Landeskreditbank Baden-Württemberg - L-Bank

Notes to the annual financial statements for
the financial year ended December 31, 2004
Securities in the trading portfolio and liquidity reserve are valued strictly according to the principle of
lower of cost or market value as at the balance sheet date. Securities treated as fixed assets are shown at net book
value, differences between book value and redemption value (i.e. premiums or discounts) being marked up or
down pro rata to term.
Equity investments in non-affiliated and affiliated companies are valued at the lower of acquisition cost
or – where the value is expected to continue to decline – value at the balance sheet date, according to the rules
applying to fixed assets.
Intangible assets and tangible assets are valued at acquisition or production cost, less scheduled
depreciation. Where the value of an item is expected to continue to decline, unscheduled depreciation has been
applied as appropriate. Minor fixed assets are fully depreciated in the year of acquisition.
Reserves for pension commitments and for obligations under the Bank’s employee pension scheme
have been calculated using the method of computation provided for in § 6a of the German Income Tax Act
(Einkommensteuergesetz [EStG]) applying the updated Heubeck mortality tables (Heubeck Sterbetafeln).
Adequate provisions have been made to cover the early retirement scheme provided for by collective agreement
and the part-time employment scheme devised for employees approaching retirement, as well as any obligations
arising in connection with long-service bonuses and other benefits.
Other reserves are set at the amount deemed necessary by the exercise of reasonable business judgment
to cover all uncertain liabilities and potential losses on pending transactions. The option of setting up reserves for
operating expenses, as provided for under § 249 para. 2 HGB, has been exercised.
The Bank concludes derivative transactions primarily in order to control interest rate exposure – they
are not valued. The Bank also trades in derivatives on its own account and in order to hedge balance sheet items.
Market values are based on the interest rates prevailing at December 30, 2004, being the last day of the year on
which there was a liquid market. Transactions for hedging purposes are valued together with the relevant balance
sheet items.
The market values of bonds, notes and derivatives held for the Bank’s own account are determined
individually as at the balance sheet date. After closing two portfolios in 2004, the Bank currently holds two
portfolios governed by EUR interest rate risks and offsets valuation gains and losses within these portfolios. In
accordance with the non-parity principle (Imparitaetsprinzip), any positive balance is not appropriated, whereas a
provision is made to cover a negative balance.
Principles of the German Banking Act (Kreditwesengesetz [KWG])
Throughout 2004, the Bank complied with Principle I (relating to capital adequacy) and Principle II (relating to
liquidity) as required by the German Banking Act (Kreditwesengesetz [KWG]).
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