Deutsche Genossenschafts-Hypothekenbank AG

Deutsche Genossenschafts-Hypothekenbank AG Primary Credit Analyst: Bernd Ackermann, Frankfurt (49) 69-33-999-153; bernd.ackermann@standardandpoors.com Secondary Contact: Fouad Bouhlou, Frankfurt (49) 69-33-999-191; fouad.bouhlou@standardandpoors.com Table Of Contents Major Rating Factors Outlook Rationale Related Criteria And Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 11, 2015 1

SACP bb + Support +7 + Additional Factors 0 Anchor a- Business Position Capital and Earnings Weak -2 Weak -2 Risk Position Moderate -1 GRE Support 0 Group Support +7 Issuer Credit Rating A+/Stable/A-1 Funding Liquidity Average Adequate 0 Sovereign Support 0 Major Rating Factors Strengths: Fully owned subsidiary of DZ BANK and membership of the German cooperative banking sector's protection scheme. Demonstrated and ongoing support from DZ BANK in the form of funding, liquidity, and capital. Commercial real estate (CRE) strategy for German markets contributes to the German Cooperative Banking Sector's full financial services offering. Weaknesses: Higher risk weights from CRE and its concentrated risk profile pressure already weak capitalization. Smaller niche-player, with a focus on (higher-risk) CRE financing, and limited earnings and business diversification. Slightly weaker strategic importance to and business integration with the German cooperative banking sector than core members. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 11, 2015 2

Outlook: Stable Standard & Poor's Ratings Services' stable outlook on Deutsche Genossenschafts-Hypothekenbank AG (DG HYP) reflects the stable outlooks on the German cooperative banking sector and DZ BANK AG Deutsche Zentral-Genossenschaftsbank (DZ BANK; AA-/Stable/A-1+), DG HYP's parent. We expect the rating on DG HYP to remain only one notch lower than the rating on the sector's core member entities. This is because, according to our group methodology, we view DG HYP as having high strategic importance to DZ BANK, rather than being core to it. Nevertheless, we anticipate ongoing support for DG HYP from the DZ BANK group and, ultimately, the cooperative banking sector. Any rating actions on Germany's cooperative banking sector and DZ BANK could affect the ratings on DG HYP. However, we consider positive or negative rating actions unlikely at present, since these would require more fundamental changes to the sector's strengths or weaknesses or to the economic and industry risk in Germany. A negative rating action could result from heightened economic risk in Germany, gradual erosion of the sector's market position, a deterioration of its risk-adjusted capital (RAC) ratio to less than 10%, or a strategic shift by the sector into higher-risk areas. We also could take a positive rating action if DZ BANK were to firmly integrate DG HYP into the group as a core member, as defined in our group methodology. We would consider a higher level of business referrals from the cooperative banking sector as a sign of deeper integration. Rationale Standard & Poor's continues to consider DG HYP's business position as weak because of the bank's narrow business focus in only two lines of business--higher-risk CRE and public-sector lending--with some exposure in Spain, Italy, and Portugal. We expect weak capital levels, albeit with some improvements on the bank's RAC ratio at about 5% in the coming 12-18 months. Due to DG HYP's tail risk from CRE financing and remaining legacies in securities, we assess its risk position as moderate. We consider the bank's funding to be average and its liquidity adequate, due to ongoing support and availability from the DZ BANK group and its mixed funding base from covered bond issuance. DG HYP's stand-alone credit profile is 'bb'. The seven-notch uplift in the issuer credit rating on DG HYP incorporates our expectation that DG HYP would likely receive extraordinary support from DZ BANK and, ultimately, from the German cooperative banking sector, in an emerging stress scenario. Anchor: 'a-', reflecting Germany's diverse and resilient economy Under our bank criteria, we use our Banking Industry Country Risk Assessment economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating. Our anchor for a commercial bank operating mainly in Germany, as DG HYP predominantly does, is 'a-', based on an economic risk score of '1' and an industry risk score of '3'. DG HYP conducts about 80% of its business in Germany based on the weighted-average exposure at default in each country in which it operates. Our economic risk assessment on Germany reflects its highly diversified and competitive economy and lack of major WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 11, 2015 3

economic imbalances. Germany's export-led economy remains vulnerable to swings in global economies, trade flows, and capital market trends. Industry risk benefits from Germany's extensive funding market and banks' domestic funding surpluses stemming from low domestic credit growth and high savings rates. However, the banking sector's competitive dynamics result in relatively low profitability, which is fueled by significant disparities in banks' commercial targets and the business and risk profiles of market players. We believe that the prospect of extraordinary government support for German, U.K., and Austrian banks is now "uncertain," following the full implementation of the EU Bank Recovery and Resolution Directive (BRRD) in these countries. This assessment takes into account our view that: These governments have become significantly less willing to use taxpayer funds to bail out banks; Complex systemic banks in these countries are generally not yet "resolvable," meaning that a disorderly resolution or insolvency could carry systemic consequences; Even if these governments wished to provide capital support to a failed systemic bank, the bank resolution frameworks now implemented in these countries in response to the BRRD heavily constrain these governments' capacity to provide such support without substantial burden-sharing by creditors; and Some senior creditors face substantial risk of being mandatorily bailed-in as part of that process, unless they are protected by a substantial buffer of junior instruments. While we do not rule out the possibility that systemic banks in these countries might receive extraordinary government support, we see the predictability of such support as having materially reduced to the point that we regard it as being "uncertain." Table 1 Deutsche Genossenschafts-Hypothekenbank AG Key Figures --Year ended Dec. 31-- (Mil. ) 2015* 2014 2013 2012 2011 Adjusted assets 40,883.0 42,910.6 49,715.0 54,367.3 58,016.4 Customer loans (gross) 28,438.0 29,400.9 32,307.9 34,268.7 34,777.0 Adjusted common equity 943.0 928.1 860.6 831.7 772.0 Operating revenues 104.5 325.7 432.4 260.6 (8.1) Noninterest expenses 79.7 137.7 128.4 117.5 111.7 Core earnings 30.0 152.8 263.9 97.9 0.0 *Data as of June 30. N.A.--Not available. N/A--Not applicable. N.M.--Not meaningful. Business position: Weak, due to a concentrated, purely wholesale bank model In our view, DG HYP's business is closely aligned geographically with core markets of the German cooperative banking sector. However, we consider the bank's business position to be weak in light of its narrow business focus with core activities in CRE and public-sector lending. The bank also has some legacy portfolio concentration in Spain, Italy, and Portugal. DG HYP already put its mortgage-backed securities (MBS) and its residential real estate and public finance business activities in run-off in 2008. DG HYP's business stability is moderate. We believe that DG HYP is continuing to build its position in CRE financing in Germany and enjoys a prominent role in the German Pfandbrief (covered bond) issuance market. That said, we WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 11, 2015 4

believe that as a pure CRE lender, DG HYP will remain dependent on support from its parent, DZ BANK, through economic cycles. This is because its business model and funding remain highly sensitive to investor confidence, attract tail risk from concentrated exposures, are vulnerable to cyclicality from higher-risk asset classes, and build upon very limited earnings and business diversification. We note that, DG HYP's market-sensitive income proved to be very volatile with significant write-offs from its securities investments in the past years. However, as of June 30, 2015, market sensitive income benefited materially from declining interest rates and improving credit spreads. That said, the market-sensitive income remains subject to the credit spread development of its sovereign security portfolio. With total assets of 40.9 billion and total adjusted capital of 1.254 million as of June 30, 2015, DG HYP ranks among German midsize real estate banks. However, DG HYP is evolving into one of Germany's largest real estate lenders, with 2.1 billion of new business written as of June 30, 2015 ( 4.9 billion in new business in 2014). Table 2 Deutsche Genossenschafts-Hypothekenbank AG Business Position --Year ended Dec. 31-- (%) 2015* 2014 2013 2012 2011 Total revenues from business line (mil. ) 104.5 325.7 432.4 260.6 164.9 Other revenues/total revenues from business line 100.0 100.0 100.0 100.0 100.0 Return on equity 3.2 0.0 0.0 0.0 0.0 *Data as of June 30. Capital and earnings: Weak for its concentrated risk profile We anticipate that DG HYP's capital and earnings will remain weak for its concentrated risk profile. We project the RAC ratio will gradually improve to about 5.0% by the end of 2017, which is weak given the bank's sizable wholesale business, larger share of hybrid instruments, and the visible volatility in its operating income of the past years. DG HYP's RAC ratio was at about 4.7% under our capital framework at year-end 2014. Over the past five years, bottom-line results have proven to be very volatile. DG HYP's net income (before 68 million allocation to the fund for general banking risk reserves and after 20 million interest payments on its hybrid capital instruments) was 133 million in 2014 after an extraordinarily high net profit of 244 million in 2013, which was mainly thanks to recoveries of 180 million from impaired Greece corporate exposure. As of mid-year 2015, net income (as defined before) had dropped to 30 million because of a combination of declining net interest income, direct write-offs of 25 million on its HETA-exposure, an increased bank levy of 16 million, and further impairments on its MBS portfolio of 9.6 million. The bank comfortably meets regulatory capital requirements, with the core Tier 1 and total capital ratios at 9.2% and 11.7%, respectively, as of June 30, 2015 (compared with 9.0% and 11.2% as of June 30, 2014). WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 11, 2015 5

Table 3 Deutsche Genossenschafts-Hypothekenbank AG Capital And Earnings --Year ended Dec. 31-- (%) 2015* 2014 2013 2012 2011 Tier 1 capital ratio 9.2 9.0 10.9 8.2 8.0 S&P RAC ratio before diversification N.M. 4.7 4.1 3.4 3.8 S&P RAC ratio after diversification N.M. 4.4 3.8 3.3 3.6 Adjusted common equity/total adjusted capital 75.2 75.2 75.2 75.2 75.2 Net interest income/operating revenues 119.3 80.3 57.5 91.2 (2,525.4) Fee income/operating revenues 12.3 11.3 9.9 14.3 (297.2) Market-sensitive income/operating revenues (31.7) 3.6 28.8 (10.5) 3,072.3 Noninterest expenses/operating revenues 76.3 42.3 29.7 45.1 (1,375.7) Preprovision operating income/average assets 0.1 0.4 0.6 0.3 (0.2) Core earnings/average managed assets 0.1 0.3 0.5 0.2 0.0 *Data as of June 30. N.M.--Not meaningful. Table 4 Deutsche Genossenschafts-Hypothekenbank AG Risk-Adjusted Capital Framework Data ( 000s) Exposure* Basel II RWA Average Basel II RW (%) Standard & Poor's RWA Average Standard & Poor's RW (%) Credit risk Government and central banks 15,279,714 327,621 2 2,304,322 15 Institutions 6,432,814 971,009 15 1,670,216 26 Corporate 21,066,376 7,738,238 37 14,853,849 71 Retail 3,314,066 707,950 21 632,794 19 Of which mortgage 3,314,066 707,950 21 632,794 19 Securitization 1,498,895 4,446,450 297 5,177,931 345 Other assets 674,907 167,463 25 607,416 90 Total credit risk 48,266,772 14,358,730 30 25,246,529 52 Market risk Equity in the banking book 1,615 3,938 244 13,122 813 Trading book market risk -- 75,975 -- 113,963 -- Total market risk -- 79,913 -- 127,084 -- Insurance risk Total insurance risk -- -- -- 0 -- Operational risk Total operational risk -- 527,275 -- 637,360 -- ( 000s) Basel II RWA Standard & Poor's RWA % of Standard & Poor's RWA Diversification adjustments RWA before diversification 15,101,742 26,010,974 100 Total Diversification/Concentration Adjustments -- 1,873,294 7 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 11, 2015 6

Table 4 Deutsche Genossenschafts-Hypothekenbank AG Risk-Adjusted Capital Framework Data (cont.) RWA after diversification 15,101,742 27,884,268 107 ( 000s) Tier 1 capital Tier 1 ratio (%) Total adjusted capital Standard & Poor's RAC ratio (%) Capital ratio Capital ratio before adjustments 1,349,808 8.9 1,234,408 4.7 Capital ratio after adjustments 1,349,808 9.0 1,234,408 4.4 *Exposure at default. Securitisation Exposure includes the securitisation tranches deducted from capital in the regulatory framework. Exposure and Standard & Poor's risk-weighted assets for equity in the banking book include minority equity holdings in financial institutions. Adjustments to Tier 1 ratio are additional regulatory requirements (e.g. transitional floor or Pillar 2 add-ons). RWA--Risk-weighted assets. RW--Risk weight. RAC--Risk-adjusted capital. Sources: Company data as of Dec. 31, 2014, Standard & Poor's. Risk position: Moderate due to increasing new risk and legacies We expect DG HYP to maintain a moderate overall risk position. This is because we anticipate continued tail risk from its CRE financing and remaining, although reduced, financial legacies, such as investments in its illiquid MBS-portfolio (in run-off) and securities exposure in Southern Europe, with the inherent credit spread risks. Nevertheless, in the short to medium term, we expect DG HYP to benefit from its unseasoned CRE business. This is because most of this business went on the books after the financial markets crisis, when risk-adjusted margins had already generally improved, and because economic conditions for commercial real estate in Germany are currently relatively favorable. DG HYP's new loan loss provisions recovered to a net gain of 5 million as of June 30, 2015. Between 2014 and 2010, its credit risk costs ranged between 11 basis points (bps) and 18 bps. We estimate that credit spread risk on its decreasing sovereign bond portfolio remains a major risk for the bank's market-sensitive income. DG HYP has concentration risks in the southern part of the eurozone, with country exposure to Spain, Italy, and Portugal of 5.1 billion in book value at midyear 2015 (against 5.2 billion at year-end 2014). However, unrealized losses in its book of investment securities diminished significantly to 96.7 million from 117.6 million at year-end 2014. On the other hand, hidden reserves from its entire securities portfolio stood at a high 757.5 million at midyear 2015 (against 900.3 million at year-end 2014). This number, however, does not take into account offsetting losses from related macro hedges. At midyear 2015, DG HYP's MBS portfolio was 1.5 billion (against 1.6 billion at year-end 2014) and showed unrealized losses of 178.1 million (against 162.3 million at year-end 2014). Table 5 Deutsche Genossenschafts-Hypothekenbank AG Risk Position --Year ended Dec. 31-- (%) 2015* 2014 2013 2012 2011 Growth in customer loans (6.6) (9.0) (5.7) (1.5) (7.0) Total diversification adjustment / S&P RWA before diversification N.M. 7.2 6.6 4.8 3.6 Total managed assets/adjusted common equity (x) 43.4 46.2 57.8 65.4 75.1 New loan loss provisions/average customer loans (0.0) 0.1 0.1 0.1 0.1 Gross nonperforming assets/customer loans + other real estate owned N/A 1.8 N/A N/A N/A *Data as of June 30. N/A--Not applicable. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 11, 2015 7

Funding and liquidity: Strong benefit from ongoing support from DZ BANK We continue to anticipate that DG HYP's funding and liquidity will remain neutral for the ratings, based on our view of expected ongoing support for DG HYP from DZ BANK. We believe DG HYP would find it difficult to replace DZ BANK as a source of unsecured funding through a full economic cycle. Its stable funding ratio remains average, at slightly above 100% as of midyear 2015. DG HYP's reported refinancing volume was broadly stable at 2.2 billion, and balanced between secured funding (volume 1.2 billion) and unsecured funding (volume 1.0 billion). However, we expect the major stake of unsecured funding to come from its ultimate parent, DZ BANK, whereas the secured covered bond funding comes from a wide circle of investors. The average maturities for unsecured funding declined somewhat to 7.8 years (from 8.9 years in 2014), whereas the maturity structure for its covered bond funding base increased to 7.0 years (6.1 years in 2014). Short-term wholesale funding contributed about 21.9% of the total funding base as of June 30, 2015, (at almost the same level as at year-end 2014, 21.4%). For the coming years, we expect the share of short-term wholesale funding to remain broadly the same. DG HYP's sound liquidity management benefits from its sizable and generally sound portfolio in unencumbered high-quality securities eligible for refinancing by the European Central Bank. Its ratio of broad liquid assets to short-term wholesale funding is about 1.2x, which is average and in line with that of other German peers. If necessary, however, we would expect the cooperative banking sector to support DG HYP's liquidity position. In our view, international funding and capital resources remain scarce for narrow wholesale business models like DG HYP's, particularly those concentrated on highly cyclical businesses such as CRE financing. We expect DG HYP's funding costs to depend largely on its standing in the capital markets and that the bank will continue to benefit from its position as one of the larger issuers of covered bonds in the German markets. Table 6 Deutsche Genossenschafts-Hypothekenbank AG Funding And Liquidity --Year ended Dec. 31-- (%) 2015* 2014 2013 2012 2011 Core deposits/funding base 2.5 3.0 2.9 3.1 3.0 Customer loans (net)/customer deposits 2,956.1 2,424.9 2,555.3 2,224.9 2,138.6 Long term funding ratio 79.0 79.4 79.3 78.7 80.9 Stable funding ratio 102.9 104.7 94.0 96.9 106.7 Short-term wholesale funding/funding base 21.8 21.4 21.4 21.9 19.6 Broad liquid assets/short-term wholesale funding (x) 1.2 1.3 1.2 1.2 1.5 Net broad liquid assets/short-term customer deposits 143.3 163.2 121.9 120.7 370.8 Short-term wholesale funding/total wholesale funding 22.0 21.7 21.7 22.3 20.0 *Data as of June 30. External support: Seven notches of support as a "highly strategic" group member The long-term rating on DG HYP is one notch below that on its parent, DZ BANK. This is based on our view of DG HYP as highly strategic to the DZ BANK group according to our group methodology. This seven-notch uplift from our assessment of DG HYP's SACP at 'bb' incorporates our expectation that DG HYP would likely receive extraordinary WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 11, 2015 8

support from DZ BANK and, ultimately, from the German cooperative banking sector in an emerging stress scenario, under almost all foreseeable circumstances. Our highly strategic group classification is based on DZ BANK's 100% ownership of DG HYP, DG HYP's membership in the sector's protection scheme, a profit-and-loss agreement with DZ BANK, and demonstrated and ongoing support from DZ BANK in the form of funding, liquidity, and capital. However, the rating on DG HYP is one notch lower than the ratings on core members of the sector due to our view of DG HYP's slightly weaker strategic importance to and business integration within the sector. We mainly consider the strong focus on commercial real estate activities as not being fully linked to the sector's strategy. We do not incorporate notches of uplift for additional loss absorbing capacity. We believe that group support is the strongest external support factor. The 'A-' issue ratings on DG HYP's nondeferrable senior subordinated debt reflect our view that the sector will likely support payments on these instruments. Notwithstanding this, we believe that Germany's legal and regulatory framework allows the authorities to instigate restructuring of a failing bank to the detriment of nondeferrable subordinated debt. Additional rating factors: None No additional factors affect the ratings. Related Criteria And Research Related Criteria Bank Rating Methodology And Assumptions: Additional Loss-Absorbing Capacity, April 27, 2015 Bank Hybrid Capital And Nondeferrable Subordinated Debt Methodology And Assumptions, Jan. 29, 2015 Group Rating Methodology, Nov. 19, 2013 Quantitative Metrics For Rating Banks Globally: Methodology And Assumptions, July 17, 2013 Revised Market Risk Charges For Banks In Our Risk-Adjusted Capital Framework, June 22, 2012 Banking Industry Country Risk Assessment Methodology And Assumptions, Nov. 9, 2011 Banks: Rating Methodology And Assumptions, Nov. 9, 2011 Bank Capital Methodology And Assumptions, Dec. 6, 2010 Methodology For Mapping Short- And Long-Term Issuer Credit Ratings For Banks, May 4, 2010 Use Of CreditWatch And Outlooks, Sept. 14, 2009 Banks: Commercial Paper I: Banks, March 23, 2004 Related Research Cooperative Banking Sector Germany, Nov. 9, 2015 Banking Industry Country Risk Assessment: Germany, July, 23, 2015 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 11, 2015 9

Anchor Matrix Industry Risk Economic Risk 1 2 3 4 5 6 7 8 9 10 1 a a a- bbb+ bbb+ bbb - - - - 2 a a- a- bbb+ bbb bbb bbb- - - - 3 a- a- bbb+ bbb+ bbb bbb- bbb- bb+ - - 4 bbb+ bbb+ bbb+ bbb bbb bbb- bb+ bb bb - 5 bbb+ bbb bbb bbb bbb- bbb- bb+ bb bb- b+ 6 bbb bbb bbb- bbb- bbb- bb+ bb bb bb- b+ 7 - bbb- bbb- bb+ bb+ bb bb bb- b+ b+ 8 - - bb+ bb bb bb bb- bb- b+ b 9 - - - bb bb- bb- b+ b+ b+ b 10 - - - - b+ b+ b+ b b b- Ratings Detail (As Of November 11, 2015) Deutsche Genossenschafts-Hypothekenbank AG Counterparty Credit Rating Senior Secured Senior Secured Senior Unsecured A+ Subordinated A- Counterparty Credit Ratings History 05-Dec-2011 09-Dec-2010 03-Dec-2007 Sovereign Rating Germany (Federal Republic of) A+/Stable/A-1 AAA AAA/Stable A+/Stable/A-1 A/Stable/A-1 A/Negative/A-1 AAA/Stable/A-1+ *Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country. Issue and debt ratings could include debt guaranteed by another entity, and rated debt that an entity guarantees. Additional Contact: Financial Institutions Ratings Europe; FIG_Europe@standardandpoors.com WWW.STANDARDANDPOORS.COM/RATINGSDIRECT NOVEMBER 11, 2015 10

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