Annual Report 2010/2011 1
Contents Letter from the Chairman of the Board of Managing Directors...6 Report of the Supervisory Board...8 Supervisory Board Activities in the Financial Year 2010/11...8 Activities of the Supervisory Board Committees...9 Corporate Governance...10 Review and Approval of the Annual Financial Statements and the Consolidated Financial Statements for the Financial Year 2010/11...10 Review and Approval of the Dependent Company Report for the Financial Year 2010/11...10 Changes in Composition Supervisory Board...11 Changes in Composition Board of Managing Directors...11 Corporate governance declaration in accordance with section 289 a HGB/...17 corporate governance report...17 Declaration of Conformity pursuant to Sec. 161 of the German Stock Corporation Act (Aktiengesetz - AktG)...17 Relevant information regarding company management practices...20 Board of Managing Directors and Supervisory Board Mode of Operation...20 Composition and Mode of Operation of Board of Managing Directors Committees...23 Composition and Mode of Operation of Supervisory Board Committees...23 Board of Managing Directors and Supervisory Board Remuneration...24 Share ownership of board members...25 Stock option programmes and similar securities-based incentive systems...25 Group Management Report...26 1. Business and general conditions...27 General conditions for the core business...27 IKB s strategic positioning...28 Segments...29 2. Significant events in the reporting period...31 Implementation of EU conditions...31 Repayment of all Rio portfolio loans...32 Return of SoFFin guarantees...32 Lone Star s intention to sell...33 Changes in the Group...33 Other significant transactions...33 Legally relevant events...34 Results of the special audit...34 Debt issuance programme...34 Refinancing through online offering for retail customers...34 Personnel changes...34 Annual General Meeting on 26 August 2010...34 Current rating situation...34 3. Net assets, financial position and results of operations...36 Business development...36 Income statement figures...36 Segment development...38 Net assets...39 Financial position...40 Overall assessment...40 4. Risk report...41 Risk management organisation...41 Regulatory capital resources and risk-bearing capacity...43 Risk strategy...47 Counterparty default risk...48 Liquidity and market price risk...59 Operational risk...61 Legal risk...62 Risks in connection with SoFFin conditions...66 IT risk...67 Compliance risk...67 2
Personnel risk...68 Strategic risk and reputation risk...68 Business risk...69 Participation risk...69 Overall assessment of the risk situation...70 5. Material features of the internal control and risk management system with regard to the accounting process...72 Applicable legal provisions, accounting standards and first-time adoption...72 Responsibility for the ICSA...72 Organisation of accounting...72 Objectives and limits of the ICSA...73 Organisation and function...73 6. Events after 31 March 2011 (Supplementary report)...76 Status of implementation of EU conditions...76 Changes in the Group...76 Repayment of a bond guaranteed by SoFFin...76 Current rating situation...76 7. Outlook...77 Future general economic conditions...77 Opportunities of future development...78 Net assets...78 Liquidity situation...79 Earnings performance...80 8. Remuneration report...81 The remuneration system of the Board of Managing Directors...81 Non-performance-related remuneration components...82 Performance-related remuneration components...82 Change of control...83 Payments from third parties...83 Overview of Board of Managing Directors remuneration...84 Payments in the event of termination of employment and pensions...84 Repayment claims of the company...85 Former members of the Board of Managing Directors...86 The remuneration system of the Supervisory Board...86 Remuneration of the Supervisory Board...87 9. Other financial information...89 Disclosures in accordance with section 315 (4) HGB...89 Report of the Board of Managing Directors in accordance with section 315 (4) HGB...91 Consolidated financial statements in accordance with International Financial Reporting Standards as of 31 March 2011...92 Consolidated statement of comprehensive income of IKB Deutsche Industriebank AG for the period from 1 April 2010 to 31 March 2011...93 Consolidated income statement...93 Earnings per share...93 Consolidated statement of total comprehensive income...94 Consolidated balance sheet of IKB Deutsche Industriebank AG as of 31 March 2011...95 Consolidated statement of changes in equity...96 Cash flow statement for the period from 1 April 2010 to 31 March 2011...97 Principles of Group accounting...98 Overview of accounting standards...99 Accounting standards applied for the first time in the consolidated financial statements...99 Accounting standards to be applied in future...100 Standards published by the IASB but not yet endorsed in EU law...101 Special matters...102 Aleanta GmbH...102 End of accounting in line with IFRS 5 / transition to full consolidation...103 Investments in investment funds...103 Changes in line with IAS 8...104 (a) Changes in estimates...104 (b) Correction of errors...106 3
Accounting policies...107 (1) Accounting principles...107 (2) Management estimates and assessments...107 (3) Scope of consolidation...109 (4) Consolidation methods...110 (5) Currency translation...110 (6) Financial instruments: recognition and measurement...111 (7) Classification of financial instruments in accordance with IFRS 7...118 (8) Cash reserve...119 (9) Loans and advances to and liabilities from banks/customers...119 (10) Provision for possible loan losses...119 (11) Assets and liabilities held for trading...120 (12) Investment securities...120 (13) Companies accounted for using the equity method...121 (14) Intangible assets...121 (15) Property, plant and equipment...121 (16) Tax assets and liabilities/deferred tax assets and liabilities...122 (17) Other assets/liabilities...122 (18) Non-current assets held for sale/liabilities in connection with groups of assets held for sale 123 (19) Securitised liabilities...123 (20) Provisions for pensions and similar obligations...123 (21) Other provisions...124 (22) Subordinated capital...124 (23) Equity...125 Notes on the consolidated income statement...126 (24) Net interest income...126 (25) Provision for possible loan losses...127 (26) Net fee and commission income...127 (27) Net income from financial instruments at fair value...127 (28) Net income from investment securities...129 (29) Net income from investments accounted for using the equity method...129 (30) Administrative expenses...129 (31) Other operating result...131 (32) Taxes on income...132 Notes on the consolidated balance sheet (assets)...133 (33) Cash reserve...133 (34) Loans and advances to banks...133 (35) Loans and advances to customers...133 (36) Provision for possible loan losses...134 (37) Assets held for trading...135 (38) Investment securities...136 (39) Investments accounted for using the equity method...136 (40) Intangible assets...136 (41) Property, plant and equipment...137 (42) Current tax assets...137 (43) Deferred tax assets...137 (44) Other assets...138 (45) Non-current assets held for sale...138 Notes on the consolidated balance sheet (equity and liabilities)...139 (46) Liabilities to banks...139 (47) Liabilities to customers...139 (48) Securitised liabilities...139 (49) Liabilities held for trading...140 (50) Provisions for pensions and similar obligations...140 (51) Other provisions...143 (52) Current tax liabilities...143 (53) Deferred tax liabilities...144 (54) Other liabilities...144 (55) Liabilities in connection with assets held for sale...144 4
(56) Subordinated capital...145 (57) Equity...146 Notes on the consolidated cash flow statement...151 (58) Cash flow statement...151 Notes on segment reporting...152 (59) Segment reporting...152 Notes on financial instruments...155 (60) Income according to holding category and reconciliation to the income statement...155 (61) Classification of financial instruments in accordance with IFRS 7...156 (62) Fair value of financial assets and liabilities...157 (63) Derivatives...160 (64) Credit risk disclosures...162 Other disclosures...165 (65) Changes in equity recognised directly in equity...165 (66) Contingent assets/liabilities and other commitments...165 (67) Other financial obligations...165 (68) Leases...166 (69) Disclosures on collateral...167 (70) Securities repurchase agreements...168 (71) Statement of changes in non-current assets...169 (72) Maturity structure...170 (73) Contractual remaining terms of financial liabilities...170 (74) Liquidity risk...171 (75) Average number of employees...173 (76) Related party disclosures...174 (77) Remuneration and loans to executive bodies...176 (78) German Corporate Governance Code...177 (79) Events after 31 March 2011...177 (80) Executive bodies...178 (81) Scope of consolidation as of 31 March 2011...182 (82) List of shareholdings as of 31 March 2011...184 Auditor s Report...191 Responsibility statement in line with section 297 (2) sentence 4 HGB, section 315 (1) sentence 6 HGB...192 5
Letter from the Chairman of the Board of Managing Directors Dear Shareholders, Dear business partners of IKB, The realignment of IKB progressed significantly in the 2010/11 financial year. We continued to refine our profile in a positive macroeconomic environment. As a bank for SMEs, we built on customer relationships developed over many years. Our traditional core business lending to companies is being strengthened and capital market and advisory business is being expanded further. We offer solutions for German SMEs with sophisticated financing requirements and are pleased that our customers are taking advantage of the increased range of services. On the basis of these experiences, we will continue to expand our services for SMEs in a targeted manner in the areas of advisory, capital market, risk management and credit. A positive development in diversification and an increase in income from new business have already become apparent. The volume of new payments in the 2010/11 financial year is above the level for the same period of the previous year with improved margins, while commission income from capital market and advisory business was also increased. In addition to working actively with customers, we have also progressed a good deal on other important issues. The EU conditions have already largely been implemented, meaning that we can assume they will be fulfilled as of the effective date 30 September 2011. The conditions included a drastic reduction of IKB s business activities, the discontinuation of the Real Estate Finance segment and the closure of certain international offices. In order to fulfil them, we had to expend considerable resources, which are reflected in the current high level of operating expenses. For instance, the Bank previously operated derivatives business from Luxembourg and is now re-establishing it in Dusseldorf. The liquidity situation and outlook are stable with a sufficient buffer. We returned the first SoFFinguaranteed bond and SoFFin guarantees totalling another 0.4 billion early. With IKB direkt, IKB is catering to retail clients for the first time. The speed of implementation and success of this project demonstrate the Bank s adaptability. By broadening deposit business with corporate and retail clients and using collateralised financing, we are freeing ourselves from our previous dependence on rating-based capital market issues. We have decided to terminate our contracts with rating agencies, as there is no longer any benefit from a rating for the Bank or its investors and therefore costs can be saved. Risks for IKB remain limited. The loans to the special-purpose entity Rio Debt Holdings, to which we had outsourced the remaining portfolio investments still containing sub-prime risks in 2008, have now been repaid. In addition, we have systematically reduced market price risks and extensively secured against credit risks. The provision for possible loan losses decreased substantially in the 2010/11 financial year due to the positive economic development. The equity position is sound. At 11.2%, the tier 1 capital ratio of the IKB Group is higher than in the previous year and significantly exceeds the statutory minimum requirements. We will also continue to comply with the stricter minimum requirements imposed by SoFFin and the Auditing Association of German Banks (including a tier 1 capital ratio of 8%). The earnings situation of IKB improved in the 2010/11 financial year. The Group reported a net profit of 52 million after a net loss of 967 million in the previous year. In the past financial year the contribution from extraordinary factors influencing the earnings situation was positive in net terms, but even after adjustment for extraordinary factors we considerably reduced the losses as against the previous year. Uncertainty remains due to the government debt crisis in the European Monetary Union and the possibility of an economic slowdown. The greater equity requirements under Basel III mean that banks will have to maintain more and better quality equity in future. IKB still has a great deal to do by systematically and profitably implementing its business model and continuing to adapt it. To date, the development of new 6
business and the growth in net fee and commission income from customer lending and derivatives business has been in line with forecasts. The planned sale of IKB by Lone Star could help accelerate the ongoing development of the company and is therefore supported by the Board of Managing Directors of IKB. Our goal is for the Bank to become profitable in operational terms in the medium term. The fundamental strategic adjustments have been initiated. The Bank is soundly capitalised, risks have been reduced, liquidity secured and the EU conditions largely fulfilled. We therefore have sufficient scope to focus on working with our customers and to follow up on the first visible successes. Düsseldorf, June 2011 Hans Jörg Schüttler Chairman of the Board of Managing Directors 7
Report of the Supervisory Board In the financial year 2010/11, the Supervisory Board fulfilled the duties and obligations incumbent upon it comprehensively and diligently in accordance with the relevant statutory provisions, the Articles of Association and its by-laws. The Supervisory Board regularly consulted with the Board of Managing Directors and continuously supervised the activities of the latter. The Supervisory Board dealt intensively with the situation of the Bank and accompanied the economic development of the Bank. In particular, the Board addressed the realignment of the business model of the Bank which was visibly manifested, inter alia, by the commencement of operation of an IKB Internet platform for private clients. Furthermore, also in the completed financial year, other focal points of the work of the Board of Managing Directors and the Supervisory Board were the implementation of the conditions imposed on the Bank by the EU Commission in the course of the proceedings regarding state aids of the Federal Republic of Germany for IKB, as well as ensuring liquidity. Besides, the Supervisory Board dealt with various legal issues also in the financial year 2010/11, mostly in connection with the crisis of IKB and the processing of the latter. Supervisory Board Activities in the Financial Year 2010/11 At five meetings, the Supervisory Board discussed the course of business, matters of risk provisioning and compliance as well as other matters of the company group. With the Board of Managing Directors, the Supervisory Board discussed regularly and intensively the current economic situation of the Bank and the Group and the earnings and risk situation of the Bank and the Group. In addition, the Board of Managing Directors reported regularly to the Supervisory Board with regard to the liquidity and refinancing situation of the Bank and the regulatory capital situation within the Group. Furthermore, the strategic orientation of the Group was also the subject matter of regular deliberations of the plenum of the Supervisory Board. In this respect, the focus of discussion was on the progress of the realignment of the business model, in particular in relation to the credit business, various advisory products, e.g. in the areas of M&A, restructuring and optimisation of structures and earnings as well as in the area of capital markets. In its meeting of 30 June 2010, the Supervisory Board deliberated on the fiveyear planning of the Board of Managing Directors, with special attention given to the EU-imposed conditions and the effects of the SoFFin guarantees. It required regular reports from the Board of Managing Directors on the implementation of the planning. The Supervisory Board was also informed on a regular basis by the Board of Managing Directors on the status of the implementation of the EU conditions that were imposed on the Bank in the course of the proceedings regarding state aids of the Federal Republic of Germany. Due to other obligations, the member of the Supervisory Board, Mr Olivier Brahin, was only able to attend one meeting of the Supervisory Board in the financial year 2010/11. The Chief Compliance Officer furnished two reports to the Supervisory Board in the financial year completed. Furthermore, in the course of the reporting period, the Supervisory Board addressed the report on the review of the business organisation and risk management of the Bank conducted at IKB by the Deutsche Bundesbank upon request of the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) pursuant to Sec. 44 para. 1 sent. 2 of the German Banking Act (Kreditwesengesetz - KWG). The Supervisory Board was also informed of and deliberated on the group-wide measures for personnel planning and development. Besides, in the financial year completed, the Supervisory Board also deliberated on the appointment of new members of the Advisory Board of IKB. Further, the Supervisory Board addressed the issue of the remuneration of the members of the Board of Managing Directors, taking into account the Ordinance on Remuneration Systems for Credit and Financial Services Institutions (Institutsvergütungsverordnung) and the conditions of the Sonderfonds Finanzmarktsstabilisierung (Financial Market Stabilisation Fund) (SoFFin), as well as the pensions of former members of the Board of Managing Directors. In its meetings in the financial year 2010/11, the Supervisory Board also discussed various legal issues, such as the situation regarding the lawsuits asserting claims for damages brought against IKB by investors 8
in Germany and the lawsuits filed against IKB abroad under capital markets law as well as the examination of potential claims for damages of the Bank in connection with the subprime crisis. As had been the case in previous financial years, in the financial year completed, the Supervisory Board again dealt with handling the crisis of the company. In this respect, the Board is obliged to consider the interests of the company, in particular with regard to the possible asserting of potential claims for damages. Various parties are still asserting alleged claims against the company in considerable amounts in several lawsuits. In view of this, it still cannot be ruled out that other parties will initiate similar court proceedings in the future. In the assessment of the Supervisory Board, if potential claims for damages of the company against members of corporate bodies holding office prior to the crisis of the Bank were asserted, this would create the significant risk that such third parties would be presented the means required in order to allege and assert themselves even such claims that are without merit. This alone would mean a high risk for the company, especially since even in the case of a ruling in its favour the company would only be entitled to claim reimbursement for a fraction of the defence expenses it incurred. If the company were to lose in such court proceedings, considering the circumstances it would be unrealistic to expect to be able to assert recourse claims against the persons responsible other than to a small extent. All this is contrary to the interests of the company. For this reason, the Supervisory Board has again refrained in the financial year completed from asserting potential claims for damages in connection with the crisis of the Bank. Nonetheless, the Supervisory Board will address the issue of a potential assertion of claims for damages against the persons who were responsible for the crisis of the company also in the current financial year, taking into account the interests of the company, and will regularly reassess the interests of the company in order to determine whether these interests allow for the assertion of potential claims for damages in connection with the crisis of the company. In its meeting of 30 June, 2010, the Supervisory Board deliberated on the results of the examination of efficiency conducted in March / April 2010. In the further course of the financial year, the Supervisory Board took into account the results of this examination of efficiency for its work. Activities of the Supervisory Board Committees In the financial year 2010/11, the Supervisory Board had an Executive Committee, a Finance and Audit Committee as well as a Nominations Committee. The Executive Committee held a total of six meetings in the financial year 2010/11. The Executive Committee primarily discussed in advance the issues to be addressed at the meetings of the Supervisory Board. It focused on business development (including the approval of any transactions requiring approval) and discussed with the Board of Managing Directors the situation of the Bank and the Group in particular. On 10 May 2010, and on 1 October 2010, the Executive Committee deliberated on several legal issues in connection with the crisis of IKB and the further handling of the latter, respectively. The Finance and Audit Committee held five meetings in the financial year 2010/11. The activities of the Finance and Audit Committee focused on monitoring accounting procedures, the efficiency of the internal controlling system, of the risk management, the internal audit system and compliance as well as the audit of the financial statements, in particular the independence of the auditor and the additional services provided by the auditor. The Committee advised on the preparation of the annual financial statements and the consolidated financial statements, the review of the financial report on the first six months of the financial year and the appointment of the auditor. The Finance and Audit Committee also obtained the statement of independence from the auditor required by Sec. 7.2.1 of the German Corporate Governance Code and commissioned the auditor to perform the audit. The Finance and Audit Committee also concluded with the auditor an agreement on the focal points of the audit and the audit fee. The Nomination Committee held a meeting on 30 June 2010, at which it discussed the proposals to the Supervisory Board and the resolutions to be proposed to the General Meeting regarding the election of Supervisory Board members by the Annual General Meeting on 26 August 2010. The members of the Committees also repeatedly engaged in deliberations among themselves and maintained ongoing contact with the Board of Managing Directors outside of Committee meetings. The plenary meetings were provided with accounts of the activities of the Committees. 9
A list of the meetings held by the Supervisory Board and its Committees, together with the relevant issues of the deliberations, can be found at the end of this report. Corporate Governance The Declaration of Conformity dated 10 March 2011, and further information on this topic can be found in the section Corporate Governance Declaration in accordance with Sec. 289a of the German Commercial Code (Handelsgesetzbuch HGB) / Corporate Governance Report of this annual report. No conflicts of interest arose in the course of the deliberations of the Supervisory Board in the financial year 2010/11 and to date. Review and Approval of the Annual Financial Statements and the Consolidated Financial Statements for the Financial Year 2010/11 The Board of Managing Directors prepared the annual financial statements and the consolidated financial statements and the management reports for IKB AG and the Group with resolutions dated 19 May 2011 and 1 June 2011. The annual financial statements of IKB AG were prepared in accordance with the German Commercial Code, and the consolidated financial statements were prepared in accordance with the International Financial Reporting Standards (IFRS) and the supplementary provisions of commercial law applicable pursuant to Sec. 315a para. 1 HGB. The auditors, PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (PwC), audited the annual financial statements and the consolidated financial statements and the management reports for IKB AG and the Group and issued both sets of financial statements with unqualified audit opinions. The Supervisory Board reviewed the annual financial statements and the consolidated financial statements as well as the management reports for IKB AG and the Group in its meeting held on 28 June 2011. The members of the Supervisory Board have received the financial statement documentation, the management reports and the written audit reports of the auditors already before the meeting, enabling them to deal with the respective contents in due time. In addition, the Finance and Audit Committee prepared the following review by the entire Supervisory Board in a separate committee meeting. The auditors participated in the deliberations on the annual financial statements and the consolidated financial statements of the Supervisory Board and the Finance and Audit Committee on 28 June 2011. In the course of the meetings, the auditors reported on the key findings of their audit, answered questions and provided additional information. The auditors did not determine any significant deficiencies in the internal controlling and risk management systems in respect of the accounting procedures. The auditors informed the Supervisory Board and the Finance and Audit Committee of all services rendered by them in addition to the audit of the financial statements. The Supervisory Board approved the result of the audit of the financial statements in its meeting held on 28 June 2011. In accordance with the final result of the own review of the annual financial statements and the consolidated financial statements and the management reports by the Supervisory Board no objections are to be raised. Therefore, the Supervisory Board approved the annual financial statements and the consolidated financial statements prepared by the Board of Managing Directors in its meeting on 28 June 2011. The annual financial statements have thus been adopted. Review and Approval of the Dependent Company Report for the Financial Year 2010/11 The report on business relationships with affiliated companies for the financial year 2010/11 (dependent company report) which was prepared by the Board of Managing Directors was also examined by the auditors. The dependent company report was issued with the following unqualified audit opinion: Having duly examined and assessed this report, we confirm that the factual statements made in the report are correct, the company s consideration with respect to the transactions listed in the report was not inappropriately high, and there are no circumstances that indicate a materially different assessment of the measures listed in the report from that given by the Board of Managing Directors. In the meetings held on 28 June 2011 first the Finance and Audit Committee and later the Supervisory Board deliberated on and reviewed the dependant company report. The members of the Supervisory Board have received both the dependent company report and the related audit report of the auditors 10
already before the meeting, enabling them to deal with the respective contents in due time. The auditors also participated in the deliberations on the dependent company report of the Supervisory Board and the Finance and Audit Committee, they reported on the key findings of their audit, answered questions and provided additional information. The Supervisory Board approved the result of the audit of the auditors in its meeting on 28 June 2011. In accordance with the final result of the own review by the Supervisory Board no objections are to be raised against the declaration of the Board of Managing Directors at the end of the dependant company report. Changes in Composition Supervisory Board Mr Olivier Brahin, Dr Lutz-Christian Funke, Mr Ulrich Grillo and Dr Andreas Tuczka, whose terms of office expired, in each case, upon the close of the Annual General Meeting of 26 August 2010, were re-elected as members of the Supervisory Board by resolutions of the Annual General Meeting of 26 August 2010, with a term of office ending upon the conclusion of the Annual General Meeting resolving on a formal discharge of the members of the Supervisory Board for the financial year 2012/13. As scheduled, Mr Jürgen Metzger ceased to be a member of the Supervisory Board upon conclusion of the Annual General Meeting of 26 August 2010, whereas Dr Carola Steingräber was elected as a member of the Supervisory Board due to a new election of the employee representatives. Mr Ulrich Wernecke, whose term of office also expired upon conclusion of the aforesaid Annual General Meeting, was re-elected as an employee representative on the Supervisory Board. Due to the termination of his employment relationship on grounds of his reaching the age limit, Mr Wolfgang Bouché ceased to be a member of the Supervisory Board upon expiry of 31 January 2011. For him, the substitute member, Mr Bernd Klein, became a member of the Supervisory Board on 1 February 2011. Also with effect as of 1 February 2011, Dr Steingräber was elected as a member of the Finance and Audit Committee from among the employee representatives as successor of Mr Bouché. After the Annual General Meeting on 26 August 2010, the Supervisory Board held its constituent meeting, in which Mr Wernecke from the group of employee representatives and Dr Tuczka from the group of shareholder representatives were elected as members of the Executive Committee. In addition, Mr Wernecke was elected in the Supervisory Board meeting of 26 August 2010, as the appointed substitute (Verhinderungsvertreter) from the group of the employee representatives on the Finance and Audit Committee. While the Supervisory Board, in its meeting of 30 June 2010, had first elected Mr Wolfgang Bouché as the appointed substitute from the group of employees for the Executive Committee, after Mr Bouché's leaving the board as of 31 January 2011, Dr Carola Steingräber was elected as the appointed substitute from the group of employee representatives for the Executive Committee with effect as of 1 February 2011. The Supervisory Board would like to thank all retiring members for their contributions to the Board. Changes in Composition Board of Managing Directors In the financial year completed, there were no changes in the composition of the Board of Managing Directors of the Bank. The members of the Board of Managing Directors were Messrs Hans Jörg Schüttler (Chairman of the Board of Managing Directors), Dr Dieter Glüder, Claus Momburg and Dr Michael Wiedmann. The Supervisory Board would like to thank the members of the Board of Managing Directors and all employees for their personal commitment and contributions. Düsseldorf, 28 June 2011 The Supervisory Board Bruno Scherrer Chairman 11
Supervisory Board Meetings in the Financial Year 2010/11 Date of meeting Subject matter of deliberations 30 June 2010 General development of the Bank Annual financial statements and consolidated financial statements as of 31 March 2010, and dependant company report Dashboard Group risk as of 31 March 2010 Annual report from group internal audit for the financial year 2009/10 Auditors report on the audit of the annual financial statements and the consolidated financial statements with the management reports for IKB AG and the Group as well as of the dependent company report for the financial year 2009/10 Report of the Finance and Audit Committee on the preparation of the audit of the annual financial statements and the consolidated financial statements with the management reports for IKB AG and the Group as well as of the dependent company report for the financial year 2009/10 Approval of the annual financial statements with the management report and of the consolidated financial statements with the Group management report and approval of the dependent company report for the financial year 2009/10 Report of the Supervisory Board Annual report of the Chief Compliance Officer Corporate Governance Declaration / Corporate Governance Report, including the Declaration of Conformity Report on the internal controlling, risk management and audit system Five-year planning Remuneration systems for the company Proposals for the agenda of the Annual General Meeting on 26 August 2010 Result of the examination of efficiency of the Supervisory Board Matters concerning the Board of Managing Directors - Reduction of the pensions for former members of the Board of Managing Directors - Litigation Matters concerning the Supervisory Board - Information regarding the election of employee representatives to the Supervisory Board - Election of appointed substitutes (Verhinderungsvertreter) to the Committees of the Supervisory Board Miscellaneous - Information on urgent resolutions adopted by the Executive Committee of the Supervisory Board 25 August 2010 IKB s current business development Report on the Group interim results as of 30 June 2010 Dashboard Group risk as of 30 June 2010 Preparation of the Annual General Meeting on 26 August 2010 Meeting dates 2011 26 August 2010 Election of one member each from the group of shareholder representatives and employee representatives to the Executive Committee of the Supervisory Board Election of an appointed substitute from the group of employee representatives to the Finance and Audit Committee 12
Supervisory Board Meetings in the Financial Year 2010/11 Date of meeting Subject matter of deliberations 25 November 2010 IKB s current business development Report on the interim consolidated financial statements as of 30 September 2010 Auditor's report on the review of the interim consolidated financial statements as of 30 September 2010 Adjustment of the business and risk strategy Dashboard Group risk as of 30 September 2010 Review pursuant to Sec. 44 para. 1 sent. 2 KWG Remuneration report for the company D&O insurance / agreement on non-forfeitable subsequent notification periods Approval of the appointment of Mr Friedhelm Loh as member of the Advisory Board Matters concerning the Board of Managing Directors (including litigation) Granting of a major loan Report on resolutions of the Executive Committee of the Supervisory Board Meeting dates 10 March 2011 IKB s current business development Group interim results as of 31 December 2010, and segment reporting Dashboard Group risk as of 31 December 2010 Current business and risk strategy Personnel planning and development Review pursuant to Sec. 44 para. 1 sent. 2 KWG Annual report of the Chief Compliance Officer Amendment of the by-laws for the Board of Managing Directors and the Supervisory Board Matters concerning the Supervisory Board - Support of measures for training and continuing education Matters concerning the Board of Managing Directors - Variable remuneration subsequently payable in respect of the financial years 2008/09 and 2009/10, and possible future amendment of the service agreements of the members of the Board of Managing Directors - Pensions of former members of the Board of Managing Directors - Litigation Declaration of Conformity pursuant to Sec. 161 of the German Stock Corporation Act (Aktiengesetz AktG) Report on resolutions of the Executive Committee of the Supervisory Board Approval of the appointment of Prof. Dr Klaus L. Wübbenhorst as member of the Advisory Board 13
Meetings of the Executive Committee of the Supervisory Board in the Financial Year 2010/11 Date of meeting Subject matter of deliberations 10 May 2010 Litigation 30 June 2010 IKB s current business development Agenda of the Annual General Meeting on 26 August 2010 Remuneration systems for the company Matters concerning the Board of Managing Directors - Reduction of the pensions for former members of the Board of Managing Directors - Litigation Matters concerning the Supervisory Board Election of appointed substitutes (Verhinderungsvertreter) to the Committees of the Supervisory Board 25 August 2010 IKB s current business development Preparation of the Annual General Meeting on 26 August 2010 Meeting dates 2011 1 October 2010 Litigation 25 November 2010 IKB s current business development Adjustment of the business and risk strategy D&O insurance / agreement on non-forfeitable subsequent notification periods Matters concerning the Board of Managing Directors (including litigation) Granting of a major loan Acquisition of part of the existing credit and derivatives business from IKB International S.A. for the purpose of implementation of the EU condition regarding the winding up of IKB International S.A. 10 March 2011 General development of the bank Amendment of the by-laws for the Board of Managing Directors and the Supervisory Board Matters concerning the Supervisory Board Support of measures for training and continuing education Matters concerning the Board of Managing Directors - Variable remuneration subsequently payable in respect of the financial years 2008/09 and 2009/10, and possible future amendment of the service agreements of the members of the Board of Managing Directors - Pensions of former members of the Board of Managing Directors Declaration of Conformity pursuant to Sec. 161 AktG Appointment of Prof. Dr Klaus L. Wübbenhorst as member of the Advisory Board Online platform for retail business 14
Meetings of the Finance and Audit Committee in the Financial Year 20010/11 Date of meeting Subject matter of deliberations 30 June 2010 Annual financial statements and consolidated financial statements as of 31 March 2010, and dependant company report Dashboard Group risk as of 31 March 2010 Auditors report on the audit of the annual financial statements and the consolidated financial statements with the management reports for IKB AG and the Group as well as of the dependent company report for the financial year 2009/10 Approval of the report of the Finance and Audit Committee on the preparation of the audit of the annual financial statements and the consolidated financial statements with the management reports for IKB AG and the Group as well as of the dependent company report for the financial year 2009/10 Proposal for the approval of the annual financial statements and the consolidated financial statements with the management reports for IKB AG and the Group as well as of the dependent company report for the financial year 2009/10 Proposal for the election of the auditor for the annual financial statements and the consolidated financial statements for the financial year 2010/11 as well as of the auditor for the review of the condensed financial statements and the interim management report for the first half of the financial year 2010/11 Authorisation of the Chairman of the Finance and Audit Committee for the commissioning of the auditor 25 August 2010 Report on the Group interim results as of 30 June 2010 Dashboard Group risk as of 30 June 2010 25 November 2010 Report on the interim consolidated financial statements as of 30 September 2010 Auditor's report on the review of the interim consolidated financial statements as of 30 September 2010 Focal points of the audit for the financial year 2010/11 Dashboard Group risk as of 30 September 2010 Review pursuant to Sec. 44 para. 1 sent. 2 KWG 24 February 2011 Group interim result as of 31 December 2010 Challenging of resolutions of the Annual General Meeting 10 March 2011 Group interim results as of 31 December 2010, and segment reporting Dashboard Group risk as of 31 December 2010 Review pursuant to Sec. 44 para. 1 sent. 2 KWG Annual report of the Chief Compliance Officer Miscellaneous 15
Meetings of the Nomination Committee in the Financial Year 2010/11 Date of meeting Subject matter of deliberations 30 June 2010 Proposals to the Supervisory Board for the election of Supervisory Board members by the Annual General Meeting on 26 August 2010 16
Corporate governance declaration in accordance with section 289 a HGB/ corporate governance report In the following declaration, the Board of Managing Directors reports at the same time also for the Supervisory Board in accordance with Sec. 289a of the German Commercial Code (Handelsgesetzbuch HGB) on company management and in accordance with item 3.10 of the German Corporate Governance Code (DCGC) on the Company's Corporate Governance. Declaration of Conformity pursuant to Sec. 161 of the German Stock Corporation Act (Aktiengesetz - AktG) The Board of Managing Directors and the Supervisory Board of IKB declare annually that the recommendations of the Government Commission German Corporate Governance Code indicated in the text by the word shall have been or are being complied with or which specific recommendations have not or are not being complied with for whatever reasons (Sec. 161 para. 1 s. 1 AktG). The most recent Board of Managing Directors and Supervisory Board Declaration of Conformity dates from 10 March 2011. As with prior Declarations of Conformity, it is accessible at all times to the public in compliance with Sec. 161 para. 2 AktG on the IKB internet site (www.ikb.de) under Investor Relations/Corporate Governance/Declaration of Conformity. It is worded as follows: The Board of Managing Directors and Supervisory Board of IKB Deutsche Industriebank AG ("IKB") hereby declare in accordance with Sec. 161 AktG that the recommendations of the Government Commission German Corporate Governance Code in the version of the Code of 18 June 2009 published by the Federal Ministry of Justice in the official section of the electronic Federal Gazette on 5 August 2009 have been met since issue of the last Declaration on 30 June 2010 up to the point of entry into force of the new version of the Code of 26 May 2010 on 2 July 2010 with the following exceptions: item 3.8 para. 3: Agreement of a deductible of at least 10% of damages up to at least the level of one and a half times the fixed annual remuneration when taking out D&O insurance for the Supervisory Board D&O insurance exists for Supervisory Board members, which does not provide a deductible. Responsible action is a duty which is a matter of course for all Company Board members: no deductible is therefore required for the Supervisory Board. item 4.2.1 s. 2: Regulation of allocation of duties of Board of Managing Directors members in the by-laws Departmental responsibility of the members of IKB Board of Managing Directors is not regulated in the by-laws for IKB Board of Managing Directors but in a separate schedule of responsibilities. This is proposed by the Chairman of the Board of Managing Directors and passed, amended and cancelled by way of resolution by the entire Board of Managing Directors. We consider this method to be more flexible. item 6.3 s. 2: Provision to shareholders of all new facts which have been communicated to financial analysts and similar addressees In conversations with rating agencies relating directly to the rating of the Bank, due to the significance of the rating for IKB capital market viability and the particular restructuring situation of the Bank, new and as yet unpublished facts were confidentially communicated. The IKB Board of Managing Directors and Supervisory Board further declare pursuant to Sec. 161 AktG, that the recommendations of the Government Commission German Corporate Governance Code in the version of the Code of 26 May 2010 have been met since publication thereof in the electronic Federal Gazette on 2 July 2010 with the following exceptions: 17
item 3.8 para. 3: Agreement of a deductible of at least 10% of damages up to at least the level of one and a half times fixed annual remuneration when taking out D&O insurance for the Supervisory Board D&O insurance exists for Supervisory Board members which does not provide a deductible. Responsible action is a duty which is a matter of course for all Company Board members: no deductible is therefore required for the Supervisory Board. item 4.2.1 s. 2: Regulation of allocation of duties of Board of Managing Directors members in the by-laws Departmental responsibility of the members of IKB Board of Managing Directors is not regulated in the by-laws for IKB Board of Managing Directors but in a separate schedule of responsibilities. This is proposed by the Chairman of the Board of Managing Directors and passed, amended and cancelled by way of resolution by the entire Board of Managing Directors. We consider this method to be more flexible. item 4.2.3 para. 4: In concluding Management Board contracts consideration that payments to a member of the Board of Managing Directors, in the event of premature termination of Management Board contract in the absence of serious cause including fringe benefits, do not exceed the equivalent of two years compensation (severance payment cap) and do not compensate more than the remaining term of the contract and that based on total compensation for the past full financial year and if appropriate also on the expected total compensation for the current financial year for calculation of the severance payment cap With regard to the intention of IKB s major shareholder to sell its shareholding in IKB no restriction of the severance payment cap was agreed with the members of the Managing Board of Directors. item 5.4.1 para. 2: Definition of concrete objectives regarding the composition of the Supervisory Board and consideration of an appropriate degree of female representation in establishing the said concrete objectives Due to the intention of IKB s major shareholder to sell its shareholding in IKB it was initially refrained from specifying concrete objectives for composition of the Supervisory Board. item 6.3 s. 2: Provision to shareholders of all new facts which have been communicated to financial analysts and similar addressees In conversations with rating agencies which relate directly to the rating of the Bank, due to the significance of the rating for the capital market viability of IKB and the particular restructuring situation of the Bank, new and yet unpublished facts were confidentially communicated. item 7.1.2 s. 4 var. 2: Publication of interim reports within 45 days from the end of the report period The Interim Announcement as of 30 June 2010 (first quarter) was published on 26 August 2010, the 6-Month Report 2010/11 on 26 November 2010 and the Interim Announcement as of 31 December 2010 on 28 February 2011. Due to the particular situation of IKB since onset of the crisis at the end of July 2007 and the particular requirements in respect of balance sheet and accounting associated therewith publication could not take place earlier. The Board of Managing Directors and the Supervisory Board hereby further declare that IKB will comply with the recommendations of the Government Commission German Corporate Governance Code in the version of the Code of 26 May 2010 - with the exception of items 3.8 para. 3, 4.2.1 s. 2, 4.2.3 para. 4, 5.4.1 para. 2, 6.3 s. 2 and 7.1.2 s. 4 var. 2 on the grounds listed above. Further, due to the deviation from the recommendation pursuant to item 5.4.1 para. 2 IKB will deviate from the recommendations of item 5.4.1 para. 3 in the future. 18
Düsseldorf, 10 March 2011 For the Supervisory Board of IKB Deutsche Industriebank AG For the Board of Managing Directors of IKB Deutsche Industriebank AG Bruno Scherrer Hans Jörg Schüttler 19
Relevant information regarding company management practices German Corporate Governance Code suggestions IKB principally complies with all suggestions contained in the German Corporate Governance Code indicated in the Code by the use of terms such as should or can and deviates merely in the following points: The General Meeting does not resolve on the authorisation of the remuneration system for the members of the Board of Managing Directors (item 2.2.1 para. 2 s. 2 DCGC). The remuneration system for the members of the Board of Managing Directors is described in the remuneration report. Representatives appointed by IKB to exercise shareholders' voting rights subject to instructions are reachable during the General Meeting only for those shareholders attending (item 2.3.3 s. 3 half-sentence 2 DCGC). Shareholders not attending the General Meeting have the opportunity to authorise the voting rights representatives to represent them prior to the General Meeting. The General Meeting is transmitted live only in part, namely up to the end of the opening addresses by the Chairman of the Meeting and the Chairman of the Board of Managing Directors, via the IKB internet site (www.ikb.de) (item 2.3.4 DCGC). Code of Conduct The Code of Conduct applies to all IKB Group employees. It reflects the moral values and beliefs of IKB. In order to guarantee a high degree of credibility, integrity, reliability and performance commitment in all activities, the Code of Conduct has been developed as a binding commitment framework for day-to-day business. The principles include minimum requirements in respect of the behaviour of all individuals. The Code of Conduct is published in its current version on the IKB website (www.ikb.de) under Investor Relations/Corporate Governance. Apart from that, no relevant company management practices in terms of Sec. 289 a para. 2 no. 2 HGB are in effect at IKB which are applied over and above the statutory requirements. Board of Managing Directors and Supervisory Board Mode of Operation In accordance with German Stock Corporation Law, IKB with its Board of Managing Directors and Supervisory Board has a dual management and control structure. Company management is based on close, constructive and trusting collaboration between the Board of Managing Directors and the Supervisory Board and an intensive and constant flow of information. This complies with the generally accepted understanding of good Corporate Governance by the Board of Managing Directors and the Supervisory Board. Management of the Company The Board of Managing Directors develops the business and risk strategy, ensures implementation thereof in consultation with the Supervisory Board and conducts the business of the Company on its own responsibility. In the course thereof it observes the statutory provisions, the Articles of Association, the bylaws issued by the Supervisory Board, the schedule of responsibilities and the respective contracts of service. In addition, it is bound by the Company interests and is obligated to increase sustainable corporate value. The Board of Managing Directors by-laws have been adapted in the expired business year both to the changed recommendations of the German Corporate Governance Code and also to the changed banking regulatory requirements of the Federal Financial Supervisory Authority. The principle of collective responsibility applies, i.e. members of the Board of Managing Directors jointly bear responsibility for management. Each member of the Board of Managing Directors, however, is allocated responsibility for specific departments. The Board of Managing Directors is appointed by the Supervisory Board. It currently consists of four members. Mr Schüttler, Chairman of the Board of Managing Directors, is responsible for the departments Treasury, Legal and Compliance, Group Audit, Organisation, Strategic Planning and Investment 20