Landeskreditbank Baden-Württemberg - L-Bank

To control the risks of unhedged positions, our board of management specifies tight value-at-risk and stoploss
limits. Each day the risk controlling team uses the historical simulation method to calculate the value at risk
represented by interest rate and currency risks. Back testing is used to check the reliability of the calculation
method applied. To estimate potential losses in the event of extreme market fluctuations, we also carry out stress
tests and simulate extreme and worst-case scenarios.
To further limit our interest rate risk, our board of management regularly defines a budgeted risk structure,
which represents the target interest rate risk profile. The permissible variance of the actual risk structure to the
budgeted risk structure is defined by setting a limit per range of maturities. The value-at-risk and stop-loss
figures calculated each day are compared with the specified limits. We also monitor adherence to the budgeted
risk structure and authorized limits. A daily risk and performance report is submitted to our board member
responsible for controlling risks and the board member responsible for the hedge activities. For a general
discussion on our measurement, monitoring and control of risks, see “—Business—Risk Control.”
Net Fee and Other Income. Net fee and other income consist of net commission income, net income from
financial transactions and other operating income. Net fee and other income decreased by EUR 10.0 million, or
16.8%, from EUR 59.7 million in 2003 to EUR 49.7 million in 2004.
Net fee and other income increased by EUR 4.8 million, or 8.8%, from EUR 54.9 million in 2002 to EUR
59.7 million in 2003.
General administrative expenses. The following table sets forth the principal components of our general
administrative expenses for the years ended December 31, 2004, 2003 and 2002:
General Administrative Expenses
Change (1) Change( 1) Change (1)
2004 2004/2003 2003 2003/2002 2002 2002/2001
(in millions of EUR) (in %) (in millions of EUR) (in %) (in millions of EUR) (in %)
Wages and salaries ................... 59.0 0.8 1.3 58.3 2.0 3.5 56.3 4.4 8.5
Social security, pension and other benefit
and welfare expenses ............... 20.4 4.7 29.9 15.7 (7.1) (31.0) 22.8 6.6 40.7
Total expenditure on personnel ..... 79.4 5.4 7.4 74.0 (5.1) (6.4) 79.1 11.0 16.2
Other general administrative expenses .... 34.9 (0.9) (2.5) 35.8 (2.5) (6.6) (38.3) 5.1 15.2
Depreciation and amortization on
intangible and tangible assets ......... 10.0 (1.1) (9.6) 11.1 0.0 0.0 11.1 (8.2) (42.6)
Total general administrative
expenses ..................... 124.4 3.5 2.9 120.9 (7.6) (5.9) 128.5 7.9 6.5
(1) Percentage changes are calculated on the basis of unrounded figures.
Total personnel expenses (wages and salaries, fringe benefits and expenses for retirement pensions and
benefits) increased by EUR 5.4 million, or 7.4%, to EUR 79.4 million in 2004, while they decreased by EUR 5.1
million, or 6.4%, from EUR 79.1 million in 2002 to EUR 74.0 million in 2003. The increase in 2004 was caused
by increased reserves for the reduction of staff, in part due to early retirement schemes. At the same time, the
number of our employees decreased by 2.4% from 1,134 at December 31, 2003 to 1,107 at December 31, 2004.
Total general administrative expenses, which in addition to personnel expenses also include other general
administrative expenses and depreciation and amortization on intangible and tangible assets, increased by EUR
3.5 million, or 2.9%, to EUR 124.4 million in 2004, following a EUR 7.6 million, or 5.9%, decrease from EUR
128.5 million in 2002 to EUR 120.9 million in 2003.
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