Landesbank Berlin AG. Consolidated Financial Statements as of 31 December Page 1

Transcription

1 Landesbank Berlin AG Consolidated Financial Statements as of 31 December 2010 Page 1

2 Consolidated Financial Statements Statement of Comprehensive Income...4 Statement of Financial Position...6 Statement of Changes in Equity...7 Cash Flow Statement...9 Notes Principles of reporting Accounting standards and interpretations applied Accounting policies Principles of consolidation Group of consolidated entities Segment reporting...18 Notes on Accounting Policies Financial instruments Cash Investments carried at equity Intangible assets Property, plant and equipment Impairment of property, plant and equipment and intangible assets including goodwill Leases Investment property Non-current assets and groups of assets held for sale Provisions Income taxes Subordinated capital Equity Off-balance sheet transactions...44 Notes to the Statement of Comprehensive Income Net interest income Allowance for losses on loans and advances Net commission income Net income from hedge accounting Net gain from financial instruments recognised at fair value through profit or loss Net income from financial assets Net income from investments carried at equity Other operating income Administrative expense Restructuring expenditure and income (net) Income tax expense Earnings per share...59 Page 2

3 Notes to the Statement of Financial Position Cash Loans and advances to banks Loans and advances to customers Allowance for losses on loans and advances Positive fair value of derivative hedging instruments Financial assets recognised at fair value through profit or loss Financial assets Investments carried at equity Intangible assets Property, plant and equipment Investment property Income tax assets Other assets Non-current assets and groups of assets held for sale Deposits by banks Amounts due to customers Securitised debt Negative fair value of derivative hedging instruments Financial liabilities recognised at fair value through profit or loss Provisions Income tax liabilities Other liabilities Subordinated capital Equity...96 Other Notes Adjustments due to changes in accordance with IAS Trust activities Contingent liabilities and similar obligations Risk management Disclosures on financial instruments Collateral Related party disclosures Number of employees Events after 31 December List of investment holdings Auditors Report Responsibility Statement Page 3

4 Statement of Comprehensive Income Income statement for the period from 1 January to 31 December 2010 Notes ) Change million million million in % Net interest income Allowance for losses on loans and advances Net commission income Net income from hedge accounting Net income from financial instruments recognised at fair value through profit or loss Net income from financial assets Net income from investments carried at equity Other operating income Administrative expenses > 100 Operating result before restructuring Restructuring expenditure and income (net) Operating profit/earnings before taxes > 100 Other operating income > 100 Consolidated net profit for the period/earnings after taxes Operating result before restructuring Restructuring expenditure and income (net) Operating profit/earnings before taxes Income tax expense Net profit/loss for the period Transferred profits Net profit for the year < -100 Net profit/loss attributable to minority interests Consolidated net profit for the period of the shareholders of the parent company ) Figures for the previous year have been adjusted Earnings per share ) Change in % Consolidated net profit for the period of the shareholders of the parent company ( million) Average number of ordinary shares outstanding Earnings per share ( ) 2) -0,04-0, ) Figures for the previous year have been adjusted 2) Diluted = basic earnings Page 4

5 Total comprehensive income ) Change million million million in % Net profit/loss for the period 2) < -100 Change in Reserve from the measurement of AfS financial instruments of which Reclassification to comparative income statement Reserve from the measurement of hedging derivatives in cash flow hedges of which Reclassification to comparative income statement Reserve from the measurement of pension provisions (actuarial gains / losses) < > 100 Currency translation reserve Carrying value of investments carried at equity < -100 Deferred taxes from other comprehensive income Reserve from the measurement of AfS financial instruments Reserve from the measurement of hedging derivatives in cash flow hedges Reserve for the measurement of pension provisions (actuarial gains/losses) > Currency translation reserve Net income recognised in equity 2) Total comprehensive income Overall result attributable to minority interests of which net profit/loss attributable to minority interests of wich are recognised Net profit/loss attributable to minority interests Overall result of the shareholders of the parent company ) Figures for the previous year have been adjusted 2) including minority interest; see statement of changes in equity Page 5

6 Statement of Financial Position as at 31 December 2010 Assets ) Change Notes million million million in % million Cash 8, Loans and advances to banks 7, Loans and advances to customers 7, Risk provisioning 7, Positive fair value of derivative hedging instruments 7, Financial assets recognised at fair value through profit or loss 7, Financial assets 7, Investments carried at equity 9, Intangible assets 10, 12, Property, plant and equipment 11, 12, Investment property 14, Current tax assets 17, > Deferred tax assets 17, Other assets Non-current assets and groups of assets held for sale 15, Total ) Figures for the previous year have been adjusted Liabilities and shareholders' equity ) Change Notes million million million in % million Deposits by banks 7, Amounts due to customers 7, Securitised debt 7, Negative fair value of derivative hedging instruments 7, Financial liabilities recognised at fair value through profit or loss 7, Provisions 16, Current tax liabilities 17, Deferred tax liabilities 17, Other liabilities Liabilities assigned to groups of assets held for sale Subordinated capital 18, of which: dormant participations Shareholders' equity 19, Issued capital 19, Capital reserves 19, Retained earnings 19, Currency translation reserve 19, Revaluation reserve 19, Minority interests 19, Total ) Figures for the previous year have been adjusted Page 6

7 Statement of Changes in Equity for the periode from 1 January to 31 December 2009 million Notes Issued Capital Capital reserves Retained Earnings Currency translation reserves Revaluation reserve Minority interests Unappro-- priated surplus/ accumulated loss Total shareholders equity Shareholders' equity as of Adjustments in accordance with IAS Shareholders' equity as of (angepasst) Net profit/loss for the period Net income recognised in equity Change in Reserve from the measurement of AfS financial instruments Reserve from the measurement of hedging derivatives in cash flow hedges Reserve for the measurement of pension provisions (actuarial gains/losses) Currency translation reserve Carrying value of investments carried at equity 2 2 Deferred taxes from other comprehensive income Reserve from the measurement of AfS financial instruments Reserve from the measurement of hedging derivatives in cash flow hedges Reserve for the measurement of pension provisions (actuarial gains/losses) Currency translation reserve 1 1 Carrying value of investments carried at equity Changes in scope of consolidation and other changes ) 30 Shareholders' equity as of , ) Reclassification to retained earnings Page 7

8 for the periode from 1 January to 31 December 2010 million Notes Issued Capital Capital reserves Retained Earnings Currency translation reserves Revaluation reserve Minority interests Unappro-- priated surplus/ accumulated loss Total shareholders equity Shareholders' equity as of , Adjustments in accordance with IAS Shareholders' equity as of (adjusted) Change in retained earnings 0 Net profit/loss for the period Net income recognised in equity Change in Reserve from the measurement of AfS financial instruments Reserve from the measurement of hedging derivatives in cash flow hedges Reserve for the measurement of pension provisions (actuarial gains/losses) Currency translation reserve Carrying value of investments carried at equity Deferred taxes from other comprehensive income Reserve from the measurement of AfS financial instruments Reserve from the measurement of hedging derivatives in cash flow hedges Reserve for the measurement of pension provisions (actuarial gains/losses) Currency translation reserve Carrying value of investments carried at equity Changes in scope of consolidation and other changes ) -112 Shareholders' equity as of , ) Reclassification to retained earnings Page 8

9 Cash Flow Statement for the period from 1 January to 31 December 2010 million Notes ) Consolidated net profit for the period Non-cash items included in consolidated net profit for the period and reconciliation to net cash from/used in from operating activities Depreciation and amortisation, allowances for impairment losses, reversals of impairment losses 22, 26, Changes in provisions (additions and reversal only) Change in other non-cash items Net income from the disposal of property, plant and equipment and intangible assets 26, Net interest income Other adjustments (net) Subtotal Change in assets and liabilities used in operating activities after adjustment for non-cash items Loans and advances to banks Loans and advances to customers Financial assets recognised at fair value through profit or loss Other assets used in operating activities Payments for the acquisition of financial assets used in operating activities Proceeds from the disposal of financial assets used in operating activities Deposits by banks Amounts due to customers Securitised debt Financial liabilities recognised at fair value through profit or loss Other liabilities used in operating activities Interest and dividends received Interest paid Income tax payments Cash flow from operating activities Proceeds from the disposal of financial assets used in investing activities Property, plant and equipment intangible assets Payments to acquire financial assets used in investing activities Property, plant and equipment intangible assets Effects of changes in the scope of consolidation Proceeds from the disposal of consolidated companies after deduction of transferred cash 0 0 Payments for the acquisition of consolidated companies after deduction of transferred cash 0 0 Change in cash and cash equivalents due to other investing activities 0 0 Cash flow from investing activities Proceeds from capital increases 2) 0 38 Dividends paid 2) Cash inflows from subordinated capital Cash outflows from subordinated capital Change in cash and cash equivalents due to other financing activities 0 0 Cash flow from financing activities Cash and cash equivalents at the beginning of the prior period Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Changes in cash due to exchange rate, consolidation and measurement-related changes Change in cash funds 0 0 Cash and cash equivalents at the end of the period ) Figures for the previous year have been adjusted 2) In 2009 loss absorption of LBB AG through LBB Holding AG, in 2010 profit transfer of LBB AG to LBB Holding AG Page 9

10 The cash flow statement provides information on the amounts and development of cash and cash equivalents for the financial year, broken down into operating, investing and financing activities. The cash flow from operating activities is shown using the indirect method based on the net profit for the period. Cash flows from operating activities essentially include cash flows from loans and advances to banks and customers as well as deposits by banks and amounts due to customers, cash flows from securitised debt and assets and liabilities recognised at fair value through profit or loss, cash flows from financial assets allocated to operating activities and cash flows from interest paid and received. In particular, this includes interest and dividend income, interest expense and income tax expenses. The cash flow from investing activities essentially results from receipts and payments in conjunction with the sale or acquisition of financial assets, property, plant and equipment and intangible assets, as well as changes in the scope of consolidation. In addition to investor relations, the cash flow from financing activities also includes changes in subordinated liabilities. The reported cash and cash equivalents are composed of cash, which consists of cash on hand and balances at central banks. Page 10

11 Notes 1 Principles of reporting Landesbank Berlin AG (hereinafter referred to as the LBB ) is the parent company of the Landesbank Berlin Group, Berlin, Germany (hereinafter referred to as the Group ). Its head office is in Berlin, Germany, and it is entered in the commercial register there. Landesbank Berlin AG (LBB) is a wholly owned subsidiary of the listed and reportable Landesbank Berlin Holding AG (Holding). As a result of the acquisition of the Holding by Erwerbsgesellschaft der S-Finanzgruppe mbh &. Co. KG (S-Erwerbsgesellschaft) the Regionalverbandsgesellschaft mbh (RVG) was formed in It became the overall Group parent and is based in Neuhardenberg, Germany. This report is a full annual financial report as defined by Article 37v of the Wertpapierhandelsgesetz (WpHG German Securities Trading Act). The consolidated financial statements of Landesbank Berlin Holding for the financial year 2010 found here were prepared in accordance with the International Financial Reporting Standards (IFRS) applicable in the EU and also the applicable provisions in accordance with Article 315a (1) of the Handelsgesetzbuch (HGB German Commercial Code). Furthermore, the German Accounting Standards (GAS) passed by the German Accounting Standards Committee and promulgated by the Federal Ministry of Justice in accordance with Article 342 (2) of the German Commercial Code by 31 December 2010 were observed. Further information on the accounting standards and interpretations applied can be found in the note below. The Holding also prepares and publishes a Group management report in accordance with Article 315a HGB in conjunction with Articles 315, 340k HGB. The relevant GAS were also complied with. Unless otherwise indicated, all amounts are shown in millions of euro ( million). In isolated cases there may be minor deviations in additions due to rounding figures up or down. 2 Accounting standards and interpretations applied In accounting, the Group takes into account all relevant and applicable accounting standards and interpretations of the International Financial Reporting Standards that have been endorsed in EU law and are effective as at the end of the reporting period. The 2010 consolidated financial statements are based on the IASB framework concept and the IFRS and interpretations relevant to them. There was no voluntary, early adoption of applicable accounting standards and interpretations in the Group. Page 11

12 In the financial year, the following material amendments to and new accounting standards and interpretations were effective for the first time: IAS 27 (revised) Consolidated and Separate Financial Statements : In particular, the new additions relate to accounting for transactions that lead to a change in the shareholding of a parent company in a subsidiary: If the transaction does not result in a loss of control over the subsidiary by the parent, it is accounted for in equity. If the transaction results in a loss of control over the subsidiary by the parent and leads to an investment with a significant influence, the remaining equity investment is carried at fair value from the time at which control is lost and no longer at the carrying amount of the value of the investment on disposal in the context of deconsolidation. The above amendments are to be applied prospectively. The amended regulations were applied in the consolidated financial statements as at 31 December 2010; material disclosures on this can be found in note 5. IFRS 3 (revised) Business Combinations : The revised IFRS 3 is effective for the first time for financial years beginning on or after 1 July The purchase method is still the only approach permitted for accounting for business combinations. In addition to changes in disclosures in the notes, in particular the amendments provide additional specifications for selected regulations on determining the acquirer and on accounting for assets and liabilities at fair value. The option for calculating goodwill using the purchased goodwill method was extended to include the full goodwill method. The option can be exercised again for each new business combination. Ancillary costs of business combinations are taken to profit or loss in the period in which they are incurred. All the above amendments are to be applied prospectively. No company acquisitions within the meaning of IFRS 3 were performed in the 2010 financial year. The amendments to standards or interpretations effective for the first time in the reporting year will have no material effect on the net assets, financial position and results of operations of the Group. The future adoption of accounting standards or interpretations not yet effective as at the end of the reporting period, to the extent that this can be quantified as at the end of the reporting period, will have no material effect on the net assets, financial position and results of operations of the Group; they will have no fundamental effect on accounting policies: On 12 November 2009, the IASB published IFRS 9 Financial Instruments with revised regulations on the categorisation and measurement of financial assets. This was then supplemented by the IASB on 28 October 2010 with further regulations on the categorisation and measurement of financial liabilities. The new publications are part of a three-part revision of IAS 39. In its current form (part 1), IFRS 9 contains the Page 12

13 new provisions on the requirements for the classification and measurement of financial instruments that fall within the scope of IFRS 9. Binding, first-time adoption of the classification and measurement requirements is scheduled for annual periods beginning on or after 1 January 2013; early adoption is permitted but not intended by the Group. The new IFRS 9 as not yet been endorsed in EU law. First-time adoption prior to endorsement is not permitted within the EU area. The Group is monitoring the developments in connection with the new IFRS 9 and other steps in the revision of IAS 39, as yet still in the draft stage, in both a critical and timely manner. The Group is preparing itself accordingly for future first-time adoption. As this involves fundamental changes to the recognition of financial instruments and the full extent of the requirement is not known at the current time, the possible qualitative and quantitative effects of the amendments on the accounting policies of the Bank cannot yet be estimated. Furthermore, the relevant regulations of the German Commercial Code and the German Accounting Standards (GAS) passed by the German Accounting Standards Committee and promulgated by the Federal Ministry of Justice by 31 December 2010 in accordance with Article 342 (2) HGB were observed in these consolidated financial statements. 3 Accounting policies Basic principles The consolidated financial statements of the LBB as at 31 December 2010 are prepared in accordance with International Financial Reporting Standards (IFRS). Items are recognised and measured under the assumption of the going concern principle. Income and expenses are recognised in the income statement pro rata temporis in the period to which they relate. The main accounting policies applied in the preparation of these consolidated financial statements and the main judgements made by the management are detailed below. These notes initially explain general aspects; detailed information can be found in notes 7 to 20. Unless stated otherwise, the policies described were applied uniformly and consistently to the reporting periods presented. Uncertainty in estimates and assumptions The presentation of the net assets, financial position and results of operations in the consolidated financial statements is dependent on the recognition and measurement policies as well as assumptions and estimates used as the basis for the preparation of the consolidated financial statements. Page 13

14 The estimates and assessments required in IFRS accounting are made in line with the respective standard, reassessed on an ongoing basis and based on historical experience and other factors, including expectations with regard to future events that appear reasonable under the given circumstances. Stock exchange prices and internal measurement models with current market parameters are used for the measurement of assets and liabilities carried at fair value. For a small number of financial instruments, it was still not possible to determine fair value using either quoted prices or directly or indirectly (derived from prices) observable input parameters (IAS 39.AG71 73). In line with the fair value hierarchy of IAS 39, measurement models were used in these cases (IAS 39.AG74 79). The proclamations of the International Accounting Standards Board (IASB) on the application of valuation models of October 2008 were complied with. Details of this plus information on assumptions and estimates can be found in other notes (note 61). The recognition of property, plant and equipment and intangible assets entails estimates to determine their fair value at the date of acquisition. This applies to assets that were acquired as part of a business combination such as goodwill. The annual impairment test for goodwill is based on the discounted cash flow method. This involves estimating the cash flows expected in future. The expected useful life of assets is also estimated. The calculation of the fair values of assets and liabilities and the useful lives of assets are based on management assessments made in line with the standards on the basis of all available information. Other estimate uncertainty relates to allowances for losses on loans and advances (note 7.3), provisions (note 16) and deferred taxes (note 17). Currency translation In the Group, transactions in foreign currency and the financial statements for the net assets, financial position and results of operations of foreign entities are translated in line with IAS 21. Transactions concluded in foreign currency are translated into euro at the spot exchange rate on the date of the transaction on first-time measurement. Gains and losses on the remeasurement of monetary items are taken to profit or loss. In the currency translation of monetary items classified as available for sale, only changes in value that are due to the exchange rate are recognised in profit or loss. The changes in value due to other risks are recognised in equity. For non-monetary items, the entire change in value is recognised in equity. In the Group, the annual financial statements of foreign entities are translated in line with the functional currency concept in accordance with IAS 21. For these foreign entities, foreign currencies are translated into the functional currency (euro) in line with the temporal method. Exchange gains and losses are taken to profit or loss. Page 14

15 The other companies operate independently in GBP and USD. The functional currency is therefore GBP or USD and prices are translated in accordance with IAS 21 using the modified closing rate method. Exchange gains and losses of these companies are recognised separately in equity. Changes in accounting policies The accounting policies used in the consolidated financial statements for 2009 have been essentially retained for these consolidated financial statements, with the exception of the amendments shown below. The extreme market situation that has persisted since 2008 relaxed further in the course of the reporting year. Increased levels of activity were observed on the markets, even as against This was demonstrated by increased issuing activity, higher trading volume and more resilient price quotations. Prices provided by thirdparty operators have reached a level comparable to that before the financial crisis. However, there were still financial instruments for which it was not possible to use prices of transactions on an active market in order to ascertain their fair value (IAS 39.AG71-73). For the purposes of reporting as at 31 December 2010, adjustments in accordance with IAS 8.42 were made to the comparative figures as at 31 December A detailed presentation of these adjustments and their quantitative effects can be found in the other notes (note 57). 4 Principles of consolidation The consolidated financial statements of the LBB were prepared using uniform accounting policies in accordance with IAS The consolidated financial statements essentially include all companies controlled directly or indirectly by the Group and the companies included under the equity method. 25 subsidiaries, including special purpose entities (SIC-12), ten associates and five joint ventures of subordinate importance for the Group s financial position and results of operations are not included. They are reported as financial assets in the statement of financial position and are measured according to the corresponding regulations. The scope of consolidation is defined using value criteria such as total assets, equity and the annual results of Group companies both as absolute figures and as ratios of the above criteria between the Group and individual companies. The ratios are checked at the level of individual Group companies and of all the companies not included in the consolidated financial statements. Companies that are not classed as controlled companies, in spite of a voting majority, and companies that are classed as controlled companies, in spite of the Group not having a voting majority, are indicated in the list of investment holdings (note 66). In addition, SIC 12 companies must be consolidated under certain Page 15

16 conditions. This also applies to entities such as special funds and ABS constructions, details of which can be found in note 5 Scope of consolidation. In capital consolidation, assets, liabilities and contingent liabilities of acquired companies are completely remeasured at fair value at the date of acquisition. Positive differences between the cost of the business combination and the net fair value of the assets and liabilities are capitalised as goodwill. Transactions in the equity securities of controlled companies that do not result in a loss of control are shown as owner transactions in equity (economic entity model). In subsequent years, goodwill is carried at cost, subject to an annual impairment test. Impairment is recognised under other operating expenses. After checking the measurement of assets or liabilities and contingent liabilities again, negative differences are taken to profit or loss together with gains on deconsolidation under other operating income. Intra-group receivables and liabilities, income and expenses arising from intra-group transactions and any intra-group results are eliminated in accordance with IAS et seq. and IAS et seq. All fully consolidated companies and joint ventures and associated entities carried at equity prepared their annual financial statements as at the end of the reporting period 31 December Funds and SIC 12 companies with a different reporting date presented audited reports as at the end of the reporting period 31 December Thus, all material transactions in the reporting year were included in the consolidated financial statements. The inclusion of financial statements with a reporting date other than that of the Group is indicated in the list of investment holdings. Non-consolidated subsidiaries are categorised as available for sale and reported at fair value under financial assets in line with IAS If there is no listed price on an active market and the fair value cannot be reliably determined, measurement is at cost in line with IAS (c). Joint ventures where there is a contractual agreement whereby two or more parties undertake an economic activity which is subject to joint control are carried at equity and reported under a separate item in the statement of financial position in accordance with IAS An associated entity is one over which the Group has the power to exert significant influence by participating in its financial and operating policy decisions but which is neither a subsidiary nor a joint venture of the Group. Companies not classed as an associated entity despite an interest of more than 20 % and companies classed as an associated entity despite an interest of less than 20 % are indicated in the list of investment holdings. Associated companies are measured in accordance with the equity method. The Group s share of changes in the equity of the associated entities is reported directly in the equity of the Group. Gains and losses of associated entities are recognised pro rata under Net income from investments carried at equity. Page 16

17 Changes in the carrying amount of associates equity are recognised on the basis of audited financial statements which are adapted to comply with uniform Group accounting policies via reconciliations. Shares in joint ventures and associated entities not carried at equity are measured in accordance with IAS 39. Shares in subsidiaries and associated entities held for sale are measured and reported separately in line with IFRS 5. 5 Group of consolidated entities As at 31 December 2010, 89 companies are included in the consolidated financial statements in addition to Landesbank Berlin AG; disclosures on other companies included in the consolidated financial statements under the equity method can be found in note 9. These companies represent the scope of consolidation and can be seen in the list of investment holdings. The changes in subsidiaries in the scope of consolidation in the 2010 financial year were as follows: Additions Disposals Subsidiaries Special purpose entities (SIC-12) Special funds Other special purpose entities (SIC-12) Total In October 2010, LBB acquired the shares in Berlin Hyp held by Norddeutsche Landesbank, amounting to 8.07 %, and consequently increased its stake to %. Consideration of 100 million was paid in cash to the bearers of the non-controlling interests. The carrying amount of the net assets of Berlin Hyp (not including goodwill from the original acquisition) amounted to 1,058 million at this time, while the carrying amount of the additional shares acquired was 85 million. The difference of 15 million between the cost and the carrying amount of the acquired shares was recognised in equity in retained earnings. Furthermore, LBB participated in a capital increase at Berlin Hyp in the amount of around 100 million and concluded a profit and loss transfer agreement with Berlin Hyp. On 9 December 2010, the majority of the Extraordinary General Meeting of Berlin Hyp approved the demand by the Board of Management of LBB as the representative of the main shareholder to transfer the shares of the minority shareholders in Berlin Hyp to the main shareholder in accordance with Article 327a (1) sentence 1 of the German Stock Corporation Act in return for appropriate cash compensation. Following the enactment of this resolution through entry in the commercial register on 25 January 2011, LBB has held 100 % of shares in Berlin Hyp. Page 17

18 Additions to the scope of consolidation Since 31 December 2009, no company has been added to the scope of consolidation. Company disposals and other disposals from the scope of consolidation: Disposals Hohenzollerndamm 134 GbR, Berlin Check Point Charlie Ltd., Saint Helier/Jersey (Channel Islands) Portfolio Purchasing Company 1 Ltd., Saint Helier/Jersey (Channel Islands) Portfolio Purchasing Company 2 Ltd., Saint Helier/Jersey (Channel Islands) Portfolio Purchasing Company 3 Ltd., Saint Helier/Jersey (Channel Islands) Portfolio Purchasing Company 4 Ltd., Saint Helier/Jersey (Channel Islands) Grundstücksgesellschaft Berlin mit beschränkter Haftung, Berlin RR II R-11281, City of Wilmington/Delaware Berlin Hyp Immobilien GmbH, Berlin Merger with Grundstücksgesellschaft Berlin mit beschränkter Haftung, Berlin Deconsolidation following transfer to Landesbank Berlin AG, Berlin. Merger with LBB Grundstücks-Gesellschaft mbh der Landesbank Berlin AG, Berlin Liquidated under the tender option bond programme Deconsolidation owing to immateriality The changes in the group of consolidated entities did not have a material effect on the net assets, financial position or results of operations of the Group. 6 Segment reporting The Landesbank Berlin Holding Group is a universal bank. The Group conducts its business activities in the four core segments of Retail Banking, Regional Corporate Banking, Capital Markets and Real Estate Financing. Interest Management, Other and Consolidation are also reported as segments. Description of segment results Operating profit in the Retail Banking segment increased by 76 million to 149 million (previous year: 73 million). At 404 million, net interest income was up 13 % or 47 million year-on-year. Deposit volumes grew by 7 % as at the end of the reporting period as against 31 December 2009 in the Retail Banking segment. Owing to the successful launch of new account models in 2009, the number of new accounts opened rose to around 89,200 in The number of accounts using new account models increased to 716,400. The volume of mortgage loan renewals grew by 22 % year-on-year to 190 million. Page 18

19 Allowances for losses on loans and advances reduced significantly by 18 million to 42 million. This trend was significantly influenced by the positive risk experience in credit card and consumer loan business. Net fee and commission income was down 7 million year-on-year at 194 million. While net fee and commission income from card business increased by 7 million, net fee and commission income from payment transaction services was 8 million lower than in the previous year. Net fee and commission income from securities business was slightly down on the prior-year figure ( -3 million). Sales of mutual funds increased by 8 % as against the previous year to 339 million. The growth in sales of insurance products continued. In the year under review, net policy premiums were up 8 % year-on-year. Property insurance in particular contributed to this growth with a marked increase of 38 %. In national credit card business (co-branding), both fee and commission income (9 %) and credit card accounts (10 %) increased as against 31 December Other operating income essentially included a non-recurring effect from the sale of the ATOS Worldline Processing GmbH investment. At 442 million, administrative expenses were up 29 million on the previous year s level. This includes expenses for headcount reduction measures on account of the planned implementation of new sales structures and the greater expense for the IT migration scheduled for Administrative expenses include deprecation and amortisation of 14 million (previous year: 15 million). The Regional Corporate Banking segment generated an operating profit of 107 million, thereby exceeding its figure for the previous year by 19 million (previous year: 88 million). The segment thus continued its positive development in 2010 as well. Net interest income increased sharply year-on-year by 19 million to 158 million. Allowances for losses on loans and advances climbed as against 2009 but remained at a low level of 6 million overall. New lending volume rose by 30 % as against the same period of the previous year. Nonetheless, the portfolio of loans and advances to customers was down on the figure for 31 December 2009 following transfers to the Capital Markets segment. By contrast, customer deposits increased slightly from their already high level by 70 million to 5,119 million. The number of customers fell slightly following the transfer of management responsibilities to other segments and amounted to around 64,400 as at 31 December Net fee and commission income improved by 8 million to 42 million. Income from export financing business increased in particular. At 88 million, administrative expenses were only slightly up on the previous year s level ( 86 million). Page 19

20 The operating profit of the Real Estate Financing segment was 172 million (previous year: 191 million). This result was heavily influenced by decline in net interest income of 37 million and in income from financial instruments recognised at fair value through profit or loss of 61 million. The flattening of the yield curve and fluctuations on the markets led to corresponding reductions in the Treasury of Berlin Hyp compared with the very profitable result in The core business (commercial real estate financing business) was very successful. Thanks to good figures for new business and successful portfolio management, net interest income increased to 295 million (previous year: 267 million). In 2010, the Real Estate Financing segment benefited from positive developments in the German real estate market and in European core markets. The positive market sentiment is also reflected in the segment s new business. The contract volume rose to 6.3 billion, significantly higher than the previous year s result ( 4.8 billion). At the same time, risk and margin requirements were unchanged. As at 31 December 2010, the portfolio of loans and advances to customers in our core business was up 0.6 billion on the same period in the previous year at 26.3 billion. Significantly lower allowances for losses on loans and advances of 74 million (previous year: 140 million) and the improved net fee and commission income of 26 million (previous year: 17 million) also had a positive effect on the segment s result. Administrative expenses remained unchanged at 115 million. As in the previous year, this figure includes deprecation and amortisation of 5 million. The Capital Markets segment performed well in the year under review and achieved an operating result of 198 million (previous year: 202 million). Despite the considerable volatility on international money and capital markets, the result therefore came close to that of the previous year. The credit rating crisis in the euro zone led to a marked expansion in credit spreads and consequently to price falls in European government bonds and financial securities (in particular, in the PIIGS nations, Portugal, Italy, Ireland, Greece, Spain). Net interest income fell by 87 million as against 2009 to 345 million, mainly as a result of the drop in income from money market activities. In the same period of 2009, these had still benefited from the special situation with interbank rates far exceeding the ECB s tender rates. Net reversals of allowances for losses on loans and advances, particular as a result of the positive trend in credit risks in the structured financing portfolio, which is in the process of being reduced, led to income of 19 million in the period under review. No significant risk provisioning was recognised in the previous year. At -11 million, Page 20

21 net fee and commission income was down 1 million on the figure for the previous year in Net income from financial instruments recognised at fair value through profit or loss was 1 million up on the same figure for the previous year with an earnings contribution of 6 million. At -24 million, net income from financial assets was up 71 million up on It should be noted that the figure for the previous year was reduced by impairment losses on funds and lower carrying amounts for bonds held by Icelandic banks. At 138 million, administrative expenses were up 9 million on the previous year s level. Administrative expenses include deprecation and amortisation of 6 million (previous year: 7 million). The market situation in recent months also influenced customer business, with momentum having dwindled considerably as against the previous year. Compared to 31 December 2009, certificate volume climbed 0.4 billion to 2.9 billion. In international business, a lending volume of 1.2 billion (up 31 million) was recognised despite the restrictions on lending business that still applied, in part, during the year. This was achieved through several major transactions in the target region (Central/Eastern Europe and CIS), which was extended to include Turkey in The operating profit of the Interest Management segment was -114 million (previous year: 15 million) in The central management of the banking book is reported in Interest Management. This is based on items resulting from the Bank s interest-bearing customer business. Decisions in Interest Management fall within the responsibility of the Asset Liability Committee, which includes all of the members of the Board of Management of Landesbank Berlin AG. Resolutions are implemented by the units responsible for the respective products in the Capital Markets business area. All of the market risks reported in the Interest Management segment are included in the Bank-wide risk management concept and limited accordingly. During 2010, the low interest scenario remained intact initially. The yield on ten-year German government bonds fell to 2.12 % by the end of August. Against the backdrop of the continuing economic stabilisation in the euro zone particularly Germany capital market interest rates subsequently rose sharply but fluctuated markedly in the process. Given that money market interest rates remained stable in view of the European Central Bank s keeping interest rates low, the yield curve again became steeper at the end of the year. The reluctance previously seen in investments also continued in this market environment. Page 21

22 Existing transformation risk positions suffered under the trend in capital market interest rates described and, in view of the momentum in the continuing rise in interest rates, were hedged over the rest of the fourth quarter. Income was also depressed by the rapid growth in the volume of floating-rate customer deposits. Their internal interest rate derived from historically valid interest rates exceeded the neutralising investment undertaken at current market rates in Interest Management. As a result of the financial reporting regulations on categorisation, interest expenses in net interest income are still offset by interest income from hedge transactions in the net income from financial instruments recognised at fair value through profit or loss. In the period under review, the operating result in the Other segment result benefited from the reversal of provisions that were no longer required and improved by 48 million year-on-year to -185 million. The Other segment comprises the Group s management and service functions. Services in the back office and head office departments are recognised at full cost by way of cost allocation. After cost allocation, the operating profit in the Other segment primarily consists of the overhead functions that cannot be assigned to other segments in terms of business management. Other items reported in this segment include non-interest-bearing balance sheet items, such as non-current assets and the associated write-downs in administrative expenses in the amount of 28 million (previous year: 31 million). The Consolidation segment is used in particular to report the services provided between the individual segments of the Group. Page 22

23 Segment results in million Retail Banking Regional Corporate Banking Real Estate Financing Capital Markets ) Interest management Other 4) Consolidation GROUP Net interest income Allowance for losses on loans and advances Net interest income after risk provisioning Net commission income Net income from hedge accounting Net income from financial instruments recognised at fair value through profit or loss ) ) Net income from financial assets Net income from investments carried at equity Other operating income Administrative expenses Operating result before restructuring Restructuring expenditure and income (net) Operating profit/earnings before taxes Segment assets 1) Segment liabilities (not including shareholders' equity) 1) Risk items in accordance with the German Banking Act (reporting date) Tied-up equity (average) 2) Employee capacity (reporting date) Return on equity 3) 48,2% 23,9% 39,6% 39,6% 19,6% 20,3% 20,6% 20,2% neg. 2,2% 22,4% 26,5% Cost-Income-Ratio 3) 69,8% 75,6% 43,8% 49,1% 31,9% 25,6% 43,5% 38,9% neg. 50,0% 69,6% 64,7% 1) Segment assets/liabilities not including tax items 2) For the Group as a whole, the average IFRS equity (not including dormant participation) is reported in line with industry practices; in the segments, the capital required in line with financial procedures is reported. 3) Calculated with rounded figures in million 4) Including expenses for the repayment of dormant participations ( : 51 million; : 51 million) 5) Figures for the previous year have been adjusted Page 23

24 Methods Segment reporting in accordance with IFRS 8 is based on the management approach, which means that the form and content of internal reporting provide the basis for external segment reporting. The reported segments represent the organisational structure of the Group as shown in internal reporting. Internal reporting provides regular information to the chief operating decision maker on segment results. The chief operating decision maker is the Board of Management, which decides the allocation of resources and assesses the segments performance on the basis of this information. Internal reporting is based on IFRS figures and the statement of reconciliation demanded by IFRS 8.28 is therefore not necessary. Consolidation amounts from services provided between the individual segments are reported in the Consolidation segment. Income and expenses are allocated to segments in accordance with the principle of causality. In order to allocate third-party net interest income to the segments, the market interest rate method is applied for interest, supplemented by net interest income from the application of the IFRS accounting policies on which the consolidated financial statements are based. For each product, a margin result is calculated as the difference between the customer interest rate and an internal interest rate on an individual transaction basis. All other income and credit risk provisions are allocated to the segments on a counterparty basis. The administrative expense consists of staff costs, other administrative expenses, depreciation of property, plant and equipment and amortisation of other intangible assets (excluding goodwill). Inter-segment services are recognised at full cost by way of cost allocation. Within staff costs, the interest effect on the transfer of pensions reserves is now allocated to the Other segment, where the provisions are also invested. Segment assets include the recognised assets of the respective segment. For the segments operating in the area of banking business, these are essentially loans and advances to customers; in Capital Markets, these also include loans and advances to banks, financial assets (securities), assets held for trading and positive fair values of derivatives. Accordingly, segment liabilities are defined as recognised liabilities, i.e. primarily amounts due to customers and, in Capital Markets, deposits by banks, securitised liabilities, liabilities held for trading and negative fair values of derivatives. Income tax assets/liabilities are not included in segment assets/liabilities. LBB provides the segments with the capital required according to economic procedures and calculates the investment benefit, which is included in the net interest income of the respective segment. LBB uses an interest rate corresponding to a risk-free, rolling long-term investment on the capital market. The average equity capital tie-up is reported for each segment. This subsequently forms the reference base for determining the return on equity, which is calculated for the segment results before taxes. Page 24 of 130