Landeskreditbank Baden-Württemberg - L-Bank

The following table shows our borrowings outstanding at December 31 of each of the years indicated:
Outstanding Borrowings (1) 2004 2003 2002
(in millions of EUR)
Bonds and notes issued (2) ........................................... 18,111.1 16,415.7 14,582.2
Liabilities to credit institutions (3) ...................................... 18,295.7 18,900.4 19,729.2
Liabilities to customers (3) ........................................... 4,832.3 5,160.3 3,996.1
Subordinated liabilities ............................................. 912.3 598.8 444.8
Profit participation rights ........................................... 519.8 0 0
Total ........................................................... 42,671.2 41,075.2 38,752.3
(1) See our financial statements, together with the related notes, included in this prospectus and “—Glossary.”
(2) The equivalent balance sheet item is “certificated liabilities”; see “—Glossary—Certificated liabilities.”
This item includes bearer mortgage-backed bonds (Hypothekenpfandbriefe).
(3) Includes registered mortgage-backed bonds (Hypothekennamenspfandbriefe).
For more information concerning our borrowings at the end of 2004, including the range of interest rates
paid by us and a repayment schedule, see “Financial Statements of L-Bank—Supplementary Information on Debt
of L-Bank.”
Funding and Investment Policy
Through our funding and investment policy we seek to achieve the most favorable terms possible with
respect to funds raised in the capital and money markets. We also seek to minimize interest rate, exchange rate
and currency risks by using various hedging instruments.
The terms of most of our fixed-interest loans prohibit prepayments by the borrower prior to ten years after
the loan is made. Variable-rate loans, however, may generally be prepaid at any time upon three months’ notice.
94 % of our loans outstanding as of December 31, 2004 were at fixed interest rates. It is our policy to exercise
our right to preclude prepayments or to charge a breakage fee to compensate us for any loss that we would incur
by reinvesting the loan proceeds at the prevailing market rate.
As of December 31, 2004, we were party to interest rate and currency derivatives transactions with a total
notional value of EUR 92.6 billion. We use interest rate and currency swaps for the purpose of hedging our
investments in debt securities and our own issuance of debt and, in the past, to a limited extent, for trading
purposes. We principally enter into swap transactions only with counterparties with a rating at least comparable
to A3 or A- by a reputable rating agency.
We use derivative transactions for hedging purposes only, either in form of micro hedges (hedging single
transactions) or macro hedges. We implement separate portfolio hedges to a very limited extent only. We employ
micro hedges to hedge all our assets or liabilities containing an interest rate structure. Currency positions will be
hedged once marketable sizes have been attained in the respective currency. According to German GAAP, such
derivative transactions are not to be included in the balance sheet, but have to be disclosed separately, see
“Financial Statements of L-Bank—Notes to the annual financial statements of Landeskreditbank Baden-
Württemberg – Förderbank for the financial year ended December 31, 2004.”
The total income and expenses of micro and macro hedges are reflected in the positions “Interest Income”
and “Interest Expenses” in our income statement, without differentiating between micro and macro hedges.
Separate portfolio hedges are of minimal importance in the context of our activities. The net effect of
hedging in the context of portfolio hedges is reflected in the position “Net Income from Financial Operations” in
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