,470 million). R+V therefore managed to build on the already very high level of premiums earned in the first half of, 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 : 1,474 million). The lower level of gains on investments held by insurance companies compared with the first half of 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 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 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 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 : 1,234 million), with staff ex - penses increasing by 16 million, or 2.3 percent, to 699 million (first half of : 683 million) and other administrative expenses advancing by 65 million, or 11.8 percent, to 616 million (first half of : 551 million).

18 DZ BANK HALF-YEAR FINANCIAL 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 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 : 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 was 63.0 percent (first half of : 62.1 percent). The income taxes paid by the DZ BANK Group in the first 6 months of 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 compared with 486 million in the first half of. FIG. 2 PERFORMANCE OF THE BUSINESS SEGMENTS million Jan. 1 Jan. 1 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, had decreased marginally by 0.2 billion to billion (December 31, : 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.

19 24 DZ BANK HALF-YEAR FINANCIAL 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, 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, amounted to 97.3 billion, which was 6.9 billion, or 6.6 percent, lower than the figure reported as at December 31,, 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, (December 31, : 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, totaled 11,397 million (December 31, : 10,727 million), with the revaluation reserve falling from minus 680 million as at December 31, 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.

20 DZ BANK HALF-YEAR FINANCIAL 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 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 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.

21 26 DZ BANK HALF-YEAR FINANCIAL 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, 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, 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 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, (December 31, 2009 for : 11,758 million).

22 DZ BANK HALF-YEAR FINANCIAL 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, (December 31, : 10,563 million). The total risk capital requirement was determined to be 8,670 million (December 31, : 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 Risk capital requirement 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, 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, (December 31, : 10,967 million). Tier 1 capital as at June 30, had grown by 561 million since the end of. This increase stemmed largely from the fact that the appropriation of profit for 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 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, were calculated to be 6,807 million (December 31, : 6,926 million). The total capital ratio rose from 12.7 percent as at De - cember 31, to 13.3 percent at the balance sheet date. The Tier 1 capital ratio as at June 30, 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

23 28 DZ BANK HALF-YEAR FINANCIAL 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, 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 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 : 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.

24 DZ BANK HALF-YEAR FINANCIAL REPORT RISK REPORT MODIFICATIONS TO RISK MANAGEMENT A number of internal rating systems that had been revised or newly designed in 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 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 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, (December 31, : billion). The industrial breakdown of the credit portfolio presented in figure 3 shows that the total volume of lending as at June 30, 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, 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 Financial sector Public sector Corporates Retail Industry conglomerates Other Total

25 30 DZ BANK HALF-YEAR FINANCIAL REPORT RISK REPORT FIG. 4 LENDING VOLUME BY COUNTRY GROUP Traditional lending business Securities business Derivatives and money market business Total billion 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,, 98 percent of the total lending volume (December 31, : 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, (December 31, : 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, 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 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, differ from those shown on page 92 of the annual report owing to the exclusion of intragroup transactions as at June 30, 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.

26 DZ BANK HALF-YEAR FINANCIAL REPORT RISK REPORT 31 FIG. 6 LENDING VOLUME BY RESIDUAL MATURITY Traditional lending business Securities business Derivatives and money market business Total billion 1 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, 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 and June 30,, amounting to 21 percent. Defaults in rating classes 5A to 5E as at June 30, 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.

27 32 DZ BANK HALF-YEAR FINANCIAL 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 ( ) 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

28 DZ BANK HALF-YEAR FINANCIAL 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 16,385-1, ,333 Total for first half of 20, ,981 1 Including receivables from purchased leased assets amounting to 75 million (December 31, : 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 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, 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, consisted of AAA tranches as rated by external credit rating agencies (December 31, : 54 percent). A further 16 percent (December 31, : 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, : 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, : 3.7 billion). Of this amount, 68 percent was accounted for by undrawn liquidity lines provided for conduits (December 31, : 68 percent). As at June 30,, 73 percent (December 31, : 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, : 6 percent). A further 21 percent (December 31, : 22 percent) was rated AA. Rating categories BBB+ to B- accounted for 25 percent of the total exposure to conduits as at June 30, (December 31, : 28 percent).

29 34 DZ BANK HALF-YEAR FINANCIAL 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 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 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 (first half of : 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.

30 DZ BANK HALF-YEAR FINANCIAL 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 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 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 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, : 315 million) were predominantly secured by physical collateral. Internal limits available for these past-due loans as at June 30, totaled 188 million (December 31, : 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, 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 (totals: 5,078 million and 3,178 million respectively).

31 36 DZ BANK HALF-YEAR FINANCIAL 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 1st half of 1st half of 1st half of 1st half of 1st half of 1st half of 1st half of 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 : 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 (first half of : 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.

32 DZ BANK HALF-YEAR FINANCIAL 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, and December 31,. FIG. 15 UPPER LOSS LIMITS AND CAPITAL REQUIREMENT FOR MARKET RISK BY TYPE OF BUSINESS million Upper loss limit Risk capital requirement 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 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 (the forecast risk data was exceeded three times during the corresponding period of ). The overshoot on June 23, 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 risk risk 2 7 price risk effect Average Maximum Minimum Non-trading portfolios Average Maximum Minimum 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

33 38 DZ BANK HALF-YEAR FINANCIAL 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 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 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, for the period from July 1, to June 30, 2012 under the risk scenario amounted to 26.3 billion (December 31, for the 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.

34 DZ BANK HALF-YEAR FINANCIAL REPORT RISK REPORT 39 FIG. 18 LIQUIDITY RISK AS AT JUNE 30, : 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, was 95 percent (December 31, : 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, they provided 48 percent (December 31, : 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, 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 % 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.

35 40 DZ BANK HALF-YEAR FINANCIAL 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 and the three-year average. The value of limits issued in the credit insurance business declined from 24.0 billion as at December 31, 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, 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 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 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 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 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.

36 DZ BANK HALF-YEAR FINANCIAL 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 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 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 1st half of 92.7 As things stand, if the prevailing situation in the capital markets were to continue from the reporting date until December 31,, 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 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

37 42 DZ BANK HALF-YEAR FINANCIAL REPORT OUTLOOK III. Outlook Following the setback of the financial crisis and then the rapid economic recovery during the autumn and winter months of /, 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, 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 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 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.

38 DZ BANK HALF-YEAR FINANCIAL 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 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.

39 44 DZ BANK HALF-YEAR FINANCIAL 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 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 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 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 as a whole, although it is likely to be lower than the net income achieved in. Profitability for 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 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.

40 DZ BANK HALF-YEAR FINANCIAL 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 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 as a whole, the DZ BANK Group expects earnings for this year to be lower than they were in, 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.

41 Editorial information DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main Platz der Republik D Frankfurt am Main Germany Telephone: +49 (0) Fax: +49 (0) Board of Managing Directors: Wolfgang Kirsch (Chief Executive Officer) Lars Hille Wolfgang Köhler Hans-Theo Macke Albrecht Merz Thomas Ullrich Frank Westhoff This half-year financial report is available in electronic form on our website at